Chapter 18 & 19 & 20 Flashcards
Finance
the function in a business that acquires funds for the firm and manages those funds within the firm.
Financial Management
the job of managing a firm’s resources to meet its goals and objectives.
Financial managers
examine financial data and recommend strategies for improving financial performance.
- Responsible for obtaining funds, effectively control use of funds.
- Planning, auditing, managing taxes, advising top management on financial matters. Budgeting.
Budget
sets forth management’s expectations and allocates the use of specific resources throughout the firm. The budget is the guide for financial operations and expected financial needs.
Financial control
a process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget.
Capital Expenditures
major investments in either tangible long term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights.
Debt Financing
funds raised through various forms of borrowing that must be repaid.
Equity financing
money raised from within the firm, from operations or through the sale of ownership in firm (stock or venture capital).
Short term financing
funds needed for a year or less.
Long term financing
funds needed for more than a year.
Trade credits
the practice of buying goods and services now and paying for they later. Businesses often get payment terms such as 2/10 net 20 when receiving trade credit.
Promissory note
an agreement with a promise to pay a supplier a specific sum of money at a definite time.
Line of credit
a given amount of unsecured short-term funds a bank will lend to a client firm, provided that the funds are readily available.
Venture Capital
money that is invested in new or emerging, often higher-risk companies, that are perceived as having great profit potential.
Leverage
raising needed funds through borrowing to increase the firm’s rate of return.
Cost of capital
the rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.
Securities markets
financial marketplaces for stocks and bonds and serve two primary functions.
- Assist businesses in finding long term funding to finance capital needs.
- Provide private investors a place to buy and sell securities such as stocks and bonds.
Primary markets
handle the sale of new securities.
Secondary markets
handle the trading of securities between investors (buyers, and sellers) with the proceeds of the sale going to the seller of the security.
Initial public offering (IPO)
the first public offering of a corporation’s stock.
Facebook went public with its IPO at a stock price of $38.00 per share, and recently it was selling at a stock price of $225.00 per share.
Investment bankers
specialists who assist the issue and sale of new securities.
Institutional investors
large organizations, such as pension funds or mutual funds, that invets their own funds or the funds of others in order to accumulate positive returns on their invested capital.
Stock exchange
an organization whose members can buy and sell (exchange) securities for companies and investors.
Over-the-counter (OTC) market
exchange that provides a means to trade stocks not listed on the national exchanges.
NASDAQ
a nationwide electronic system that communicates over-the-counter trades to brokers.
New York Stock exchange
biggest marketplace for investors to buy and sell shares of stock in the world. Located on wall street in downtown Manhattan in NYC and owned by Intercontinental Exchange. The NYSE has a history that goes back more than 200 years, and most of the largest, bets-known, and most prestigious businesses in the world choose to list their share on the stock exchange.
Securities and exchange commission (SEC)
created in 1934 through the securities and exchange act this federal agency has responsibility for regulating the various exchanges.
Prospectus – a condensed version of economic and financial information that a company must file with the SEC before issuing stock, the prospectus must be sent to prospective investors.
Stock
fractional shares of actual ownership in a company.
Stock certificate
evidence of stock ownership that specifies the name of the company. The number of shares it represents, and the type of stock being issued.
Dividends
part of firm’s profits that the firm may or may not distribute to stockholder’s as either cash payments or additional shares of stock.
Common Stock
the most basic form of ownership in a firm, it confers voting rights and the right to share in the firm’s profits through dividend, and the possibility of an increase in the price of the stock itself.
Bond
a corporate certificate indicating that a person has lent money to a firm.
Principal
– the amount of money or face value of the bond that the issuer of the bond owes to the bondholder in full upon the bond’s maturity.
Maturity Date
the exact date the issuers of a bond must pay the full principal amount to the bondholder.
Interest
– the payment the issuer of the bond makes to the bondholders for the use of the borrowed money.
Types of government securities that compete with corporate bonds
- U.S. government bond
- Treasury bill T-bill
-Treasury note
-Treasury note
-Treasury bond
-Municipal bond
-Yankee bond
Stockbroker
a registered representative who works as a market intermediary to buy and sell securities for clients.
Diversification
buying several different investment alternatives to spread the risk of investing over different types of investments.
Bears
investors who expect stock prices to decline.
Bulls
investors who believe stock prices are going to rise.
Capital gains
the positive difference between the purchase price of a stock and its ale price.
Stock Splits
an action by a company that gives stockholders two or more shares of stock for each one they own.
* Splits cause no change in the firm’s ownership structure and no immediate change in the investment’s value.
* Firms can never be forced to spilt their stocks.
Buying stock on margin
purchasing stocks by borrowing some of the purchase cost from the brokerage firm. Margin is the portion of the stock’s purchase price that the investor must pay with their own money.
Junk Bonds
high-risk, high-interest bonds. These are risky investments but in payment for the risk they pay a much higher rate of interest.
mutual fund
an organization the buys stocks and bonds and then sells shares in thouse securities to the public. The fund pools investors’ money and buys stcoks according to the fund’s stated goals and or purchase.
Exchange-traded funds (ETFs)
collections of stocks that are traded on exchanges but are traded more like individual stocks than like mutual funds.
Money
anything people generally accept as payment for goods and services.
Barter
the direct trading of goods or services for other goods or services.
Money supply
the amount of money the federal reserve bank makes available for people to buy goods and services,
- M1 — Which is money that can be accessed quickly and easily (coins, paper money, traveler’s checks, etc.).
- M2 — In addition, M2 is all of M1 plus money that may take a little more time to obtain (savings accounts, mutual funds, etc.).
- There is one major difference between M1 and M2 . The main difference is that M1 is a more limited and more liquid type of money. More types of money are included in M2, but they are less liquid than those included in M1. Different kinds of money can be more or less liquid.
Falling dollar value
The amount of goods and services you can buy with a dollar decreases.
Rising dollar value
The amount of goods and services you can buy with a dollar increases.
Reserve requirement
a certain percentage of the value of commercial banks’ checking and savings accounts that must be physically kept in the bank.
Open-market operations
buying and selling of U.S. government bonds by the fed with the goal of regulating (either increasing or decreasing) the money supply.
The discount rate
the interest rate that the fed charges for loans to its member banks.
Commercial banks
are profit seeing organizations that receive deposits from individuals and corporations in the form of checking and savings accountants and uses those funds to make loans.
A commercial bank has two types of customers: depositors and borrowers.
demand deposit
a checking account
money can be withdrawn anytime on demand from the depositor
time deposit
a saving account
a bank can require prior notice before the owner withdraws money.
certificate of deposit
A savings account that earns interest, to be delivered on the certificate’s maturity date.
Savings and loan associations
a financial institution that accepts both savings and checking deposits and provides home mortgage loans. Often known as thrift institutions because their original purpose was to promote customer thrift and home ownership.
credit unions
nonprofits, member-owned financial cooperatives that offer the full variety of banking services to their members. As nonprofits, credit unions enjoy an exemption from federal income taxes.
nonbanks
financial organizations that accept no deposits but offer many of the services provided by regular banks.
Pension funds
– amounts of money put aside by corporations, nonprofits organizations, or unions to cover part of the financial needs of members when they retire.
- Brokerage firms
- Commercial finance companies
- Corporate financial services.
Letter of credit
a promise by the bank to pay the seller a given amount of money if certain conditions, like shipment of goods, are met.
International Monetary Fund (IMF)
fosters cooperative monetary policies that stabilize the exchange of one national currency for another. About 189 countries are a part of the IMF
World Bank
lends most of its money to less-developed nations to improve their productivity and help raise standard of living and quality of life.
