Discussion Questions:

1. In your own words, and based mainly on the definition of finance as presented in this
chapter, explain the connection of finance and economics.

Finance and Economics are interrelated disciplines that inform and influence
each other, even if the specifics are distinct.

Finance is derived from economics which involves assessing money, banking,

credit, investments, and other aspects of the financial systems including the study of
prices, interest rates, money flows, and such. Thinking more broadly, finance tends to
center around topics that include the time value of money, rates of return, cost of capital,
optimal financial structures, and quantification of risk. In addition to that, finance can be
further broken down into three related but separate categories: public finance, corporate
finance, and personal finance. First, Public Finance, includes tax systems, government
expenditures, budget procedures, stabilization policy and instruments, debt issues, and
other government concerns. Second, Corporate Finance, involves managing assets,
liabilities, revenues, and debt for a business. Lastly, Personal Finance, defines all
financial decisions and activities of an individual or household (budgeting, insurance,
mortgage planning, savings, and retirement planning).

As for the Economics, it looks at how goods and services are made, distributed,
and used, as well as how the economy overall functions, along with the people who drive
economic activity. There are two main branches of economics: Macroeconomics, which
looks at the overall economy and Microeconomics, which looks at specific factor within
the economy.

2. Briefly explain the importance of the three (3) pillars of finance. Why are they being
studied in finance?

Finance tends to center around topics that include the time value of money, rates
of return, cost of capital, optimal financial structures, and the quantification of risk.

There are three pillars of finance: Time Value of Money, Asset Valuation and
Risk Management. First is Time Value of Money, it is the concept of the money you have
now is worth more than the identical sum in the future due to its potential earning
capacity. This core principle of finance holds that provided money can earn interest, any
amount of money is worth more the sooner it is received. It is also sometimes referred to
as present discounted value. The time value of money draws from the idea that rational
investors prefer to receive money today rather than the same amount of money in the
future because of money's potential to grow in value over a given period of time. For
example, money deposited into a savings account earns a certain interest rate and is
therefore said to be compounding in value. Second is Asset Valuation, it is the process
of determining the fair market or present value of assets, using book values, absolute
valuation models like discounted cash flow analysis, option pricing models or
comparable. Such assets include investments in marketable securities such as stocks,
bonds and options; tangible assets like buildings and equipment; or intangible assets
 such as brands, patents and trademarks. Asset valuation plays a key role in finance and
often consists of both subjective and objective measurements. The third one is Risk
Management, it is the process of identifying, assessing and controlling threats to an
organization's capital and earnings. These threats, or risks, could stem from a wide
variety of sources, including financial uncertainty, legal liabilities, strategic management
errors, accidents and natural disasters. By implementing a risk management plan and
considering the various potential risks or events before they occur, an organization can
save money and protect their future. This is because a robust risk management plan will
help a company establish procedures to avoid potential threats, minimize their impact
should they occur and cope with the results. This ability to understand and control risk
enables organizations to be more confident in their business decisions.

These three pillars are an essential element for any business to become
successful that's why it is being discussed in finance. It helps enterprises create
strategies to avoid losses and maximize profits as much as possible. In addition, the
time value of money, the provided money can earn interest, this core principle of finance
holds that any amount of money is worth more the sooner it is received. At the most
basic level, the time value of money demonstrates that, all things being equal, it is better
to have money now rather than later. Lastly, asset valuation compares a company's
value to that of its competitors or industry peers to assess the firm's financial worth. This
sum up the importance of three pillars of finance.

3. Do you consider yourself risk-averse or risk seeker? Why do you say so?

In finance and economics, risk is a term that's related to uncertainty about an

event and its outcome, regardless of whether the event and outcome are positive or
negative. A good example of this is the risk of making a financial investment. We are
uncertain about the outcome of investing in a stock, and may quantify our uncertainty of
loss and/or gain through a probability distribution model.

I consider myself as a risk seeker. As the name suggest, it is a person who

prefers to take on risk, where the utility of the unexpected value of a prospect is less
than the expected utility of the prospect. Since I see myself as an aggressive type of
investor, I accept a greater volatility and uncertainty in investments or trading in
exchange for anticipated higher returns. I am more interested in capital gains from
speculative assets than capital preservation from lower-risk assets. My views are that
the higher the risk, the higher the return is.