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1
Q

Incorporated vs unincorporated

A

Unincorporated same identity, unlimited liability

Incooperated seperate

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2
Q

Bills of exchange

A

IOU- roughly 3 months
Discounting the bill: Bill can be resold for less.
Interest: diff amount paid and amount repaid by borrower.

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3
Q

Commercial paper

A

Short term loans of up to 270 days.

Unsecured: so risk to lender.
Only available to businesses with great credit rating.

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4
Q

Venture capital

A

Provided by private individuals.

High return as high risk

Long term financing

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5
Q

Mezzanine finance

A

Loans that can be converted into equity

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6
Q

Long term financing for firms

A 
Share capital
Retained earnings/reserves
Long term loans-(debentures and loans)
Venture capital
Mezzanine finance
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7
Q

Short term capital

A 
Credit agreements (credit card)
Bank overdrafts
Bills of exchange
Commercial paper
Cash (saved)
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8
Q

Clearing banks

A

Settle payments between individuals

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9
Q

Types of banks

A

Clearing-settle payments between individuals

Retail/commercial: trad. High street banks

Wholesale banks: lend large to major customers

Investment/merchant banks

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10
Q

Why do banks exist

A

Maturity transformation
Aggregation
Risk

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11
Q

Connected shareholder

A 
Ie contractual relationships:
Shareholder
Customer
Supplier
Financiers
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12
Q

External stakeholders

A

Community
Government
Pressure groups

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13
Q

3 levels of stakeholders

A

Connected-contractual
Organisational-internal
External

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14
Q

EPS

A

Earnings per share
Ei profit/#shares

(pat - pd)/(#issues shares)

Profit after tax
Preferred dividends

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15
Q

AC

A

Average cost:

Total cost divided by output

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16
Q

Price Elasticity of Demand

A

A measure of responsiveness of quantity demanded to a change in price.

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17
Q

Arc Elasticity equation

A

Arc Average
Quantity/Price

(New q - old q)/average q
Over
(New £ - old £)/average £

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18
Q

Point Elasticity equation

A

Old-point- like an old pen
Quantity/Price

(New q - old q)/old q
Over
(New £ - old £)/old £

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19
Q

Economies of scale

A

Factors that cause unit cost to decline in the long run as output increases.

Internal: by the organisation of production.

External: be the growth of the industry as a whole.

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20
Q

Internal economies of scale

A 
Technical economies (plant economies) 
Depending on size of factory.

Commercial/marketing economies

Organisational economies
Costs of running the business.

Financial economies
Borrowing benefits

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21
Q

Technical economies

A

Type of internal economy of scale

Can use larger and more specialised machinery because of high volume.

Overcome indivisibilities because they are able to fully use machinery

Dimensional economies of scale. Because it is cheaper to buy something even bigger. Think cubic law.

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22
Q

Commercial or marketing economies

A

Type of internal economy.

Buying economies – by buying in bulk.

Inventory holding-

Bulk selling – make savings in distribution and advertising costs

Economies of scope – refer to the cost saving by having lots of products.

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23
Q

Organisational economies

A

Type of internal economy.

Centralisation of functions like admin and accountancy. Reduce the cost of overheads.

More efficient use of management.

Specialist staff – large firms can justify specialist staff.

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24
Q

Financial economies

A

Type of internal economy

Better asset turnover ratio: large-so less interest paid

Cheaper finance because less risky for investors.

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25
Michael Porter-3 key strategies.
Cost leadership i.e. achieving lowest cost Differentiation i.e. better quality more value Focus I.e finding a niche
26
Short run
At least one factor of production is fixed and all others are variable
27
Long run
The quantities of all factors of production can be varied writhing current technologies.
28
Shut down in price
Where mc =avc (=vc?) Marginal cost Average variable cost If selling price falls below this point then the firm will lose money if it makes any units-because they are selling below their variable cost
29
E businesses on cost and market behaviour
-Reduced search costs for buyers Buyers can compare quickly and cheaply this will increase price elasticities – because buyers know they can buy more cheaply elsewhere Because more substitutes available – Zero variable cost High initial cost but zero variable cost ie MP3 download
30
Total profit
Total revenue - total cost
31
Max profit (marginal method)
Point at which | marginal cost = marginal revenue
32
Monopolies
Few suppliers providing products, they that they will exploit customers lack of substitutes by pushing price up.
33
Collusive practices
Work together to coordinate price and output to push price up in a cartel arrangement.
34
Conditions for an effective monopoly
There must be one supplier There must be no close substitutes There must be barriers to entry
35
Market failure
The failure of the market to produce socially acceptable outcomes
36
Social costs
The total costs to society as a whole of using economic resources
37
Social benefits
The total games to society as a whole flowing from an economic decision
38
Externalities
The difference between private and social costs Impact that goes beyond cost and benefit to the original trading parties
39
Public goods
Good that cannot be provided privately because if they are everyone will benefit from them regardless of whether they have to pay for them or not
40
Merit goods
Generates positive externalities as a whole
41
Demerit goods
Generate negative externalities to society as a whole
42
How Government encourage provision of merit goods
Subsidise to reduced price Public information campaign to stress benefits Making consumption/production compulsory Price manipulation
43
How governments discourage the merit goods consumption
Taxation to raise price. Public information campaign to raise awareness of risk Legislation/ban on product Tax levy to cost of removing affect eg polluter pays policy
44
Acquisition
Well one firm approach is the shareholders of another to take control of business
45
Merger
Where shareholders of two firms exchange shares so that they combine the activities of previously separate firms
46
Horizontal expansion/integration
When two firms merge together Advantage more internal economies of scale and increase market share/monopoly power Disadvantage diseconomies of scale/countermeasures from the government/short-term fall in profits as firms try to integrate everything
47
Vertical integration
Where to firms integrating different stages of production merge together. Advantages greater control over resources/some internal economies of scale/creates barriers to prevent competition Disadvantages management Diseconomies of scale/increased risk of the overall business
48
Diversification
Conglomerate diversification Where companies in different sectors merge together Advantages risks are spread/spread expertise/admin economics of scale/enables firms to grow when existing market is saturated. Disadvantages no technical commercial economies of scale/management diseconomies of scale
49
Conpetition policy
G
50
Economic welfare?
R
51
Treasury bills
Short-term finance for the government Treasury bills Lender pays less face value but receives face value on maturity
52
Treasury bonds
Gilts | Short medium or long term loan is the pay interest
53
Financial intermediation
I Banks Benefits Maturity transformation – lenders need for liquidity and the desire barbers hand of longer periods Risk reduction/security provider save home to savings Aggregation take small deposits or individual lenders to make into large loans Organised markets create standardised assets to protect lenders and borrowers. Time-saving borrowers and lenders do not have to waste time seaking each other out.
54
Credit creation
Credit multiplier =1/r
55
Fisher equation
Nominal interest rate | =(real interest rate + inflation rate)
56
Yield on short-term investments
Yield=return Y= (F-P)/P * 365/M Days F= face value P= purchase price M=maturity (3months = 91 days
57
Fiscal policy
How much government spends and collect in taxes
58
Bonds
Long term loans
59
Nominal/flat yield
Annual payment compared to the face value of the bond Nominal yield=C/F. ( gives %) C=coupon value (%) F=face value ( nominal/par value)
60
Current/running yield
Annual payment compared to the current market price. Running yield = C/P C is coupon value £ (how much you get paid yearly) coupon rate*nominal value ) = Cr* F P is market price £
61
Dividend yield formula 1
Dividend/Market price
62
Dividend yield formula 2
Ke= (D/P)(1+g) +g Ke return on equity P= share price D=dividend paid g=dividend growth rate
63
Role of central banks
Set interest rates to control inflation Regulate the banking sector Lend to banks as lender of last resort when banks are short of money Hold government deposit and act as their banker Issues the notes and coins Borrow on behalf of the government Hold foreign-exchange and buy and sell currency to stabilise the exchange rate Advise on money policy
64
Money market
Short term debt market ``` Includes The primary market Secondary market Interbank market Certificate of deposit market ```
65
Stock markets
Place where company stock Are bought and sold
66
Foreign exchange rate
The price of one currency expressed in terms of another
67
Spot rate
Rate set for immediate delivery of currency
68
Forward rate
Rate set for delivery of currency at specified future rate
69
National income
This is the value of goods and services produced in the year i.e. the output
70
Gross domestic product
GDP is good and services produced within the UK
71
Gross national product
GDP plus earnings from investment abroad
72
MPC
Marginal propensity to consume Change in consumption/ Change in NI
73
MPW
Marginal propensity to withdraw MPC+MPW =1
74
Inflationary gaps
Well planned and cook it tomorrow and is bigger then Full employment level of national income
75
Deflationary gap
Where the level of pay and aggregate demand is below the level needed to ensure full employment
76
MPC multiplier
1/MPW 1/1-MPC
77
Change in national income due to injection
📈in NI = multiplier rise in 💉
78
Injections
Savings Taxation Import demand
79
Withdrawals
Investment spending Gov spending Export demand
80
AD
C I. G X
81
Interest rate
Cost of investing/Capital Borrowing funds Cost of devoting liquid resources to investment Discount rate used to calculate NPV ``` Things that increase interest rate High risk High uncertainty about future inflation High borrowing from government High borrowing from individuals Monetary policy Interests abroad ```
82
MEC
Marginal efficiency of capital | Find out more!
83
Market value
Current value/price
84
Role of central bank
``` Set interest rates Regulate banking sector Lend to banks, as a last resort Hold government deposits Issue notes and coins Borrow for the government Hold foreign exchange-to stabilise Advise on money policy ```
85
Fiscal policy
Method of managing aggregate demand through taxation and government spending.
86
Real rate of interest
1+real rate of interest = 1+money rate of interest (nominal) / 1+inflation rate
87
Economic equilibrium
When E=Y And J=W I+G+X=S+T+M
88
Inflation
Inflation down Exchange rate goes up.
89
Interest rate and x rate
Interest goes up/down | Exchange rate goes up/down
90
MEC
Marginal Efficiency of capital If more MEC = More investment at any given interest rate Why? - Increase relative cost of labour vs capital (equipment/machinery) (pay rises) (people expensive- so pay for factory's instead. - Innovation, so capital is more productive. - Fall in price of capital goods.(cheaper to buy machines. - expectation of economic growth.
91
Capital
A productive resource Money is not capital Used in production of other goods It is made by humans Not used up immediately in the process of production
92
Fiscal deficit
G>T
93
Fiscal surplus
T>G

C4 (1 decks)

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