Final Exam Review: Class 6, Markets, Finance & Corporate

Question 1

Finance

Answer 1

Choices, Flexibility, Obligations [Financial markets, raising c capital, return to investors]

Question 2

Capital structure impact

Answer 2

1. Equity v Debt

2. Type of firm

Question 3

Financial Markets - the players

Answer 3

1. Business: raise equity; borrow
2. Households: investors
3. Government: regulator

Question 4

Role of Financial Institutions

Answer 4

• Move funds from savers to borrowers
• Move funds through time
• Help spread out risk-bearing

Question 5

The Financial Cycle

Answer 5

1. people invest and save money
2. thru loans and stock, money goes to companies
3. money then flows back to investors

Question 6

Collateralized Debt Obligation [CDO]

Answer 6

• Investor wanted higher returns
• Financial institutions put together home buyers (who wanted loans called mortgages to buy their homes) with investors who wanted a higher returns
• This worked until more investors wanted more CDO’s and banks didn’t pay attention to product quality

Question 7

Social Investing

Answer 7

Private Capital + Fund or Enterprise => Community Model

[think kickstarter]

Question 8

Reverend Leon Sullivan

Answer 8

Linking investing to social justice

Question 9

Linking investing to social justice

Answer 9

• Promote equal opportunities for our employees
• compensate our employees to enable them to meet at least their basic needs
• provide a safe and healthy workplace