Business & Finance Flashcards
Get to know the world's most prominent entrepreneurs and basic business and finance knowledge. Special thanks to Biography, Business Insider, and Forbes for helping Brainscape to compile this deck! (41 cards)
What is the name for the sum of all of a country’s economic activity, including consumer spending, government spending, and business investment?
Gross Domestic Product
(GDP)
Note that a larger GDP doesn’t necessarily mean a country’s inhabitants are “richer” than other countries.
This is why we often normalize to a per capita GDP for easier comparison of average national earnings per person.
For example, if the U.S. GDP were $20 Trillion in a particular year, and it has 300 million residents, then the U.S. per capita GDP would be about $67,000.
What are the four major business structures allowed in the U.S.?
- Sole Proprietorships
- Partnership
- Corporations
- Limited Liability Companies (LLCs)
Sole Proprietorships is when one individual owns the business.
Partnerships is when multiple individuals have ownership in the business.
Corporations are large businesses, legally separate from owners (this includes S corporations).
LLCs are typically smaller than corporations; up to 100 members.
Both corporations and LLCs typically have outside investors.
What is the term used when a government spends more money than it takes in from taxes and other revenues in a given period?
fiscal deficit
Debt is the sum of all accumulated deficit plus accumulated off-budget surpluses.
The opposite of a deficit is a surplus, which is when the government has extra funds. These can be used to pay off public debt, reduce taxes, start new programs, or fund existing programs.
How does the government borrow money to finance its debt?
by selling bonds
The Treasury sells bonds to domestic and foreign individuals and financial institutions, with a promise to pay those bonds back with interest.
A bond is a loan with a promise to make a payments on certain dates. Those bonds can then be traded by investors on the open market.
What theoretically happens to economic activity when interest rates rise?
economic growth slows
- People are motivated to save more rather than spend.
- Businesses become more hesitant to borrow money to invest in new innovation.
What is inflation?
A measure of price changes of goods & services
Since the early 80s, the U.S. inflation rate has been between 1 - 5% per year, though it began to sharply increase in late 2021.
What is the name of the central bank of the U.S., which regulates banks and “sets” interest rates?
U.S. Federal Reserve
(aka “the Fed”)
The interest rate manipulation by the Fed helps stabilize economic growth by influencing bond markets through its purchases and sales of government bonds.
What are the two largest stock markets in the U.S?
The NYSE and NASDAQ
The two largest U.S. stock markets are the New York Stock Exchange and the National Association of Securities Dealers Automated Quotations.
On a stock market, investors buy and sell stocks, which are small shares of ownership in public corporations that entitle shareholders to a dividend on future profits.
The NASDAQ is primarily made up of technology stocks and is a fully digital market with no physical “trading floor”. The NYSE is famously located on Wall St.
What is the term used when a private corporation opens itself to investors from the general public?
IPO
(Initial Public Offering)
Founders and early investors tend to “get rich” in IPOs, since there is finally a “liquid” market where they can sell their shares.
What type of financial institutions underwrite large financial mergers, acquisitions, and initial public offerings?
Investment banks
Major investment banks include: Barclays, Bank of America, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank.
What type of funds invest in new business concepts and rapidly-growing private companies (i.e. “startups”)?
venture capital funds
(VCs)
Some large VCs include: Sequoia, Kleiner-Perkins, Accel, Bessemer, NEA, Andreesen-Horowitz.
What is the name for firms who make investments directly into large private companies or conduct buyouts of public companies?
Private Equity (PE) firms
Investors in PE firms consist of very wealthy individuals and private financial institutions. When PE firms buy out a public company, it is taken off the stock market.
Some of the largest PE firms include: Apollo, Blackstone, the Carlyle Group, and KKR.
What type of fund allows groups of high net-worth investors to pool money and make large, risky investments, often in alternative assets like derivatives, foreign currencies, commodities, and high-risk stocks?
hedge fund
Investment in hedge funds is only open to investors with large amounts of capital.
Some of the world’s biggest and best known hedge funds include: Bridgewater, Och-Ziff, Brevan Howard, BlueCrest, BlackRock.
What is the name for a complex financial instrument whose value is actually dependent on a different asset?
derivative
Common derivatives include commodities futures, stock options, forward contracts, and credit default swaps.
If the U.S. dollar decreases in value vs. other currencies, how does this affect U.S. businesses and consumers?
- U.S. businesses benefit.
- U.S. consumers suffer.
When the dollar depreciates, U.S. exports now “seem cheaper” abroad, so U.S. businesses will likely increase their sales.
Meanwhile, a cheaper dollar means that imports (originally priced in other currencies) are now more expensive to U.S. consumers, decreasing American purchasing power.
When a country’s exports are greater than its imports, it is said to be running a ____ _____.
trade surplus
If imports are greater than exports, the country is running a trade deficit. The difference between imports and exports is known as the country’s balance of trade.
What is a company’s Gross Profit?
(or Gross Margin)
Revenue - Cost of Goods Sold
Gross Profit is the difference between revenue and COGS (sometimes stated as the difference between Sales and Cost of Sales). It represents the profit that is left over before considering Operating Expenses.
On the other hand, Gross Profit minus Net Profit (or Net Income or Net Earnings) is equal to the Gross Margin minus the operating expenses.
Note that the Gross Margin is a percentage derived from the Gross Profit divided by revenue.
Which 19th-century American industrialist made his fortune in railroads and shipping?
Cornelius Vanderbilt
Vanderbilt became one of the wealthiest Americans of the 19th century.
He owned a number of rail lines between New York and Chicago, and established an interregional railroad system.
Which 20th-century American industrialist and philanthropist founded the Standard Oil Company and was once the world’s richest man?
John. D. Rockefeller
Rockefeller’s philanthropy led to the founding of the University of Chicago.
He also championed the cause of public sanitation, and helped lead major public-health efforts against various diseases.
Which Scottish-American steel magnate of the 19th and 20th centuries sold his company to J.P. Morgan to create U.S. Steel, and then became a major philanthropist?
Andrew Carnegie
Carnegie was one of the fathers of modern philanthropy and his efforts funded multiple libraries.
He also helped to establish multiple colleges, schools, NGOs, and associations.
Which wealthy American financier of the 19th and 20th centuries was involved in many of the largest deals in emerging industries, including the mergers resulting in General Electric and U.S. Steel?
J.P. Morgan
J.P. Morgan helped to stabilize the American financial markets during several crises, including the panic of 1907.
Which U.S. businessman developed mass production techniques for automobiles and released the Model T in 1908?
Henry Ford
Ford’s “drive-through” production technique would later be transformed and applied to the restaurant business.
Which French fashion designer and businesswoman founded one of the top luxury brands focusing on women’s ready-to-wear clothing, accessories, and other goods in 1910?
Coco Chanel
Coco Chanel changed the way society viewed women as well as how women viewed themselves.
One of her major innovations was the woman’s suit, which gave a boost to feminism and women’s rights.
Which American businessman of the 20th century was instrumental in establishing the McDonald’s Corporation as a fast food giant?
Ray Kroc
Ray Kroc was instrumental in popularizing the franchise model among restaurants and other types of businesses around the world.
He also owned the San Diego Padres.
