FIN-350 EXAM 1 STUDY GUIDE (GCU)
QUESTIONS WITH 100% CORRECT ANSWERS
-CHAPTER ONE-
finance
study of how individuals, institutions, governments, and businesses acquire, spend, and manage
financial resources
financial environment
financial system, institutions, markets, businesses, individuals, and global interactions that help
the economy operate efficiently
3 areas of finance within the financial environment
institutions and markets, investments, and financial management
financial markets
locations or electronic forums that facilitate the flow of funds among investors, businesses, and
governments
investments
involves the sale or marketing of securities, the analysis of securities, and the management of
investment risk through portfolio diversification
financial management
involves financial planning, asset management, and fund-raising decisions to enhance the value
of businesses
Two themes within the financial topic
1. entrepreneurial finance: study of how growth driven, performance focused, early stage firms
raise financial capital and manage operations and assets.
2. personal finance: study of how individuals prepare for financial emergencies, protect against
premature death and property losses, and accumulate wealth
6 principles of finance (sixth is ethical based, others are economic based)
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 (Efficient is open to public knowledge).
5. Manager and stockholder objectives may differ.
6. Reputation matters.
, Business life cycle
development, startup, survival, rapid growth, maturity
Financial system
financial system: interaction of intermediaries, markets, instruments, policy makers, and
regulations to aid the flow from savings to investments.
4 major components of the U.S. financial system
policy makers: pass laws and make decisions relating to fiscal and monetary policies (president,
congress, and the U.S. Treasury, the Federal Reserve Board).
monetary system: composed of a central bank and a banking system that is able to create and
transfer a stable medium of exchange called money. CREATING AND TRANSFERRING
MONEY.
financial institutions: or intermediaries, that support capital formation either by channeling
savings into investment in real assets or by fostering direct financial investments by individuals
in financial institutions and businesses. ACCUMULATING & LENDING/INVESTING
SAVINGS
financial markets: facilitate the transfer of financial assets among individuals, institutions,
businesses, and governments. MARKETING AND TRANSFERRING FINANCIAL ASSETS
Financial markets & characteristics
(money, capital, primary, secondary)
money markets- where debt securities of one year or less are issued or traded
capital markets- where debt securities with maturities longer than one year and corporate stocks
are issued or traded
primary market- where the initial offering or origination of debt and equity securities takes place
secondary markets- where the transfer of existing debt (bonds and mortgages) and equity
securities between investors occurs
Major types of financial markets
(debt securities markets, equity securities markets, derivative securities markets, foreign
exchange markets)
debt securities markets: where money market securities, bonds, and mortgages are originated and
traded
equity securities markets: where corporate ownership shares are initially sold and traded
QUESTIONS WITH 100% CORRECT ANSWERS
-CHAPTER ONE-
finance
study of how individuals, institutions, governments, and businesses acquire, spend, and manage
financial resources
financial environment
financial system, institutions, markets, businesses, individuals, and global interactions that help
the economy operate efficiently
3 areas of finance within the financial environment
institutions and markets, investments, and financial management
financial markets
locations or electronic forums that facilitate the flow of funds among investors, businesses, and
governments
investments
involves the sale or marketing of securities, the analysis of securities, and the management of
investment risk through portfolio diversification
financial management
involves financial planning, asset management, and fund-raising decisions to enhance the value
of businesses
Two themes within the financial topic
1. entrepreneurial finance: study of how growth driven, performance focused, early stage firms
raise financial capital and manage operations and assets.
2. personal finance: study of how individuals prepare for financial emergencies, protect against
premature death and property losses, and accumulate wealth
6 principles of finance (sixth is ethical based, others are economic based)
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 (Efficient is open to public knowledge).
5. Manager and stockholder objectives may differ.
6. Reputation matters.
, Business life cycle
development, startup, survival, rapid growth, maturity
Financial system
financial system: interaction of intermediaries, markets, instruments, policy makers, and
regulations to aid the flow from savings to investments.
4 major components of the U.S. financial system
policy makers: pass laws and make decisions relating to fiscal and monetary policies (president,
congress, and the U.S. Treasury, the Federal Reserve Board).
monetary system: composed of a central bank and a banking system that is able to create and
transfer a stable medium of exchange called money. CREATING AND TRANSFERRING
MONEY.
financial institutions: or intermediaries, that support capital formation either by channeling
savings into investment in real assets or by fostering direct financial investments by individuals
in financial institutions and businesses. ACCUMULATING & LENDING/INVESTING
SAVINGS
financial markets: facilitate the transfer of financial assets among individuals, institutions,
businesses, and governments. MARKETING AND TRANSFERRING FINANCIAL ASSETS
Financial markets & characteristics
(money, capital, primary, secondary)
money markets- where debt securities of one year or less are issued or traded
capital markets- where debt securities with maturities longer than one year and corporate stocks
are issued or traded
primary market- where the initial offering or origination of debt and equity securities takes place
secondary markets- where the transfer of existing debt (bonds and mortgages) and equity
securities between investors occurs
Major types of financial markets
(debt securities markets, equity securities markets, derivative securities markets, foreign
exchange markets)
debt securities markets: where money market securities, bonds, and mortgages are originated and
traded
equity securities markets: where corporate ownership shares are initially sold and traded
