FINC 341 - Exam 1 - Notes Overview

CH. 1 -------------------------------------------------------- What happens when a company uses less leverage (debt) and makes up for it with equity capital while maintaining the same total dollar value of capital?

- Potential for growth decreases - Investor risk decreases - ROA would increase a little - ROE would decrease Why? ROA would increase because less debt leads to a lower interest expense which results in a slightly higher net income. Since net income is in the numerator of the ROA equation, it is desirable for it to be higher rather than lower. ROE would decrease because the Equity Multiplier (EM) utilizes Total Common Equity as its denominator. Therefore, increasing equity leads to a higher denominator and a lower overall ROE.

CH. 1 -------------------------------------------------------- What happens when a company leverages more debt in its capital structure while maintaining the same total dollar value of capital?

- Potential for growth increases - Investor risk increases - ROA would decrease a little - ROE would increase

CH. 2 ---------------------------------------------------- List some important characteristics of a Dealer Market

- The dealers in a dealer market are typically financial institutions or brokerage firms that specialize in specific securities or markets. - offers liquidity to market participant - Dealer markets are commonly found in OTC markets, where securities are not traded on formal exchanges.

CH. 1 -------------------------------------------------------- What is the primary goal of a company?

- To maximize the firm's value - To maximize stock price - To maximize shareholder wealth

CH. 2 ---------------------------------------------------- List some characteristics of Hedge Funds

- less regulated than mutual funds - large minimum investments - large fees - higher risk level

CH. 2 ---------------------------------------------------- What happens when stock prices are "too low"?

- people are interested in buying - demand is high This high demand to buy undervalued stock will eventually drive up the price and set it back to equilibrium

CH. 2 ---------------------------------------------------- What happens when stock prices are "too high"?

- people interested in selling - demand is lower Low demand and mass selling of stock will bring the price back down and establish equilibrium

CH. 2 ---------------------------------------------------- What are ETFs (Exchange Traded Funds)?

- similar to mutual funds, but they are indexed designed to track the performance of a specific index or sector. ETFs offer investors a way to gain exposure to a diversified portfolio of securities in a convenient and cost-effective manner.

CH. 1 -------------------------------------------------------- What are some recent changes in corporate governance?

- stockholders are more proactive in replacing managers - SEC has made it easier for investors to make changes within firms - SEC requires more transparent information on CEO compensation

CH. 2 ---------------------------------------------------- Why is market efficiency good?

- the assumption that the market will always try to be "efficient" or at equilibrium provides predictability for investors - Logic, Reason, and Reality are necessary for investing because without it stocks would be a game of luck - & if stocks were a game of luck that would essentially be like gambling which would heighten risk and the potential for loss would be too great for many investors

CH. 2 -------------------------------------------------------- Other than technological advances, what are the other recent trends impacting the financial market?

1. Capital moving more rapidly in response to interest and exchange rates, which sometimes disrupts local economies 2. International cooperation is needed now more than ever to regulate foreign exchange 3. The use of derivatives has increased

CH. 2 -------------------------------------------------------- What are some technological trends that have transformed the financial market?

1. Computer algorithms to buy and sell securities 2. Crowdfunding 3. Robo-Advisors 4. Using tech as payment (PayPal, bitcoin, blockchain, etc.) 5. High-Frequency Trading (HTFs)

CH. 2 -------------------------------------------------------- What are the 3 ways capital can be transferred?

1. Direct Transfers 2. Investment Banks (Indirect Transfer) 3. Financial Intermediary (Indirect Transfer)

CH. 2 ---------------------------------------------------- List the 3 most popular indexes (indices) as well as their characteristics

1. Dow Jones - the least high tech - more geared toward infrastructure companies - the companies are equally weighted, so size of firm is not taken into consideration 2. S&P 500 Index - includes 500 large strong firms within America - when return is above the average S&P 500 return it is called "Alpha" - Includes some high-tech companies - the companies are market-weighted 3. Nasdaq Composite Index - includes 3,680 companies - the most high tech of the 3 indices - the companies are market-weighted

CH. 1 -------------------------------------------------------- What are the main qualities of an S Corporation?

1. No more than 100 shareholders 2. Has One Class of Stock 3. Shareholders must be natural persons or nonaliens 4. Single Taxation (Taxes paid by individual shareholders rather than corporation)

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 5. Primary Market vs. Secondary Market

5a. Primary Market: When the first sale of that issue of stock is made Company => Stockholder 5b. Secondary Market: When a new stockholder purchases an issue of stock(s) from the primary owner Company => Original Stockholder (seller) => New Stockholder (buyer)

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 6. Private Market vs. Public Market

6a. Private Market: deals with a select few stockholders and required specific clientele to buy private equity 6b. Public Market: an IPO is made on the public market and allows the general public to purchase stocks on that company - an IPO is an initial public offering made on the primary market

CH. 2 -------------------------------------------------------- Explain what an indirect transfer through an investment bank is

A business sells its securities to a bank for them to manage. The bank then distributes those securities to savers on the primary market in exchange for money.

CH. 2 -------------------------------------------------------- Explain what an indirect transfer through an financial intermediary is

A business sells its securities to an intermediary for them to manage. The intermediary then distributes those securities to savers on the secondary market in exchange for money.

CH. 1 -------------------------------------------------------- Explain how accounting is different than finance

Accounting focuses on recording the day to day flow of money in and out of an institution/company. Finance focuses on the management of assets, liabilities and planning for future growth

CH. 3 ---------------------------------------------------- What are the 2 types of Accruals?

Accrued Wages: owed to employees Accrued Taxes: paid off quarterly

CH. 3 ---------------------------------------------------- How do you find Capital in Excess of Par (APIC)? - Explain how to find APIC per share and total APIC

Add the common stock value to the capital in excess of par value then divide it by the # of shares to give you a dollar amount of what each share was sold for. That dollar amount will then be distributed amongst two accounts: Common Stock & Capital in Excess of Par - Common Stock will get $1 (or whatever the value of par is listed in the problem) - The remainder will be distributed to Capital in Excess of Par and that will tell you the APIC per share value To find total APIC you take the APIC per share value and multiply it by the number of shares

CH. 2 ---------------------------------------------------- Would the following take place on the Primary or Secondary Market? - Additional new shares are sold by a public company - Outstanding shares of a public company are traded

Additional new shares are sold by a public company - This would occur on the Primary Market Outstanding shares of a public company are traded - This would occur on the Secondary Market

CH. 1 -------------------------------------------------------- What are the Advantages and Disadvantages of a Sole Proprietorship?

Advantages: 1. easy and inexpensive to form 2. few government regulations 3. lower income taxes than corporations (single taxation) Disadvantages: 1. unlimited personal liability 2. difficult to obtain large amounts of capital 3. life of the company is limited to the lifespan of the owner

CH. 1 -------------------------------------------------------- What are the Advantages and Disadvantages of a Corporation?

Advantages: 1. unlimited life 2. loss limited to investment 3. easy to transfer ownership 4. value of firm can be maximized Disadvantages: 1. double taxation (Not including S Corps) 2. heavy regulation

CH. 2 ---------------------------------------------------- What is an Index Fund?

An index fund, on the other hand, is a specific type of mutual fund that aims to replicate the performance of a particular market index, such as the S&P 500 or the Dow Jones Industrial Average.

CH. 3 ---------------------------------------------------- What type of asset falls under Net Fixed Assets? - provide an example - then say the equation for finding Net Fixed Assets

Asset Type: Long-term Example: PPE Equation: Gross Assets - Depreciation = Net Fixed Assets or GA - D = NFA

CH. 3 ---------------------------------------------------- Why does finance emphasize Net Cash Flow and Operating Cash Flow instead of Net Income?

Because Cash Flows represent the actual cash on hand and Net Income does NOT

CH. 2 ---------------------------------------------------- Why do many financial experts say that the repeal of the Glass Steagall Act led to the 2008 financial crisis?

Because after they repealed the Glass Steagall Act in 1999 competition began to increase and as the 2000's emerged more and more banks were trying to figure out how to stay competitive. This eventually led to banks engaging in fraudulent activities such as collecting too many loans that were not solvent and could not be collected.

CH. 3 ---------------------------------------------------- Why did companies buy back shares during the Repatriation Tax Holiday?

Because it helped to increase Earnings per Share (EPS)

CH. 1 -------------------------------------------------------- List the individual responsibilities of the COO and the CFO

COO - Operational Strategy - Operational Planning - Production and Manufacturing - Product Selling - Process Improvement - Resource Allocation CFO - Responsible for the accounting system - In charge of raising capital - Evaluating the effectiveness of operations - Evaluating all major investment decisions (new plants, etc.)

CH. 1 -------------------------------------------------------- What is capital structure?

Capital Structure is the combination of debt and equity used to support the company's assets and operations. - Finding the optimal debt to equity mix can help a company finance its operations and growth by utilizing different sources of funds.

CH. 1 -------------------------------------------------------- Explain the role of the Compensation Committee: - Who are they? - What do they do? - How do they do it?

Compensation Committee: Who are they? - 3 outside nonemployee directors What do they do? - set the compensation package for senior officers How do they do it? - using factors like stock price performance (relative to industry & market), EPS growth rate, and assessing compensation packages offered by other competing firms

CH. 3 ---------------------------------------------------- What account can be used as a payout for more inventory?

Current Assets

CH. 2 -------------------------------------------------------- Explain what a direct transfer is

Direct Transfer when a business sells securities, stocks, or bonds directly to stockholders (savers) in exchange for money

CH. 3 ---------------------------------------------------- What is EBIT also referred to as?

EBIT is also referred to as "Operating Income"

CH. 3 ---------------------------------------------------- What is EBT also referred to as?

EBT is also referred to as "Taxable Income"

CH. 3 ---------------------------------------------------- What is EPS? provide the equation for EPS as well

EPS = Earnings per Share EPS = NI / # of Shares

CH. 3 ---------------------------------------------------- How can you maximize EPS?

EPS is maxed with higher debt levels because debt is leveraged to earn a greater profit

CH. 1 -------------------------------------------------------- If a company has a high need for social responsibility how does that affect its rate of return?

If a proper social responsibility strategy is employed than that will typically increase the rate of return of the company

CH. 3 ---------------------------------------------------- What are the Current Assets? - list them in order from most liquid to least liquid

In order of liquidity: - Cash - Marketable Securities - Accounts Receivable - Inventory

CH. 2 ---------------------------------------------------- What is the difference between indirect transfers from an investment bank versus indirect transfers from a financial intermediary?

Investment Bank: - deals with primary market Financial Intermediary: - deals with secondary market - called market makers because they bundle many different securities together to make a new financial product - often a brokerage - usually purchased in units - 1 commission for multiple stocks (because purchased in bundle - makes it easier to streamline profit) - less fees (1 fee for multiple stocks) - helps with stock portfolio diversity ex: mutual funds like Fidelity Select Funds create a stock bundle to then sell on the secondary market.

CH. 1 -------------------------------------------------------- How do managers (agents) protect creditors?

Managers have a duty to protect creditors from detrimental changes in: - the riskiness of the firm's existing assets - expectations concerning the riskiness of future asset additions - the amount of debt utilized - expectations concerning future capital structure decisions

CH. 2 ---------------------------------------------------- Why is there such fierce competition between NYSE and the NASDAQ? List some traits that make them competitive as well

NYSE is a large stock market with strong companies, but NASDAQ has some of the strongest tech companies so even though they are smaller they still are highly competitive. NYSE has higher dollar volume NASDAQ has higher share volume

CH. 2 ---------------------------------------------------- Are stocks chance-based?

No, stocks are NOT chance-based, they are instead logic-based which provides stability, efficiency, and predictability within the market

CH. 1 -------------------------------------------------------- Will maximizing profits help to in turn maximize shareholder wealth?

No, you can maximize profits by leveraging debt

CH. 1 -------------------------------------------------------- What is the only financial difference between a Partnership and a Sole Proprietorship?

Partnerships undergo slightly more government regulation

CH. 2 ---------------------------------------------------- How does a dealer make a profit?

Profit is made by the bid-ask spread. Typically the higher the demand for a stock the larger the bid-ask spread is, allowing the Dealer to make a greater profit.

CH. 3 ---------------------------------------------------- Why can retained earnings NOT be used as a method of payment?

Retained earnings as reported on the balance sheet do not represent cash and are not 'available' for the payment of dividends or anything else - this is because retained earning can be used to attain assets and likely have already been spent - ONLY cash and marketable securities have not been spent

CH. 1 -------------------------------------------------------- What type of business form has to be created by natural person, non-aliens, and have only one class of stock?

S Corporation

CH. 2 ---------------------------------------------------- What are the different types of ETFs that correspond with popular Indices?

S&P 500 has a corresponding ETF called SPY the Dow Jones has a corresponding ETF called DIA The Nasdaq has a corresponding ETF called QQQ

CH. 1 -------------------------------------------------------- What are the Advantages and Disadvantages of a Partnership?

Same as Sole Proprietorship, but under advantages it does NOT list a few government regulations. So my assumption is that a Partnership is slightly more regulated than a Sole Proprietorship.

CH. 3 ---------------------------------------------------- In cash flows there are sources of cash and uses of cash. Name the sources of cash.

Sources of Cash: - Decrease occurs in the asset account (SELL an asset) - Increase occurs in liability account (BORROW money or take out a LOAN) - Increase occurs in equity account (SELL stock) Use of Cash: - Increase occurs in the asset account (BUY an asset) - Decrease occurs in the liability account (PAY OFF debt or loans) - Decrease occurs in the equity account (BUY BACK stock)

CH. 2 ---------------------------------------------------- What did the Glass Steagall Act of 1933 do and when was it repealed?

The Glass Steagall Act was used to separate commercial banks from investment banks BUT that was later repealed in 1999 by President Clinton and a Republican Congress to restore global competitiveness

CH. 1 -------------------------------------------------------- What will become obsolete due to the rise in popularity of the internet and ecommerce?

The need for intermediaries

CH. 1 -------------------------------------------------------- What trend has arisen in hopes of changing the corporate organizational structure and why?

There has been a clear trend towards separation of the Chairman of the Board and CEO offices due to conflict of interest.

CH. 1 -------------------------------------------------------- When is threat of takeover most likely to happen?

Threat of Takeover usually occurs when stock prices are low or undervalued. Managers should be weary of this because during this period a Raider can buy large amounts of stock for low prices and become a major shareholder in the company and "takeover".

CH. 1 -------------------------------------------------------- Of the 4 ways to motivate a manager which is the primary concern?

Threat of Takeovers is usually a manager's primary concern

CH. 2 ---------------------------------------------------- What does "Beat the Street" mean?

When a company's stock preforms better or produces higher earnings than what was estimated by the Wallstreet journal

CH. 1 -------------------------------------------------------- When is equilibrium in the market achieved?

When the intrinsic value is equal to the actual market price

CH. 1 -------------------------------------------------------- When should investors buy stock?

When the value of said stock is higher than the actual market price investors should buy stock so when its time to sell they can make a profit.

CH. 1 -------------------------------------------------------- Are activists often Raiders?

Yes

CH. 3 ---------------------------------------------------- Can EBITDA be used as a comparison of success?

Yes

CH. 2 -------------------------------------------------------- If an investor saw a half percent change in interest rates would that be worth their concern?

Yes, many investors follow interest rates closely to make sure they are maximizing their profits/return on investments

CH. 3 ---------------------------------------------------- How can Net Income be distributed?

You can distribute Net Income as dividends (using the dividend payout ratio) or you can keep Net Income as Retained Earnings (retention ratio)

CH. 2 ---------------------------------------------------- What is a Dutch Auction? - Give examples of 2 entities that have used a Dutch Auction

a Dutch Auction is a public auction where the stock price is set at the highest price bid that would manage to sell ALL of the shares to be sold in the offering; all bids at or above that price are executed Examples: - Used by Google in 2004 - Used by the Federal Government to sell Treasury bills, notes, and bonds

CH. 1 -------------------------------------------------------- Describe an agency relationship

a Non-owner (Agent) manages stocks on behalf of the stockholder (Principal)

CH. 2 -------------------------------------------------------- In finance, what is a derivative?

a financial instrument whose value is derived from an underlying asset or a group of assets. The underlying asset can be a stock, bond, commodity, currency, interest rate, or even an index. Derivatives are used for various purposes, including: - hedging against risks: contracts or other legal protection from potential price fluctuations or other risks - speculating on price movements: hypothesis of the future market value of a stock - arbitrage opportunities: traders exploit price discrepancies between related assets or markets to make risk-free profits by simultaneously buying/selling in different markets or in derivative forms.

CH. 2 ---------------------------------------------------- What is a no-load mutual fund?

a fund that charges no sales fee either on the front-end (when you buy the shares) or the back-end (when you sell the shares)

CH. 1 -------------------------------------------------------- What is Finance?

a system/field that is concerned with the allocation (investment) of assets and liabilities over space and time, often under conditions of risk or uncertainty

CH. 2 ---------------------------------------------------- What is a Dealer Market?

a type of market structure where trading is facilitated by dealers or "market makers". In a dealer market, the dealers act as intermediaries between buyers and sellers of securities. In a dealer market, the dealers provide quotes for both the bid (buying) and ask (selling) prices of securities they trade. These quotes represent the prices at which the dealers are willing to buy or sell the securities. Buyers and sellers can then interact directly with the dealers to execute their trades.

CH. 1 -------------------------------------------------------- Who assesses all major investment decisions? a ) COO b ) CFO c ) CEO

b ) CFO The CFO assesses all major investment decisions.

CH. 1 -------------------------------------------------------- Who evaluates the effectiveness of operations? a ) COO b ) CFO c ) CEO

b ) CFO The CFO evaluates the effectiveness of operations.

CH. 2 ---------------------------------------------------- What is NASD?

called the National Association of Securities Dealers - NASD is where brokers and dealers are members of a self regulatory body that licenses and oversee brokers

CH. 3 ---------------------------------------------------- When a company has achieved sufficient growth and is now focused on customer loyalty, how should it distribute its net income?

companies focused on customer loyalty should distribute a good portion of net income as dividends

CH. 3 ---------------------------------------------------- When a company is focused on growth, how should it distribute its net income?

companies that are focused on growth will use net income and convert it to retained earnings to be kept within the company

CH. 3 ---------------------------------------------------- What is Amortization?

essentially the same as depreciation but is used for intangible assets such as patents, goodwill, and copyrights

CH. 3 ---------------------------------------------------- What happens to EPS if a company buys back it's own stock?

if a company buys back stock it causes the # of shares to go down thus causing EPS to rise

CH. 3 ---------------------------------------------------- When should you use operating cash flow instead of net cash flow?

investors find it useful to calculate operation cash flow when they want interest expense included.

CH. 2 ---------------------------------------------------- What is an Initial Public Offering (IPO)?

it is the first offer of stock a privately held firm releases to the primary market

CH. 2 ---------------------------------------------------- What is an Over-the-Counter Market (OTC)?

over-the-counter (OTC) stock market refers to a decentralized marketplace where securities that are not listed on formal exchanges OTC markets facilitate trading electronically or through a network of dealers. OTC stocks include shares of smaller companies, start-ups, and foreign companies that may not meet the requirements for listing on major exchanges.

CH. 1 -------------------------------------------------------- What type of business form is not recommended because of the legal ramifications and personal liability that comes with it?

partnerships and sole proprietorships

CH. 3 ---------------------------------------------------- What accounts affect spontaneous debt capital?

spontaneous debt capital is a type of liability that is affect by two accounts: - Accounts Payable (A/P) - Accruals (Accr)

CH. 2 ---------------------------------------------------- Do the indices typically move in a similar fashion or not?

the Dow Jones and S&P 500 usually move up/down in a similar fashion, but since the Nasdaq deals with mostly high-tech companies it typically moves independently and may not mirror the same types of fluctuations that the other 2 indices undergo

CH. 2 ---------------------------------------------------- What does the Efficient Market Hypothesis state? - & How could we revise that statement?

the Efficient Market Hypothesis states that "stocks are always in equilibrium" But this is not true, thus the revised statement should be "stocks are always trying to be in equilibrium"

CH. 2 ---------------------------------------------------- What is market capitalization?

the value of the firm if all shares were sold at the last trade price

CH. 3 ---------------------------------------------------- What is depreciation used for?

to expense the fixed cost of assets - it is a non-cash charge that helps to cut taxes down

CH. 2 ---------------------------------------------------- What is an efficient market?

when stocks are in equilibrium required k = expected k k is representative of return on stock

CH. 3 ---------------------------------------------------- What are the current liabilities?

- Accounts Payable - Notes Payable - Accruals

CH. 3 ---------------------------------------------------- What falls under total common equity?

- Common Stock (CS) - Capital in excess of Par (APIC) - Retained Earnings (RE)

CH. 2 -------------------------------------------------------- The major financial market types are split into the following categories: 1. Physical Asset Market vs. Financial Asset Market 2. Spot Market vs. Future Market 3. Money Market vs. Capital Market 4. Mortgage Market vs. Consumer Credit Market 5. Primary Market vs. Secondary Market 6. Private Market vs. Public Market Explain the major difference between the market types in each category and why they are on opposite ends of the spectrum

1. Physical Asset Market vs. Financial Asset Market Main Difference: Tangibility of Asset 2. Spot Market vs. Future Market Main Difference: Contractual Obligation and Time of Fulfillment 3. Money Market vs. Capital Market Main Difference: Duration and Maturity of Financial Instruments 4. Mortgage Market vs. Consumer Credit Market Main Difference: Loan Types 5. Primary Market vs. Secondary Market Main Difference: Point of Sale for Stocks 6. Private Market vs. Public Market Main Difference: Clientele Type

CH. 1 -------------------------------------------------------- What decisions concern shareholders and in turn affect the stock price?

1. Product/Service offering 2. Production of products or services 3. Delivery of products or services 4. Mix of debt to equity utilized 5. Percentage of earnings distributed as dividends rather than retained

CH. 2 ---------------------------------------------------- What are the different types of mutual funds? List them as well the characteristics that each type of mutual fund possesses.

1. Stock Fund - good diversification - lower fees 2. Bond Fund - you can pick the duration or length of investment 3. Money Market Fund - shorter term investment - okay diversification - benefits bank more than savers

CH. 1 ------------------------------------------------------- What are the 2 capital market gov't organizations?

1. The Federal Reserve 2. The Securities and Exchange Commission

CH. 2 ---------------------------------------------------- Here is a list of important dates in Stock Exchange History: 1792 1896 1903 1928 1998 2005 2006 2007 2008 2009 2013 2014 2015 2018 Identify what important event happened for each date

1792 - the buttonwood agreement: 24 brokers and it was called the NY stock and exchange board 1896 - 10 companies in the Dow Jones 1903 - George Post built the NYSE building 1928 - 30 companies in the Dow Jones 1998 - NASDAQ and AMEX merged to form the NASDAQ-AMEX 2005 - NASDAQ and AMEX split up 2006 - NYSE went public to raise money and later began shifting to a more computerized format 2007 - NYSE merged with Euronext 2008 - NYSE-Euronext bought AMEX 2009 - NYSE-Euronext integrated with AMEX 2013 - ICE bought NYSE-Euronext 2014 - NYSE spun off and got rid of Euronext 2015 - Apple replaced AT&T in the Dow Jones 2018 - Walgreens Boots Alliance replaced GE

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 1. Physical Asset Market vs. Financial Asset Market

1a. Physical Asset Market: Tangible Assets like inventory, cash, PPE, etc. 1b. Financial Asset Market: Intangible Assets like stocks, bonds, etc.

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 2. Spot Market vs. Future Market

2a. Spot Market: contracts made for immediate delivery of specified goods/services 2b. Future Market: contract that is made in advance to be fulfilled at a later date (some get traded 100s of times before the contract reaches maturity)

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 3. Money Market vs. Capital Market

3a. Money Market: short-term market where financial instruments are traded with maturities typically ranging from overnight to one year. - Examples of money market instruments include Treasury bills, certificates of deposit (CDs), commercial paper, and repurchase agreements (repos). 3b. Capital Market: The capital market is a long-term market where securities and instruments are traded with maturities typically exceeding one year. - Examples of capital market instruments include stocks, bonds, mortgage-backed securities (MBS), and long-term government and corporate debt securities.

CH. 1 -------------------------------------------------------- How does a stockholder motivate a manager (agent) to act within said stockholder's best interest?

4 Ways to Motivate: 1. Managerial Compensation 2. Direct Intervention by Shareholders 3. Threat of Firing 4. Threat of Takeovers (Raiders)

CH. 2 -------------------------------------------------------- Define both market types within this category/spectrum: 4. Mortgage Market vs. Consumer Credit Market

4a. Mortgage Market: The mortgage market focuses specifically on loans for real estate properties. It provides financing for individuals and businesses to purchase or refinance residential or commercial properties. - secured loan - lower risk than consumer credit - large amount of money loaned - lower interest rates than consumer credit - requires specialized lenders 4b. Consumer Credit Loans: a broader range of loans and credit products that are used by individuals for personal consumption. This includes loans for purchasing vehicles, funding education, covering medical expenses, or making other personal expenditures. - unsecured loan - higher risk than mortgage - smaller amount of money loaned - higher interest rates than mortgage - does not often require specialized lenders