Chapter 3 Flashcards
The raising and spending of a firms money
Finance
As a science, analyzing numbers and cash flow
As an art, asking subjective questions: What type of financing should we use? How can we efficiently use our
resources?
the efficient and effective management of money in such a manner as to accomplish the objectives of an organization
Financial management
Roles of financial management
▪ Financial planning: preparing a financial plan that projects revenues, expenditures, and financing needs
over a specific period
▪ Investment: when a company utilizes its funds in projects and securities that provide high returns in relation to their risks
▪ Financing: obtaining funding for a firm’s operations and investments and seeking the best balance between debt and equity
funding your business with your own money
Bootstrap financing
borrowing funds, typically from lending institutions, that must be repaid with interest over an agreed-upon period
Debt financing
raising funds by selling ownership into a business
Equity financing
raising funds by appealing to interested customers who, by donating, are promised
early access to the product, service, experience, idea you are developing, or other benefits as a function of
their donated amount or tier
Crowdsourced financing
customers pay money in exchange for service or product over time
Subscription model
a form of finance that utilizes smart contracts on blockchains instead of relying on central financial intermediaries (no banks)
Decentralized financing
a basic principle in finance that holds that the higher the risk, the greater the return that is required
risk-return trade off
Characteristics of money
◦ Scarcity: the characteristic of money that it should be limited enough to have some value but not so limited
as to be unavailable
▪ If dollar bills were too abundant (if money grew on trees), they would have no value
◦ Durability: money should last a long time and be able to withstand general wear and tear
▪ You may have accidentally washed a dollar bill before, and it survived
◦ Portability: money should be in a form that can be easily moved around
▪ You carry bills and change in your wallet easily
◦ Divisibility: money should be capable of being divided into smaller parts
▪ You can get change for larger bills, like exchanging a $20 bill for two $10 bills
Functions of money
◦ Medium of exchange
◦ Standard of value
◦ Store of value
are the administration of online or digital transactions in which there is no physical
exchange of money
Digital payment systems
digital currency based on a cryptographic system
Cryptocurrency
currencies within the context of a game or metaverse
Virtual currency
