Deck 1: Financial Management

Question 1

Which of the following best identifies the four main areas of finance?

A) Exchange rate management, investments, financial institutions and markets, international
B) Corporate, investments, capital structure, international
C) Corporate, investments, financial institutions and markets, international
D) Corporate, capital budgeting, financial institutions and markets, regulation

Answer 1

C

Question 2

________ is the area of finance concerned with activities like repayment of borrowed funds through dividends or interest payments.

A) Investments
B) Corporate finance
C) Capital budgeting
D) International finance

Answer 2

B

Question 3

You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the following statements is true?

A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of inflation.
B) You and your professor have an obvious conflict of interest because you have accounts at the same financial institution.
C) You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash.
D) Your professor is the only party to be made worse off by this example because she is the only party paying net interest.

Answer 3

C

Question 4

Of the following, which is NOT one of the four main areas of finance?

A) International Finance
B) Corporate Finance
C) Investments
D) All are considered main areas of finance.

Question 5

Which of the following is NOT an example of a financial transaction?

A) Your parents use their credit card to pay this term's college tuition.
B) You use the ATM to withdraw British pounds so you can fly to London.
C) Your roommate lends you $20 and you repay it in one week.
D) All of the above are financial transactions.

Question 6

The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance?

A) Corporate finance
B) Investments
C) Financial institutions and markets
D) International finance

Question 7

Of the following, which is NOT an example of a financial intermediary?

A) Commercial bank
B) Insurance company
C) Investment bank
D) All of the above are financial intermediaries.

Question 8

The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance?

A) Corporate finance
B) Investments
C) Financial institutions and markets
D) International finance

Question 9

At its most basic level, the function of financial intermediaries is to ________.

A) track and report interest rates
B) move money from lenders to borrowers and back again
C) report all financial transactions to the federal government
D) effect a transfer of wealth in society

Question 10

The basic function of financial intermediaries is to move advice from lenders to borrowers and back to lenders.

Question 11

Give three examples of a financial transaction.

Question 12

In the lending/borrowing process, a financial intermediary function is to bear the risk that the borrower will not repay.

Question 13

________ is the area of finance concerned with the activities of buying and selling financial assets such as stocks and bonds.

A) Investments
B) Corporate finance
C) International finance
D) Financial markets and institutions

Question 14

The movement of money from lender to borrower and back again is known as ________.

A) the circle of life
B) corporate finance
C) the cycle of money
D) money laundering

Question 15

________ is the area of finance concerned with activities like borrowing funds to finance projects such as plant expansions or new product launches.

A) Working capital management
B) International finance
C) Investments
D) Corporate finance

Question 16

All financial transactions have a buyer and a seller.

Question 17

The common objective of borrowing and lending is to ________.

A) make all parties better off
B) gain a profit at the other's expense
C) make a firm or individual appear more liquid than is really the case
D) thwart regulatory authority

Question 18

Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?

A) To help establish terms of the lending/borrowing agreement
B) To match the borrower and the lender
C) To bear the risk that the borrower will not repay
D) All of the above are functions of the financial intermediary.

Question 19

Which of the following is NOT typically thought of as an investment activity?

A) Accurately pricing financial assets
B) The process of buying and selling financial assets
C) Repaying borrowed funds
D) Negotiating the rules and regulations of financial transactions

Question 20

Financial institutions and markets

A) are the organized financial intermediaries and the forums that promote the cycle of money.
B) compose the set of financial activities that support the operations of a business.
C) are the activities centered on the purchase and sale of financial assets.
D) are concerned only with the addition of a multinational element to all finance activities.

Question 21

Options are bought and sold in ________ markets.

A) equity
B) debt
C) derivatives
D) foreign exchange

Question 22

________ are the forums where buyers and sellers of financial assets and commodities meet.

A) Housing markets
B) Federal Reserve banks
C) Financial markets
D) Automotive shows

Question 23

Currencies are bought and sold in ________ markets.

A) equity
B) debt
C) derivatives
D) foreign exchange

Question 24

What are the four main areas of finance? Give a brief definition of each.

Question 25

The sale of "new" securities,where the financial asset is being traded for the very first time, is said to take place in the ________ market.

A) primary
B) money
C) secondary
D) capital

Question 26

Corporate Finance is the set of activities generally concerned with the buying and selling of financial assets such as stocks and bonds.

Question 27

Which of the following is NOT an activity of a financial institution or market?

A) Bringing together buyers and sellers of financial assets
B) Providing a market for the transaction of financial assets
C) Providing information to buyers and/or sellers of financial assets
D) All are activities of financial institutions.

Question 28

Which of the following is a reason why an expertise in international finance is important?

A) Because the process of assessing risk among many countries is more difficult than assessing risk for a single country
B) Because financial regulatory rules and requirements differ from country to country
C) Because changes in economic conditions impact the relative values of currency among countries
D) All of the above are reasons for gaining expertise in international finance.

Question 29

Financial institutions and markets are the organized financial intermediaries and the forums that promote the cycle of money.

Question 30

"Concern with the multinational elements of financial activities" best describes which of the four main areas of finance?

A) Investments
B) International finance
C) Corporate finance
D) Financial institutions and markets

Question 31

The sale of "used" securities,where the financial asset is being traded from one individual to another and the proceeds do not go to the original issuer of the security, is said to take place in the ________ market.

A) primary
B) money
C) secondary
D) capital

Question 32

Sale of new common stock in the primary market is regulated by the ________, and sales of used common on the secondary market is regulated by the ________.

A) SEC; FDIC
B) SEC; SEC
C) FDIC; Federal Reserve
D) Federal Reserve; SEC

Question 33

Financial assets that will mature within a year are bought and sold in the ________ market.

A) debt
B) capital
C) stock
D) money

Question 34

Stocks are bought and sold in ________ markets.

A) equity
B) debt
C) derivatives
D) foreign exchange

Question 35

Bonds are bought and sold in ________ markets.

A) equity
B) debt
C) derivatives
D) foreign exchange

Question 36

Financial markets can be classified by which of the following?

A) Type of asset traded
B) Maturity of the financial asset
C) Owner of the financial asset
D) All of the above can be classified as financial markets.

Question 37

Which of the following is NOT an example of an equity market transaction?

A) Mary sells her shares of Apple stock.
B) Mark contacts his broker and requests a purchase of IBM bonds.
C) Sahid buys shares of a small company stock traded on the NASDAQ.
D) All of the above are equity market transactions.

Question 38

Of the following, which is NOT an activity engaged in by a financial intermediary?

A) Matching borrowers and lenders
B) Bearing risk
C) Managing retirement portfolios for large classes of employees
D) All of the above are activities of financial intermediaries.

Question 39

Gold and land are considered "real assets" because they are permanent, whereas a commodity such as corn is not a real asset because it is consumable.

Question 40

The four main areas of finance (corporate, investments, financial markets and institutions, and international finance) are mutually exclusive topics.

Question 41

________ addresses the question of where we raise money to finance our business activities.

A) Capital budgeting
B) Capital structure
C) Working capital management
D) Accounts receivable management

Question 42

When a company offers stock for sale for the first time and the proceeds go to the company, then this is a sale in the primary market.

Question 43

________ is NOT a main category of financial management.

A) Capital budgeting
B) Capital structure
C) Accounts receivable management
D) Working capital management

Question 44

Capital structure is best defined by which of the following questions?

A) How will we fund our product and service choices?
B) What business are we in?
C) How will we manage our day-to-day financial needs?
D) What is our firm's best choice for corporate governance?

Question 45

Which of the following is NOT an activity of working capital management?

A) Establishing the firm's receivable policies
B) Establishing the firm's payment policies
C) Choosing the appropriate level of inventory
D) All of the above are working capital management activities.

Question 46

________ addresses the question of what business we should be in over the long run.

A) Capital budgeting
B) Capital structure
C) Working capital management
D) Accounts receivable management

Question 47

The process of planning, evaluating, selecting, and managing the long-term operating projects of the company is termed ________.

A) capital budgeting
B) capital structure
C) accounts receivable management
D) working capital management

Question 48

Give an example of how a corporate manager might use the capital markets in the operation of his/her corporation. Be sure to define capital market in your answer.

Question 49

________ is the typical title of the corporate executive charged with determining the best repayment structure for borrowed funds to ensure timely repayment and sufficient cash for daily operations.

A) Chief Executive Officer (CEO)
B) Chief Financial Officer (CFO)
C) Chairman
D) Chief Operating Officer (COO)

Question 50

Financial markets are the forums where buyers and sellers of financial assets come together.

Question 51

Which of the following is NOT a capital budgeting question?

A) The choice of which long-term assets to purchase to meet the firm's business goals
B) The choice of what type of business a firm wants to operate
C) The proper mix of stocks and bonds to issue for financing assets
D) None of the above are capital budgeting questions.

Question 52

Which of the following is NOT a capital structure question?

A) A delivery company chooses to buy more trucks.
B) A manufacturing firm chooses to take the discount for paying accounts payable early.
C) A retail firm chooses to use a new supplier.
D) None of the above are capital structure questions.

Question 53

Capital budgeting is best defined by which of the following questions?

A) How will we fund our product and service choices?
B) What business are we in?
C) How will we manage our day-to-day financial needs?
D) What is our firm's best choice for corporate governance?

Question 54

Managing the firm's short-term financing activities is known as ________.

A) capital budgeting
B) capital structure
C) accounts receivable management
D) working capital management

Question 55

Which of the following is true of a dealer market?

A) The dealer buys and sells assets out of his own inventory.
B) The dealer acts as a broker, lining up the owners of assets with the purchasers of assets.
C) The dealer acts as an auctioneer of securities and takes a percentage of the sale as compensation.
D) None of the above are true of a dealer market.

Question 56

Auction markets consist of dealers buying and selling from their own portfolios.

Question 57

Equity markets are where bonds are bought and sold.

Question 58

The means by which a company is financed refers to the firm's ________.

A) capital budgeting
B) capital structure
C) accounts receivable management
D) working capital management

Question 59

Define "money market" and "capital market" and give an example of a security that trades in each.

Question 60

Which of the following is NOT a characteristic of a dealer market?

A) Dealers make a profit on the spread between what they pay for financial assets and what they sell them for.
B) Securities are auctioned off to the highest bidder.
C) Dealers buy and sell from their own portfolio.
D) All of the above are characteristics of the dealer market.

Question 61

Of the following activities, which is NOT likely to be an interaction between the financial manager and the marketing manager?

A) Costing of products
B) Setting credit policies
C) Determining that there are a sufficient number of trained workers to develop the product
D) Setting advertising budgets

Question 62

Stock prices reflect the expected future cash flow of the company.

Question 63

On a basic organizational chart for a company, the Finance Manager would be on the third line, where the first line is the CEO and the second line contains titles such as Marketing Manager and Human Resources Manager.

Question 64

What is the primary goal of a financial manager? When you see firms like Enron imploding from the behavior of executive management, how can you justify your definition?

Question 65

Capital structure is the process of planning, evaluating, selecting, and managing the long-term operating projects of the company.

Question 66

According to the textbook, a good manager treats shareholders, customers, creditors, and employees equally.

Question 67

Capital budgeting is the means by which a company is financed.

Question 68

Of the following activities which is MOST likely to be an interaction between the financial manager and the information systems manager?

A) Developing a system to bill customers, pay suppliers, and track inventory
B) Costing of products
C) Setting credit policies
D) Determining the appropriate pricing of products

Question 69

How does maximizing the long-run expected cash flows to the firm translate into maximizing shareholder's wealth?

Question 70

Of the following which group would be considered INTERNAL PLAYERS of the firm?

A) The finance manager
B) The shop foreman
C) The human resources manager
D) All of the above

Question 71

The author claims that the goals of keeping customers happy, employees happy, and shareholders happy are not mutually exclusive, even though the first two goals identified may be costly and come at the expense of shareholders. How can this be?

Question 72

Which of the following can lead to increased expected cash flow over time to the firm?

A) Open and collaborative relations with the community
B) Qualified and motivated employees
C) Greater customer satisfaction
D) All of the above

Question 73

When there are conflicts among managerial goals in U.S. markets, the most important priority is to ________.

A) increase the current market value of equity
B) keep all of the company's customers happy
C) foster good relationships with the community
D) maintain a safe and happy work place

Question 74

The primary objective of the finance manager is to maximize the market value of equity of the company.

Question 75

Working capital management is the day-to-day management of the operating needs of the company via current assets and current liabilities.

Question 76

Provide definitions for capital budgeting, capital structure, and working capital management. Give an example of a capital budgeting type decision and then do the same for capital structure and working capital management.

Question 77

A firm's stock price most closely reflects which of the following?

A) Current interest rates
B) Expected future cash flows of the firm
C) The amount of debt held by the firm
D) None of the above

Question 78

________ addresses the question of how to handle our day-to-day business needs.

A) Capital budgeting
B) Capital structure
C) Working capital management
D) Accounts receivable management

Question 79

Maximizing the market value of firm equity and which of the following are mutually exclusive?

A) Maximizing market value and a safe and happy work place are mutually exclusive.
B) Maximizing market value and good relationships with the local community are mutually exclusive.
C) Maximizing market value and customer satisfaction are mutually exclusive.
D) None of the above are mutually exclusive with maximizing the value of market equity.

Question 80

Of the following activities, which is MOST likely to be an interaction between the financial manager and the manufacturing manager?

A) Setting of credit policies
B) Developing a system to bill customers, pay suppliers, and track inventory
C) Budgeting the timing and amount of cash needed for the production schedule
D) Determining that there are a sufficient number of trained workers to develop the product