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Chapter 1 The Financial Environment TRUE-FALSE QUESTIONS T 1. Finance is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources. T 2. Business finance is the study of financial planning, asset management and fund raising by businesses and financial institutions. T 3. Finance at the macro level is the study of financial institutions and financial markets and how they operate within the financial system in both the U.S. and global economies. T 4. A credit union is an example of a financial intermediary. T 5. The primary goal of the financial manager in a profit-seeking organization is to maximize the owners wealth. T 6. Capital formation is the creation of productive facilities such as building, tools, and equipment. F 7. In a highly developed economy, capital formation takes place directly. F 8. Depository institutions include commercial banks, savings banks, investment banks, and life insurance companies. F 9. Contractual savings institutions include investment companies, money market funds, and life insurance companies, which receive relatively steady inflows of money. T 10. Finance companies provide loans directly to consumers and businesses. F 11. The secondary securities markets are involved in creating and issuing new securities, mortgages, and other claims to wealth. F 12. Most of todays financial intermediaries may be traced back prior to 1800. F 13. The World Bank has no association with the United Nations. T 14. Intermediation is the accumulation and lending of savings by depository institutions. T 15. One of the most significant functions of the financial system is the creation of money, which serves as a medium of exchange. F 16. Personal finance involves the lending of money to individuals. T 17. A unit of account is a way to measure prices. An example is the dollar. F 18. The Federal Reserve Board is an example of a financial intermediary. F 19. One of the basic financial functions of an economy is to maintain a favorable balance of trade. T 20. The transfer and marketing of financial assets is one of the requisites of an effective financial system. T 21. The monetary system in the United States developed to meet the changing needs of the national economy. F 22. Within the general field of finance, the tree main areas of study are financial management, real estate, and pension fund management. T 23. The financial environment encompasses the financial system, institutions, markets, and individuals that make the economy operate efficiently. F 24. It is not necessary to have financial markets for a financial system to operate efficiently. F 25. Financial institutions are physical locations or electronic forums that facilitate the flow of funds amongst investors, businesses, and governments. F 26. Financial markets are not necessary for productive capital formation.... View Full Document

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