Chapter 7: Connect Master Intro to Business

Under trade credit, how long does a seller tend to give a buyer to pay an invoice?

30 to 90 days

Approximately how many U.S. small businesses receive loans from commercial banks?

50%

Select all of the ways that the reserve requirement for commercial banks affects the money supply.

A decrease in the reserve requirement increases the money supply. An increase in the reserve requirement reduces the money supply.

Budget Forecasting Financial controls

A detailed financial plan showing estimated revenues and expenses for a particular future period, usually one year. A prediction about how money will come into and go out of a firm in the future. A periodic comparison of actual revenues and expenses with those predicted in its budget.

Which person is responsible for the day-to-day planning and control of the acquisition and uses of funds for a business?

A financial manager

What is a term-loan agreement?

A promissory note indicating specific installments, such as monthly or yearly, for repayment.

Kim receives financing from a commercial finance company. What type of financing has she received?

A short-term loan

Commercial banks Savings institutions Credit unions Nonbanks Investment banks

Accept deposits from individuals and businesses and use them to make loans Include savings and loan associations, mutual savings banks, and federal savings banks Offer banking services to members as depositor-owned, nonprofit financial cooperatives Provide many of the same services banks provide but generally do not accept deposits Purchase shares of stock and resell them to investors

Insurance company Pension fund Finance company Brokerage firm

Accepts payments (called premiums) from policyholders Provides retirement benefits to workers and their families Makes short-term loans at higher interest rates to individuals or businesses Buys and sells stocks and bonds for individuals

What is the total amount owed to a firm from customers who have purchased goods or services on credit called?

Accounts receivable

What is financial management?

Acquiring funds for a company and using them to accomplish the company's objectives

Checking Savings NOW Money Market Certificate of Deposit

Allows depositors to deposit money in an account and then write checks on that account. Pays low interest but does not allow check writing Pays interest and allows depositors to write an unlimited number of checks Offers interest rates competitive with those of brokerage firm funds Pays interest upon maturity

From the following list, select all of the requirements that are typically associated with long-term loans.

An increased interest rate compared to short-term loans Good credit rating Collateral

From the following list, select all of the primary financial management activities.

Analyzing the company's cash flow Managing the company's financial risk

Which activity is most central to the role of a financial manager?

Assessing the risk-return trade-off

Tony asks Eve, his finance manager, to develop a financial plan for the company. She develops a financial plan that allows managers to anticipate problems, coordinate activities of the business, and control operations. Which of the following terms describes Eve's plan?

Budgeting

How does the Federal Reserve make money available to banks?

By printing currency By providing loans to banks

From the following, identify all the items that are forms of M1.

Checking accounts Cash in hand

Which organizations make high-risk short-term loans to borrowers who can pledge collateral?

Commercial finance companies

What are true statements about commercial bank lenders?

Commercial lenders are popular sources of funding for small businesses. Bank of America and Chase are examples of commercial banks.

Commercial banks Savings institutions Credit unions Nonbanks

Consumer lender Mutual savings bank Financial cooperative Pension fund

Which type of short-term loan is considered a last resort?

Credit card loans

Insurance company Pension fund Finance company Brokerage firm

Engages in underwriting Invests in long-term conservative assets Lends to people with no credit history Offers combination checking and savings accounts to compete with banks

Which source of long-term financing involves selling ownership in a company?

Equity financing

Select the two ways firms can make use of their accounts receivable to generate short-term funds.

Factoring Pledging

The central bank of the United States, which controls the U.S. money supply, is known as the ______ ______ system.

Federal Reserve

Savings and loan associations Mutual savings banks Credit unions

Financial institutions that accept deposits and make loans primarily for home mortgages For-profit institutions owned by their depositors rather than shareholders Depositor-owned, nonprofit financial cooperatives that offer a range of banking services

What is the best definition of savings and loan associations?

Financial institutions that accept deposits and were originally intended to make loans primarily for home mortgages

What is the best definition of mutual savings banks?

For-profit financial institutions that are similar to savings and loan associations but are owned by their depositors rather than by shareholders

Ahmed wants to purchase a new headquarters for his company. What kind of funds does Ahmed need?

Funds for making major investments

What is the definition of currency?

Government-issued coins and paper money

Which of these actions takes place as part of debt financing?

Issuing corporate bonds

Portability Divisibility Durability Uniqueness Stability

It can be carried in a pocket. It can be easily broken down into smaller units. The material would not deteriorate quickly. It cannot be easily copied or counterfeited. It has constancy.

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

How do M1 and M2 compare in terms of the accessibility of money?

M1 is money that is accessible quickly, whereas M2 may take longer to access.

Tanya is managing her company's finances. Select all of the activities that she would perform as part of her job duties.

Managing the firm's financial risks Establishing budgets and financial controls Determining long-term investments

Family and friends Credit cards Banks and finance companies

Money borrowed on a personal basis during a cash crunch to pay bills and buy additional inventory. Financing that allows individuals and entrepreneurs to make payments at a later date at a high interest rate. Institutional funding to small business borrowers who can offer collateral.

What is the definition of M1?

Money that can be accessed quickly and easily

What is the difference between a commercial bank and a nonbank?

Nonbanks traditionally did not accept deposits.

What is the main difference between savings and loan associations and mutual savings banks?

One is owned by shareholders; the other is owned by depositors.

Which of these are true statements about borrowing from family and friends?

Owing money to family and friends can cause strain in those relationships. The terms of the loan are often informal.

Which considerations should a borrower keep in mind when using credit cards?

Penalties for late payments can be costly. Interest rates can be high.

To whom do lenders make unsecured loans?

People whom they have known for a very long time

Which of these is a primary financial management activity?

Planning the expenditure of funds

Thousands of dollars can be carried in the form of a small credit card. Which of the five characteristics of money does this represent?

Portability

Which item was commonly used as money in the distant past and is still used today?

Precious metals such as silver and gold

From the following list, identify two ways of selling stocks.

Private placements Public offerings

What is a form of trade credit that is a written contract prepared by a buyer who agrees to pay a seller a certain amount by a certain time?

Promissory note

Long-term loans Debt financing Equity financing

Receiving loans that generally require repayment in 3 to 7 years. Issuing corporate bonds in which the purchase price represents the loan and the issuing firm pays the buyer's interest. Selling one's ownership in a firm.

Long-term loan Debt financing Equity financing

Requires a promissory note indicating specific installments Has indenture terms Can use private placements or public offeringsThe act of issuing bonds, both secured and unsecured, is known as

Omar has received a loan that is guaranteed by the bank. Which type of short-term loan has he received?

Revolving credit agreement

What type of loan is guaranteed by a bank and obligates the bank to loan funds up to that limit?

Revolving credit agreement

Which type of financing involves collateral?

Secured loans

Which category of short-term financing does using a credit card fall into?

Short-term loans

What is a net period?

The length of time for which the supplier (the seller) extends trade credit

Who pays interest on a loan?

The person borrowing the money

From the following list, select all of the items borrowers can use transaction loans to pay for.

The purchase of new inventory for an upcoming season The purchase of new computers for the office The construction of a new store

What is used to back unsecured bonds?

The reputation of the issuing firm

What are true statements about commercial finance companies?

They require borrowers to pledge collateral. They make high-risk short-term loans. They charge high interest rates to borrowers.

Jessie owns an apparel company. The company does not carry a lot of inventory beyond what is actually on the shelves. Jessie wants to borrow money because he fears his customers will be not be satisfied. Identify the reason Jessie would like to borrow money.

To keep enough inventory available

From the following list, select all of the reasons why firms borrow money.

To make major investments To manage everyday business activities To keep enough inventory available

The phrase "terms of trade" is used in which type of financing?

Trade credit

From the following list, select all of the short-term financing options.

Trade credit Pledging and factoring

What type of loan is extended by a commercial bank or commercial finance company for a specific purpose?

Transaction loan

Yousef owns a pool supply company and he wants to stock up on pool floats for the upcoming summer swim season. What type of loan can Yousef acquire from a commercial bank or commercial finance company to do this?

Transaction loan

Select all of the responsibilities of a financial manager.

Working to reduce the amount of taxes owed Monitoring the accounting department Making sure that bills are paid

If your company takes out a long-term loan, what are you likely to encounter?

Your company's credit rating will be checked.

Individuals who invest their own money in a private company in order to provide short-term financing are known as ______ investors.

angel

Compared to the past, money today is more likely to ______.

be made of a cheap material that represents something of value

If a company is unable to obtain a long-term loan, it may try to issue corporate ______, contracts between the issuer and the buyer in which the purchase price represents a loan by the buyer and for which the issuing firm pays the buyer interest.

bonds

Assets that are pledged in order to secure a loan are known as ______.

collateral

Unsecured bonds, which are backed only by the issuing company's reputation, are also known as _____ bonds.

debenture

The act of issuing bonds, both secured and unsecured, is known as _______ financing.

debt

The ability to break large bills down into smaller ones is an example of how money has the characteristic of _______.

divisibility

A loan from commercial banks, life insurance companies, pension funds, or commercial finance companies that generally requires repayment in 3 to 7 years is a ______ loan.

long-term

The job of acquiring funds for a firm and using them to accomplish the firm's objectives is called financial ________.

management

Any medium of value that is generally accepted as payment for goods and services is known as ____.

money

For-profit financial institutions that are similar to savings and loan associations but are owned by their depositors rather than by shareholders are known as ______ savings banks.

mutal

Money can easily be carried from place to place. This demonstrates the characteristic of _______.

portability

Money available in the economy to buy various goods and services is called the money ______.

supply

The amount of money the Federal Reserve makes available for people to buy various goods and services is called the money ______.

supply

A promissory note indicating specific installments for repayment, such as monthly or yearly, is known as a ______.

term-loan agreement

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via ______.

the Internet

Indenture terms refer to the terms of ______.

the lending agreement associated with bonds

Terms of _______ refer to the conditions a supplier (the seller) gives a buyer when offering short-term credit.

trade

The process by which a firm buys a product, then receives a bill (an invoice) from the supplier, then pays it later, usually in 30 to 90 days, is known as _______ ________, which is a type of short-term financing.

trade credit