Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Mos final exam > Chapter 9 #1 > Flashcards

Chapter 9 #1 Flashcards

(59 cards)

Start Studying
1
Q

What is finance?

A

Finance is the study of how and under what terms savings (money) are allocated between lenders and borrowers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How is finance distinct from economics?

A

It addresses not only how resources are allocated but also under what terms & through what channels resources are allocated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

When do Financial contracts (aka Financial securities) occur?

A

Whenever funds are transferred from issuer to buyer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What basic understandings does the Study of finance require?

A
  • Securities
  • corporate law
  • financial institutions and markets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How to calculate Net worth/ Equity?

A

Difference between assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the 4 major areas of finance?

A
  • personal finance
  • government finance
  • corporate finance
  • internationa finance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are real assets?

A

Tangible items owned by persons & businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Personal assets are……

A
  • Residential structures & property’s
  • televisions, washing machines
  • major appliances and automobile (consumer durables)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Business assets are……

A
  • office towers, factories, and mines (nonresidential structures)
  • machinery and equipment
  • land they are on
  • stocks or inventories of thing waiting to be used/sold
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define Financial assets and give examples

A

a claim one individual has on another.

Examples
- consumer credit
-loans
- mortgages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

acquisition/capital expenditure (capex)

A

Business finance that determines how firms arrive at the decision to build a new factory, increase the level of their inventory holdings and make strategic asset acquisition decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is corporate financing decisions?

A

The liability side to finance the expenditures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Households hold both…….

A

Real and financial assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

A household with no _____ often faces _____ because _________________

A

A household with no financial assets often faces financial problems because real assets cannot be easily used to pay off or service debt (i.e., make loan payments)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

One a households liabilities are netted out against the debt financial assets, what’s left is……

A
  1. Market value of investments in shares
  2. market value of investments in insurance and pension
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the large portions of household wealth

A

Life insurance and pension claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Define pensions and when it is risky

A

Pensions are promises from governments or private companies to provide income after retirement.

Pensions from private companies can be risky if the company’s financial stability is uncertain.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the primary provider of funds to businesses and government?

A

Household sector

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Households must accumulate _______ throughout their careers to have enough savings (pension) to live during their retirement

A

Financial resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Define Financial Intermediaries?

A
  • indirect money transfers
  • entities that invest funds on behalf of others and change the nature of the transaction
  • Example: banks, trust companies
  • the financial institutions lends the money to the borrower but raises money itself by borrowing directly from others individuals
  • lenders have indirect claim on borrowers, their direct claim is on the financial institutions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define principal transactions

A

Financial intermediary changes the nature of the transaction. Acts as a principal on its own behalf rather than as an agent on behalf of its clients

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Financial intermediaries rely on…? Or else what happens

A

The willingness of individuals to lend to them, otherwise they cannot lend to borrowers, who are the ones that need the money
When people are not willing, those intermediary’s must restrict whom they can lend to, resulting in credit crunch
Credit Crunch: situation which financial intermediaries must raise the cost of their loans by significant amount due to their own inability to raise financing on reasonable terms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Market intermediaries

A
  • direct money transfers
  • entities that facilitate the working of markets and help provide direct intermediation but do not change the nature of the transactions
  • investment dealers and brokers help make markets work by adding liquidity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

2 parts of market intermediaries

Study These Flashcards
A
  1. Retail segment: market intermediaries help individuals
  2. Institutional markets: market intermediaries help financial intermediaries
25
Define intermediation
The transfer of funds from borrowers to lenders
26
What are the three channels of intermediation? Define them.
1. Direct transfer: from saver to borrower in a non-market transaction (without any help from anyone and negotiated directly between the borrower and lender (eg. asking relatives/ family to lend money) 2. Direct Intermediation: through a market intermediary such as a broker in a market based transaction (help is needed) 3. Indirect claims: through financial intermediary where the financial intermediary such as a bank, offers deposit- taking services and lends the deposited funds out as mortgages or loans
27
Market intermediaries are called? And what is their responsibility and what is their transactions called
- Market intermediaries are called brokers - Responsibility is to assist with the transaction and bring borrowers and lenders together but do not change the nature of the transaction itself - market intermediares are agents and the transactions are called agency transactions
28
Explain the 4 main financial intermediaries
- Banks take in deposits and loan them out to fund borrowers - Pension funds take in pension contributions and pay out pensions to plan participants when they retire - Insurance firms take in premiums and pay out when a certain event occurs - Mutual funds pool small funds together and make large investments that small investors cannot make. also offer investment expertise to ordinary investors
29
Explain the most important financial intermediary and how it works
Banks - pooled funds are lent to households and businesses in the form of mortgages and loans - transforms the original nature of the savers money
30
Why can banks perform transaction function by giving deposits to borrowers
- because they become experts at risk assessment, financial contracting (pricing the risk), and monitoring the activities of borrowers
31
What is baking?
Baking is a low margin, high turnover business, which means a bank makes a lot of sales that is loans but each one in and of itself if not highly profitable
32
Explain the financial intermediary Insurance companies. What are they classified as?
- classified as contractual savers: because premiums on a policy are paid every month, so insurers receive a steady flow of money - insurers sell polices and collect premiums from customers based on the pricing of those polices given the profitability of the a claim, size of the policy and administrative fees - premiums are invested - Risk is shared amount a large number of policy holders though the insurance company
33
Explain the financial intermediary pension plan assets
- individuals and employees make payments over their entire working lives to pension plans which invest those funds to grow over time - accumulated value to fund retirement - pension plans accumulate large sums of money, managers invest those funds with long term investment horizons in diversified portfolios - contractual savers: steady flow of money - Canada pension investment board is the largest
34
Explain the financial intermediary mutual fund assets and its two major functions. Process is called…?
- mutual funds act as a pass through for indivuals, providing them with a confident way to invest in equity and debt markets - do not transform the nature of the underlying financial security - 1. Pool small sums of money to make larger investments - 2. Offer professional expertise - give small investors access to diversified, professionally managed profiolies of securities - process is called denomination intermediation because the mutual find divides investments deonominated in larger amount of fund into smaller affordable amounts
35
What are the two major borrowers? Explain them.
Public debt - government of Canada - provinal and territorial governments - municipalities - Crown Corporations: government owned companies that provide goods and services needed by Canadians Private debt - households - Non-financial corporations
36
How can governments raise money?
- raise money through tax action or by monopolizing and charging higher fees for things like gambling, alcohol, and cigs (Sin taxes)
37
What is government debt considered?
Default free because governments have the power to collect taxes and control the money supply, ensuring promised payments on debt
38
What is the most important borrowing sector and why
Business sector makes the goods and services we consume, and it borrows to finance growth in this capacity
39
What is stock market?
Where investors go to trade equity securities
40
Financial assets
Formal legal documents that set out rights and obligations of all the parties involved
41
What are the two major categories for financial securities? Explain them
1. Debt instruments - legal obligations to repay borrowed funds at a specified maturity date and provide interest interested payments as specified in the agreements - you are lending money for a set period and charging interest - example: bank loans, bonds, treasury bulls 2. Equity instruments - an ownership in a company - common share: represents ownership, gives voting rights on major decisions, receive residual dividend amount, enjoy residual growth appreciation - preferred share: represents ownership, receive fixed dividend payments made before any is given to common shareholders
42
What is bond market?
- Where investors go to trade debt securities - Usually bonds - Issued by corporations or governments
43
Explain non-marketable assets
- cannot be traded between investors - invested funds that are available on demand - may be redeemable/reverse transaction between borrower and lender Example: savings account, Canada savings bond - savings accounts and demand deposits are available on demand which guarantees liquidity but you can’t sell them
44
Explain marketable assets
- can be traded between investors after their original issue and before they mature - market value will change over time due to changes in the general economic environment
45
Marketable securities vs capital securities
Marketable securities - short term debt securities that have maturities less than one year Example: T-bills, bankers acceptance, commercial papers Capital market securities - long term debt or equity securities with maturities greater than one year example: bonds, shares
46
2 types of financial markets. Explain them
1. Primary markets - issue of new securities by the issuer (borrower) in return for cash from investors (lender) - will not work well unless have functioning secondary markets 2. Secondary markets - environment that permits investors (lenders) to buy and sell existing securities - funds flow fro, buyer to seller of the securities, and the buyer becomes the new owner - no new capital is formed - important to primary because governments and companies would not be able to raise financing if investors were unable to sell their investments
47
What are the types of secondary markets? Explain them
1. Exchange or auction markets: involve a bidding process that takes place in a specific location - Canadian: TSX/TSVX - Worldwide: NYSE/NASDAQ 2. Dealer or over the counter markets: do not have a physical location and consist of a network if dealers who trade directly with each other (not listed on exchange) Example: bond market
48
Explain money markets
- traded in dealer markets - large transaction sizes - dominated by governments, financial institutions and Lara corporations
49
Where are long-term debt instruments (common shares) traded
- primary in dealer markets with some trading on exchanges
50
Market dynamics
- secondary market trading (resale fo share) is larger than the primary market for equity securities - primary market is larger than secondary market for debt securities
51
Most equity transitions occur…
On stock exchanges. - a small OTC equity market exists in Canada
52
What are the two Canadian stock exchanges? Who owns them
1. Toronto stock exchanges (TSX): major stock exchange in Canada, most equity securities transaction, official exchange for trading Canadian senior securities 2. TSX venture exchange (TSVX): the stock exchange for trading the securities of emerging companies not listed on the TSX - both owned by the TMX group unlimited
53
What is market capitalization and how is it calculated
- the total market value of a company - Market cap= # of shares x share price
54
What are the other markets? Explain
Third market: the trading security items that are listed in organized exchanged in the OTC market Fourth market: the trading securities directly between investors without the involvement of brokers or dealers and operates using privately owned automated systems like instient
55
Canadians _____ and ___ abroad. Which has become easier to do in todays global business environment as ____
Canadians borrow and invest abroad which has become easier to do in today's global business environment as investment barriers are relaxed
56
Domestic equity markets are increasingly linked because of ____ and _____
Domestic equity markets are increasingly linked because of globalization and consolidation
57
What market represents the largest and most active debt markets in the world and the largest equity market in the world
US markets
58
What is the largest stock market second largest?
The New York Stock Exchange (NYSE) is the largest. Nasdaq stock market is the second largest stock market
59
The globalization of the equity markets means that linkages between the markets are _____
Extremely tight

Mos final exam (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions