Topic 1 - Introduction To Finance Flashcards
(18 cards)
What is the definitiation of finance?
Finance is concerned with decisions involving the valuation of future cash flows and what affects these values
What are the 5 elements of finance?
- money
- time
- uncertainty
- information
- tax
Forms of business structure - what are the advantages of sole traders, partnerships (unincorporated)?
- cheap and easy to establish
- ownership and control concentrated
- no requirement to publish accounts
Forms of business structure - what are the disadvantages of sole traders, partnerships?
- difficult to sell so they have a finite life
- the owner is the business so they have unlimited liability
- difficult to raise funds to grow
Forms of a business structure - what are the advantages of incorporated businesses (separate legal identity from its owners)?
- ownership can be transferred by selling shares (infinite life)
- business is legally separate from its owners - limited liability
- funds can be raised publicly through equity and debt markets
Forms of a business structure - what are the disadvantages of incorporated businesses (separate legal identity from its owners)?
- difficult and expensive to establish
- tax disadvantages
- management is separate from owners
- requirement to publish accounts
What are the 3 different perspectives on finance?
- corporate finance
- investments
- financial marks and intermediaries
Corporates finances perspective…
- concerned with the current market value of assets and liabilities an not the book value conventions of accountants
Investments perspective of finance….
- conceded in various ways in which individuals invest their long term savings
- one way is in companies shares, there is a link between individuals investing in financial securities of companies and companies investing in financial assets
- individuals invest in other securities and assets such as bonds, options, property and futures
- they invest through intermediaries such as banks, building societies, investment trusts and unit trusts
Financial markets and intermediaries view of finance..
- act as agents for individual investors
- they are; banks, pension funds etc
- help the flow of funds between individuals and companies
- financial markets lie at the core of all financial transactions but provide an independent perspective on transactions
- main markets in finance are; those in stocks, bonds, options, futures and foreign exchange
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
What is a primary market of a stock exchange?
- it’s where companies raise new finance by selling their shares and bonds for the first time
- once these shares have been issued, they start to trade and this trading activity takes place on a secondary market of the stock exchange
What is a secondary market of the stock exchange?
- it is the market where trading is driven by information and or liquidity requirements
- it had a number of advantages for example, it helps in matching the investment and borrowing horizons of companies and investors
- it provides company valuations
