3. Review Questions.

1. What is financial management? Why is it so important for any company?

2. What is a key goal of any business?

3. Define capital. What do companies need capital for?

4. Explain the term “cost of capital”. What does the cost of capital depend on?

5. Where can a firm obtain the money it needs?

6. Differentiate between equity financing and debt financing.

8. How do some companies use their excess cash?

9. Highlight the benefits and disadvantages of debt financing.

10. List the three major types of short-term debt.

11. Name the three major types of long-term debt.

12. Explain what is meant by a maturity date. What could happen with a

company if it can’t meet its loan and bond commitments?

13. What issues do financial managers consider when choosing between

debt and equity financing?

14. Enumerate the main responsibilities of a financial manager.

15. In what way do you think accounting differs from financial management?

Can the one exist without the other and why?

III. Vocabulary practice exercises

1. Choose the necessary word or word-combination and put it in a sentence.

stock certificate excess cash bonds trade credit financial plan voluntary dividend payments obsolete long-term debt cost of capital revenue debt financing internal and external flow of money raise money financial managers issues maturity date equity financing

1. Before you can earn any ----------, you need money to get started.

2. ---------- is the price a company must pay to raise money.

3. Large corporations can sell ----------.

4. Business firms can raise money from ---------- sources.

5. ---------- refers to funds that are invested by owners of the corporation.

6. The sale of corporate stock describes an exchange of money for a share of

business ownership – evidenced by a ----------.

7. ---------- mean that stockholders do not have to be repaid at a fixed rate or

time.

8. Some companies use their ---------- to finance their growth.

9. Some companies ---------- internally by selling assets that are no longer

needed or ----------.

10. ---------- refers to funds that are borrowed from sources outside the

company.

11. ---------- from suppliers allows purchasers to obtain products before paying

for them.

12. The three major types of ---------- are loans, leases, and bonds.

13. A deadline when the corporation must repay all the money it has borrowed is called a ----------.

14. When choosing between debt and equity financing, ---------- consider the

variety of ----------.

15. When developing a ----------, financial managers estimate the ---------- into

and out of the business.

2. Forms of Money. Choose the correct variant to complete each sentence.

1. Money in notes and coins is called

a. cash b. capital c. reserves

2. The dollar, the pound, the euro, and the yen are all

a. funds b. currencies c. monies

3. Money borrowed from a bank is a

a. deposit b. income c. loan

4. Borrowed money that has to be paid back constitutes a

a. debt b. fund c. subsidy

5. All the money received by a person or company during a given period is

known as

a. aid b. income c. wages

6. The money earned for a week’s manual work is called

a. income b. salary c. wages

7. The money paid for a month’s professional work is a

a. loan b. salary c. wages

8. Money placed in banks and other savings institutions constitutes

a. capital b. deposits c. finance

9. Money paid by the government or a company to a retired person is a

a. pension b. bonus c. fee

10. The money that will be used to pay pensions is kept in a

a. budget b. deposit c. fund

11. The money needed to start a company is called

a. subsidy b. capital c. debt

12. The money paid to lawyers, architects, public accountants, etc. is called

a. wages b. salary c. fees

13. An internal financial plan that forecasts expenses and income over a set

period of time is called a

a. budget b. reserve c. financial plan

14. A document that shows the funds a firm will need for a period of time, as

well as the sources and uses of those funds is known as a

a. budget b. reserve c. financial plan

15. Money given to producers to allow them to sell cheaply is called a

a. loan b. gift c. subsidy

16. Money given to developing countries by richer ones is known as

a. aid b. debt c. subsidy