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Questions and Answers
What field does finance draw its theoretical foundation from?
What field does finance draw its theoretical foundation from?
Economics
What is one of the tools used in financial decision making outside of economics?
What is one of the tools used in financial decision making outside of economics?
- Mathematics
- Statistics
- Psychology
- Accountancy (correct)
The financial system does not play a role in obtaining funds.
The financial system does not play a role in obtaining funds.
False (B)
Labor can generate wealth in the form of ______.
Labor can generate wealth in the form of ______.
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What occurs after labor generates wealth and a person acquires land?
What occurs after labor generates wealth and a person acquires land?
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What is the role of financial intermediaries in the flow of funds?
What is the role of financial intermediaries in the flow of funds?
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Match the sources of wealth with their respective types:
Match the sources of wealth with their respective types:
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Study Notes
Nature of Financial System
- Finance is often viewed as a branch of economics, termed financial economics, but draws tools from various disciplines including accountancy.
- Accounting provides quantitative financial information, aiding in the analysis of transactions and financial outcomes to advise on decisions.
- The financial system is crucial for facilitating the transfer of funds from surplus entities (those with funds) to deficit entities (those needing funds).
Sources of Wealth
- Wealth generation is vital for operational continuity in commerce, and it is derived through various economic sources:
- Labor: Earned as salaries and wages through hard work.
- Entrepreneurship: Profits can be made by managing and investing in business ventures.
- Land: Generates wealth through rent when acquired or leased.
- Capital: Investments can earn interest over time.
- The process of wealth accumulation involves labor leading to savings, property acquisition, investment, entrepreneurship, and the continuous cycle of business growth.
Flow of Funds
- The financial system operates as a mechanism for shifting funds from lenders to borrowers through:
- Indirect Finance: Involves financial intermediaries facilitating the flow of funds.
- Entities Involved:
- Lenders include households, businesses, governments, and foreigners.
- Borrowers comprise businesses, governments, and households, among others.
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