QUESTION How do you think derivatives helped cause the 2008 financial meltdown? What will be an ideal response? ANSWER Answer: Derivatives required the use of computers, which led to financial products that were far too complex, making it difficult to properly value them. These complex, difficult-to-value products were then sold to others, and yet […]
QUESTION What are the four reasons why companies need to obtain financing? What will be an ideal response? ANSWER Answer: Companies need to obtain financing to manage everyday business activities, extend credit to their customers, keep enough product available, and make major investments. Explanation: Companies, large and small, need funds for managing everyday business […]
QUESTION How are both cash and capital budgets different from operating budgets? What will be an ideal response? ANSWER Answer: Capital and cash budgets are financial budgets, meaning they concentrate on the company’s financial goals and the resources needed to achieve them. Operating budgets are not financial budgets—they instead identify a firm’s sales and […]
QUESTION Why do you think the role of financial manager is so important in a business? What will be an ideal response? ANSWER Answer: Financial managers are responsible for planning and controlling the acquisition and uses of a firm’s funds. Central to the job of financial management is risk-return trade-off, in which financial managers […]
QUESTION Why do you think credit is so important to so many people? What will be an ideal response? ANSWER Answer: Credit is important because most ordinary people can’t buy big-ticket items (cars, houses, etc.) without credit. Companies, too, have big-ticket items for which credit is often needed, such as land, buildings, equipment, etc. […]
QUESTION What are the nondeposit companies called that make short-term loans at higher interest rates to individuals or businesses that don’t meet the credit requirements of regular banks? A) insurance companies B) pension funds C) finance companies D) brokerage firms E) money market firms ANSWER Answer: C Explanation: C) Finance companies are nondeposit companies […]
QUESTION As your firm’s controller, you review an invoice that says “2/10, Net 30.” What does that mean? What will be an ideal response? ANSWER Answer: When an invoice says “2/10, Net 30,” that means that the buyer can take a 2% discount for paying the bill within 10 days, but in any case […]
QUESTION What are the nondeposit institutions that provide retirement benefits to workers and their families called? A) insurance companies B) pension funds C) finance companies D) brokerage firms E) money market firms ANSWER Answer: B Explanation: B) Pension funds are nondeposit institutions that provide retirement benefits to workers and their families.
QUESTION How do lenders make money? What will be an ideal response? ANSWER Answer: The main way lenders make money is by charging interest on their loans. Explanation: Lenders make money by charging interest on their loans.
QUESTION What is the process called that insurance companies use to decide who should be insured? A) underwriting B) evaluating C) financing D) insuring E) accounting ANSWER Answer: A Explanation: A) The process that insurance companies use to determine who should be insured is called underwriting.
