The Finance Function Very Short Answer Type Questions

Question 1.
What do you mean by finance?
Answer:
The term “Finance” is understood as provision of funds as and when needed. It refers to the science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

Question 2.
What is business finance?
Answer:
Business- Finance refers to that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.

Question 3.
What do you mean by financial management?
OR
Define financial management.
Answer:
According to J.F. Bradley “Financial Management is the area of business management devoted to the judicious use of capital and a careful selection of sources of capital in order to enable a business firm to move in the direction of reaching its goals”.

Question 4.
State four functions of financial mangement.
OR
Outline the functional areas of financial mangement.
Answer:
The functions of financial management are as follows:

  • Estimation of financial requirements of a firm.
  • Selection of right and appropriate source of funds for raising the funds.
  • After selecting the right source, raising the funds required by the firm.
  • Lastly accumulating, proper allocation of funds to different profitable avenues becomes essential.

Question 5.
State the objectives of financial management.
Answer:
Financial management has three main objectives they are:

  • Maintaining of adequate Liquid Assets
  • Maximisation of profit
  • Maximisation of wealth.

Question 6.
What is profit maximisation?
Answer:
Profit Maximisation is a primary objective and a social obligation. Profit is a tool through which efficiency of the organisation can be measured. The growth and survival of a company depends upon its ability to earn profit. The profit earned can be preserved for meeting future deficiency.

Question 7.
What is wealth maximisation?
Answer:
Wealth Maxmisation refers to creation of wealth of the concern.- In other words, it refers to the increase in the market value of shares.

Question 8.
State the goals of financial management.
Answer:
The goals of financial management are:

  • Profit maximisation
  • Wealth maximisation
  • Maximising firm value
  • Acquiring sufficient fund

Question 9.
What is economic environment for business?
Answer:
Economic Environment refers to all those economic factors, which have a bearing on the functioning of a business. Business depends on the economic environment for all the needed inputs. It also depends on the economic environment to sell the finished goods.

The economic environment consists of external factors in a business market and the broader economy that can influence a business. Macroeconomic influences are broad economic factors that either directly or indirectly affect the entire economy and all of its participants, including the business.

Question 10.
What are Financial Markets?
Answer:
Financial markets represent an important segment of the financial system. It refers to an outlet where financial products, financial services and financial securities are traded.

Question 11.
Classify the Financial markets?
Answer:
Financial markets can be classified into:

  • Money market and capital market
  • Primary market and secondary market
  • Organised and unorganised market
  • Foreign exchange market
  • Broad, deep and shallow market.

Question 12.
Give the meaning of secondary market.
Answer:
Secondary market is a market for all those securities and stock which are already issued to the public. It deals with sale/purchase of already issued equity/debts by corporates and others. It is also known as stock market.

Question 13.
Name the intermediaries of secondary markets.
Answer:
The intermediaries of secondary markets are:

  • Market Intermediaries Registration and Supervision Department (MIRSD).
  • Market Regulation Department (MRD).

Question 14.
Give the meaning of capital market.
Answer:
Capital market is the market for long term finance. Capital market is the medium that channelises the small savings of the community and makes it available for industrial outlets.

Question 15.
What is Money Market?
Answer:
Money market basically deals with short term financial assets, which are close substitute of money. It is a place where short term surplus funds at the disposal of financial institutions and individuals are borrowed by individual institutions and also by government facing financial deficit.

Question 16.
What do you mean by Financial Dualism?
Answer:
The financial system of most developing countries are characterised by coexistence and cooperation between the formal and informal financial sectors. The coexistence of these two sectors is known as ‘financial dualism’.

Question 17.
What is financial system?
Answer:
A financial system is a system that allows the exchange of funds between lenders, investors and borrowers. Financial systems operate at national, global, and firm-specific levels. Money, credit, and finance are used as medium of exchange in financial systems.

Question 18.
What are financial institutions?
Answer:
Financial institutions render financial services of dealing in financial assets i.e. mobilise the savings against financial claims. Financial Institutions range from pawn shops and money lenders to banks, pension funds, insurance companies, brokerage houses, investment trusts and stock exchanges.

Question 19.
What are financial instruments?
Answer:
Financial instruments range from the common – coins, currency notes and cheques; mortgages, corporate bills, and stocks – to the more exotic – futures and swaps of high-finance.