Financial Assets Have Two Principal Economic Functions

question 38

Multiple Choice

Financial assets have two principal economic functions. Which of the below is ONE of these?

• A) A principal economic function is to transfer funds from those who have surplus funds to borrow to those who need funds to invest in intangible assets.
• B) A principal economic function is to transfer funds in such a way as to redistribute the avoidable risk associated with the cash flow generated by intangible assets among those seeking and those providing the funds.
• C) A principal economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.
• D) A principal economic function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in intangible assets.

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Definitions:

Cash Inflow

Money entering a business from various sources such as operations, financing activities, and investing activities, contributing to the overall cash balance.

Operating Activities

Operating Activities involve the primary activities a company engages in to generate income, including production, sales, and delivery of its product or service.

Investing Activities

Transactions related to buying or selling long-term assets and investments other than cash equivalents.

Financing Activities

These involve transactions related to raising capital and repaying investors, such as issuing shares and obtaining loans, covered in the cash flow statement.