1. Chapter 1
Test Review

2. 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. 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

4. 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

5. 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

6. 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

7. 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

8. 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!!

9. 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

10. 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

11. 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)

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

13. 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

14. 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)

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

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

17. 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.

18. 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

19. 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

20. 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

21. 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

22. 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

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