Final answer:
The statement of cash flows does not provide information concerning the impact of inflation on the cash balance. It details the sources and uses of cash, and the change in cash balance, but adjustments for inflation or purchasing power are not included.
Step-by-step explanation:
The statement of cash flows answers several key questions about a company's financial health, except for the impact of inflation on the cash balance at the end of the year. The statement provides insights into where the cash came from, how it was utilized, and the change in cash balance over a period. It does not, however, adjust for the impact of inflation or reflect the purchasing power of the cash balance.
In terms of self-check questions related to finance and economics:
- Foreign investors buying U.S. stocks would affect the capital account, not the current account balance.
- An increased trade deficit would have a negative effect on the current account balance.
- Events like exports, foreign investments, and government aid would represent financial flows to or from an economy depending on the transaction's nature.
Additionally, the money listed as assets on a bank's balance sheet might not be physically present in the bank because it could be loaned out to customers, a concept known as fractional reserve banking.
Regarding purchasing loans in a secondary market:
- A borrower who has been late on payments could lead to a discount on the loan purchase price.
- If economic interest rates rise, existing loans made at lower rates might be less desirable, affecting their value.
- Loans to firms with high profits might be seen as lower risk, increasing their value in the secondary market.
- Conversely, loans could be worth more if overall interest rates have fallen since issuance.
Lastly, money serves as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. The presence of money greatly simplifies trade by eliminating the need for a double-coincidence of wants, which is the unlikely situation where two parties each hold an item the other wants.