Fundamentals of Finance and Financial Management

Question 1

The different definition of finance

Answer 1

As verb: To provide funding
Noun: is a field in business and economics.
Economist: Finance is the allocation of scarce resources which include money.
Business: It is the function or area which is responsible for managing the aspect of the operations that deals with money matters. It is concerned not only with the allocation of funds but also with the sources of such funds.

Question 2

What is Financial Management

Answer 2

-It covers the planning, organizing, leading, and controlling of all financial activities of an organization.
-Financial management puts emphasis on managing the funds of an organization in order to create value for the firm by minimizing risks (cost and expenses) and maximizing returns (sales and profit).

Question 3

Two Branches of Finance

Answer 3

-Public Finance
-Private Finance

Question 4

What is Public finance?

Answer 4

Covers management of public funds, national budget, and tools for fiscal policy such as government expenditure and taxation.

Question 5

Examples of Public Expenditure

Answer 5

Construction of public roads, public market, and other infrastructure projects that are intended for public use.

Question 6

What is Private finance

Answer 6

Everything that pertains to personal financial planning, including coming up with a budget that matches one’s short and long term needs, creating a savings plan for contingencies, and investing infinancial products such as retirement plan and insurance.

Question 7

What is Corporate Finance (Business Finance)

Answer 7

-Is primarily concerned with the management of all the financial activities of an enterprise or a business organization.
-Ultimate goal of corporate finance is to maximize shareholder value through sound financial planning.

Question 8

What are the different areas of operation in an organization

Answer 8

-Research and Development
-Employee relations
-Marketing promotion
-Marketing promotion
-Expansion
-Meeting Contingencies
-Government agencies
-Asset management
-Information system

Question 9

The Creation of new products or for improvements that need to be made on existing products.

Answer 9

Research and Development

Question 10

The Office of Human Resources will rely on the Finance Department for data on how much the organization can spend on wages, benefits, training and skills development, and company activities.

Answer 10

Employee relations

Question 11

Finance will help ? by determining the optimal amount that should be spent on marketing activities such as advertising and promotion.

Answer 11

Marketing Promotion

Question 12

Is in charge of capital budgeting

Answer 12

Expansion

Question 13

Finance can help the organization by including in the budget provisions for these risks. Such an approach also minimizes the disruption in the way the business operates when one or more of these contingencies occur.

Answer 13

Meeting contingencies

Question 14

It is responsible for determining how much taxes are due, the licenses and permits that need to be processed and paid to continue the firm’s operations, and even the training of employees on the treatment of sales tax and discounts given to customers.

Answer 14

Government Agencies

Question 15

Is tasked to include in the master budget plan the disposal, sales, or acquisition of fixed assets such as machinery and equipment or the construction of a new plant or facility.

Answer 15

Asset management

Question 16

Is the decrease in the value of certain types of assets (e.g., buildings, machineries, or equipment) over their useful life.

Answer 16

Depreciation

Question 17

To make sound financial decisions, finance managers rely on information supplied to them by the different department heads, including the accounting supervisor.

Answer 17

Information systems

Question 18

What is Financial Institution?

Answer 18

Is an organization that handles financial transactions for individuals, groups, and other organizations - profit, nonprofit, private, or government owned.

Question 19

Financial institutions can either be?

Answer 19

-Depository
-Non-Depository

Question 20

What is Depository Institution

Answer 20

As the name implies, manages money that is deposited by individuals and organizations.

Question 21

Examples of Depository institution

Answer 21

Banks, credit unions, and savings and loan associations.

Question 22

What is Non-depository institution

Answer 22

Does not handle deposits. Instead, it serves as an intermediary between savers and demanders of funds, or individuals, households, and other business that need additional funds to support their personal needs or business operations.

Question 23

Example of Non-depository Institution

Answer 23

• Insurance companies
• Pension Funds
• Securities
• Brokerage firms
• Mutual funds

Question 24

Financial institutions are also referred to as

Answer 24

Financial Intermediaries
- Because at times they facilitate the flow of funds between the savers and demanders of funds in an economy or a financial system.

Question 25

What are the Types of Financial Institutions

Answer 25

- Commercial Banks - Savings and loans banks - Credit Unions - Investment banks - Insurance companies - Brokerage - Investment companies

Question 26

Accept deposits from individuals and organizations that have excess funds and provide loans to those who want to borrow money. Traditionally, savings and loans are the main services that ? Provide to their customers.

Answer 26

Commercial Banks

Question 27

They are also referred to as S&L or thrift banks. Unlike in commercial banks, the bulk of the financial transactions of S&L are dedicated to residential mortgages.

Answer 27

Savings and Loans banks

Question 28

Are usually an offshoot ( or are associated with an offshoot) of cooperatives. The way they operate is similar to an S&L. The interest rates offered by credit unions on savings accounts are generally higher or lower on certain types of loans compared to what most banks will offer. - However, they are not open to the general public. Because of the association with cooperatives, only members are serviced by them.

Answer 28

Credit Unions

Question 29

They perform the task of an intermediary which facilitates the transactions of individuals and institutions in investing. For instance, investment banks may facilitate the buying and selling of stocks.

Answer 29

Investment Banks

Question 30

Provide individuals and organizations a way on how to manage risk. They operate on the principle of pooling of risks wherein premiums are collected from clients. In exchange, these clients are protected from unexpected events like fire, flood, earthquakes, and in some cases, lawsuits, illnesses, disabilities, and other related losses.

Answer 30

Insurance Companies

Question 31

Is a financial institution that earns through commissions. It facilitate the buying and selling of capital securities such as bonds and equities

Answer 31

Brokerage

Question 32

Are corporations wherein individuals and other organizations invest in investment portfolios that are managed by professionals who keep track of market trends and the performance of different financial products or instruments.

Answer 32

Investments companies

Question 33

What is Financial instrument

Answer 33

Is a document that signifies a legal or binding agreement between two parties. Financial products are signified by instruments when individuals and organizations alike deal with each other in completing financial transactions, thus the use of organizations alike deal with each other in completing financial transactions, thus the use of the term financial instruments.

Question 34

Most Common Financial Instruments

Answer 34

- Savings - Loans - Bonds - Security - Treasury bills - Insurance products - Mutual funds

Question 35

Is the most common type of financial product that is offered to customers. It could be just a regular account, one where the depositor is issued a passbook and/or an ATM card, or on a more long-term basis such as a time deposit where the depositor is issued a time deposit certificate.

Answer 35

Savings

Question 36

What do banks do with the deposits. They ? them to individuals and organizations who need funds. The interest rate that banks charge on the loans in higher than what they pay to the depositors.

Answer 36

Loans

Question 37

- Is a loan granted to other organizations by individuals and organizations with excess funds.

Answer 37

Bonds

Question 38

When an investor has a security, this means that he or she has a financial instrument signifying ownership of stocks of a publicly traded company, or a bond issued by a government agency.

Answer 38

Security

Question 39

The government may also issue financial instruments or securities to the public. Often referred to as ?, yield no interest but are sold at a discount. The earnings on ? are minimal as the risk level is very low.

Answer 39

Treasury bills

Question 40

Almost everything can be insured-homes, vehicles, businesses, and many more. People also buy insurance coverage for illnesses, injuries, accidents, and disabilities. Life Insurance provides financial protection to surviving loved ones upon passing of the policyholder.

Answer 40

Insurance Products

Question 41

Are based on the pooling of funds from different investors. the funds are then invested into different financial products such as securities, stock, and bonds. ? Is managed by a fund manager employed by a mutual fund company.

Answer 41

Mutual funds

Question 42

What is Financial Markets

Answer 42

Is a means for the buying and selling of stocks, bonds, and other financial instruments.

Question 43

What is Money Markets

Answer 43

- are where transactions involving short-term debt securities take place. - Some examples of money market securities include treasury bills, commercial paper, and negotiable certificates of deposit issued by governments, businesses, and other financial institutions.

Question 44

What is Stocks

Answer 44

are shares of a corporation sold to investors while bonds are, in essence, money loaned.

Question 45

What is Capital Markets

Answer 45

are where transactions involving long-term debt securities, or those maturing in more than one year, take place. The buying and selling of stocks issued by corporations also take place in capital markets.

Question 46

Capital market transactions may be classified according to type of issue as:

Answer 46

- Primary Market - Secondary Market

Question 47

It covers all new issues of capital securities. For example, issuance of new bonds or a company's initial public offering (IPO) are primary market transactions.

Answer 47

Primary Market

Question 48

It covers trade of previously issued securities. The buy and sell of outstanding shares through the stock exchange is an example.

Answer 48

Secondary Market

Question 49

What are the Qualities of Finance Professional?

Answer 49

- Competence - Integrity - Analytical thinking - Ability to think strategically - Leader ship

Question 50

Finance professionals are expected to have the qualifications to handle their jobs. Some finance positions require technical expertise and the ability to understand and stay abreast of new techniques, tools, and regulations related to finance.

Answer 50

Competence

Question 50

They should be able to interpret and analyze financial data and use findings to understand and solve problems. In fact, being ? is what sets finance professionals apart from those who can simply prepare reports.

Answer 50

Analytical thinking

Question 50

Refers to the quality of being honest and having strong moral standards or principles. Finance professionals are expected to do what is right even no one is watching.

Answer 50

Integrity

Question 51

Entails having the ability to come up with plans that are in line with the firm's vision, mission, and objectives. Finance mangers should also possess the ability to determine priorities and identify potential risk and opportunities.

Answer 51

Ability to think strategically

Question 52

Means teaching, sharing knowledge, motivating other employees to meet or exceed standards, and encouraging everyone to meet targets.

Answer 52

Leadership

Question 53

What is Financial Statement?

Answer 53

Is a record that gives a picture or description of how an individual, a business, or an organization looks in terms of financial health. Financial statements summarize all the financial activities within a specified period of time.

Question 54

The three most commonly prepared financial statements in business organizations are:

Answer 54

- The statement of financial position ( Balance Sheet) - Statement of comprehensive income ( Income Statement ) - Statement of Cash Flows

Question 55

What is GAAP?

Answer 55

Generally Accepted Accounting Principles - is a standard practice for business in presenting financial statements to maintain the continuity of information and uniformity of presentation across international borders.

Question 56

Is a practical rule in accounting which dictates that strict adherence to the GAAP is not required when the items are not significant enough to affect the evaluation decision and fairness of the financial statements.

Answer 56

Materiality

Question 57

Requires proper accounting for all transactions. The amount that should be reflected on record should be the actual amount involved in the transaction that took place.

Answer 57

Faithfull representation

Question 58

Means relevance of information should prioritized over format in the presentation of financial information.

Answer 58

Substance over form

Question 59

Means that when decisions makers have to choose between alternatives, the alternative that has the least effect on equity should be chosen. In other words, it is preferred that gains be understated and losses be overstated rather than the reverse.

Answer 59

Conservatism

Question 60

Means that if financial information is to be useful, it needs to be comprehensive and reported in an easy-to-understand manner.

Answer 60

Understandability

Question 61

Means that information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date. It may be made within an entity or across entities, with comparable information presenting both similarities and dissimilarities.

Answer 61

Comparability

Question 62

Also known as horizontal comparability or intra comparability - is the quality of information that allows comparisons within a single entity from one accounting period to the next.

Answer 62

Comparability within Entity

Question 63

Also known as inter comparability or dimensional comparability - is the quality of information that allows comparisons between two or more entities engaged in the same industry.

Answer 63

Comparability across entities

Question 64

Requires that accounting methods and principles used by the firm should be uniform from one accounting period to another.

Answer 64

Consistency

Question 65

Means that users of financial statements, all knowledgeable but independent from one another, are able to arrive at a consensus that a financial record is a faithful representation. Financial information is ? when there is enough evidence so that different users of financial report, for instance, will arrive at the same conclusion.

Answer 65

Verifiability

Question 66

Means that financial information should be made available to the users in a timely manner.

Answer 66

Timeliness

Question 67

Means that the benefit gained by a firm from the information should outweigh the cost associated with obtaining the information.

Answer 67

Cost constraint

Question 68

What is Internal stakeholders

Answer 68

are directly involved in the management or operation of the business

Question 69

What are the internal Stakeholders

Answer 69

- Employees - Stock Holders - Top Management - Department managers - Board of directors - Labor unions

Question 70

They are concerned with the way things are run in the organization from policies and procedure, hiring and retention, to compensation and benefits, which is their most important concern.

Answer 70

Employees

Question 71

Are those who bought shares of stocks of a publicly traded corporation.

Answer 71

Stockholders

Question 72

Members of the top management team are employees as well, but from the financial management perspective, they are most concerned with the quality of financial data that are made available to them.

Answer 72

Top management

Question 73

This is a group of individuals who were elected by the stockholders to represent them. the board of directors usually consists of highly qualified, very experienced people in the field or industry.

Answer 73

Board of Directors

Question 74

Is an organization of employees whose mission is to represent the employees in negotiations with employers.

Answer 74

Labor Union

Question 75

What is external stakeholder?

Answer 75

Is someone who is not directly involved in the business but, in one way or another, has a stake on how the business is managed or how it is performing.

Question 76

What are the external stakeholders

Answer 76

- Customers - Suppliers - Government - Competitors - Financial institutions - Potential investors