Econ Ch 7-8 Quiz

What is the economic term for someone to whom a debt is owed?

A creditor

What is a dividend?

A distribution of a portion of a company's profit

In stock trading, what is a commission?

A fee paid for a stockbroker's services

Describe a stock index and explain its purpose.

A group of important stocks from a particular industry; analysts use them to help identify stock trends in specific industries

What is a stock exchange? What is the full name of the most reputable stock exchange in the world? Give one reason for its importance.

A location to which people come to buy and sell stocks; The New York Stock Exchange; its history, its location in New York, and the presence of many of the world's most significant companies in its roster

What is a limited partner?

An investor with no liability and few or no duties in a company

In the realm of stock markets, what is speculation? What financial phenomenon often results from speculation (name and describe it), and what are its effects?

Buying and selling stock for the purpose of taking advantage of short-term price changes to make money; speculative bubble: stock prices for an industry or an entire market rise simply due to consumer expectations and eventually exceed the actual value of the corporation(s). Eventually the bubble will burst when investors realize the disparity in value and sell their stocks rapidly, causing prices to fall and other investors to lose money.

What does CEO stand for and what function does a CEO perform?

Chief executive officer; acts as president for the corporation

What is the fundamental difference between common and preferred stock? Name two advantages or disadvantages of each type of stock.

Common stock represents partial ownership of the company (with its attendant responsibilities and privileges), while preferred stock merely asserts the buyer's right to some of the profits of the company. A: *Common*- right to vote on matters of importance to the business, equates to true ownership; *Preferred*- less risk of loss, dividends paid on a more regular basis D: *Common*- more risk of loss, payments more irregular; *Preferred*- no right to vote on matters of importance to the business, does not equate to true ownership

Which type of business is most open to governmental regulation?

Corporations

What are the two main tax disadvantages of corporations?

Higher taxes and double taxation of earnings

What universal human problem leads to some of the disadvantages of partnerships? Explain briefly.

Humans' sinful nature leads people to want their own way. This can lead to conflicts between partners. Compromises can be made, but conflict may continue to build over time. Faulty management/moral breaches by one partner can lead to difficulties for the other.

What is currently the most reputable stock exchange in the world?

NYSE

What does a company's stock represent?

Partial ownership of the company

The first American stock exchange was located in _________.

Philadelphia

What is a company's stock?

Portions of ownership in the company

What are mutual funds?

Privately managed stock portfolios

What book of the Bible gives much advice about personal financial practices?

Proverbs

IPOs are often less than half the company's total stock. Why?

The original owners want to retain a majority holding of the stock in their company

Name two ways in which stock markets are important today.

They provide a venue for companies to sell stocks and raise money for further growth and for projects that a single owner or partners could not afford. They also provide opportunities for individuals to invest and earn money.

How do stock markets reflect the laws of supply and demand? Explain.

They reinforce that prices are a reflection of what consumers are willing to pay for a product (i.e. shares). If buyers perceive that a company is doing or will do well financially, demand for the company's stock will increase, and the price of the stock will follow. Should buyers perceive a company's stock to be worth less than before, then demand and price will drop.

What are the two primary reasons that people buy stock?

To make a profit or to receive dividend payments

The stock market crash of 1929 was a result of _________.

a speculative bubble

What does a cosigner do?

agrees to pay back a loan if the original borrower cannot

The primary purpose of a stock index is to ___________.

identify trends in an industry

According to the text, what disadvantage often results from corporations' great size?

impersonality

In the eyes of the law, a corporation possesses which two important qualities?

individuality and immortality

What is the term for a corporation's first sale of stock?

initial public offering

Name and define the three primary types of business firms.

sole proprietorship: owned by one person partnership: owned by two or more people corporation: considered by the government to be an entity separate from its owners or stockholders

A business with fewer than thirty-five shareholders can incorporate as a ____________.

subchapter S corporation

The SEC was founded following which important historical event?

the Great Depression

The stock exchange famous for having no "floor" is __________.

the NASDAQ

The most popular business model in the United States today is __________.

the sole proprietorship