Deck 1: The Financial Environment

Question 1

The financial environment is organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds in physical assets (inventories, buildings, and equipment).

Answer 1

False

Question 2

Most of the impetus for growth in the U.S. economy comes from large companies.

Answer 2

False

Question 3

Receiving one dollar today has the same value as receiving one dollar in one year.

Answer 3

False

Question 4

Financial management is the study of financial planning, asset management and fund raising by businesses and financial institutions.

Question 5

The principle of finance that "lower returns are expected for taking on less risk" implies that rational investors would choose a risky investment only if they feel the expected return is high enough to justify the greater risk.

Question 6

The riskier the investment, the lower the return.

Question 7

All investment risk is not the same.

Question 8

Financial environment is the country or countries being studied.

Question 9

Finance is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources.

Question 10

The terms financial system, institutions, and intermediaries are all interchangeable.

Question 11

The principle of finance that "financial markets are efficient in pricing securities" implies that the prices of securities reflect some information available to the public and that when new information becomes available, prices change over time to reflect that information.

Question 12

The principle of finance that "management objectives may differ from owner objectives" implies that owner returns may suffer as a result of manager objectives.

Question 13

Personal finance is the study of how growth-driven performance-focused, early-stage firms raise financial capital and manage operations and assets.

Question 14

The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters.

Question 15

The primary goal of the financial manager in a profit-seeking organization is to maximize the owners' wealth.

Question 16

Some risk can be removed by investing in several different assets or securities.

Question 17

The principle of finance that "money has a time value" implies Money in hand today is worth less than the promise of receiving the same amount in the future because a sum of money today could be invested and grow over time.

Question 18

While the financial press chooses to highlight examples of unethical behavior, most individuals exhibit sound ethical behavior in their personal and business dealings and practices.

Question 19

Personal finance is the study of how individuals prepare for financial emergencies, protect against premature death and property losses, and accumulate wealth.

Question 20

Financial markets provide the mechanism for allocating financial resources or funds from savers to borrowers.

Question 21

The U.S. Treasury Department is primarily responsible for the amount of money that is created in the U.S. economy.

Question 22

Derivative securities may be used to speculate on the future price direction of the underlying financial assets or to reduce price risk associated with holding the underlying financial assets.

Question 23

The principle of finance that "reputation matters" implies that for institutions or businesses to be successful, they must have the trust and confidence of their customers, employees, and owners, as well as the community and society within which they operate.

Question 24

Three financial system components are the U.S. Treasury, financial institutions, and financial markets.

Question 25

Markets have informational efficiency.

Question 26

Because the relative values of currencies may change, firms cannot use the currency exchange markets to reduce the risk of holding too much of certain currencies.

Question 27

Money markets are where debt securities with maturities of one year or more are issued and traded.

Question 28

The principle of finance that "reputation matters" sometimes is harmed by the different objectives of owners and managers.

Question 29

Individuals and businesses hold money for purchases or payments they expect to make in the near future.

Question 30

In the United States, the central bank is the Federal Reserve System.

Question 31

Financial system functions include accumulating savings and lending funds.

Question 32

Money markets are the markets where generally short-term assets are traded.

Question 33

One of the most significant functions of the financial system is the creation of money, which serves as a medium of exchange.

Question 34

The role of financial markets is to market and facilitate the transfer of financial assets.

Question 35

An effective financial system is a complex mix of government and policy makers, a monetary system, financial institutions, and financial markets that interact to expedite the flow of financial capital from savings into investment.

Question 36

Money markets are markets where equity securities and debt securities with maturities of greater than one year are traded.

Question 37

Capital markets are markets where equity securities and debt securities with maturities of greater than one year are traded.

Question 38

The principle of finance that "management objectives may differ from owner objectives" can be resolved by increasing manager salaries.

Question 39

The secondary securities markets are involved in creating and issuing new securities, mortgages, and other claims to wealth.

Question 40

The role of the monetary system is to print and circulate currency.

Question 41

An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as

A) financial management
B) investments
C) financial institutions
D) Financial Markets: Characteristics and Types

Question 42

This is the financial system, institutions, markets, businesses, individuals, and global interactions that help the economy operate efficiency.

A) Financial management
B) Investments
C) Financial markets
D) Financial institutions
E) Financial environment

Question 43

The bond markets are where money market securities, bonds, and mortgages are originated and traded.

Question 44

This involves financial planning, asset management, and fund-raising decisions to enhance the value of businesses.

A) Financial management
B) Investments
C) Financial markets
D) Financial institutions
E) Financial environment

Question 45

This is the locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments.

A) Financial management
B) Investments
C) Financial markets
D) Financial institutions
E) Financial environment

Question 46

Finance is:

A) the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets
B) the study of how businesses acquire, spend, and manage money and other financial assets
C) the study of how governments, and businesses acquire, spend, and manage money and other financial assets
D) the study of how money is used to purchase goods and services

Question 47

____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services.

A) Financial Managers
B) Accountants
C) Operations Managers
D) Statisticians

Question 48

This involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification.

A) Financial management
B) Investments
C) Financial markets
D) Financial institutions
E) Financial environment

Question 49

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:

A) financial management
B) investments
C) financial institutions
D) Financial Markets: Characteristics and Types

Question 50

Which of the following is not a part of the financial environment?

A) Institutions and markets
B) Investments
C) Stocks
D) Financial management

Question 51

Successful businesses typically progress through a series of life-cycle stages-from the idea stage to exiting the business; these five stages include the:

A) development stage, startup stage, survival stage, rapid growth stage, and maturity stage.
B) idea stage, design stage, operating stage, rebuilding stage, and decline stage
C) development stage, operating stage, rebuilding stage, rapid growth stage, and maturity stage
D) idea stage, startup stage, rapid growth stage, survival stage, and decline stage

Question 52

Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system.

A) opportunity
B) marginal cost
C) supply-and-demand
D) anti-monopoly

Question 53

___________________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.

A) Financial Institutions
B) Financial market organizations
C) Federal agencies
D) International financial organizations

Question 54

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as:

A) banks
B) financial institutions
C) securities markets
D) government organizations

Question 55

Finance has its origins in:

A) economics and statistics
B) accounting and sociology
C) accounting and economics
D) psychology and mathematics

Question 56

An effective financial system must have:

A) several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
B) an efficient system for buying goods and services
C) gold reserves equal to the amount of money in circulation
D) free trade in financial instruments with foreign nations

Question 57

Larger businesses or corporations divide their finance activities into treasury and monitoring functions, whereas smaller firms often combine these functions.

Question 58

This is the intermediaries that help the financial system operate efficiently and transfer funds from savers to individuals, businesses, and governments that seek to spend or invest the funds,

A) Financial management
B) Investments
C) Financial markets
D) Financial institutions
E) Financial environment

Question 59

The financial environment:

A) encompasses the financial markets and global interactions that contribute to an efficiently operating economy.
B) encompasses the financial institutions and financial markets that contribute to an efficiently operating economy.
C) encompasses the financial system, financial institutions, financial markets, business firms, individuals, and global interactions that contribute to an efficiently operating economy.
D) encompasses the trade in goods and services by financial instruments.

Question 60

An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds in physical assets (inventories, buildings, and equipment) is called:

A) financial management
B) investments
C) financial institutions
D) banks

Question 61

Reasons we study finance include all of the following except:

A) To make informed economic decisions
B) To make informed personal and business investment decisions
C) To make informed career decisions based on a basic understanding of business finance
D) To make informed medical decisions

Question 62

If the interest rate is greater than 0%, then a dollar today is worth

A) more than a dollar tomorrow
B) the same as a dollar tomorrow
C) less than a dollar tomorrow
D) there is not sufficient information to tell

Question 63

Rational investors would consider an investment in a risky business venture only if they feel the expected return is high enough to justify the

A) greater risk.
B) higher cost.
C) longer useful life.
D) more complex designs.

Question 64

This is the study of how individuals prepare for financial emergencies, protect against premature death and property losses, and accumulate wealth.

A) Corporate finance
B) Business finance
C) Entrepreneurial finance
D) Personal finance
E) None of the above

Question 65

The six principles of finance include all of the following except:

A) Money has a time value.
B) Higher returns are expected for taking on more risk
C) Diversification of investments can reduce risk
D) Larger capital amounts are charged higher interest

Question 66

The primary goal of the financial manager of a profit-seeking organization is to:

A) maximize market share
B) maximize the owners' wealth
C) increase sales and profit
D) have healthy cash flow

Question 67

Which of the following is a crucial element of the financial environment and a well-developed financial system?

A) financial institutions
B) markets for goods and services
C) storage facilities for gold and silver
D) trade with foreign nations

Question 68

_________________________________________ are crucial elements of the financial environment and well-developed financial systems.

A) Businesses and the federal government
B) International organizations such as the World Bank and International Monetary Fund
C) Well-developed barter systems
D) Financial institutions, financial markets, and investment and financial management

Question 69

Among the six principles of finance, all are included except:

A) All decisions are ultimately financial decisions.
B) Higher returns are expected for taking on more risk
C) Diversification of investments can reduce risk
D) Financial markets are efficient in pricing securities

Question 70

Two risky assets can be combined to lower the overall risk of a portfolio. This principle is commonly referred to as

A) blending
B) asset allocation
C) diversification
D) portfolio segmentation

Question 71

$1,000 invested today at 6% interest would be worth ________ one year from now

A) $1,600
B) $1,060
C) $1,160
D) $1,006

Question 72

________________ involves making decisions relating to issuing and investing in stocks and bonds.

A) Financial economics
B) Financial management
C) Investment management
D) Asset allocation

Question 73

Financial markets encourage investment by:

A) providing capital at lower rates than provided by banks
B) providing electronic execution of transactions which are faster and cheaper than other methods
C) providing the means for savers to easily and quickly convert financial assets into cash when needed
D) encouraging people not to buy goods and services

Question 74

Crucial elements of well-developed financial systems include all of the following except:

A) government control of the economy
B) financial intermediaries
C) Financial Markets: Characteristics and Types
D) an efficient monetary system

Question 75

______________ behavior refers to how an individual or organization treats others legally, fairly, and honestly.

A) Principal-agent
B) Stakeholder
C) Responsible
D) Ethical
E) none of the above

Question 76

The value of money results from

A) its backing
B) rates set by the Federal Reserve
C) its purchasing power
D) its backing by gold

Question 77

The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."

A) stock investing
B) efficient markets
C) portfolio management
D) asset allocation

Question 78

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:

A) financial management
B) investments
C) financial institutions
D) financial markets

Question 79

This is the study of how growth driven, performance focused, early stage firms raise financial capital and manage operations and assets.

A) Corporate finance
B) Business finance
C) Entrepreneurial finance
D) Personal finance
E) None of the above

Question 80

If the interest rate is equal to 0%, then a dollar today is worth

A) more than a dollar tomorrow
B) the same as a dollar tomorrow
C) less than a dollar tomorrow
D) there is not sufficient information to tell