Principles of Finance Chapters 1 & 2

What is the focus of the study of finance?

The trade-off between risk and return in managing, moving, and raising money.

What are the three main areas of finance?

Business Finance, Investments, and Financial Markets and Institutions.

What role does the controller play in an organization?

Oversees financial reporting and accounting.

What is the main responsibility of a treasurer in finance?

Manages cash flow, investments, and external financing.

How has technology impacted financial decision-making?

Advancements in technology have made it easier to gather, analyze, and store information.

What distinguishes primary markets from secondary markets?

Primary markets are where new securities are issued, while secondary markets are where existing securities are traded.

What do microeconomics and macroeconomics focus on?

Microeconomics focuses on individual and business decisions, while macroeconomics examines the economy as a whole.

What defines money markets and capital markets?

Money markets are short-term, low-risk securities, while capital markets involve long-term securities like stocks and bonds.

What is the time value of money (TVM)?

The concept that money today is worth more than the same amount in the future due to its earning potential.

What are the characteristics of sole proprietorships?

Easy to form but with unlimited liability for the owner.

How do shareholders relate to company management?

Shareholders are the owners who elect the board of directors, while management runs day-to-day operations.

What are some key responsibilities of the board of directors?

Hiring and firing CEOs, setting dividend policies, and ensuring resources for company success.

What issue arises from the relationship between managers and shareholders?

Agency problems, where managers may act in their own interests rather than in the best interests of shareholders.

What is the purpose of investor relations (IR)?

To manage communication between the company and its investors, ensuring transparency and compliance.

Why do companies expand into global markets?

To access new markets, reduce costs, and diversify risk, although it introduces regulatory complexities.