Flashcards in Chapter 1 Deck (22):
Deciding in whether to expand a manufacturing plant
Deciding whether to issue new equity and use the proceeds to retire outstanding debt
Modifying the firm's credit collection policy with its customer
Types of businesses
Management may act in its own or someone else's best interests, rather than those of the shareholder's .
In these events occur, this may cause them to contradict the goal of maximizing the share price of the equity of the firm.
What is the goal of financial management ?
To maximize the current market value (share price) of the equity of the firm (whether it's publicly-traded or not)
-shareholders are the owners
-shareholders elect board of directors
-BOD elects management
- separation can cause agency problem
Accept deposits and issue commercial loans, corporate loans, personal loans and mortgages
Accept deposits and make loans, but also engage in fiduciary activities such as managing assets for estates, registered retirement savings plans, etc.
Non-depository institutions that assist firms in issuing new securities
Engage in indirect financing by accepting funds in a form similar to a deposit and making loans
Invest contributions from employers and employees in securities offered by financial markets
Pool individual investments to purchase a diversified portfolio
Cater to sophisticated investors and seek high returns by using aggressive financial strategies prohibited by mutual funds
Financial markets where short-term debt instruments are bought and sold
Financial markets where long-term debt and equity securities are bought and sold
Where options and futures are traded on financial instruments and commodities
Are where securities are sold for the first time (I.P.O)
Are where outstanding securities are sold
Funds are transferred from suppliers of capital to demander of capital through a financial intermediary.
Life insurance companies engage in indirect finance by accepting funds in a form similar to deposits and making longs.
Funds are transferred from suppliers of capital to demander of capital but financial intermediaries are bypassed.