Chapter 1 Test Review

CHAPTER 1 TEST Tuesday November 21st Multiple Choice, true false, short answer Covers lessons 1.1 to 1.4 All questions for test out of notes and test review

3 groups Individuals: Consumers and households who make purchases, save, invest and pay taxes Businesses: Corporations and other business organizations who sell items, pay expenses and borrow to finance operations Government: Federal, State and Local agencies who collect taxes and borrow money for goods for the public

Factors affecting finance Economic Conditions: Things like interest rates, Consumer prices (Inflation-Rise in prices) and money supply (Causes rises or lowering of prices, interest and more) Government Regulations: How much, how little (Effects what a business can or cannot do) Global Business Activities: Global competition, rules

Other Factors Inflation: This is a rise in the general prices of goods, which can affect unemployment, cost of living of consumers and more Trade Deficit: More imports than exports, hurts US businesses Trade Surplus: More exports and imports, which creates more jobs, higher wages and lower costs

Financial Markets Financial Markets involve anything you do when you sell or buy something at a specific location, like at a store, online or other A market means to buy or sell A security is an investment instrument issued by a corporation Stock =‘s ownership of a company Bond is debt, borrowed by a business or a government for the purpose of a capital project or some other large item

Types of Markets Money Markets: Money invested into for “SHORT” periods of time, like 1 year or less. Used for short term investments into low risk things that gain interest Capital Markets: Money invested into for “LONG” periods, which means more than a year. Used for long term projects like new buildings, new product lines or more Debt Securities are loans and equity securities are stocks

What affects the value of securities? Supply and Demand Future cash flows- Make money investing Risk- How much of a chance willing to take Liquidity- can I turn this into cash? Interest rates- Lower means more borrowing ** Know this information!!

Finance in your life Decisions for all are based on scarcity, meaning you must make decisions with limited resources to make the most satisfaction from those resources. Scarcity is different from opportunity cost, as opportunity cost is based on the cost of what decision you did NOT make, rather than what decision you will make. Ex) If you have $25 and determine that you will buy a steak, pop and chips, but you do not have the money to buy a gallon of ice cream that’s scarcity. Ex) If you buy $4000 worth of stock into HP Computers and decide NOT to invest Apple, then apple does better, the opportunity cost is the profit you lost by making the decision you did

Personal financial planning The process of managing your money to achieve personal economic satisfaction BENEFITS: Better actions for using your finances Effective control of your spending (#1) Improved personal relationships A sense of freedom from financial worries

Financial plan A formal report with a summary of your current financial situation along with plans for future financial activities What does this mean? Review your assets (Money, property, value) Review your expenses (Mortgage/rent, utilities, bills) Future goals (Retirement, investment, big purchases)

What influences a Financial plan Your Personal Life Situation (Age, income, household status, household size, personal beliefs) Economic Factors (Inflation, interest rates, unemployment)

Steps in the planning process Determine your current situation (Review income, expenses, debts) Set Financial Goals (Plan realistic, specific and measurable goals that are time specific and action based) Evaluate your alternatives Create your action plan (How to accomplish goal) Review your progress (During and after) ** Know the risk involved with all decisions

Difference between a budget and a financial plan A Financial Plan looks at a persons entire financial outlook Budget is simply a comparison of revenue and expenses (Also called a wise spending plan)

Types of financial institutions Deposit Institutions (Banks, Credit Unions) Non-Deposit Institutions (Life Insurance companies, Investment companies, Consumer finance companies)

Deposit institutions Offer full service banking (Checking accounts, savings accounts, mortgages, investments) Money into the bank (Feature non- deposit institutions do NOT offer)

Non-Deposit institutions Life Insurance Companies: Offer Insurance, no deposits Investment companies: 401K, stocks or other investments Consumer Finance Companies: Offer loans for durable goods like kitchens, flooring, etc.

Sources and use of funds Revenue: Inflow of money from business operations (#1 Source) Investor Funds: Result of money given to a business to open or expand Borrowing: From banks or credit unions, for capital expenses or projects

use of funds Current Expenses: Current means, month to month expenses like rent, materials, wages, utilities, repairs, ads, supplies or more Capital Expenses: Long term spending for items like roofs, new additions to building, new computers, new trucks

Government financial activities Providing public services Protecting citizens, consumers, businesses and workers Regulating financial and business activities Providing information and help to small businesses Purchasing goods for gov’t operations Hiring employees Raising revenue for public services

What levels of Government applies Federal Government: Oversees activities between 2 or more states, international issues State Government: Regulate business activities within their own states (Intrastate) Local Government: Commonly provide services for things like police or fire department

What levels of Government applies Federal Government: Oversees activities between 2 or more states, international issues State Government: Regulate business activities within their own states (Intrastate) Local Government: Commonly provide services for things like police or fire department

Test on Tuesday November 21st Online review materials finally……. Questions?? Test on Tuesday November 21st Online review materials