29 Questions
What is a derivative in the context of financial contracts?
A financial instrument based on another asset
In finance, what does a derivative generally provide users with?
The right to buy or sell an underlying asset in the future
How is the value of a derivative determined?
By the time until the contract expires and the underlying asset
What characterizes the current financial system according to the text?
Global in scope with international linkages
How are financial markets and intermediaries connected in today's financial system?
Linked through a vast international telecommunications network
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
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
What is one reason for the separation of ownership and management in large firms?
To achieve the efficient scale of business
What motivates owners to diversify their risks across many firms?
To minimize potential losses from any single firm's failure
How does the separated structure in firms help in saving costs of information gathering?
By reducing duplication of efforts in data collection
What is one role that households play in the world of finance?
Pooling resources for efficient business scale
What is the primary commitment of managers according to the text?
Maximizing the wealth of current stakeholders
How does the competitive stock market align the incentives of managers with shareholders?
Through takeovers as a mechanism
What is one of the financial functions in a corporation according to the text?
Sales forecasting
What is NOT a part of the financial planning process in a corporation as mentioned in the text?
Infrastructure development
How does the text describe the relationship between finance specialists and managers in a corporation?
Finance specialists assist in various financial functions
What mechanism is highlighted in the text as compelling managers to act in the best interests of shareholders?
Market discipline through takeovers
What concept is closely related to the 'Marginal Rate of Substitution'?
Accounting Income
According to accountants, why do they typically ignore the decline in market value of assets?
It is unrealized
In the scenario provided, how much did the individual invest in opening their own retail store?
Php. 1 million
What effect does the economist argue should be considered in the income calculation?
Unrealized losses in market values
How much is the individual paying annually for renting out the small store for their new firm?
Php. 250,000.00
What does the 'Marginal Rate of Substitution' measure in economics?
Rate of exchange of goods while maintaining utility
Why are accounting systems considered an important part of the financial infrastructure?
They ensure financial information is presented in a standard format.
What is the discipline that studies the reporting of financial information called?
Accounting systems
Why are even arbitrary rules usually preferable to no rules at all?
They provide structure and consistency.
Where can one find extended readings on the fundamental principles of finance?
Routledge
What must be done for financial information to be useful?
Presented in a standard format
Who authored the book 'The Economics of money, banking, and financial markets'?
Frederick S. Mishkin
This quiz covers the objectives under Unit 1 of Introduction to Financial Economics, including defining finance, explaining the importance of studying finance, and introducing financial decisions made by households and firms. It also discusses the separation of ownership in large firms where professional managers run the business on behalf of owners.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
