Introduction to Finance

 1. 
(LO 1.1) What is fi nance?
 2. 
(LO 1.1) What is meant by the term fi nancial environment?
 3. 
(LO 1.1) What are the three areas of fi nance?
 4. 
(LO 1.1) Briefl y describe the terms entrepreneurial fi nance and 
personal fi nance.
 5. 
(LO 1.2) Briefl y describe how the fi nancial environment has 
changed during the past few years.
 6. 
(LO 1.2) Identify and briefl y describe several reasons for study-
ing fi nance.
 7. 
(LO 1.3) What are the six principles of fi nance?

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20 
C H A PT E R 1 The Financial Environment
Exercises
1. 
Match the following dates with the associated events.
Year
 
Event
a. 
2000 
(1) Great Recession
b. 
2001 
(2) U.S. terrorist attack
c. 
2006 (3) 
fi nancial crisis
d. 
2007–08 
(4) technology stock bubble
e. 
2008–09 
(5) housing price bubble
2. 
The U.S. fi nancial system is composed of (1) policy makers, (2) a 
monetary system, (3) fi nancial institutions, and (4) fi nancial markets. 
Indicate which of these components is associated with each of the 
following roles.
a. 
Accumulate and lend or invest savings
b. 
Create and transfer money
c. 
Pass laws and set fi scal and monetary policies
d. 
Market and facilitate transfer of fi nancial assets
3. 
Financial markets may be categorized as (1) debt securities mar-
kets, (2) equity securities markets, (3) derivative securities markets, 
and (4) foreign exchange markets. Indicate in which of these markets 
the following securities trade.