Dokuz Eylül University Faculty of Business FIN 2002 Business Finance Midterm Examination Questions 1-What are the major differences between accounting and finance with respect to emphasis 2-What are the primary activities of a financial manager ? Explain Financial planning: Preparing the financial plan, which projects revenues, expenditures, and financing needs over a given period. Investment (spending money): Investing the firm’s funds in projects and securities that provide high returns in relation to their risks. Financing (raising money): Obtaining funding for the firm’s operations and investments and seeking the best balance between debt (borrowed funds) and equity (funds raised through the sale of ownership in the business). What is the main role of a financial manager? Financial managers are responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization. Financial managers typically: Help management make financial decisions. What is financial management process? Financial Management is a vital activity in any organization. It is the process of planning, organizing, controlling and monitoring financial resources with a view to achieve organizational goals and objectives. What are the steps in financial planning? The financial planning process is a logical, six-step procedure: 1. 2. 3. 4. 5. 6. (1) determining your current financial situation. (2) developing financial goals. (3) identifying alternative courses of action. (4) evaluating alternatives. (5) creating and implementing a financial action plan, and. (6) reevaluating and revising the plan. What are the three types of financial management? The three types of financial management decisions are capital budgeting, capital structure, and working capital management. A business transaction that would include capital budgeting is if your company should open another store or not. What are the four areas of finance? Discuss the four basic areas of finance. Which area is closely related to your current work? Corporate finance, Investments, Financial institutions, International finance. What is financial decision? Financial decision is a process which is responsible for all the decisions related with liabilities and stockholder's equity of the company as well as the issuance of bonds. Establish your financial goals: Setting the goals you want to achieve and the risk that you would be able to suffer. How do I become a successful financial manager? Be sure to follow these ten tips to become a better financial manager. 1. 2. 3. 4. 5. 6. Tip #1: Improve communication skills and be transparent. Tip #2: Develop your own skills. Tip #3 Deal with conflict. Tip #4: Set high, but realistic expectations. Tip #5: Be open to new ideas and new perspectives. Tip #6: Take a break. How do you define cash flow? In accounting, cash flow is the difference in amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). It is called positive if the closing balance is higher than the opening balance, otherwise called negative. What is the role of finance? FINANCE is the function in a business responsible for acquiring funds for the firm, managing funds within the firm, and planning for the expenditure of funds on various assets. FINANCIAL MANAGEMENT is the job of managing a firm's resources so it can meet its goals and objectives. Why is financial management important? Financial management is very important in the field of increasing the wealth of the investors and the business concern. Ultimate aim of any business concern will achieve the maximum profit and higher profitability leads to maximize the wealth of the investors as well as the nation. Is finance manager a good job? A job with a low stress level, good work-life balance and solid prospects to improve, get promoted and earn a higher salary would make many employees happy. Here's how Financial Managers job satisfaction is rated in terms of upward mobility, stress level and flexibility. What skills do financial managers need? Key skills for financial managers Employers look for evidence of good oral and written communication skills, self-motivation, commercial awareness, initiative and the ability to work as part of a team. Excellent problemsolving, analytical, technical, IT and numerical abilities are crucial. What are two main finance activities? Purchasing and selling assets or products, organizing accounts, and maintaining accounts, for example, are financial activities. Arranging loans, selling bonds or stocks are also financial activities. What are the 7 business activities? There are different types of business activities based on the nature and requirement of the business. Following are different types of business activities. 1) Budgeting : 2) Accounting and Auditing : 3) Marketing : 4) Sales activities : 6) Operations and Supply chain : 7) Customer service : 3-How does the financial system function and why does a financial crisis occur ? Explain What Is a Financial Crisis? In a financial crisis, asset prices see a steep decline in value, businesses and consumers are unable to pay their debts, and financial institutions experience liquidity shortages. A financial crisis is often associated with a panic or a bank run during which investors sell off assets or withdraw money from savings accounts because they fear that the value of those assets will drop if they remain in a financial institution. Other situations that may be labeled a financial crisis include the bursting of a speculative financial bubble, a stock market crash, a sovereign default, or a currency crisis. A financial crisis may be limited to banks or spread throughout a single economy, the economy of a region, or economies worldwide. What Causes a Financial Crisis? A financial crisis may have multiple causes. Generally, a crisis can occur if institutions or assets are overvalued, and can be exacerbated by irrational or herd-like investor behavior. For example, a rapid string of selloffs can result in lower asset prices, prompting individuals to dump assets or make huge savings withdrawals when a bank failure is rumored. 4-Discuss the concept of finance and money from the perspective of a consumer and an investor.