part2busfin

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Questions and Answers

What is the primary goal of financial management?

To increase the short-term profit of the company

To minimize the operational costs

To expand business territories

To enhance shareholder wealth (correct)

What characterizes an internal source of finance?

Involves external institutions

Does not require debt repayment (correct)

Increases the firm's debts

Includes bank loans

Which decision is particularly associated with financing activities?

Allocating budget for marketing

Deciding on employee salaries

Determining sources for long-term investments (correct)

Managing day-to-day operations

What does the operating decision primarily manage?

Day-to-day operational activities Signup and view all the answers

What is NOT a characteristic of external sources of finance?

They are sourced from inside the company Signup and view all the answers

What is the primary responsibility of shareholders in a company?

Elect the Board of Directors Signup and view all the answers

Who is responsible for ensuring that company strategies are executed effectively?

President Signup and view all the answers

Which of the following statements accurately describes the role of a Board of Directors?

They appoint and remove managers. Signup and view all the answers

What do shareholders primarily seek when they buy shares in a company?

Profit in the form of dividends Signup and view all the answers

What role does the Vice President for Sales and Marketing play in a corporation?

Direct and coordinate sales strategies Signup and view all the answers

Which of the following best describes the organizational structure of a company?

A hierarchy with roles such as President and Board of Directors Signup and view all the answers

How do financial institutions contribute to business finance?

By offering loans and investment opportunities Signup and view all the answers

What aspect of management is NOT explicitly mentioned as a responsibility of the President?

Marketing Signup and view all the answers

What is the primary purpose of financial planning in an organization?

To accomplish financial goals and objectives Signup and view all the answers

What is the duration typically associated with short-term financial planning?

1 year or less Signup and view all the answers

Which financial planning type involves the participation of lower management?

Short-term financial planning Signup and view all the answers

What is a key feature of long-term financial planning?

Setting direction for the company Signup and view all the answers

How does financial planning help managers regarding strategies?

By evaluating the impact on financial position, cash flows, and earnings Signup and view all the answers

Which aspect is NOT a focus area of financial planning?

Minimizing legal issues Signup and view all the answers

What strategy is used to minimize risks in financial planning?

Implementing contingency planning Signup and view all the answers

Which of the following is characteristic of long-term financial planning?

Lasting strategies over 2 to 10 years Signup and view all the answers

What is the primary purpose of money market instruments?

To manage cash flow for daily operations Signup and view all the answers

Which of the following correctly describes bonds?

They are a type of long-term debt with fixed interest payments. Signup and view all the answers

What distinguishes stocks from bonds?

Stocks represent ownership, while bonds are debt instruments. Signup and view all the answers

What is a characteristic of money market instruments compared to capital market instruments?

Money market instruments are used for shorter-term funding needs. Signup and view all the answers

What role do investment companies typically play in financing?

They lend money to both corporations and governments. Signup and view all the answers

Which statement accurately describes leasing companies?

They extend financing to businesses needing funds for operations. Signup and view all the answers

What is true about non-bank financial intermediaries?

They provide funding but are not classified as banks. Signup and view all the answers

Which of the following is NOT a feature of stocks?

They have a fixed maturity date. Signup and view all the answers

What is a requirement for applying for a loan from banks?

Application form Signup and view all the answers

Which document is NOT typically required for loan applications with non-bank institutions?

Land title Signup and view all the answers

What does a valid personal identification document support in a loan application?

Credibility of personal data Signup and view all the answers

What is the main function of the credit investigation in the loan process?

To establish the applicant's credit standing Signup and view all the answers

Which of the following is typically associated with banks, but not with non-banks?

Accepts deposits Signup and view all the answers

Which document is unnecessary when applying for a loan with non-bank institutions?

Business license Signup and view all the answers

What type of institutions offer bank-like services but cannot accept deposits?

Non-bank financial institutions Signup and view all the answers

What document is crucial for non-banks to determine the value of collateral?

Credit investigation Signup and view all the answers

What is the primary role of a financial institution?

To act as a financial intermediary Signup and view all the answers

Which type of financial institution primarily serves the countryside or rural areas?

Thrift banks Signup and view all the answers

Who is considered the depositor in the financial system?

The one who provides funds to the bank Signup and view all the answers

What do financial instruments represent?

Contracts representing a financial asset or liability Signup and view all the answers

What is a key function of commercial banks?

To extend credit to the retail and consumer market Signup and view all the answers

Which of the following is NOT a type of financial institution mentioned?

Savings accounts Signup and view all the answers

What is the relationship between depositors and borrowers?

Depositors provide money that borrowers need through banks Signup and view all the answers

Which statement about the capital market is true?

It facilitates the trading of stocks for a long-term period. Signup and view all the answers

Study Notes

Business Finance

Finance is a process encompassing the acquisition and effective allocation of funds to achieve business objectives.
Financial management involves planning, analyzing, utilizing, and acquiring funds to meet business goals.
Financial management focuses on maximizing shareholder wealth.
Internal funding sources do not increase debt (e.g., profits, savings, asset sales).
External funding sources involve debt and require repayment (e.g., loans).

Roles of Financial Managers

Board of Directors are elected by shareholders and have voting rights per share. Shareholder's goal is to earn profit through dividends.
Board of Directors' responsibilities include setting policies, approving strategies, and appointing/removing top management.
President oversees operations and ensures strategic execution.
Vice President of Sales and Marketing plans, coordinates sales, conducts market research, analyzes strategies, and builds customer/distributor relationships.
Vice President of Administration manages departments, staff, and payroll.
Vice President of Production ensures production meets demand, minimizes costs, and maximizes facility usage.
Vice President of Finance plans, acquires, and allocates funds.

Financial Decisions

Investing decisions manage the firm's assets.
Financing decisions fund long-term investments and working capital.
Operating decisions involve working capital management (daily business operations).
Dividend declarations involve distributing profits to shareholders.

Financial Institutions

Thrift Banks focus on rural and countryside consumer lending.
Commercial Banks mainly focus on retail and consumer lending, often in local currency.
Universal Banks serve multinational companies and often use multiple currencies.
Investment Companies raise funds through bond issues and initial public offerings.
Non-Bank institutions (like leasing companies) provide financing to companies

Financial Planning

Financial Planning is a decision-making process for achieving financial objectives.
It involves a short-term financial plan (operating) and a long-term financial plan (strategic).
Planning involves setting goals, identifying resources, assigning tasks, making timelines, monitoring/controlling, and contingency planning.

Working Capital Management

The operating cycle tracks inventory purchases, sales, and cash collection
The cash conversion cycle shows the time from paying costs to receiving cash.
Receivables management and inventory management affect cash flow.
Working capital management involves balancing profitability and risk.
Companies use various working capital policies (e.g., aggressive vs. conservative).

Loan Requirements

Bank loan applications require information on applicants' personal data, income sources, credibility, valid identification, financial statements, bank statements, business registration, company profile, and collateral documents.
Non-bank loan applications have similar requirements, but banks may also investigate the applicant's creditworthiness and collaterals.

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