Corp 1 Flashcards
What are the two sides of the financial market?
The demand side (firms needing funds) and the supply side (investors with surplus funds).
What is a financial deficit?
When a firm needs more cash than it generates internally.
What does an efficient capital market mean?
All securities are fairly priced based on all available information.
What are the three forms of market efficiency?
Weak, semi-strong, and strong.
What are internally generated funds?
Funds from company operations, like net income, depreciation, and retained earnings.
What are the external sources of corporate financing?
Debt and equity sources.
What is the difference between book value and market value of equity?
Book value is based on past contributions which are in the financial statements, while market value reflects future devidiends that shareholders are expected to reicve.
Total value of a company’s outstanding shares in the market
What is authorised share capital?
The maximum number of shares a company can legally issue.
What is par value?
The nominal value of a share as stated in the corporate charter.
What is majority voting?
Voting system where each director is voted on separately.
What is cumulative voting?
A shareholder can use all their votes for one board candidate.
What is a proxy contest?
A takeover attempt where outsiders try to win shareholder votes against management.
What are dual-class shares?
Shares with the same cash flow rights but different voting/control rights.
Why do shares with superior voting rights sell at a premium?
Because they provide private control benefits to the owner.
What is preferred stock?
Stock with dividends that take priority over common stock dividends.
What is floating-rate preferred stock?
Preferred shares with dividends that vary with interest rates.
What is default risk?
The chance a firm may fail to meet its debt obligations.
What are bond ratings used for?
To assess the default risk of a debt instrument.
What is a callable bond?
A bond that the issuer can repurchase before maturity at a set price.
What is subordinate debt?
Debt repaid only after senior debt during bankruptcy.
What are Eurobonds?
Bonds issued in a currency not native to the country where it’s issued.
What is a lease in finance?
A long-term rental agreement that may function like debt.
What is a convertible bond?
A bond that can be converted into a specified number of shares.
What is a warrant?
A right to buy shares from a company at a set price before a certain date.
What are the roles of the financial system?
Payment mechanism, borrowing/lending, pooling risk, and information provision.
What is a financial intermediary?
An organization that raises money from investors and provides financing to others.
What is the difference between open-ended and closed-ended funds?
Open-ended funds issue/redeem shares continuously; closed-ended issue a fixed number during IPO.
What do index funds and ETFs do?
They replicate the performance of a specific market index.
