Topic 1 - Introduction To Finance Flashcards
What is the definitiation of finance?
Finance is concerned with decisions involving the valuation of future cash flows and what affects these values
What are the 5 elements of finance?
- money
- time
- uncertainty
- information
- tax
Forms of business structure - what are the advantages of sole traders, partnerships (unincorporated)?
- cheap and easy to establish
- ownership and control concentrated
- no requirement to publish accounts
Forms of business structure - what are the disadvantages of sole traders, partnerships?
- difficult to sell so they have a finite life
- the owner is the business so they have unlimited liability
- difficult to raise funds to grow
Forms of a business structure - what are the advantages of incorporated businesses (separate legal identity from its owners)?
- ownership can be transferred by selling shares (infinite life)
- business is legally separate from its owners - limited liability
- funds can be raised publicly through equity and debt markets
Forms of a business structure - what are the disadvantages of incorporated businesses (separate legal identity from its owners)?
- difficult and expensive to establish
- tax disadvantages
- management is separate from owners
- requirement to publish accounts
What are the 3 different perspectives on finance?
- corporate finance
- investments
- financial marks and intermediaries
Corporates finances perspective…
- concerned with the current market value of assets and liabilities an not the book value conventions of accountants
Investments perspective of finance….
- conceded in various ways in which individuals invest their long term savings
- one way is in companies shares, there is a link between individuals investing in financial securities of companies and companies investing in financial assets
- individuals invest in other securities and assets such as bonds, options, property and futures
- they invest through intermediaries such as banks, building societies, investment trusts and unit trusts
Financial markets and intermediaries view of finance..
- act as agents for individual investors
- they are; banks, pension funds etc
- help the flow of funds between individuals and companies
- financial markets lie at the core of all financial transactions but provide an independent perspective on transactions
- main markets in finance are; those in stocks, bonds, options, futures and foreign exchange
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
