l1&2 : intro to finance Flashcards
what are the four perspectives on finance?
- corporate finance
- investments
- financial intermediaries & markets
- government
what are some examples of corporate finance as a perspective of finance?
- capital budgeting
- financing (shareholder funds, retained profits, bank loans, bonds and debenture loans)
- liquidity / working capital mgt
what are some examples of investments as a perspective of finance?
individual investors
what are some examples of financial intermediaries as a perspective of finance?
banks, pension funds, unit trusts
what are some examples of the government as a perspective of finance?
gilts, tax, regulation
what are the two forms of business structure?
- unincorporated
- incorporated
explain what an unincorporated business structure is.
sole traders, partnerships
give three advantages of an unincorporated business structure.
- cheap and easy to establish
- ownership & control concentrated
- no requirement to publish accounts
give three disadvantages of an unincorporated business structure.
- difficult to sell –> finite life
- unlimited liability
- difficult to raise funds to grow
explain what an incorporated business structure is.
separate legal identity from its owners. companies limited by shares. financed by share and debt capital. shareholders elect board of directors, board appoint managers.
give three advantages of an incorporated business structure.
- ownership can be transferred by selling shares –> infinite life
- limited liability
- funds raised publicly through equity and debt markets
give four disadvantages of an incorporated business structure.
- difficult and expensive to establish
- tax disadvantages
- management is separate from owners
- requirement to publish accounts
what are financial markets?
allows investors to buy and sell financial claims (securities) and facilitate this exchange
what are primary stock markets?
markets where companies raise new equity finance by issuing new securities
what are secondary stock markets?
markets where investors buy and sell existing shares. information and liquidity motivated
how are directors elected in single-tier board countries?
UK, Ireland, Sweden
shareholders elect boards of directors who then select managers
shareholders —> BoD —> managers
how are directors elected in two-tier board countries?
Denmark, Germany, the Netherlands
exec board manages day to day operations and reports to supervisory board which monitor exec boards performance
give three advantages of a secondary stock market.
- investment v borrowing horizons
- liquidity / marketability
- active market gives correct valuations
when was the “big-bang” in the secondary market?
27 oct 1986
when was the “big-bang ii” in the secondary market?
20 oct 1997
what were the problems pre big-bang in the secondary stock market?
- increased concentration / reduced competition in jobs
- fixed brokerage commissions
- LSE membership restricted
- jobbers undercapitalised
what happened after big-bang ii?
more changes were made to the trading system eg. trading floor v SEAQ & telephone
define IPO.
intial public offering. when a private company sells its first shares of stock to the public. in essence, the company is moving from private to public ownership.
