Macro Ch 6

indirect finance

A flow of funds from savers to borrowers through financial intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other borrowers).

an income statements shows a firms

A: all of the above costs revenues profits

economic profit is equal to a firm's revenues minus its costs, ____________. accounting profit is _____________ economic profit

A: both explicit and implicit; larger than (accounting profit provides information on a firm's current net income measured according to accepted accounting standards. Accounting profit is not, however, the ideal measure of a firm's profits bc it neglects some of the firm's costs. by taking into account all costs, economic profit provides a better indication than accounting profit of how successful a firm is)

suppose Ford Motor Company issues bonds with a face value of $100,000 and an annual coupon payment of $3,000 what is the interest rate Ford is paying on the borrowed funds?

A: the interest rate is 3 % (coupon payment/face value)

direct finance

a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange

a bond represents ________________, while a share of stock represents ________________

a loan to the company; part ownership of the company

suppose you originally invested in a firm when it was large and profitable . now the firm has downsized and is small and unprofitable. would you be better off now if you had the firm's stock or the firm's bond?

bond

the most severe recession since the Great Depression partially resulted from problems in the market for home mortgages. what has been the U.S. governments response?

brought Fannie Mae and Freddie Mac under direct gov. control

to earn a profit, firms must typically first raise funds to pay for operations. This often includes funds to pay for things like employees and machines which of the following is not a way small firms are able to raise funds? small firms are usually unable to raise funds

by offering stocks

which of the following terms refers to a flow of funds from savers to firms through financial markets?

direct finance

the payments by a corporation to its shareholder ... ________________, and the interest payments on a bond are called ___________

dividends; coupon payments

Googles board of directors becomes dominated by close friends and relatives the price of Googles stock would be expected to

fall

a competitor launches a search engine that is just as good as Googles the price of Google stock would be expected to

fall

state whether the following statement is true of false "the total value of the shares of Microsoft stock traded on the NASDAQ last week was $500 million, so the firm actually received more revenue from stock sales than from selling software"

false bc Microsoft does not receive the money investors paid for the stock

if you borrow money from a bank to buy a new car, you are using _____________ finance

indirect

a flow of funds from savers to borrower through financial intermediaries such as banks is _____________ finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is _________ finance

indirect; direct

a decrease in the price of a firm's stock would tell managers which of the following

investors expect the firm to have lower profits in the future

Limited liability becomes more important for firms tying to raise funds ... , rather than from a small number of investors, because

investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm falls

a firms financial statements are generally assumed to include its income statement and balance sheet. which of the following piece of information is provided by a firm's balance sheet?

liabilities

what was the source of the problems encountered by many financial firms during the crisis of 2007-2009? during the crisis of 2007-2009

many borrowers began to default on their mortgages

an example of an asset would be ______________, while an example of a liability would be ___________________

plant and equipment; a bond that the company has issued

the corporate income tax is abolished the price of Googles stock would be expected to

rise

the price of wireless internet connections unexpectedly drops, so more people use the internet the price of Googles stock would be expected to

rise

Limited liability means that

shareholders in a corporation cannot lose more than their investment in the firm.

suppose that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and want is to be your business aline, which category of firm are you most likely to start?

sole proprietorship

an asset is _______________, and liability is ______________

something that the company owns; anything that the company owes

Google announces a huge profit of $1 billion, but everyone anticipated that Google would earn a huge profit of $1 billion the price of Googles stock would be expected to

stay the same

suppose that a firm in which you have invested is making a lot of money. would you rather own the firm's stock or bond?

stock

STOCKS are financial securities that represent partial ownership of a firm. three of the most widely followed stock indexes are the Dow Jones Industrial Average, the S&P 500, and NASDAQ which of the following does not describe the general movements of the three stock indexes ?

stock prices increased during the 2001 recession

an ___________ is a financial security that represents partial ownership of a firm, while a ____________ is a financial security that represents a promise to repay a fixed amount of funds

stocks; bonds

the principle-agent problem arises everywhere in the business world- but it also crops up even closer to home, such as the case of the college classroom. In this case, who is the principal and who is the agent? the principal is the ____________ and the agent is the ___________

student ; professor

a decrease in the price of a firm's bonds would tell managers which of the following

the cost of external funds has increased

a balance sheet shows _____________ at some point in time, while an income statement shows ___________ at some point in time

the firm's overall financial position; the firm's revenues, costs, and profits

the government grants limited liability to the owners of corporations

to limit shareholder risk and thus encourage investment in corporations

direct finance is borrowing _____________, while indirect finance is borrowing _______________

via financial markets; from financial intermediaries