35 Questions
What was the primary goal of the Dodd-Frank Act?
To reduce systemic risks in the U.S. financial system
What is the main focus of agency theory?
The relationship between owners and managers of a firm
What is a key feature of the Sarbanes-Oxley Act of 2002?
It created legally binding standards for public companies
What is a key characteristic of institutional investors?
They have more say in how publicly owned companies are managed
What is a main difference between the focus of owners and managers?
Owners focus on shareholders, while managers operate the firm
What is notable about the Dodd-Frank Act?
It was the first major financial regulatory change since the Great Depression
What is a key responsibility of a Chief Financial Officer (CFO)?
Overseeing financial planning, accounting, and tax systems
What is the main focus of accounting?
Measuring business activity results
What is the primary concern of investments?
Valuing stocks and bonds of companies
What is the role of financial management in a company?
To include how outside investors evaluate the company
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
What is often used interchangeably with corporate finance?
Financial management
What does a portfolio typically include in investments?
Securities from multiple companies
What is the focus of corporate finance?
Determining which assets the firm should develop or buy
What is the primary goal of financial managers?
Wealth maximization
What is the central focus of finance?
The relationship of risk to return
What is the role of economics in finance?
Providing a picture of the business environment
What is the purpose of accounting in finance?
To provide financial data
What is the focus of financial managers in their daily activities?
Credit and inventory management
What is the relationship between finance and accounting?
Finance uses data from accounting
What is the focus of long-term decisions in finance?
Raising funds
What concept is related to the time value of money?
Future and present value
What has led to the need for managers to understand international capital flows and foreign currency hedging strategies?
Impact of international affairs and technology
What is the main objective of searching for lower-cost sources of financing in global markets?
To allocate capital efficiently
What is the role of computerized electronic funds transfer systems in international financial markets?
Streamlining financial transactions
What is the focus of Chapter 2 of the text?
Financial Analysis and Planning
What is the structure of the text?
Numbered chapters
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
What is the formula for Future Value (FV)?
FV = PV(1 + i)n
What is the purpose of reorganizing the future value equation to a present value equation?
To find the present value of a future value
What is the formula for Present Value (PV)?
PV = FV / (1 + i)n
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
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
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
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
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.
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.
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