D076 Finance Skills for Managers - Set 1 - Part 2

Correct Answer: Primary market

When a company issues stock to the public for the first time, it is done through the primary market to raise capital directly from investors.

Correct Answer: An institution that accepts and pays interest on deposits of money, as well as extends loans

Depository institutions, such as banks and credit unions, accept deposits from the public and provide loans, often with interest, as part of their services.

Correct Answer: To conduct financial transactions such as investments, loans, and deposits

Financial institutions primarily engage in transactions related to investments, loans, and deposits, facilitating the movement of capital and resources in the economy.

Correct Answer: Pension fund

Pension funds focus on providing retirement savings and income for employees through employers, investing in various financial instruments to generate returns for future payouts.

Correct Answer: They use returns from stocks and bonds

Insurance companies typically invest premiums into financial instruments like stocks and bonds, and they use the returns from these investments to pay out claims.

Correct Answer: Central bank

Central banks regulate the money supply and influence interest rates to maintain a healthy economy, with the goal of controlling inflation and unemployment.

Correct Answer: Leading, lagging, and coincident

Economic indicators are classified into three types: leading (predicting future economic activity), lagging (following economic activity), and coincident (reflecting the current state of the economy).

Correct Answer: Lagging

The unemployment rate is considered a lagging indicator because it reflects economic conditions after they have occurred, such as after a downturn or recovery.

Correct Answer: To regulate inflation and unemployment

Adjusting interest rates allows central banks to control inflation and influence employment by making borrowing either more or less expensive, impacting economic activity.

Correct Answer: It may indicate an economic downturn

An inverted yield curve, where long-term interest rates are lower than short-term rates, often suggests that investors expect slower economic growth or a recession.

Correct Answer: They are analyzed during economic shifts to provide information about the current state of the economy

Coincident indicators give real-time insights into the current economic situation, such as industrial production and employment levels.

Correct Answer: To protect investors

The SEC ensures transparency, fairness, and protection for investors in the financial markets by enforcing regulations and laws.

Correct Answer: An ethical action is based on accepted standards of conduct

Ethical actions align with widely accepted standards of morality and conduct, often transcending legal obligations.

Correct Answer: Moral

Morals are personal beliefs about what is right, wrong, good, or unjust, and they guide individual behavior.

Correct Answer: Accounting

Accounting involves systematically recording, summarizing, and reporting financial transactions of a business or entity.

Correct Answer: How fast a company collects on its sales

The AR turnover ratio measures how efficiently a company collects receivables from its customers, indicating the speed of its cash flow.

Correct Answer: Activity ratios

Activity ratios assess a company's operational efficiency by examining how well it uses its assets to generate revenue.

Correct Answer: Additional funds needed (AFN)

AFN refers to the additional financing a company needs to support its expected growth, often raised through debt or equity.

Correct Answer: Costs that arise when management does not act in the best interest of shareholders

Agency costs occur when there is a conflict between management and shareholders, often leading to inefficiencies and additional costs.

Correct Answer: Affirmative covenants

Affirmative covenants are terms in a bond contract that outline actions the issuer agrees to take, such as maintaining certain financial ratios, to protect the bondholders' interests.