Sources of finance

Question 1

What is finance?

Answer 1

Finance is the money or funds by root of firm can use and generate in order to apply and maintain the firms strategy plans

Question 2

What are sources of finance?

Answer 2

Sources of finance, I wear a business get money from to find their business activities

Question 3

Name a few needs for sources of finance

Answer 3

Day-to-day operations
Expansion of scale of operations
Starting up the business
Buying or replacing new assets

Question 4

What are the two types of sources of finance?

Answer 4

Internal and external

Question 5

What are internal sources of finance?

Answer 5

Money that comes from within the firm and from its owners

Question 6

What are external sources of finance

Answer 6

All the money coming into a business from outside it

Question 7

List different internal sources of finance availability, firms in the short run or long run

Answer 7

1. Owners funds.
2. Retained profits or savings.
3. Selling of assets.
4. Reducing stock levels.
5. Cost-cutting measures.

Question 8

List different external sources of finance available to firms

Answer 8

1. Family and friends.
2. Bank loans
3. Mortgages
4. Shares.
5. Government grants

Question 9

What is a share?

Answer 9

I share is the name used by companies when I company says and issues shares to raise the companies capital

Question 10

What is a bank loan?

Answer 10

When firms borrow an amount of money from the bank that needs to be paid back over fixed period of time with interest

Question 11

What does a bank overdraft?

Answer 11

When a firm withdraws more money than it has in his bank account, this is an agreement between a firm and a bank

Question 12

What are government grants?

Answer 12

The government or the European Union provides money to the firm. Malta enterprise.

Question 13

Compare and contrast the difference between internal and external sources of finance

Answer 13

CONTRAST
1. Internal sources of finance are owned by The Firm itself and external sources of finance come from outside the firm.
2. Internal sources of finance do not require repayment whilst extendable usually require repayment with interest
3. Internal sources do not dilute the ownership of a company whilst external sources can dilute ownership by issuing new shares or incurring debt.

COMPARE
1. Both types aim to raise funds for the firm.
2. Both can affect a firms financial position.
3. Both can have long-term or short-term effects on the firm.

Question 14

What is the difference between short run and long run sources of finance

Answer 14

Short-term finance are used to get money for a short period usually less than one year. They help with every day financial needs like paying bills and meeting immediate financial commitments.
Eg; trade credit, bank overdrafts, short-term loans.

Long-term sources of finance, help in getting fans for longer periods, more than one year . This enables for filling Man U requirements needed for longer time periods. .Eg; research, development, company extension/ expansion. This can be long-term loans shares and bonds

Question 15

Explain that interest is the price of money

Answer 15

Interest is the price of money because it represents the compensation that a lender requires in exchange for lending their money to someone else and the borrower pays this price as a cost of accessing the funds

Question 16

Describe the impact of changes in interest rates on SAVINGS

Answer 16

When interest rates rise, saving accounts, and other deposit accounts become more attractive. This is because they can earn a higher return on their savings.

When interest rates fall saving accounts become less attractive as the returns on these accounts are lower .

Question 17

Describe the impact of changes in interest rates on INVESTMENTS

Answer 17

Higher interest rates can make borrowing more expensive, which may discourage businesses from taking loans to expand or invest, however, higher interest rates can also attract investors looking for a better returns on their investments

Lower interest rates makes borrowing more affordable, which stimulates investment activity since businesses will want to take loans for expansion and investment projects

Question 18

What are loanable funds?

Answer 18

Loanable funds are the funds available for a borrowing or lending

Question 19

Show the impact of changes in interest rates using the loanable funds theory in terms of demand and supply

Answer 19

DEMAND
As interest rates increase the demand for loans decrease . As interest rates decrease the demand for loans increases. This shows a negative or inverse relationship between demand for loans and interest rates.

SUPPLY
As interest rates increase, the supply of loanable funds also increases, and as interest rates decrease the supply of loanable funds also decreases. This shows a positive relationship