Introduction to Financial Economics Unit 1: Financial System (Part 2)

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What is a derivative in the context of financial contracts?

A type of stock

A financial instrument based on another asset (correct)

A benchmark for stock prices

An obligation to buy or sell an underlying asset

In finance, what does a derivative generally provide users with?

The right to buy or sell an underlying asset in the future (correct)

The obligation to buy or sell an underlying asset

The ability to directly invest in the underlying asset

A guaranteed profit on the derivative value

How is the value of a derivative determined?

By the total assets of the parties involved

By the stock market value

By the time until the contract expires and the underlying asset (correct)

By the country where the derivative was issued

What characterizes the current financial system according to the text?

Global in scope with international linkages Signup and view all the answers

How are financial markets and intermediaries connected in today's financial system?

Linked through a vast international telecommunications network Signup and view all the answers

In which scenario would a large corporation based in Germany consider international financing options?

When looking at international stock exchanges and pension funds for financing Signup and view all the answers

Why do owners of a firm often delegate the management of the business to professional managers?

Professional managers have a superior ability to run the business Signup and view all the answers

What is one reason for the separation of ownership and management in large firms?

To achieve the efficient scale of business Signup and view all the answers

What motivates owners to diversify their risks across many firms?

To minimize potential losses from any single firm's failure Signup and view all the answers

How does the separated structure in firms help in saving costs of information gathering?

By reducing duplication of efforts in data collection Signup and view all the answers

What is one role that households play in the world of finance?

Pooling resources for efficient business scale Signup and view all the answers

What is the primary commitment of managers according to the text?

Maximizing the wealth of current stakeholders Signup and view all the answers

How does the competitive stock market align the incentives of managers with shareholders?

Through takeovers as a mechanism Signup and view all the answers

What is one of the financial functions in a corporation according to the text?

Sales forecasting Signup and view all the answers

What is NOT a part of the financial planning process in a corporation as mentioned in the text?

Infrastructure development Signup and view all the answers

How does the text describe the relationship between finance specialists and managers in a corporation?

Finance specialists assist in various financial functions Signup and view all the answers

What mechanism is highlighted in the text as compelling managers to act in the best interests of shareholders?

Market discipline through takeovers Signup and view all the answers

What concept is closely related to the 'Marginal Rate of Substitution'?

Accounting Income Signup and view all the answers

According to accountants, why do they typically ignore the decline in market value of assets?

It is unrealized Signup and view all the answers

In the scenario provided, how much did the individual invest in opening their own retail store?

Php. 1 million Signup and view all the answers

What effect does the economist argue should be considered in the income calculation?

Unrealized losses in market values Signup and view all the answers

How much is the individual paying annually for renting out the small store for their new firm?

Php. 250,000.00 Signup and view all the answers

What does the 'Marginal Rate of Substitution' measure in economics?

Rate of exchange of goods while maintaining utility Signup and view all the answers

Why are accounting systems considered an important part of the financial infrastructure?

They ensure financial information is presented in a standard format. Signup and view all the answers

Introduction to Financial Economics Unit 1: Financial System (Part 2)

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Questions and Answers

What is a derivative in the context of financial contracts?

In finance, what does a derivative generally provide users with?

How is the value of a derivative determined?

What characterizes the current financial system according to the text?

How are financial markets and intermediaries connected in today's financial system?

In which scenario would a large corporation based in Germany consider international financing options?

Why do owners of a firm often delegate the management of the business to professional managers?

What is one reason for the separation of ownership and management in large firms?

What motivates owners to diversify their risks across many firms?

How does the separated structure in firms help in saving costs of information gathering?

What is one role that households play in the world of finance?

What is the primary commitment of managers according to the text?

How does the competitive stock market align the incentives of managers with shareholders?

What is one of the financial functions in a corporation according to the text?

What is NOT a part of the financial planning process in a corporation as mentioned in the text?

How does the text describe the relationship between finance specialists and managers in a corporation?

What mechanism is highlighted in the text as compelling managers to act in the best interests of shareholders?

What concept is closely related to the 'Marginal Rate of Substitution'?

According to accountants, why do they typically ignore the decline in market value of assets?

In the scenario provided, how much did the individual invest in opening their own retail store?

What effect does the economist argue should be considered in the income calculation?

How much is the individual paying annually for renting out the small store for their new firm?

What does the 'Marginal Rate of Substitution' measure in economics?

Why are accounting systems considered an important part of the financial infrastructure?

What is the discipline that studies the reporting of financial information called?

Why are even arbitrary rules usually preferable to no rules at all?

Where can one find extended readings on the fundamental principles of finance?

What must be done for financial information to be useful?

Who authored the book 'The Economics of money, banking, and financial markets'?

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