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Financial Markets and interest rates | FIN - Finance 1 - Introduction, Quizzes of Finance

Class: FIN - Finance 1 - Introduction; Subject: Finance; University: University of Houston-Downtown; Term: Forever 1989;

Typology: Quizzes

2010/2011

Uploaded on 09/20/2011

angmontes84
angmontes84 🇺🇸

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TERM 1
deficit
DEFINITION 1
taking much less in than spending ex: goverment- less taxes
in, more spending
TERM 2
saving surplus
DEFINITION 2
Individuals and companies that take in more than speding.
TERM 3
3 ways Savings are transferred through
Financial Markets
DEFINITION 3
1. Direct Transfer of Funds - firm seeking cash s ells securities
directly to savers (inverstors) willing to purchase them in hopes
for a large return. ex: startup compa ny- goes directly to a wealthy
private investor called an ANGEL INVE STOR or a VENTURE
CAPITALIST. (Koofers.com) startup com pany does well, received
2mil from venture capitalist to expan d and in return became part
owners of company. 2. Indirect transf er using an investment
banking firm- 3. Indirect transfer u sing the financial
intermediary
TERM 4
5 PRINCIPLES OF FINANCE
DEFINITION 4
1. CASH FLOW IS WHAT MATTERS- ca sh flow not profit determines
the value of a business 2. MONEY HA S A TIME VALUE- a dollar
received today is more valuable than a dollar receive one year
from now b/c of interest earned 3. R ISK REQUIRES A REWARD-
investors want a return that satisfies two requirements: return for
delaying consumption & additional ret urn for taking on risk. 4.
MARKET PRICES ARE GENERALLY RIG HT- 5. CONFLICTS OF
INTEREST CAUSE AGENCY PROBLEMS - results from the seperation
of ownership and management of th e firm.
TERM 5
AVOIDING FINANCIAL CRISIS- BACK TO 5
PRINCIPLES
DEFINITION 5
1. FORGETTING CASH FLOW IS WHAT MATTERS- focusign on
earnings instead of cash flow. 2. FORG ETTING MONEY HAS A TIME
VALUE- Focusing on the short run 3. F ORGETTING RISK REQUIRES
REWARD- Excessive risk taking due to under-estimation of risk. 4.
FORGETTING MARKET PRICES ARE GE NERALLY RIGHT- Ignoring
efficiency of financial markets. 5. FOR GETTING CONFLICTS OF
INTEREST CAUSES AGENCY PROBLEM S- Executive compensation is
out of control.
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TERM 1

deficit

DEFINITION 1

taking much less in than spending ex: goverment- less taxes

in, more spending

TERM 2

saving surplus

DEFINITION 2

Individuals and companies that take in more than speding.

TERM 3

3 ways Savings are transferred through

Financial Markets

DEFINITION 3

  1. Direct Transfer of Funds - firm seeking cash sells securities directly to savers (inverstors) willing to purchase them in hopes for a large return. ex: startup company- goes directly to a wealthy private investor called an ANGEL INVESTOR or a VENTURE CAPITALIST. (Koofers.com) startup company does well, received 2mil from venture capitalist to expand and in return became part owners of company. 2. Indirect transfer using an investment banking firm- 3. Indirect transfer using the financial intermediary TERM 4

5 PRINCIPLES OF FINANCE

DEFINITION 4

  1. CASH FLOW IS WHAT MATTERS- cash flow not profit determines the value of a business 2. MONEY HAS A TIME VALUE- a dollar received today is more valuable than a dollar receive one year from now b/c of interest earned 3. RISK REQUIRES A REWARD- investors want a return that satisfies two requirements: return for delaying consumption & additional return for taking on risk. 4. MARKET PRICES ARE GENERALLY RIGHT- 5. CONFLICTS OF INTEREST CAUSE AGENCY PROBLEMS- results from the seperation of ownership and management of the firm. TERM 5

AVOIDING FINANCIAL CRISIS- BACK TO 5

PRINCIPLES

DEFINITION 5

  1. FORGETTING CASH FLOW IS WHAT MATTERS- focusign on earnings instead of cash flow. 2. FORGETTING MONEY HAS A TIME VALUE- Focusing on the short run 3. FORGETTING RISK REQUIRES REWARD- Excessive risk taking due to under-estimation of risk. 4. FORGETTING MARKET PRICES ARE GENERALLY RIGHT- Ignoring efficiency of financial markets. 5. FORGETTING CONFLICTS OF INTEREST CAUSES AGENCY PROBLEMS- Executive compensation is out of control.

TERM 6

LEGAL FORMS OF BUSINESS

DEFINITION 6 SOLE PROPRIETORSHIP- business owned by an individual, owner retains title and is responsible without limitation for liabilities incurred. proprietor is entitled to profits but must also absorb losses. PARTNERSHIPS- assoc. of 2 or more persons General Partnership- each partner is fully responsible for the liabilities incurred by the partnership. Partnership agreement may be oral or formal document. Limited Partnership- one or more of the partners to have limited liabilty, restricted to the amount of capital invested in the partnership. At least one partner must have unlimited liability, name of limited partner may not appear in the name of the firm. A limited partnership provides limited liability for a partner who is purely an investor.