Financial Management Overview

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Questions and Answers

What was the primary goal of the Dodd-Frank Act?

To reduce systemic risks in the U.S. financial system (correct)

To give more power to management in publicly owned companies

To increase audit failures in public companies

To abolish the Sarbanes-Oxley Act of 2002

What is the main focus of agency theory?

The impact of the Sarbanes-Oxley Act on public companies

The relationship between owners and managers of a firm (correct)

The role of institutional investors in corporate governance

The regulation of financial institutions

What is a key feature of the Sarbanes-Oxley Act of 2002?

It only applied to small businesses

It created legally binding standards for public companies (correct)

It increased the power of institutional investors

It abolished the Dodd-Frank Act

What is a key characteristic of institutional investors?

They have more say in how publicly owned companies are managed Signup and view all the answers

What is a main difference between the focus of owners and managers?

Owners focus on shareholders, while managers operate the firm Signup and view all the answers

What is notable about the Dodd-Frank Act?

It was the first major financial regulatory change since the Great Depression Signup and view all the answers

What is a key responsibility of a Chief Financial Officer (CFO)?

Overseeing financial planning, accounting, and tax systems Signup and view all the answers

What is the main focus of accounting?

Measuring business activity results Signup and view all the answers

What is the primary concern of investments?

Valuing stocks and bonds of companies Signup and view all the answers

What is the role of financial management in a company?

To include how outside investors evaluate the company Signup and view all the answers

What is the main difference between investments and corporate finance?

Investments focus on valuing securities, while corporate finance focuses on determining which assets to develop or buy Signup and view all the answers

What is often used interchangeably with corporate finance?

Financial management Signup and view all the answers

What does a portfolio typically include in investments?

Securities from multiple companies Signup and view all the answers

What is the focus of corporate finance?

Determining which assets the firm should develop or buy Signup and view all the answers

What is the primary goal of financial managers?

Wealth maximization Signup and view all the answers

What is the central focus of finance?

The relationship of risk to return Signup and view all the answers

What is the role of economics in finance?

Providing a picture of the business environment Signup and view all the answers

What is the purpose of accounting in finance?

To provide financial data Signup and view all the answers

What is the focus of financial managers in their daily activities?

Credit and inventory management Signup and view all the answers

What is the relationship between finance and accounting?

Finance uses data from accounting Signup and view all the answers

What is the focus of long-term decisions in finance?

Raising funds Signup and view all the answers

What concept is related to the time value of money?

Future and present value Signup and view all the answers

What has led to the need for managers to understand international capital flows and foreign currency hedging strategies?

Impact of international affairs and technology Signup and view all the answers

What is the main objective of searching for lower-cost sources of financing in global markets?

To allocate capital efficiently Signup and view all the answers

What is the role of computerized electronic funds transfer systems in international financial markets?

Streamlining financial transactions Signup and view all the answers

What is the focus of Chapter 2 of the text?

Financial Analysis and Planning Signup and view all the answers

What is the structure of the text?

Numbered chapters Signup and view all the answers

What is the fundamental concept behind the Time Value of Money?

A dollar received today is worth more than a dollar received in the future Signup and view all the answers

What is the formula for Future Value (FV)?

FV = PV(1 + i)n Signup and view all the answers

What is the purpose of reorganizing the future value equation to a present value equation?

To find the present value of a future value Signup and view all the answers

What is the formula for Present Value (PV)?

PV = FV / (1 + i)n Signup and view all the answers

What does the interest rate (i) represent in the time value of money formulas?

The rate at which the value of money grows or declines Signup and view all the answers

What does the number of periods (n) represent in the time value of money formulas?

The length of time over which the value of money grows or declines Signup and view all the answers

What is the relationship between the present value and future value in the time value of money?

The present value is always less than the future value Signup and view all the answers

What is the main advantage of using the time value of money concepts in finance?

It helps in making investment decisions by comparing present values Signup and view all the answers

Study Notes

The Goals and Activities of Financial Management

The primary goal of financial managers is to maximize wealth through daily activities such as credit and inventory management and through longer-term decisions related to raising funds.
Financial managers attempt to achieve wealth maximization through daily activities and longer-term decisions.

The Field of Finance

Finance fits between economics and accounting, with economics providing a picture of the business environment and accounting providing financial data.
Financial managers need to understand and interpret financial statements, and finance is closely tied to accounting.
Finance is forward-thinking, whereas accounting measures business activity results.

Investments vs. Corporate Finance

Investments involve investment principles to value stocks and bonds of companies, and investors choose which to purchase, with a portfolio including securities from multiple companies.
Corporate finance involves principles used to determine which assets the firm should develop or buy.

Corporate Governance

The Sarbanes-Oxley Act of 2002 created legally binding standards for public companies in response to scandals and audit failures.
The Dodd-Frank Act of 2010, also known as the Wall Street Reform and Consumer Protection Act, aimed to reduce systemic risks that undermine the financial system in the U.S.
Agency theory examines the relationship and potential conflict between owners and managers of a firm.
Institutional investors have a significant say in how publicly owned companies are managed.

The Time Value of Money

The time value of money concept states that a dollar received today is worth more than a dollar expected to be received in the future.
The future value equation is FV = PV(1 + i)n, where FV is the future value, PV is the present value, i is the interest rate, and n is the number of periods.
The present value equation is PV = FV / (1 + i)n.

Internationalization of Financial Markets

The allocation of capital and search for lower-cost sources of financing have led to the need for managers to understand international capital flows, computerized electronic funds transfer systems, and foreign currency hedging strategies.

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Description

This quiz covers the goals and activities of financial management, based on the 18th edition of Foundations of Financial Management by Block, Hirt, and Danielsen.