Professional Documents
Culture Documents
Question Review-Managerial Finance PDF
Question Review-Managerial Finance PDF
REVIEW QUESTIONS
Disusun oleh:
NIM: 18301002
REVIEW QUESTIONS
1. (2-1) Who are the key participants in the transactions of financial institutions? Who are
net suppliers, and who are net demanders?
2. (2-2) What role do financial markets play in our economy? What are primary and
secondary markets? What relationship exists between financial institutions and
financial markets?
3. (2-3) What is the money market? What is the Eurocurrency market?
4. (2-4) What is the capital market? What are the primary securities traded in it?
5. (2-5) What are broker markets? What are dealer markets? How do they differ?
ANSWERS
1. The key suppliers of funds and the key demanders of funds are individuals, businesses,
and governments.
Individuals as a group are the net suppliers for financial institutions: They save more
money than they borrow.
Firms are net demanders of funds: They borrow more money than they save.
2. Financial markets are forums in which suppliers of funds and demanders of funds can
transact business directly. Whereas the loans made by financial institutions are granted
without the direct knowledge of the suppliers of funds (savers), suppliers in the
financial markets know where their funds are being lent or invested.
Primary market is financial market in which securities are initially issued; the only
market in which the issuer is directly involved in the transaction.
Secondary market is financial market in which preowned securities (those that are not
new issues) are traded.
The relationship exists between financial institutions and financial markets is financial
institutions actively participate in the financial markets as both suppliers and demanders
of funds. Figure 2.1 depicts the general flow of funds through and between financial
institutions and financial markets as well as the mechanics of private placement
transactions. Domestic or foreign individuals, businesses, and governments may supply
and demand funds. We next briefly discuss the money market, including its
1|Page
international equivalent—the Eurocurrency market. We then end this section with a
discussion of the capital market, which is of key importance to the firm.
4. The capital market is a market that enables suppliers and demanders of long-term funds
to make transactions. Included are securities issues of business and government. The
backbone of the capital market is formed by the broker and dealer markets that provide
a forum for bond and stock transactions. International capital markets also exist.
The primary securities traded in capital market are bonds (long-term debt) and both
common stock and preferred stock (equity, or ownership).
5. Broker market is the securities exchanges on which the two sides of a transaction, the
buyer and seller, are brought together to trade securities.
Dealer market is the market in which the buyer and seller are not brought together
directly but instead have their orders executed by securities dealers that “make markets”
in the given security.
The key different between broker and dealer markets is a technical point dealing with
the way trades are executed. That is, when a trade occurs in a broker market, the two
sides to the transaction, the buyer and the seller, are brought together and the trade takes
place at that point In contrast, when trades are made in a dealer market, the buyer and
the seller are never brought together directly.
2|Page
CHAPTER-2
FINANCIAL STATEMENT AND RATIO ANALYSIS
REVIEW QUESTIONS
1. (3-1) What roles do GAAP, the FASB, and the PCAOB play in the financial reporting
activities of public companies?
2. (3-2) Describe the purpose of each of the four major financial statements.
3. (3-3) Why are the notes to the financial statements important to professional securities
analysts?
4. (3-5) With regard to financial ratio analysis, how do the viewpoints held by the firm’s
present and prospective shareholders, creditors, and management differ?
5. (3-6) What is the difference between cross-sectional and time-series ratio analysis?
What is benchmarking?
ANSWERS
1. Generally Accepted Accounting Principles (GAAP) give the practice and procedure
guidelines used to prepare and maintain financial records and reports; authorized by the
Financial Accounting Standards Board (FASB).
Financial Accounting Standards Board (FASB) is the accounting profession’s rule-
setting body, which authorizes generally accepted accounting principles (GAAP).
Public Company Accounting Oversight Board (PCAOB) is a not-for-profit corporation
established by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and
further the public interest in the preparation of informative, fair, and independent audit
reports.
2. The four key financial statements required by the SEC for reporting to shareholders are:
a. The Income Statement
The purpose of income statement is to provides a financial summary of the firm’s
operating results during a specified period. Most common are income statements
covering a 1-year period ending at a specified date, ordinarily December 31 of the
calendar year. Many large firms, however, operate on a 12-month financial cycle,
or fiscal year, that ends at a time other than December 31. In addition, monthly
income statements are typically prepared for use by management, and quarterly
3|Page
statements must be made available to the stockholders of publicly owned
corporations.
b. The Balance Sheet
The purpose of balance sheet is to presents a summary statement of the firm’s
financial position at a given time. The statement balances the firm’s assets (what it
owns) against its financing, which can be either debt (what it owes) or equity (what
was provided by owners).
c. The Statement of Stockholders’ Equity
The purpose of statement of retained earnings is an abbreviated form of the
statement of stockholders’ equity. Unlike the statement of stockholders’ equity,
which shows all equity account transactions that occurred during a given year, the
statement of retained earnings reconciles the net income earned during a given year,
and any cash dividends paid, with the change in retained earnings between the start
and the end of that year.
d. The Statement of Cash Flows.
The purpose statement of cash flows is a summary of the cash flows over the period
of concern. The statement provides insight into the firm’s operating, investment,
and financing cash flows and reconciles them with changes in its cash and
marketable securities during the period.
5|Page