BE final exam
What are individuals called that invest their own money in a private company to provide short-term financing?
Angel investors
What's the fundamental accounting equation?
Assets=liabilities + owners equity
A firms land will appear on their
Balance sheet
Accounts receivable appear on the
Balance sheet
Owners equity appears on a firms
Balance sheet
What are long term IOUs that are issued by governments and corporations that contract on which the issuer pays the buyer interest at regular intervals called?
Bonds
A firms cash balance appears on the
Cash flow statement
The financial statement that is most likely to be used to determine if a business is able to meet its short-term obligations within the next month would be the
Cash flow statement
In general, the longer the term of this type of money, the higher the rate of interest in earns
Certificate of deposits
What are bonds?
Certificates of debt that carry a promise to buy back the bonds at a higher price
What are Exchange-Traded Funds (ETFs)?
Collections of stocks that are traded on an exchange, but investors have more convenience in their trading times as the fees are lower than they are for mutual funds
What financial institution is chartered?
Commercial Banks
A federal or state charted profit-seeking financial institution that accepts deposits from individuals and businesses is known as what?
Commercial bank
Which finance companies are willing to assume higher loan risks in return for charging higher interest rates?
Commercial finance companies
What do money market funds target?
Commercial paper, CDs, and T-bills
A type of investment that involves a contract to buy a set amount of raw materials at a certain price on a certain date is called
Commodities trading
Depositor-owned, nonprofit financial cooperatives that offer a range of banking services to their members are known as
Credit unions
The practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the internet, is known as ...
Crowdfunding
Current assets ($) divided by current liabilities ($) will provide which ratio? (Firms desire every $2 of assets to $1 of liability)
Current ratio
Total Liabilities/Owners' Equity (firms want to keep this ratio 1:1, or less)
Debt ratio
If a company seeks to understand how much money has been borrowed in relation to how much the company is worth, then which ratio would be best?
Debt to owners equity ratio
What does increasing interest rates do to banks?
Discourage them from taking and giving loans
When investors choose securities in a way that a loss in one investment would not have a large impact on your portfolio is known as
Diversification
When corporations attempt to raise money by selling stock, it is called
Equity financing
A _____________ _____________ fund offers investors a diversified array of investment vehicles along with low fees and the ability to trade throughout the trading day.
Exchange-traded fund
What financial institution insures individual bank accounts?
Federal Deposit Insurance Companies
What are savings and loan associations?
Financial institutions that accept deposits and were originally intended to make loans for mortgages
The brokerage that offers advice is
Full-service brokerage
Which municipal bond pays for public projects that will not generate revenue, like road repairs?
General obligation bonds
An IOU issued by the U.S treasury that matures in 25 years is an example of which type of security?
Government Bonds
What are the four types of bonds?
Government bonds Municipal bonds Corporate bonds Bonds sold by finance institutions
What's money uniqueness?
How bills are redesigned to thwart counterfeiting
What's money divisibility?
How bills break down into smaller ones
What's money portability?
How easy it is to carry
What's money stability?
How money has the same value to everyone
What's money durability?
How the material won't deteriorate quickly
In the context of investing, what is a yield?
Income from securities
Expenses appear on the
Income statement
Income tax appears on a firms
Income statement
A decrease in the reserve requirement leads to
Increase in the money supply
Which mutual fund targets stocks listed in the major stock indexes?
Index fund
Costs of good sold/average inventory
Inventory turnover
How is a stocks par value determined?
It's set arbitrarily by the issuing company's board of directors
What type of short-term financing is available to borrowers and provides them with an amount of money they can borrow against and pay back at a certain interest rate for a certain period?
Line of credit
Which financial ratio is designed to determine how well a business can pay its short term obligations?
Liquidity ratios
A bank loan of three years would be classified as
Long-term financing
Which money supply is defined as the most narrow? Examples: currency, travelers checks, bank balances
M1
Which money supply definition is more broad? Examples: small deposits, savings accounts, money market deposits and mutual funds
M2
portability, divisibility, durability, uniqueness, stability are the characteristics of what?
Money
Account with greater restrictions and slightly higher interest rate
Money market accounts
Reduction in interest rates does what to banks?
Motivates them to take more loans
What is the length of time that a seller extends credit to a buyer called?
Net period
What concept does a balance sheet really explain by looking at the information contained in it?
Net worth
Do unsecured loans have collateral?
No
Financial institutions that offer many of the same services as banks but usually don't accept deposits are called
Nonbanks
What's the biggest difference between mutual savings banks and credit unions?
One is for profit and the other is nonprofit
A ____________ is a collection of securities representing a person's investments
Portfolio
New securities are sold on the __________ securities market, whereas existing securities are resold to the public on the _____________ securities market.
Primary, secondary
What are the two ways to sell stock?
Private placements and public offerings
The income statement shows
Profit or loss over a given period of time
What is the SEC responsible for?
Registering issuing companies and collecting security reports Investigating and preventing insider trading Provide information to investors
Profitability ratios include
Return on Business' sales, assets, and owner's equity ratios
Net income/ total assets will provide which ratio?
Return on assets ratio (how well they use assets to generate profits)
net income/owner's equity will provide which ratio? (Firms usually want to see 10% at least)
Return on investment or return on owners equity
Which ratio is found by the equation of net income divided by sales? (Helps co. See how much profit is generated by every dollar of sales)
Return on sales ratio
What do municipal bonds consist of?
Revenue bonds and general obligation bonds
Most investment portfolios include _________, such as stocks and bonds
Securities
What does The acronym SEC stand for?
Securities and Exchange Commission
A line of credit is considered
Short-term financing
Commercial paper would be classified as
Short-term financing
What are money market instruments?
Short-term, one year IOUs issued by governments, corporations, and financial institutions. Some examples are the U.S Treasury bills, bank certificates of deposits and commercial paper
Treasury notes are
Sold in minimum denominations of $100 Mature in 10 years or less from the date of issue Has interest at regular intervals
Treasury Bonds are
Sold in minimum denominations of 1000 and 5000 Mature in 25 years or more from the date of issue Buyer is paid interest at regular intervals
What do growth funds target?
Stocks of rapidly growing companies
How does the Fed use open market operations to increase the money supply?
The Fed buys bonds to increase the amount of reserves that banks have on hand.
A short-term obligation of the U.S treasury with a maturity period of a year or less is called
(T)reasury bills
Under trade credit, how long does a seller tend to give a buyer to pay and invoice?
30-90 days
What is book value?
A companies liabilities subtracted from its assets and the resulting figure. The shareholders equity is then divided by the number of shares of the stock that have been issued or sold
An increase in the reserve requirement leads to
A decrease in the money supply
What's a NOW account?
A negotiable order of withdrawal that pays interest and allows you to write an unlimited number of checks
What's a reserve requirement?
A rarely used tool that makes loans
What type of financing would a commercial finance company provide?
A short-term loan
Treasury bills are
A type of money market instrument
What are private placements?
A way to sell stock to only a small group of large investors like insurance companies and pension funds
What are public offerings?
A way to sell stock to the general public in securities markets
What's a promissory note?
A written contract prepared by a buyer who agrees to pay a seller a certain amount by a certain time.
What's the total amount owed to a firm from customers who have purchased goods or services in credit called?
Accounts receivable
Cash+Marketable Securities+Receivables/Current Liabilities (firms desire $1 of assets to $1 liabilities)
Acid test ratio
What's a dividend?
The part of the company's profits that are distributed to stockholders
what is underwriting?
The process that insurance companies use to determine who should be insured
Why are mutual funds and ETFs low-risk?
They spread an investors risk across a collection of securities
Why does the Fed perform a balancing act?
To ensure the proper amount of money is supplied
How are discount rates used by the fed?
To make short-term loans for member bans
The phrase "terms of trade" is used in which type of financing?
Trade credit
What are the short-term financing options?
Trade credit Pledging and Factoring
Which type of loan should be used by a company to stock up on inventory?
Transaction loan
True or false: municipal bonds are tax exempt
True
In the context of securities trading, what is a market order?
When an investor tells their broker to sell a particular security at the best available price
secured loans have
collateral
What are indenture terms?
the terms of agreement in a bond issue