Chap 1 Flashcards by Ara Zamora

also called the aftermarket. A place where financial instruments already issued are traded.

a type of capital market

Secondary Market

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a market where exchange of derivatives take place.

Derivative Market

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where the providers and users of funds interact with the help of the financial intermediary.

concerned with creating financial assets, markets for trading securities, and regulations for the financial markets

Financial Institution and Markets

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involve the buying and selling of financial securities, the analysis on making an investment, and risk management

Investments

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more concerned with the raising, allocating, and controlling the firm’s funds.

Financial Management

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Three Areas Of Finance

Financial Institution and Markets
Investments
Financial Management

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Two categories of finance

Public

Private

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3 Private Finance

Personal Finance
Non-profit organization
Business Finance

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concerned with the government revenues and spending, and their general effect on the economy

Public Finance

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application of finance other than public finance, divided into:

PERSONAL FINANCE

NONPROFIT ORGANIZATION

BUSINESS FINANCE

Public Finance

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Deals primarily with the management of the finances of the individuals and households

Personal Finance

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also known as nongovernment organization (NGO) or charity, provides goods and services to the public without necessarily gaining profit.

NPO

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Is the management of funds and other valuable assets to be used in the conduct of business

BUSINESS FINANCE

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It is concerned with the acquisition, allocation, and accumulation of funds.

BUSINESS FINANCE

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It deals with assets, liabilities, income and expenses. It involves recording past transactions, analyzing past performance, and preparing and interpreting financial statements of the business for the past year.

Accounting

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covers accounting, economics, taxation, and business laws. It involves using the accounting data and information in running the business and ensuring the sufficiency of funds for future operations. The results of finance decisions make up the accounting data.

Finance

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why studying Finance is important

to sustain business, explore new business horizons, and avoid financial losses.

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GOAL OF THE ORGANIZATION

To maximize the wealth of its common stockholders through the value of its common stock.

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is the most important of the three distinct types of decisions when it comes to value creation. They become the firm’s life support in continuing its existence, thus allocation of funds must be prudently done, and investment proposals must recognize the existence of risk. Investments have to be evaluated in terms of expected return and risk that would affect the firm’s valuation in the market.

Investment decision

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The finance manager must be knowledgeable enough to outsource the funds or find ways to finance the operations of the business. He must consider whether financing should be short-term or long-term. He must consider the best possible financing mix or capital structure of the company in order to meet the expected return on investment.

Financing decision

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A sound dividend policy is a good financial signal to the market that continually assesses the company. To pay or not to pay dividends relies basically on the decision of the Board of Directors through the advice of the finance manager.

Dividend Policy decision

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– manages corporate assets and liabilities, plans the finances, budgets capital, financing the business, formulates credit policy, and manages the investment portfolio
-manages external financing matters

Treasurer

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tasked with internal matters – financial and cost accounting, taxes, budgeting and control functions

Controller

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oversees the entire financial activity and serves as adviser in finance matters to the Board of Directors.

CFO

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involved in the production of goods and services

Economic system

creates and manages credit facilities including the supply of money and the much-needed financial instruments

Economic system

different economic units are the financial institutions:

banks and non-banks, business organizations, and individuals.

which pertain to the intricate network of the facilities and processes involving the different economic units, make available loanable funds as vast financial resources and extend credit facilities that hasten production of goods and services being undertaken as an integral part of the economic system.

Financial markets

It has the authority to exercise as a commercial bank, the powers of an investment house , and the power to invest in non-allied enterprises.

UNIVERSAL BANK

In terms of capitalization, it is next to a universal bank

COMMERCIAL BANK

Primarily concerned with the mobilization of savings and loans, Provides short-term working capital, medium, and long-term financing and diversified financial and allied services for their chosen market and constituency especially for small and medium enterprises and individuals.

THRIFT BANK

A retail and commercial bank owned, organized, and managed by cooperatives, a federation of cooperatives, or credit unions. Accepts, deposits, and provides loans to individuals to undertake ventures in accordance with the principles of the cooperative.

COOPERATIVE BANK

It carries out the purpose and functions of conventional banking with strict adherence to Islamic law and ensuring fair play at its core.

ISLAMIC BANK

Controlled by the government. Plays a special role in the economic development of the country.

GOVERNMENT BANK

An enterprise whose function is to underwrite securities of another person or enterprise, including securities of government and private companies. Provides planning, consultancy, fund management, and fund raising through equity financing and borrowings.

INVESTMENT BANK

Engages in buying and selling securities. Trust is engaged in the business of investing the pooled capital of investors in financial securities. Way of conducting business is either through closed-end fund or an open-end fund.

INVESTMENT COMPANY

has fixed number of shared offered by an investment company through an initial public offering (IPO).

Closed-end fund

also known as a mutual fund, does not have restrictions on the amount of shares the fund will issue. Redeemable anytime and on day-to-day basis with no fixed amount of paid-in capital. If demand is high enough, the fund will continue to issue shares no matter how many investors there are.

Open-end fund

are companies which buy and sell stocks of other companies for the purpose of reselling them for a profit. They do not receive commission since they are generating profit based on their trading.

Securities Dealers

are individuals or firms engaged in the buying and selling of stocks for the purpose of commission

Securities Brokers

Provides insurance in case of loss to the insured individual and firms. It is a transfer of risk of a loss from one entity to another in exchange for payment called premiums.

INSURANCE COMPANIES

It is composed of member-owned producers and consumers. Operated for the purpose of promoting thrift, short-term credit at competitive rates and providing other financial services to its members.

CREDIT UNION

A financial institution that extends financing to relatively low-income individuals. Borrowing requires collateral to guarantee payment. Collateral may take the form of real estate, jewelry, gadgets, and other valuable items.

PAWNSHOP

brings together the users and the providers of funds without having them meet face to face. They are also known as indirect form of funds channeling. Middleperson.

FINANCIAL INTERMEDIARY

is a mechanism where buyers and sellers participate in the trade of financial assets such as stocks, bonds, currencies and derivatives. Unlike financial intermediaries, it is not a source of funds but a link to provide a forum in which suppliers of funds and demanders of loans/investments can transact business directly

FINANCIAL MARKET

a market intended for short-term placements. The placement usually takes a year or less to mature. This exists for people and firms that are looking for temporary investments where their idle funds could be placed and earn an additional income.

MONEY MARKET

a time deposit with a fixed interest rate

Certificate of Deposit

unsecured promissory note with a fixed maturity of 1 to 270 days -is a money market security issued by high credit rating companies to raise money to meet short-term obligations

Commercial Paper

a financial instrument wherein one party sells a financial instrument to another party at a specified price with a commitment to repurchase the financial instrument at a fixed amount agreed at a specific date.

Repurchase Agreement (Repo)

an obligation by the national government; the interest is normally higher than the savings and time deposit; regarded as risk-free investment because the payment of which is guaranteed by the government.

Treasury Bills (T-Bills)

a bank draft where the bank is required to pay the holder a specified amount on a specified date; has a maturity date of 90 days from date of issue but can be extended up to 180 days

Banker’s Acceptance

a market for long-term financial instruments. Included are issuances of securities and long-term obligations by businesses and government agencies.

CAPITAL MARKET

a securities market place that operates under the rules and regulations formulated and adopted by an exchange.

Organized Securities Exchange

– the buying and selling of financial instruments but not in an organized securities exchange

Over-the-Counter Market (OTC)

TYPES OF CAPITAL MARKET

Primary Market | Secondary Market

where firms and government agencies raise money by means of issuing financial instruments like stocks and bonds for the first time. The proceeds of the new issues go directly to the issuer.

Primary Market

securities are sold to the public for the first time

Initial Public Offering (IPO)

– place where long-term debt instruments are issued by firms and government agencies to raise money.

Bond Market

a place where raw or primary commodities are traded. The commodities are traded on regulated commodities exchanges where they are bought and sold in standardized contracts

Commodity Market

place where publicly listed stocks are bought and sold

Stock Market

– a financial instrument used to manage investment risk. Its value relies on underlying assets such as stocks, bonds, commodities, currencies, interest rates, and market indices.

DERIVATIVES

a venue for the exchange of currencies

Foreign Exchange Market

Chap 1 Flashcards

(62 cards)