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C4 > Course > Flashcards

Course Flashcards

1
Q

Incorporated vs unincorporated

A

Unincorporated same identity, unlimited liability

Incooperated seperate

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2
Q

Bills of exchange

A

IOU- roughly 3 months
Discounting the bill: Bill can be resold for less.
Interest: diff amount paid and amount repaid by borrower.

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3
Q

Commercial paper

A

Short term loans of up to 270 days.

Unsecured: so risk to lender.
Only available to businesses with great credit rating.

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4
Q

Venture capital

A

Provided by private individuals.

High return as high risk

Long term financing

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5
Q

Mezzanine finance

A

Loans that can be converted into equity

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6
Q

Long term financing for firms

A 
Share capital
Retained earnings/reserves
Long term loans-(debentures and loans)
Venture capital
Mezzanine finance
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7
Q

Short term capital

A 
Credit agreements (credit card)
Bank overdrafts
Bills of exchange
Commercial paper
Cash (saved)
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8
Q

Clearing banks

A

Settle payments between individuals

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9
Q

Types of banks

A

Clearing-settle payments between individuals

Retail/commercial: trad. High street banks

Wholesale banks: lend large to major customers

Investment/merchant banks

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10
Q

Why do banks exist

A

Maturity transformation
Aggregation
Risk

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11
Q

Connected shareholder

A 
Ie contractual relationships:
Shareholder
Customer
Supplier
Financiers
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12
Q

External stakeholders

A

Community
Government
Pressure groups

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13
Q

3 levels of stakeholders

A

Connected-contractual
Organisational-internal
External

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14
Q

EPS

A

Earnings per share
Ei profit/#shares

(pat - pd)/(#issues shares)

Profit after tax
Preferred dividends

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15
Q

AC

A

Average cost:

Total cost divided by output

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16
Q

Price Elasticity of Demand

A

A measure of responsiveness of quantity demanded to a change in price.

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17
Q

Arc Elasticity equation

A

Arc Average
Quantity/Price

(New q - old q)/average q
Over
(New £ - old £)/average £

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18
Q

Point Elasticity equation

A

Old-point- like an old pen
Quantity/Price

(New q - old q)/old q
Over
(New £ - old £)/old £

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19
Q

Economies of scale

A

Factors that cause unit cost to decline in the long run as output increases.

Internal: by the organisation of production.

External: be the growth of the industry as a whole.

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20
Q

Internal economies of scale

A 
Technical economies (plant economies) 
Depending on size of factory.

Commercial/marketing economies

Organisational economies
Costs of running the business.

Financial economies
Borrowing benefits

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21
Q

Technical economies

A

Type of internal economy of scale

Can use larger and more specialised machinery because of high volume.

Overcome indivisibilities because they are able to fully use machinery

Dimensional economies of scale. Because it is cheaper to buy something even bigger. Think cubic law.

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22
Q

Commercial or marketing economies

A

Type of internal economy.

Buying economies – by buying in bulk.

Inventory holding-

Bulk selling – make savings in distribution and advertising costs

Economies of scope – refer to the cost saving by having lots of products.

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23
Q

Organisational economies

A

Type of internal economy.

Centralisation of functions like admin and accountancy. Reduce the cost of overheads.

More efficient use of management.

Specialist staff – large firms can justify specialist staff.

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24
Q

Financial economies

A

Type of internal economy

Better asset turnover ratio: large-so less interest paid

Cheaper finance because less risky for investors.

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25
Q

Michael Porter-3 key strategies.

A

Cost leadership i.e. achieving lowest cost

Differentiation i.e. better quality more value

Focus I.e finding a niche

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26
Q

Short run

A

At least one factor of production is fixed and all others are variable

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27
Q

Long run

A

The quantities of all factors of production can be varied writhing current technologies.

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28
Q

Shut down in price

A

Where mc =avc (=vc?)

Marginal cost
Average variable cost

If selling price falls below this point then the firm will lose money if it makes any units-because they are selling below their variable cost

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29
Q

E businesses on cost and market behaviour

A

-Reduced search costs for buyers
Buyers can compare quickly and cheaply
this will increase price elasticities – because buyers know they can buy more cheaply elsewhere
Because more substitutes available

– Zero variable cost
High initial cost but zero variable cost ie MP3 download

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30
Q

Total profit

A

Total revenue - total cost

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31
Q

Max profit (marginal method)

A

Point at which

marginal cost = marginal revenue

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32
Q

Monopolies

A

Few suppliers providing products, they that they will exploit customers lack of substitutes by pushing price up.

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33
Q

Collusive practices

A

Work together to coordinate price and output to push price up in a cartel arrangement.

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34
Q

Conditions for an effective monopoly

A

There must be one supplier
There must be no close substitutes
There must be barriers to entry

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35
Q

Market failure

A

The failure of the market to produce socially acceptable outcomes

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36
Q

Social costs

A

The total costs to society as a whole of using economic resources

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37
Q

Social benefits

A

The total games to society as a whole flowing from an economic decision

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38
Q

Externalities

A

The difference between private and social costs

Impact that goes beyond cost and benefit to the original trading parties

39
Q

Public goods

A

Good that cannot be provided privately because if they are everyone will benefit from them regardless of whether they have to pay for them or not

40
Q

Merit goods

A

Generates positive externalities as a whole

41
Q

Demerit goods

A

Generate negative externalities to society as a whole

42
Q

How Government encourage provision of merit goods

A

Subsidise to reduced price
Public information campaign to stress benefits
Making consumption/production compulsory
Price manipulation

43
Q

How governments discourage the merit goods consumption

A

Taxation to raise price.
Public information campaign to raise awareness of risk
Legislation/ban on product
Tax levy to cost of removing affect eg polluter pays policy

44
Q

Acquisition

A

Well one firm approach is the shareholders of another to take control of business

45
Q

Merger

A

Where shareholders of two firms exchange shares so that they combine the activities of previously separate firms

46
Q

Horizontal expansion/integration

A

When two firms merge together

Advantage more internal economies of scale and increase market share/monopoly power

Disadvantage diseconomies of scale/countermeasures from the government/short-term fall in profits as firms try to integrate everything

47
Q

Vertical integration

A

Where to firms integrating different stages of production merge together.

Advantages greater control over resources/some internal economies of scale/creates barriers to prevent competition

Disadvantages management Diseconomies of scale/increased risk of the overall business

48
Q

Diversification

A

Conglomerate diversification

Where companies in different sectors merge together

Advantages risks are spread/spread expertise/admin economics of scale/enables firms to grow when existing market is saturated.

Disadvantages no technical commercial economies of scale/management diseconomies of scale

49
Q

Conpetition policy

A

G

50
Q

Economic welfare?

A

R

51
Q

Treasury bills

A

Short-term finance for the government
Treasury bills
Lender pays less face value but receives face value on maturity

52
Q

Treasury bonds

A

Gilts

Short medium or long term loan is the pay interest

53
Q

Financial intermediation

A

I Banks
Benefits
Maturity transformation – lenders need for liquidity and the desire barbers hand of longer periods

Risk reduction/security provider save home to savings

Aggregation take small deposits or individual lenders to make into large loans

Organised markets create standardised assets to protect lenders and borrowers.

Time-saving borrowers and lenders do not have to waste time seaking each other out.

54
Q

Credit creation

A

Credit multiplier =1/r

55
Q

Fisher equation

A

Nominal interest rate

=(real interest rate + inflation rate)

56
Q

Yield on short-term investments

A

Yield=return
Y= (F-P)/P * 365/M Days

F= face value
P= purchase price
M=maturity (3months = 91 days

57
Q

Fiscal policy

A

How much government spends and collect in taxes

58
Q

Bonds

A

Long term loans

59
Q

Nominal/flat yield

A

Annual payment compared to the face value of the bond

Nominal yield=C/F. ( gives %)

C=coupon value (%)
F=face value ( nominal/par value)

60
Q

Current/running yield

A

Annual payment compared to the current market price.

Running yield = C/P

C is coupon value £ (how much you get paid yearly) coupon ratenominal value ) = Cr F
P is market price £

61
Q

Dividend yield formula 1

A

Dividend/Market price

62
Q

Dividend yield formula 2

A

Ke= (D/P)(1+g) +g

Ke return on equity
P= share price
D=dividend paid
g=dividend growth rate

63
Q

Role of central banks

A

Set interest rates to control inflation
Regulate the banking sector
Lend to banks as lender of last resort when banks are short of money
Hold government deposit and act as their banker
Issues the notes and coins
Borrow on behalf of the government
Hold foreign-exchange and buy and sell currency to stabilise the exchange rate
Advise on money policy

64
Q

Money market

A

Short term debt market

Includes
The primary market
Secondary market
Interbank market
Certificate of deposit market
65
Q

Stock markets

A

Place where company stock Are bought and sold

66
Q

Foreign exchange rate

A

The price of one currency expressed in terms of another

67
Q

Spot rate

A

Rate set for immediate delivery of currency

68
Q

Forward rate

A

Rate set for delivery of currency at specified future rate

69
Q

National income

A

This is the value of goods and services produced in the year i.e. the output

70
Q

Gross domestic product

A

GDP is good and services produced within the UK

71
Q

Gross national product

A

GDP plus earnings from investment abroad

72
Q

MPC

A

Marginal propensity to consume

Change in consumption/
Change in NI

73
Q

MPW

A

Marginal propensity to withdraw

MPC+MPW =1

74
Q

Inflationary gaps

A

Well planned and cook it tomorrow and is bigger then Full employment level of national income

75
Q

Deflationary gap

A

Where the level of pay and aggregate demand is below the level needed to ensure full employment

76
Q

MPC multiplier

A

1/MPW

1/1-MPC

77
Q

Change in national income due to injection

A

📈in NI = multiplier rise in 💉

78
Q

Injections

A

Savings
Taxation
Import demand

79
Q

Withdrawals

A

Investment spending
Gov spending
Export demand

80
Q

AD

A

C I. G X

81
Q

Interest rate

A

Cost of investing/Capital

Borrowing funds
Cost of devoting liquid resources to investment
Discount rate used to calculate NPV

Things that increase interest rate
High risk
High uncertainty about future inflation
High borrowing from government
High borrowing from individuals
Monetary policy 
Interests abroad
82
Q

MEC

A

Marginal efficiency of capital

Find out more!

83
Q

Market value

A

Current value/price

84
Q

Role of central bank

A 
Set interest rates
Regulate banking sector
Lend to banks, as a last resort
Hold government deposits
Issue notes and coins
Borrow for the government 
Hold foreign exchange-to stabilise
Advise on money policy
85
Q

Fiscal policy

A

Method of managing aggregate demand through taxation and government spending.

86
Q

Real rate of interest

A

1+real rate of interest

=
1+money rate of interest (nominal)
/
1+inflation rate

87
Q

Economic equilibrium

A

When E=Y
And
J=W

I+G+X=S+T+M

88
Q

Inflation

A

Inflation down

Exchange rate goes up.

89
Q

Interest rate and x rate

A

Interest goes up/down

Exchange rate goes up/down

90
Q

MEC

A

Marginal Efficiency of capital
If more MEC = More investment at any given interest rate

Why?

  • Increase relative cost of labour vs capital (equipment/machinery) (pay rises) (people expensive- so pay for factory’s instead.
  • Innovation, so capital is more productive.
  • Fall in price of capital goods.(cheaper to buy machines.
  • expectation of economic growth.
91
Q

Capital

A

A productive resource
Money is not capital

Used in production of other goods
It is made by humans
Not used up immediately in the process of production

92
Q

Fiscal deficit

A

G>T

93
Q

Fiscal surplus

A

T>G

C4 (1 decks)

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