FINANCE SKILLS FOR MANAGERS -
D076 QUESTIONS &
SOLUTIONS(RATED A)
Which area of finance deals with sources of funding and the capital structure of
corporations and seeks to increase the value of a firm to its owners? -
ANSWERBusiness finance
What is the primary difference between finance and accounting? - ANSWERFinance
focuses on the future, while accounting is generally backward-looking.
Which subspecialty of finance primarily involves deciding which assets will create more
wealth and earn positive returns? - ANSWERInvestments
What is the primary goal of the financial manager of a firm? - ANSWERTo maximize
owner wealth
What should be the main question a firm asks when considering any investment
decision? - ANSWERDo the benefits of this investment outweigh the costs?
What is the primary aim of personal finance goals? - ANSWERTo maximize satisfaction
from products purchased and services obtained
Which task does a financial manager perform when choosing to obtain a loan to
purchase a piece of equipment for a new project? - ANSWERMaking financing
decisions
Which financial career focuses on investing capital into firms whose shares are not
currently sold on any public stock exchange? - ANSWERPrivate equity
Which task does a financial manager perform when assessing the costs and benefits of
potential projects? - ANSWERMaking investment decisions
What tool can you use to understand your overall personal cash flows? -
ANSWERBudgeting
What is a reasonable alternative to keeping an emergency stash of cash? -
ANSWERInvesting in a savings account
You want to buy a house, so you obtain a mortgage for which you can afford the
monthly payments. What process have you engaged in as part of your financial
decision-making? - ANSWERFinancing
,What area of finance involves deciding which assets to invest in to create wealth in the
future? - ANSWERInvestments
Hannah is the financial manager of a firm. A project that she has recommended has
been approved and will cost $5 million. Since the company does not have enough cash
on reserve, Hannah must figure out how to raise enough money to start the project. She
can choose whether to issue new bonds, new stocks, a mortgage loan, or some
combination of those options. What task is Hannah performing in this scenario? -
ANSWERMaking a financing decision
Maria and Mateo are setting financial goals. They decide that they need to save $200
each month to reach their goal of taking their children to visit their grandparents in Spain
next summer. What is the objective of setting such a goal? - ANSWERTo maximize
individual utility
Which professional works with individuals to help them achieve their financial goals? -
ANSWERFinancial planner
Omar is about to purchase a new car for $30,000. He knows he wants to buy the car,
but he is still trying to decide how to pay for it. He has barely over $30,000 in his bank
account. He can either take out an auto loan from a bank or use a mix of cash and an
auto loan.
In this scenario, what is Omar doing? - ANSWERFinancing a goal
What are the purposes of financial markets? - ANSWERTo provide liquidity and
determine prices
In which financial market are securities such as stocks and bonds are traded after their
initial issuance? - ANSWERSecondary market
What kind of market primarily allows institutions to borrow and lend in the short term? -
ANSWERMoney market
A local start-up company just hit its five-year anniversary and is planning an initial public
offering sometime this year. In order to issue public stock, which market will the
company use? - ANSWERPrimary market
What is the primary role of financial institutions? - ANSWERTo conduct financial
transactions such as investments, loans, and deposits
What is a depository institution? - ANSWERAn institution that accepts and pays interest
on deposits of money, as well as extends loans
Which financial institution ensures that a nation's economy remains healthy by
controlling the amount of money circulating in the economy? - ANSWERCentral bank
,How do insurance companies pay policyholders when a claim is made? -
ANSWERThey use returns from stocks and bonds.
Which type of financial institution deals mainly with providing for retirement through
employers? - ANSWERPension fund
A large corporation is looking to merge with another large corporation. Which financial
institution can help them do this? - ANSWERInvestment bank
Unemployment rate is which type of economic indicator? - ANSWERLagging
The Federal Reserve sometimes adjusts the interest rate at which commercial banks
can borrow from it. What is the purpose of adjusting the interest rate? - ANSWERTo
regulate inflation and unemployment
What would an inverted yield curve signal? - ANSWERIt may indicate an economic
downturn.
In what way are coincident indicators useful? - ANSWERThey are analyzed during
economic shifts to provide information about the current state of the economy.
Which responsibility is a focus of the U.S. Securities and Exchange Commission? -
ANSWERTo protect investors
Which type of financial institution provides individuals and firms access to financial
markets? - ANSWERInvestment institutions
Which financial institution includes entities that receive money from institutional
investors and wealthy individuals to buy troubled companies to improve them and earn
returns by selling them or going public? - ANSWERPrivate equity
Yield curve is which type of economic indicator? - ANSWERLeading
About a year ago, the short-term Treasury bill had 1.54% interest and the long-term
Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an interest
rate of 3.13%, while the 10-year Treasury note has an interest rate of 2.28%. What does
this information indicate about the future economy? - ANSWERIt may indicate an
economic downturn.
Which term reflects a person's beliefs about right and wrong, good and bad, or just and
unjust? - ANSWERMoral
What characterizes an ethical action? - ANSWERAn ethical action is based on accepted
standards of conduct.
, Lucas is a financial advisor working for Bullzai, Inc. He is faced with a dilemma. Bullzai
has started changing its practices in order to increase profit. As a financial advisor, he is
now supposed to suggest to clients to invest in portfolios that will not do as well as the
portfolios that Bullzai is invested in. This is an accepted practice done by other
businesses in the industry, and it complies with all standards set by the government.
However, Lucas knows that this practice is not in his clients' best interest. What type of
dilemma is Lucas facing? - ANSWERMoral
Which type of error would result in a set repercussion or penalty given by the
government? - ANSWERLegal
Nora is an investment manager, which means that she is paid to invest other people's
money. To meet her goal for the month, she is seeking to invest money from clients in
an investment that is risky but potentially has a higher return. What about this situation
represents an ethical dilemma? - ANSWERNora is considering investing in a risky asset
just to meet her monthly goal.
What are the effects of attempting to maximize shareholder value for a business in an
unethical way? - ANSWERIt often leads to decreased shareholder value for the
business.
Endothon Company has decided to move its production from the United States to a
foreign country. Which situation below would constitute an unethical action by the
company? - ANSWERSaving money by paying inadequate wages to workers overseas
Why would bondholders set bond contracts that are very strict to deter the company
from taking on risky projects? - ANSWERBondholders are primarily interested in making
sure they will be paid back.
Which kind of projects are bondholders interested in? - ANSWERSafe projects with a
higher chance of providing sufficient compensation
Which scenario is an example of an agency problem? - ANSWERA manager purchases
a company car and allocates it as a company expense.
How can agency costs be mitigated? - ANSWERAligning managers' interests with
shareholders' interests
What is the third step in finding a solution to an ethical dilemma? - ANSWERConsider
all stakeholders involved
What does the term legal describe? - ANSWERAn action that is in accordance with the
laws and rules set by an authority.
Jack is a personal financial advisor. He is with a new client, and the client is asking him
what he recommends for her portfolio. Jack knows that his firm's investment product
D076 QUESTIONS &
SOLUTIONS(RATED A)
Which area of finance deals with sources of funding and the capital structure of
corporations and seeks to increase the value of a firm to its owners? -
ANSWERBusiness finance
What is the primary difference between finance and accounting? - ANSWERFinance
focuses on the future, while accounting is generally backward-looking.
Which subspecialty of finance primarily involves deciding which assets will create more
wealth and earn positive returns? - ANSWERInvestments
What is the primary goal of the financial manager of a firm? - ANSWERTo maximize
owner wealth
What should be the main question a firm asks when considering any investment
decision? - ANSWERDo the benefits of this investment outweigh the costs?
What is the primary aim of personal finance goals? - ANSWERTo maximize satisfaction
from products purchased and services obtained
Which task does a financial manager perform when choosing to obtain a loan to
purchase a piece of equipment for a new project? - ANSWERMaking financing
decisions
Which financial career focuses on investing capital into firms whose shares are not
currently sold on any public stock exchange? - ANSWERPrivate equity
Which task does a financial manager perform when assessing the costs and benefits of
potential projects? - ANSWERMaking investment decisions
What tool can you use to understand your overall personal cash flows? -
ANSWERBudgeting
What is a reasonable alternative to keeping an emergency stash of cash? -
ANSWERInvesting in a savings account
You want to buy a house, so you obtain a mortgage for which you can afford the
monthly payments. What process have you engaged in as part of your financial
decision-making? - ANSWERFinancing
,What area of finance involves deciding which assets to invest in to create wealth in the
future? - ANSWERInvestments
Hannah is the financial manager of a firm. A project that she has recommended has
been approved and will cost $5 million. Since the company does not have enough cash
on reserve, Hannah must figure out how to raise enough money to start the project. She
can choose whether to issue new bonds, new stocks, a mortgage loan, or some
combination of those options. What task is Hannah performing in this scenario? -
ANSWERMaking a financing decision
Maria and Mateo are setting financial goals. They decide that they need to save $200
each month to reach their goal of taking their children to visit their grandparents in Spain
next summer. What is the objective of setting such a goal? - ANSWERTo maximize
individual utility
Which professional works with individuals to help them achieve their financial goals? -
ANSWERFinancial planner
Omar is about to purchase a new car for $30,000. He knows he wants to buy the car,
but he is still trying to decide how to pay for it. He has barely over $30,000 in his bank
account. He can either take out an auto loan from a bank or use a mix of cash and an
auto loan.
In this scenario, what is Omar doing? - ANSWERFinancing a goal
What are the purposes of financial markets? - ANSWERTo provide liquidity and
determine prices
In which financial market are securities such as stocks and bonds are traded after their
initial issuance? - ANSWERSecondary market
What kind of market primarily allows institutions to borrow and lend in the short term? -
ANSWERMoney market
A local start-up company just hit its five-year anniversary and is planning an initial public
offering sometime this year. In order to issue public stock, which market will the
company use? - ANSWERPrimary market
What is the primary role of financial institutions? - ANSWERTo conduct financial
transactions such as investments, loans, and deposits
What is a depository institution? - ANSWERAn institution that accepts and pays interest
on deposits of money, as well as extends loans
Which financial institution ensures that a nation's economy remains healthy by
controlling the amount of money circulating in the economy? - ANSWERCentral bank
,How do insurance companies pay policyholders when a claim is made? -
ANSWERThey use returns from stocks and bonds.
Which type of financial institution deals mainly with providing for retirement through
employers? - ANSWERPension fund
A large corporation is looking to merge with another large corporation. Which financial
institution can help them do this? - ANSWERInvestment bank
Unemployment rate is which type of economic indicator? - ANSWERLagging
The Federal Reserve sometimes adjusts the interest rate at which commercial banks
can borrow from it. What is the purpose of adjusting the interest rate? - ANSWERTo
regulate inflation and unemployment
What would an inverted yield curve signal? - ANSWERIt may indicate an economic
downturn.
In what way are coincident indicators useful? - ANSWERThey are analyzed during
economic shifts to provide information about the current state of the economy.
Which responsibility is a focus of the U.S. Securities and Exchange Commission? -
ANSWERTo protect investors
Which type of financial institution provides individuals and firms access to financial
markets? - ANSWERInvestment institutions
Which financial institution includes entities that receive money from institutional
investors and wealthy individuals to buy troubled companies to improve them and earn
returns by selling them or going public? - ANSWERPrivate equity
Yield curve is which type of economic indicator? - ANSWERLeading
About a year ago, the short-term Treasury bill had 1.54% interest and the long-term
Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an interest
rate of 3.13%, while the 10-year Treasury note has an interest rate of 2.28%. What does
this information indicate about the future economy? - ANSWERIt may indicate an
economic downturn.
Which term reflects a person's beliefs about right and wrong, good and bad, or just and
unjust? - ANSWERMoral
What characterizes an ethical action? - ANSWERAn ethical action is based on accepted
standards of conduct.
, Lucas is a financial advisor working for Bullzai, Inc. He is faced with a dilemma. Bullzai
has started changing its practices in order to increase profit. As a financial advisor, he is
now supposed to suggest to clients to invest in portfolios that will not do as well as the
portfolios that Bullzai is invested in. This is an accepted practice done by other
businesses in the industry, and it complies with all standards set by the government.
However, Lucas knows that this practice is not in his clients' best interest. What type of
dilemma is Lucas facing? - ANSWERMoral
Which type of error would result in a set repercussion or penalty given by the
government? - ANSWERLegal
Nora is an investment manager, which means that she is paid to invest other people's
money. To meet her goal for the month, she is seeking to invest money from clients in
an investment that is risky but potentially has a higher return. What about this situation
represents an ethical dilemma? - ANSWERNora is considering investing in a risky asset
just to meet her monthly goal.
What are the effects of attempting to maximize shareholder value for a business in an
unethical way? - ANSWERIt often leads to decreased shareholder value for the
business.
Endothon Company has decided to move its production from the United States to a
foreign country. Which situation below would constitute an unethical action by the
company? - ANSWERSaving money by paying inadequate wages to workers overseas
Why would bondholders set bond contracts that are very strict to deter the company
from taking on risky projects? - ANSWERBondholders are primarily interested in making
sure they will be paid back.
Which kind of projects are bondholders interested in? - ANSWERSafe projects with a
higher chance of providing sufficient compensation
Which scenario is an example of an agency problem? - ANSWERA manager purchases
a company car and allocates it as a company expense.
How can agency costs be mitigated? - ANSWERAligning managers' interests with
shareholders' interests
What is the third step in finding a solution to an ethical dilemma? - ANSWERConsider
all stakeholders involved
What does the term legal describe? - ANSWERAn action that is in accordance with the
laws and rules set by an authority.
Jack is a personal financial advisor. He is with a new client, and the client is asking him
what he recommends for her portfolio. Jack knows that his firm's investment product
