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Definition
| 1. A discipline concerned with determining value and making decisions about money, banking, credit, investments, and other assets. |
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| 2. The area withing the discipline of finance that concerns a corporation's investing and financing decisions |
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| 3. An unincorporated business owned by one person |
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| 4. The financial exposure created by a creditor's ability to seize a business owner's personal as well as business assets in order to satisfy a claim |
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| 5. An unincorporated business owned by two or more entities, each of which has a financial interest in the business. |
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| 6. A partnership in which each partner assumes unlimited joint liability for all the partnership debts |
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| 7. A partnership made up of one or more general partners, who have unlimited liability, and one or more limited partners, whose liability is limited to the amount of capital they have contributed to the partnership. |
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| 8. A legal entity that is separate from its owners and is created, or incorporated, under state laws. |
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| 9. A group of individuals elected by a corporation's shareholders to establish corporate management policies and make decisions on major corporate issues. |
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| 10. Professional corporation |
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Definition
| 10. A Corporation owned and managed by one or more professionals to provide professional services (architects, physicians, accountants) |
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Term
| 11. Limited Liability Company (LLC) |
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Definition
| 11. A form of business organization that combines the tax advantage of partnerships with the limited liability of corporation. |
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| 12. Anyone with a financial interest in the corporation |
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| 13. A corporation's current assets minus its current liabilities. |
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| 14. A corporation's mix of long-term debt and equity |
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| 15. The planning and managing of a corporation's long-term investments |
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Definition
| 16. A mechanism used for trading securities |
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| 17. Pieces of paper or electronic records that provide evidence of equity or debt instruments |
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| 18. A financial market in which short-term securities are traded |
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| 19. A financial market in which long-term securities are traded |
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| 20. A mechanism used to sell new securities, with the proceeds going directly to the issuer. |
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| 21. The price a dealer is willing to pay for a security. |
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| 22. The price at which a dealer is willing to sell a security |
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| 23. The difference between the bid price and the asked price of a security. |
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| 24. A mechanism for investors to buy and sell previously issued securities. |
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| 25. The ability of the market to handle a large number of securities transactions without a significant effect on prices |
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| 26. The percentage of the overall market that is participating in the market's up or down move |
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Term
1. Describe how the following insurance professionals use finance and corporate finance concepts:
a. Risk Management Professionals
b. Agents and Brokers
c. Underwriters
d. Actuaries
e. Claims Representatives |
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Definition
1.
(a). Risk Mgmt Prof: To determine the most appropriate method of controlling and financing loss exposures
(b) Agents and Brokers: To determine whether the organization meets an insurer's overall financial underwriting guidelines and to prepare the insurance application.
(c) Underwriters: To decide whether to offer coverage
(d) Actuaries: To develop premium rates
(e) Claim Reps: For claim investigations into the cause of loss. |
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Term
| 2. List three general forms of business organization. |
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Definition
2. 3 forms of biz org:
(1). Sole Proprietorship
(2). Partnership
(3). Corporation |
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Term
3. Identify the primary advantages of the following types of biz org:
a. Sole Proprietorships
b. Partnerships
c. Corporations |
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Definition
3. Advantages:
(a). Sole Proprietorship:
**Owners has full control of the biz
**Profits are taxed once
**easy to establish
**limited capital requirements
**min state and fed control
(b). Partnerships:
**Each parnters share of profites is taxed as personal income
**easy to establish
**access to several partner's skill sets
**shared mgmt responsibilities
**access to capital through the combined wealth of partners
**partners' liability is limited to their investment in the partnership
(c) Corporations
**shareholders have limited liability for the corps debts
**ownership interests can be acquired and transferred easily
**unlimited life since they exist independently of their owners
**greater ability to raise capital |
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Term
4. Identitfy disadvantages fo the following types of business organization:
a. Sole Proprietorship
b. Partnerships
c. Corporations |
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Definition
4. Disadvantages:
(a) Sole Proprietorship:
**unlimited liability
**difficult to raise additional capital
**life of business is limited to owner's lifetime
(b) Partnerships:
**each individual partner has unlmited liability for all partnership debts
**limited existence
**shared mgmt can lead to conflict
**can be difficult to raise capital
(c) Corporations:
**complex and expensive to establish and maintain
**corporate income can be subject to double taxation |
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Term
| 5. Distinguish between the business operations of a general partnership and the business operations of a limited partnership |
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Definition
| 5. Partners in a general partnership are active in the mgmt and operation of the biz and each partner assumes unlimited laibility for all partnership debts. Partners in a limited partnership are legally prohibited from participating actively in the mgmt of the biz and each partner's liability is limited to the amt of capital he or she contributed. |
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Term
| 6. Identify the main goals of corporate finance |
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Definition
| 6. The main goals of corporate finance are to **maximize shareholder wealth **to provide for transparency in financial reporting, and **to conduct financial operations in an ethical manner. |
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| 7. Identify problems that can result from focusing on an overall financial goal of maximizing profits |
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Definition
7. Problems:
**focusing on current profits to the detriment of long-term profitability and growth
**not accounting for the levels of risk associated with different profit scenarios
**electing accounting treatments that make financial sttements less useful to potential investors |
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Term
| 8. Explain why a board of directors needs financial transparency to insure shareholders that mgmt is acting in the company's best interests |
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Definition
| 8. A board of directors needs financial transparency to ensure shareholders that mgmt is acting in the co's best interests. To perform this duty, the board needs access to timely, understandable, informative and accurate financial reporting that contains full disclosure of key events and accounting methods. |
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Term
| 9. Describe the purpose and the main provisions of the Sarbanes-Oxley Act of 2002 regarding financial reporting of U.S. corporations |
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Definition
9. The purpose of this act is to protect investors by improving the accuracy and reliability of corporate disclosures. The major provisions include:
**creation of an oversight board to regulate public accounting firms that audit publicly traded corporations
**enhanced financial disclosure requirements
**increases in penalties for corporate fraud
**new requirements for certifying the accuracy of financial information |
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| 10. List several questions that help determine whether a biz decision or action is ethical |
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Definition
10. The following questions help determine whether a biz decision or action is ethical:
**does my decison fall within the guidance of the corp's code of ethics
**am i willing to have my decision and reasoning reported on the front page of the newspaper?
**will the people with whom I have significant personal relationships approve of my decision? |
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Term
11. ID the typical responsibilities of each:
(a). Chief financial officer (CFO)
(b). Treasurer
(c). Controller
(d). Chief information office (CIO) |
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Definition
11. Duties:
(a) CFO: Setting the overall corporate financial strategy
(b). Treasurer: Working capital mgmt, capital structure mgmt, and capital budgeting
(c). Controller: Accounting functions, taxes and financial reporting
(d). Chief information officer (CIO) - The corporations information technology |
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Term
| 12. Describe the key activities performed by a corporate finance department. |
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Definition
12. key activities:
**working capital mgmt; focuses on a corporations short-term needs for cash and other resources
**Capital Structure: focuses on what resources the corporation needs to meet its long term goals and how the resources should be obtained
**Capital Budgeting: Planning and managing a corp's long-term investments
**Accounting: Accumulating and reporting financial data for both internal and external use |
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Term
| 13. Describe working capital and its components |
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Definition
| 13.Working capital of a corporation is is current assets minus its current liabilities. Current assets include cash, accounts receivable, marketable securities, and inventory. Current liabilities include amounts owed to suppliers and employees, and the current portion of any loans payable. |
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Term
| 14. Identify two questions that help a financial manager make decisions regarding resources needed to meet the corporation's long term goals |
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Definition
14. The following two questions help a financial manager make decisions regarding resources needed to meet the corporations long term goals.
**How much capital will be financed by borrowing and how much raised through the sale of stock?
**What specific financial vehicles will be used to raise capital? |
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Term
| 15. Describe the components of financial markets. |
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Definition
15. Components of financial markets:
**Money Markets: Markets in which short term securities are traded
**Capital Markets: Markets in which long term securities are traded |
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Term
| 16.ID the goals of the typical providers and users of capital in financial markets |
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Definition
| 16. The providers of capital in fianancial markets, as investors, want to find a way to use their money to generate income. The goal of typical users of capital is to find the additional capital needed to finance their biz operations. |
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| 17. ID the typical forms of demand for capital in financial markets. |
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Definition
| 17. The typical forms of demand include mortgages; corporate and foreign bonds; common and preferred stock; short-term business borrowing; consumer credit; bank loans, other loans and advances; federal, foreign, state and local govt debt. |
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| 18. ID the primary sources of the supply of capital in financial markets |
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Definition
| 18. The primary sources of capital in financial markets are individual investors, insurers, pension funds, thrift institutions, investment companies, commercial banks, and business corporations. |
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Term
| 19. Distinguish between primary and secondary markets |
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Definition
| 19. Primary markets are used to sell new securities, with the proceeds going straight to the issuer. Secondary markets provide a mechanism for investors to buy and sell previously issued securities. |
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Term
| 20. ID four types of primary-market structures |
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Definition
20. Primary markets include:
(a). Direct search- Buyers and sellers rely on word of mouth communication of their trading interest to attract trading partners
(b) Broker - Finds trading partners and negotiates transaction prices for clients in return for a fee
(c) Dealer- Dealers buy for, and sell for, their oown accounts at quoted prices.
(d) Auction - Investors participate in a single price-setting process |
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Term
| 21. Describe how trading on an organized exchange differs from trading in over-the-counter (OTC) dealer markets |
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Definition
21. Trading on an organized exchange differs from trading in over-the-counter (OTC) dealer markets in the following ways:
(a). All trading in a given stock occurs at a single price on an exchange floor
(b) Transaction prices are broadcast to the public |
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