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Finance Exam 1 > Chapter 1 Vocabulary > Flashcards

Chapter 1 Vocabulary Flashcards

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1
Q

Involves the management of money

A

Finance

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2
Q

Involves how companies raise and invest money and manage their financial resources

A

Corporate finance

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3
Q

Examines the structure of capital markets, the role of financial institutions, the process of financial intermediation, and how money flows in the economy

A

Capital markets and financial institutions

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4
Q

Focuses on valuation techniques and how to value alternative investment opportunities that are provided primarily through financial markets and institutions

A

Investments and Valuation

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5
Q

The three primary areas of finance

A

Corporate finance (businesses)
Institutions and markets (financial)
Investments and valuation (investors)

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6
Q

The financial markets where issuers and investors buy and sell debt and equity securities (long term financial instruments)

A

Capital markets

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7
Q

Represents an obligation to repay borrowed money

A

Debt

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8
Q

Represents ownership in a company

A

Stock

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9
Q

Higher returns require

A

Taking more risk

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10
Q

Efficient capital markets are

A

Tough to beat

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11
Q

What kind of relationship is there between risk and return

A

Positive

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12
Q

The prices of stocks and bonds in the capital markets react very

A

Quickly to incorporate new information

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13
Q

Rational investors are

A

Risk averse (prefer less risk to more)

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14
Q

What drives asset prices in the short run (security prices)

A

Supply and demand

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15
Q

Corporate managers should make decision that

A

Maximize shareholder value

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16
Q

The goal of management should be to

A

Maximize the value of the firm’s common stock

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17
Q

Transaction costs, taxes and inflation are

A

Your enemies

18
Q

Time and the value of money are

A

Inversely related

19
Q

A dollar today is worth

A

MORE than a dollar tomorrow

20
Q

You asset call allocation is a very

A

Important decision (critical in determining your range of expected returns)

21
Q

Asset diversification will

A

Reduce your risk (spread your money around—don’t put all your eggs in one basket)

22
Q

Value equals (the value of any financial investment)

A

The sum of expected cash flows discounted for time and risk

23
Q

This decision talks about how corporate managers should allocate funds of the company to buy or build projects and investments that will be worth more than they cost (investing the funds of the company in working capital, tangible and intangible assets)

A

The investment decision

24
Q

This decision focuses on how corporate managers should raise money from institutional and individual investors through the sale of debt and equity claims for the company to finance the investment projects of the firm

A

The financing decision

25
Q

This decision focuses on the percentage of the company’s profits and cash from operations that the company should reinvest in the business and how much should be returned to the company’s shareholders in the form of dividends

A

The dividend decision

26
Q

Is the value (positive or negative) associated with investing in a project or venture. The present value of the expected future cash flows minus the initial cost/investment

A

Net present value

27
Q

The valuation, planning and managing of corporate investments for a firm

A

Capital budgeting

28
Q

The cost of raising debt and equity capital for the business

A

Cost of capital

29
Q

Minimizing the cost of capital by using the right mix of debt and equity, an important role for the finance function of the company

A

Capital structure decision

30
Q

Primary business functions relating to the operations of a firm

A 
Finance
Marketing 
Management 
Logistics 
Accounting
31
Q

Asses the financial viability of the product and if needed raises the capital to fund it

A

Finance

32
Q

Conducts research and determines where, when and how to sell the product

A

Marketing

33
Q

Assesses the strategic and human resource aspects relating to the production and marketing of the product

A

Management

34
Q

Handles procurement of raw materials and other inputs, internal operations and transportation of the product

A

Logistics

35
Q

Measures the performance of the product and provides timely information to other departments

A

Accounting

36
Q

Capital markets in which governments, agencies and municipal entities issue debt securities and corporations issue stocks and bonds to investors, and the issuer of the securities receives the proceeds from the sale of securities

A

Primary markets

37
Q

The process in which issuers receive funds directly from the purchasers of stocks and bonds in the markets

A

Direct finance

38
Q

Markets in which stocks and bonds are traded after their initial issuance. (Issuing corporation receives no proceeds from the sale)

A

Secondary markets

39
Q

The speed and ease with which an owner of a security can sell an investment to another investor or trade it in the securities market

A

Liquidity

40
Q

The process of funds moving from investors through financial intermediaries to borrowers

A

Indirect finance

41
Q

When a financial intermediary borrows funds from savers or investors by issuing a claim, and uses those funds to make loans or to purchase higher yielding securities

A

Financial intermediaries

Finance Exam 1 (7 decks)

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