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BUS 149 > Lecture 1 > Flashcards

Lecture 1 Flashcards

1
Q

Finance

A

how individuals, institutions, governments and businesses acquire and spend money and other financial assets

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2
Q

Financial environment

A

encompass the financial system, institutions, markets and individuals that make the economy operate efficiently

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3
Q

Entrepreneurial finance

A

how performance focused firms manage operations and assets

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4
Q

Personal finance

A

how individuals prepare for financial emergencies

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5
Q

Three areas of finance

A
  1. institutions and markets
  2. financial management
  3. investments
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6
Q

Institutions

A

help the financial system operate efficiently and can transfer funds

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7
Q

Markets

A

physical locations or electronic forums that facilitate the flow of funds

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8
Q

Investment area

A

involves sale / marketing, analysis of securities and management of investment risk through diversification

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9
Q

Financial management

A

involves financial planning, asset management and fund raising decisions to enhance firms value

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10
Q

What happened to tech price bubble in 2000

A

it burst

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11
Q

What exaggerated 2001 recession

A

9/11

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12
Q

What happened to housing price bubble in 2006

A

in burst resulting in steep decline in prices

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13
Q

Six principles of finance

A
  1. time value of money
  2. risk return tradeoff
  3. diversification of investments
  4. efficient financial market
  5. management vs owner objectives
  6. reputation matters
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14
Q

Time value of money

A

money in hand today is worth more now than the promise of receiving it in the future

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15
Q

Risk return tradeoff

A

high risk usually results in high reward

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16
Q

Diversification of investments

A

some risk can be removed by splitting up investments into several assets or securities helping to absorb loss

17
Q

Efficient financial markets

A

having information efficient markets

18
Q

Information efficient markets

A

when the prices of securities reflect all information available at any point in time

19
Q

Management vs owner objectives

A

managers objectives may differ from owners, also known as Principe agent problem
(owners may want to increase return, managers may want to gain more sales)

20
Q

Reputation matters

A

high reputation reflects high quality ethical behaviour

21
Q

Four main components of the US monetary system

A
  1. policy makers
  2. monetary system
  3. financial institutions
  4. financial markets
22
Q

Who are the 4 policy makers

A
  1. president
  2. congress
  3. US treasury
  4. federal reserve board
23
Q

What is the role of policy makers

A

to pass laws and set fiscal and monetary policies

24
Q

What two entities make up the US monetary system

A
  1. federal reserve central bank
  2. commercial banking system
25
Q

What is the role of the monetary system

A

create and transfer money

26
Q

What are the four types of financial institutions

A
  1. depository instituions
  2. contractual savings organisations
  3. securities firms
  4. finance firms
27
Q

What is the role of financial institutions

A

accumulate and lend / invest savings

28
Q

What are the four types of financial markets

A
  1. debt securities markets
  2. equity securities markets
  3. derivative securities markets
  4. foreign exchange markets
29
Q

What is the role of financial markets

A

to market and facilitate transfer of financial assets

30
Q

Money markets

A

where debt securities of one year or less are traded

31
Q

Four features of money market securities

A
  1. high liquidity
  2. can be easily sold old traded with little loss in value
  3. short lives
  4. low risk low return
32
Q

Capital markets

A

where debt securities with maturities longer than one year or corporate stocks are issued or traded

33
Q

Primary markets

A

where the initial offering or origination of debt and equity securities take place

34
Q

Secondary markets

A

physical locations or electronic forums where debt and equity securities are traded

35
Q

Debt securities markets

A

where money markets securities, bonds and mortgages are originated and traded

36
Q

Equity securities markets

A

where corporate ownership shares are initially sold and traded

37
Q

Derivative securities markets

A

where financial contracts that derive their values from underlying debt and equity securities are originated and traded

38
Q

Foreign exchange markets

A

electronic markets where traders buy and sell currencies on behalf of business / other clients

BUS 149 (5 decks)

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