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).

Accepted Answer

False

Question 2

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

Accepted Answer

While large companies certainly play a significant role in the U.S. economy, small businesses actually account for a majority of job creation and economic growth. According to the U.S. Small Business Administration, small businesses (defined as those with fewer than 500 employees) make up 99.9% of all U.S. businesses and employ 47.3% of the private workforce.

Question 3

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

Accepted Answer

Receiving one dollar today has more value than receiving one dollar in one year, because of the impact of inflation and the time value of money.

Question 4

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

Accepted Answer

Financial management involves various activities such as financial planning, asset management and fund raising in order to achieve the financial goals of 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.

Accepted Answer

The principle of finance states that investors are compensated for taking on greater risk with higher expected returns. Therefore, rational investors would only choose a risky investment if they believe the potential return justifies the increased risk.

Question 6

The riskier the investment, the lower the return.

Accepted Answer

The statement is actually false. In general, higher risk investments have the potential to offer higher returns, while lower risk investments typically have lower returns.

Question 7

All investment risk is not the same.

Accepted Answer

Different types of investments carry different levels and types of risk. For example, investing in stocks is generally considered riskier than investing in bonds, and investing in individual stocks carries more risk than investing in a diversified portfolio of stocks. Additionally, investments may be subject to specific risks based on factors such as geopolitical events or changes in market conditions.

Question 8

Financial environment is the country or countries being studied.

Accepted Answer

The financial environment encompasses the economic conditions, financial institutions, and financial markets in which investment and financing decisions are made, not just 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.

Accepted Answer

Finance is indeed 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.

Accepted Answer

The answer of The terms financial system, institutions, and intermediaries...

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.

Accepted Answer

The answer of The principle of finance that "financial markets...

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.

Accepted Answer

This principle suggests that managers may prioritize their own objectives over those of the owners, which can lead to conflicts of interest and potentially lower returns for the owners.

Question 13

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

Accepted Answer

Personal finance is actually the study of individual and household financial management, including budgeting, investing, debt management, and retirement planning.

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.

Accepted Answer

These six principles are widely accepted and form the basis of modern finance theory.

Question 15

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

Accepted Answer

The primary objective of the financial manager in a profit-seeking organization is to maximize shareholder wealth, which is typically measured by the company's stock price or dividends paid to shareholders.

Question 16

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

Accepted Answer

This is known as diversification and can help to reduce the overall risk in a portfolio.

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.

Accepted Answer

The principle actually implies that money in hand today is worth more 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.

Accepted Answer

This statement suggests that the majority of individuals exhibit ethical behavior in both personal and business situations. While the financial press may focus on negative examples, it does not mean that this is representative of the majority of people's behavior.

Question 19

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

Accepted Answer

Personal finance is indeed the study of how individuals manage their financial resources to meet their goals and prepare for unexpected circumstances. It encompasses various aspects such as budgeting, saving, investing, insurance, and retirement planning.

Question 20

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

Accepted Answer

Financial markets allow individuals and institutions with excess funds (savers) to invest those funds by purchasing financial assets, such as stocks or bonds, and thus provide additional funds to those who need them (borrowers). This mechanism of allocation is the primary function of financial markets.

Quiz 1: The Financial Environment