Unit 1 Flashcards
Individuals and families consume goods and services for their own survivorship and welfare.
True
Individuals and families will have to _____________ in exchange for goods and services. They will have to decide how to _________ and how to ___________ that money to maximize their welfare.
pay money
obtain that money
spend
Business organizations and individual entrepreneurs produce and sell products and services.
True
Business organizations and individual entrepreneurs need money to acquire the infrastructure and to pay for the costs that are necessary to produce their goods and services.
True
Business organizations and individual entrepreneurs will get money in exchange for those goods and services. Therefore, they are also concerned about __________ and _______________.
how to get money
how to spend it
Governments and public administration entities produce products and services for the citizens.
True
Governments and public administration entities need ________ to pay for the costs of those services. They get that money mainly through _________.
money
taxes
Governments have to make decisions about ___________ and ___________.
how to get money
how to spend it
People, organizations, and governments will eventually have to take decisions on how to get money and how to spend that money.
True
Finance is the science of ___________.
managing money
Finance deals with two kinds of problems:
- how to spend money (investment decisions)
2. how to get money (financing decisions).
Investment decisions are …
decisions about how to spend money.
decisions related to how many and what types of assets a firm needs to acquire
how to allocate available funds
Financing decisions are …
decisions about how to get money
decisions on how to fund investments
how to get the money necessary to undertake the selected investments
An investment can be defined as the renouncement of a current satisfaction in exchange of the promise of future satisfactions.
True
From a financial perspective, “satisfactions” can be measured in monetary terms.
True
From a financial perspective, “satisfactions” can be measured in monetary terms. Therefore, financially speaking, an investment is …
the renouncement of a current possession of an amount of money in exchange of the promise of receiving one or various amounts of money in the future.
The two types of investment decisions are:
- To decide if a given investment opportunity is or not acceptable
- To decide which investment opportunity (or combination of investments) are preferable, when there are various opportunities.
Finance decisions are related with the procurement of funds necessary for the undertaking of the investments
True
Any entity which wants to undertake an investment project will need the money required to make the initial payment.
True
If an entity does not possess the money to undertake an investment, other people or entities can provide the necessary funds. In exchange, the entity binds itself to pay back the amounts received, plus a compensation for the money borrowed.
True
In a finance operation, the subject receives an amount of money now, in exchange of a payment or a stream of payments in the future.
True
The sign of the cash-flows of a finance operation are opposite to the expected signs of the cash-flows of an investment
True
Financing decisions consist of the selection of the most convenient financing sources. To decide if a financing source is convenient or not, we must take into account basically two key features:
- When is the money available
2. The compensation to the fund’s providers
According to the former definitions, the undertaking of an investment project begins with _____________. In exchange, the entity receives ____________. This definition is equivalent to the accounting definition of __________.
the payment of amounts of money
goods, rights or other resources that are expected to generate cash-flows in the future
Assets
Assets = Investments
True
The accounting definition of assets is ….
goods, rights or other resources that are expected to generate cash-flows in the future
To acquire assets, an entity can employ its own funds.
True
If an entity does not want to employ its own funds to acquire assets or if their funds are not enough to undertake the investment, it may have to raise money from other people or entities in exchange of a promise of future payments.
True
An investment may be financed by two types of funds:
- those belonging to the entity’s owners (equity)
2. those that have been raised in exchange of the promise of future payments (liabilities).
Equity is …
funds that belong to an entity’s owners
Liabilities are …
funds that have been raised in exchange for the promise of future payments
payment promises
Assets generate cash-flow; cash flows are used to finance new investments or pay back the fund’s providers;
True