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BUSN 70
Test 2
| Question | Answer |
|---|---|
| the study of how money is managed by individuals, companies, and governments | finance |
| currency, anything generally accepted in exchange for goods and services | money |
| money must be readily acceptable for the purchase of goods and services and for the settlement of debts; the most important characteristic of money | acceptability |
| the lack of divisibility often makes otherwise preferable trades impossible, as would be an attempt to trade a steer for a loaf of bread | divisibility |
| for money to function as a medium of exchange, it must be easily moved from one location to the next | portability |
| money must be stable and maintain its declared face value | stability |
| the new crisp dollar bills you trade for products at the mall will make their way all around town for about 6 years before being replaced | durability |
| Difficulty to counterfeit | to duplicate illegally |
| trading one good or service for another of similar value | bartering |
| a paper money not readily convertible to a precious metal such as gold | fiat money |
| money stored in an account at a bank or other financial institution that can be withdrawn without advance notice | checking account |
| interest-bearing checking accounts but with more restrictions | Money market accounts |
| savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn before the end of the interval | Certificate of deposit (CDs) |
| accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period | savings accounts |
| allow you to promise to pay at a later date by using pre approved lines of credit granted by a bank or finance company | credit cards |
| looks like a credit card but works like a check. The use of a debit card results in a direct, immediate, electronic payment from the cardholder’s checking account to a merchant or other party | debit card |
| characteristics of money | Acceptability Divisibility Portability Stability Durability Difficult to counterfeit |
| “the Fed” as it is commonly called, an independent agency of the federal government established in 1913 to regulate the nation’s banking and financial industry | Federal Reserve Board |
| means by which the Fed controls the amount of money available in the economy. w/o this , the supply & demand for money might not balance. result in inflation bc of too little money or recession /disinflation bc of too little growth in the money supply | monetary policy |
| Decisions to buy or sell U.S. Treasury securities in the open market | open market operations |
| the percentage of deposits that banking institutions must hold in reserve (“in the value”, as it were) | Reserve requirement |
| the rate of interest the Fed charges to loan money to any banking institution to meet reserve requirements | discount rate |
| the authority to establish and enforce credit rules for financial institutions and some private investors | credit controls |
| Regulatory functions of the Fed | Regulatory member banks Check clearing Depository Insurance |
| Regulatory member banks | establishes and enforces banking rules that affect monetary policy and competition |
| Check clearing | National check processing through check clearinghouses |
| Depository Insurance | Supervises the fed insurance funds that protect the deposits in member banking institutions |
| Largest and oldest of all financial institutions, relying mainly on checking and savings accounts | Commercial banks |
| Financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages; also called “thrifts” | Savings and loan associations (S&Ls) |
| a financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion | credit union |
| similar to savings and loan associations but like credit unions, they are owned by their depositors | mutual savings banks |
| insures individual bank accounts, was established in 1933 to help stop bank failures throughout the country during the Great Depression | Federal Deposit Insurance Corporation (FDIC) |
| regulates and charters credit unions and insures their deposits through its National Credit Union Insurance Fund | National Credit Union Administration (NCUA) |
| Traditionally non-financial firms that have expanded into the financial field | diversified firms |
| Businesses that protect their clients against financial losses from certain specified risks (death, accident, and theft, for example) | Insurance companies |
| Managed investment pools set aside by individuals, corporations, unions, and some nonprofit organizations to provide retirement income for members | pension funds |
| An investment company that pools individual investor dollars and invests them in large numbers of well-diversified securities | mutual funds |
| Firms that buy and sell stocks, bonds, and other securities for their customers and provide other financial services | brokerage firms |
| Underwrites new issues of securities for corporations, states any municipalities needed to raise money in capital markets | Investment bank |
| Businesses that offer short-term loans at substantially higher rates of interest than banks | finance companies |
| any movement of funds by means of an electronic terminal, telephone, computer, or magnetic tape | Electronic funds transfer (EFT) |
| dispenses cash, accepts deposits, and allows balance inquiries and cash transfers from one account to another | Automated teller machine (ATM) |
| permit payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape | Automated clearinghouses (ACHs) |
| Advantages of direct deposits to consumers include convenience, safety, and potential interest earnings | True |
| _____ is likely the most important characteristic of money. If businesses do not take money as payment, consumers will have to find another means of paying for purchases. | Acceptability |
| Functions of money | - measure of value: serves as a common standard or yardstick of the value of goods and services - store of value: Money serves as a way to accumulate wealth (buying power) until it is needed |
| A demand deposit (also known as a checking account) is referred to as such because _____. | funds may be withdrawn by its owner without advance notice |
| The Federal Reserve System is organized into _________ regions, each with a Federal Reserve Bank. | 12 |
| Which tool, used by the Federal Reserve Board to control the money supply, is the most common and is performed almost daily? | open market operations |
| Savings accounts are also known as _____. | time deposits |
| The Fed controls the amount of money available in the U.S. economy through _____. | monetary policy |
| What are monies put aside by corporations and others for the retirement of their employees called? | pension funds |
| Which four institutions are considered nonbank financial institutions? | brokerage firms pension funds insurance companies finance companies |
| The fee that an insurance company charges for coverage is known as _____. | a premium |
| Electronic funds transfers take place through which four devices? | telephone computer magnetic tape electronic terminal |
| An IRA is a type of _____. | pension fund |
| What are three descriptors of "the Fed"? | organized into 12 regions established in 1913 regulates the U.S. financial industry |
| Short term resources such as cash, investments, accounts receivable, and inventory | current assets |
| Short term debts such as accounts payable, accrued salaries, accrued taxes, and short term bank loans | current liabilities |
| current assets less current liabilities | working capital |
| Techniques for Managing Current Assets | 1. Keep transaction balances as low as possible 2. Consider Lock box for large volumes of transactions 3. Invest in marketable securities - putting extra cash for up to 1 yr 4. Maximize Accounts receivable 5. Optimize inventory |
| Techniques for managing current liabilities | 1. Manage Accounts payable 2. Utilize a bank line of credit 3. Create a plan for paying nonbank liabilities 4 |
| astute money managers try to keep just enough cash on hand | Transaction balances |
| temporary investments of cash | marketable securities |
| short-term debt obligations the U.S. government sells to raise money | Treasury bills (T-bills) |
| a written promise from one company to another to pay a specific amount of money | commercial paper |
| a market for U.S. dollars held in foreign countries | Eurodollar market |
| Production facilities (plants), offices, and equipment; all of which are expected to last for many years | Long term fixed assets |
| - The process of planning expenditures on assets whose cash flows are expected to extend beyond one year - details projected inflows and outflows during some future period - analyzes projects and decides which are acceptable investments | Capital budgeting |
| The longer a project or asset is expect to last, the greater its potential risk because it may become obsolete or wear out prematurely | True |
| Qualitative Assessment of Capital Budgeting Risk (highest to lowest) | 1. Introduce a new product in foreign market 2. expand into a new market 3. Introduce a new product in a familiar market 4. Add to a product line 5. buy new equipment for established market 6. repair old machinery |
| 2 ways to finance a business : | Debt Equity |
| Characteristics of debt | You have to pay it back You have to pay interest Sometimes you have to agree to other conditions (covenants), (ex: Minimum Current ratio, Maximum Debt/Equity ratio, collateral) |
| Characteristics of Interest rates | Discount rate: Federal Reserve rate to banks Prime rate: lowest rate banks charge their best business customers consumer rates |
| debt instruments that larger companies sell to raise long term funds | bonds |
| Characteristics of equity | Give up ownership (share of profits) Give up some control May impact value of shares – shareholders suffer dilution of ownership in stock sales. |
| When a company offers stock to the public for the very first time | Initial Public Offering |
| The market where firms raise financial capital | primary market |
| Stock exchanges and over-the-counter markets where investors can trade their securities with others | secondary market |
| The sale of stocks and bonds for corporations | investment banking |
| backed by collateral, debentures | secured bonds |
| debentures or bonds that are not backed by specific collateral | unsecured bonds |
| The mechanism for buying and selling securities of publicly held companies | securities market |
| reinvested in the assets of the firm and belong to the owners in the form of equity | retained earnings |
| the cash return as a percentage of the price but does not reflect the total return an investor earns on the individual stock | dividend yield |
| the sale of stocks and bonds for corporations, helps such companies raise funds by matching people and institutions who have money to invest with corporations in need of resources to exploit new opportunities | investment banking |
| the ability to turn security holdings into cash quickly and at minimal expense and effort | liquidity |
| In the broadest sense, stocks and bonds markets are providers of liquidity | True |
| a network of dealers all over the country linked by computers, telephones, and Teletype machines | Over-the-counter (OTC) market |
| As a small business owner, she carefully manages the finances of her business. If Joan purchases flowers from a local producer for $500 and agrees to pay for the flowers within a month, Joan will list the $500 bill as _____ on her balance sheet. | Accounts payable |
| What is considered to be one of the most important facets of financial management? | ensuring that there are sufficient (but not excessive) funds on hand to meet the company's obligations |
| What is a debenture? | an unsecured bond |
| Idle cash typically does not earn interest for the company, thus financial managers try to keep small amounts of cash on hand, called _____, to pay current bills such as wages, supplies, and utilities. | transaction balances |
| What three items are long-term (fixed) assets? | automobiles |
| What are four examples of temporary marketable security investments utilized by firms to invest idle cash? | certificates of deposit U.S. Treasury bills commercial paper eurodollar deposits |
| Because most corporate bonds and all U.S. government debt securities are traded in the _____ market, this market regularly accounts for the largest total dollar value of all the secondary markets. Has no central location | OTC (over the counter) |
| When businesses calculate the costs to borrow money for capital budget projects they must be sure to include the _____ expenses for the debt used to finance the project. | interest |
| Two common choices for raising funds to pay for long-term assets are equity financing and _____ financing. | debt |
| A firm's cash must be available in the correct amount and on the correct date. | True |
| Bonds accrue interest until they have been repaid on or before the ____ date. | maturity |
| What is a stock? | a share of ownership in a company |
| Market where new issues of stocks and bonds are sold to the public | primary market |
| Stock exchanges and over-the-counter markets where investors can trade previously owned stock | secondary market |
| A comparison of current stock prices with those in a specified base period | index |
| The calculated average of certain stock prices | average |
| Which type of stock does not trade on the OTC (over-the-counter) market? | large corporate stocks |
| Newer and less prosperous firms must pay _____ costs to attract capital because these companies tend to be quite risky. | higher |
| An individual who owns stocks and bonds wants to sell them to other investors. This is made possible through _____. | securities market |
| business owned and operated by one individual, are the most common form of business organization in the United States; Typically employ fewer than 50 people | Sole proprietorship |
| Advantages of sole proprietorship | Forming a sole proprietorship is relatively easy and inexpensive Secrecy Distribution and use of profits Flexibility and control of the business Government regulation Taxation Closing the business |
| Disadvantages of sole proprietorship | Limited sources of funds Limited skills Lack of continuity Lack of qualified employees Taxation |
| an association of two or more persons who carry on as co-owners of a business for profit | partnership |
| involves a complete sharing in the management of business | general partnership |
| has at least one general partner, who assumes unlimited liability, and at least one limited partner, who liability is limited to his or her investment in the business | limited partnership |
| Legal documents that set forth the basic agreement between partners | Articles of Partnership |
| Advantages of partnerships | Ease of organization Availability of capital and credit Combined knowledge and skills Decision making Regulatory controls |
| Disadvantages of partnerships | Unlimited liability Business responsibility Life of the partnership Distribution of profits Limited source of funds |
| Partnerships do not pay taxes but do file a tax return providing information on profitability and distribution of profits | True |
| a legal entity, created by the state, whose assets and liabilities are separate from its owners, can enter into contracts w individuals or w other legal entities, right to receive, own, and transfer property | corporation |
| Characteristics of corporations | Can own and transfer property Can enter into contracts Can sue and be sued in court |
| Creating corporations | 1. create corporation 2. Follow state procedure of chartering the corporation 3. Incorporators file legal articles of incorporation w the state 4. State issues a legal corporate charter to company 5. Owners establish bylaws & board of directors |
| a legal document that the state issues to a company based on information the company provides in the articles of incorporation | Corporate charter |
| If conducting business in the state in which it is chartered | Domestic Corporation |
| If conducting business outside the state in which it is chartered | Foreign Corporation |
| If conducting business outside the nation in which it is incorporated | Alien Corporation |
| - owned by just one or a few people who are closely involved in managing the business - None of their stock is sold to the public - not required to disclose financial information publicly | Private corporations |
| a corporation whose stock anyone may buy, sell, or trade | public corporation |
| quasi public corporation | - owned and operated by the federal, state, or local government - often operates at a loss |
| nonprofit corporation | - focus on providing a service rather than earning a profit, but they are not owned by a government entity - All documents are public |
| A group of individuals, elected by the stockholders to oversee the general operation of the corporation, who set the corporation’s long-range objectives | board of directors |
| employees of the company | inside directors |
| people unaffiliated with the company | outside directors |
| shares of a corporation that may be bought or sold, can also be gifted or inherited | stocks |
| Profits of a corporation that are distributed in the form of cash payments to stockholders | Dividends |
| A special class of owners because, although they generally do not have any say in running the company, they have a claim to profits before any other stockholders | preferred stock |
| Stock whose owners have voting rights in the corporation, yet do not receive preferential treatment regarding dividends | common stock |
| - May vote by proxy, which allows stockholders to assign their voting privilege to someone else -Have preemptive right meaning they can buy any new shares of stock the company issues | common stock |
| - Owners have first claim to profits - Dividend payments on this stocks are usually a fixed percentage of the initial issuing price (set by the board of directors) | preferred stock |
| Advantages of corporations | Limited liability Ease of transfer of ownership Perpetual life External sources of funds Expansion potential |
| Disadvantages of corporations | Double taxation Forming a corporation Disclosure of information Employee owner separation |
| Form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members | Limited Liability Company (LLC) |
| Corporation taxed as though it were a partnership with restrictions on shareholders. Eliminates double taxation and retains LLC benefits | S-Corporation |
| a benefit corporation is a for profit corporation that must: | Have and pursue a goal to benefit society Publish a Benefit Report |
| a partnership established for a specific project or for a limited time. control can be divided equally or one person, used for ventures that call for larger investments | Joint venture |
| an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization | cooperatives |
| The combination of two companies (usually corporations) to form a new company | merger |
| firms that make and sell similar products to the same customers merge | horizontal merger |
| companies operating at different but related levels of an industry merge | vertical merger |
| firms in unrelated industries merge | conglomerate merger |
| A company or individual who wants to acquire or take over another company and first offers to buy some or all of its stock at a premium in a tender offer | corporate raider |
| The firm allows stockholders to buy more shares of a stock at lower prices than the current market value to head off a hostile takeover | poison pill |
| the purchase of one company by another, usually by buying its stock | acquisition |
| Management requires a large majority of stockholders to approve a takeover | shark repellant |
| A more acceptable firm that is willing to acquire a threatened company | white knight |
| occur when one individual or company attempts to buy a majority share in the company for the purpose of restructuring the management team and/or the board of directors | hostile takeover |
| A purchase in which a group of investors borrows money from banks and other institutions to acquire a company (or a division of one), using the assets of the purchased company to guarantee repayment of the loan | Leveraged buyout |
| the process of creating and managing a business to achieve desired objectives | entrepreneurship |
| Select the three items that are usually listed in the articles of partnership. | Authority and responsibility of each partner How profits will be distributed Contribution (money or assets) of each partner |
| Which of the following is a disadvantage of the partnership form of business? | friction between general and limited partners |
| S Corporation | Up to 100 shareholders |
| How is taxation handled in partnerships? | Partners pay taxes at the income tax rate for individuals |
| As an entity, cooperatives are not set up to make ___________ | profits |
| In a sole proprietorship, any debts or damages incurred by the business that cannot be paid by the business are your personal debts and you must pay them. This disadvantage is known as ______. | unlimited liability |
| A form of business ownership that looks like a corporation but is taxed as though it were a partnership with restrictions on the number of shareholders is ______. | S Corporation |
| The business and shareholders are taxed. | Corporation |
| individuals who use entrepreneurship to address social problems | Social entrepreneurs |
| Any independently owned and operated business that is not dominant in its competitive area | small business |
| An independent agency of the federal government that offers managerial and financial assistance to small businesses | Small Business Administration |
| Small businesses are vital to the American economy. Small firms represent 99.7 percent of all employer firms Small firms have generated 62 percent of net new jobs. | True |
| One of the most significant strengths of small business is their ability to innovate, bringing significant benefits to customers. | Innovation |
| The energy, creativity, and innovative abilities of small business owner have resulted in jobs for many people | Job creation |
| an economic model involving the sharing of underutilized resources | sharing economy |
| Advantages of small business | independence costs flexibility focus reputation |
| disadvantages of small business | High stress level High failure rate Undercapitalization: the lack of funds to operate a business normally Managerial inexperience or incompetence Inability to cope with growth |
| Starting a small business | 1. Start with a concept or general idea 2. Create a business plan 3. Devise a strategy to guide planning & development |
| A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals | business plan |
| The entrepreneur has to decide on an appropriate legal form of business ownership | true |
| the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business | equity financing |
| Persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock | venture capitalists |
| hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful | venture capitalists |
| - AIs tend to be affluent people who invest their own money and may or may not have business or investing experience - usually experienced and successful business people and investors who find businesses in which to invest | angel investors vs. venture capitalists |
| A financial interest in the property or fixtures of the business, to guarantee payment of the debt | collateral |
| May have to provide personal property as collateral, if the business fails then they may eventually claim/sell the collateral | mortgage |
| An agreement by which a financial institution promises to lend a business a predetermined sum on demand | line of credit |
| Suppliers allow the business to take possession of the needed goods and services and pay for them at a later date/installments | trade credit |
| Trading their own products for the goods and services offered by other businesses | bartering |
| A license to sell another’s products or to use another’s name in business, or both | franchise |
| The company that sells a franchise | Franchiser |
| The purchaser of a franchise | Franchisee |
| The continuing success and competitiveness of small businesses through rapidly changing conditions in the business world have led many large corporations to take a closer look at what their smaller rivals tick | True |
| Individuals in large firms who take responsibility for the development of innovations within the organizations | Intrapreneurs |
| require goods from producers or wholesalers and sell them to consumers | retailing |
| provide both goods and services to producers and retailers; they can assist their customers with almost every business function | wholesaling |
| What are two volunteer agencies funded by the SBA to provide advice for owners of small firms? | ACE SCORE |
| Which of the following is true regarding flexibility and small-business ownership? | Small-business owners can make and execute decisions quickly. |
| technological advances and the increase in service exports have created new opportunities for small companies to customize their services quickly for international customers. | True |
| Which three items are considered equity financing? | the savings account of the owner the accumulated value in a life-insurance policy a personal laptop |
| While large corporations must compete for large market segments, small firms can focus their efforts on a precisely defined group of customers known as a market _____, which allows them to satisfy a need that other companies have not addressed. | niche |
| The SBA is the government agency that advises and assists small businesses by providing which three of the following? | management assistance training for owner(s) and their employees consulting on improving operations |
| Challenges of the business world | 1. Rapid changing technology 2. Increased scrutiny of individual and corporate ethics and social responsibility 3. Impact of social media 4. Changing nature of workforce 5. New laws and regulations 6. increased global competition |
| A process designed to achieve an organization’s objectives by using its resources effectively and efficiently in a changing environment | management |
| Those individuals in organizations who make decisions about the use of resources and who are concerned with planning, organizing, staffing, directing and controlling the organization’s activities to reach its objectives | managers |
| the elimination of significant numbers of employees from an organization | downsizing |
| the importance of management | employees acquiring supplies financial resources |
| Hiring of people to carry out the work of the organization | staffing |
| the functions of management | planning organizing directing controlling |
| the organization's activities to keep it on course | controlling |
| the process of determining the organization’s objectives and deciding how to accomplish them; the first function of management | planning |
| the statement of an organization’s fundamental purpose and basic philosophy | mission |
| the results the company wants to achieve (almost always has multiple illustrating the complex nature of business) | goals |
| measurable statements on common issues such as profit, competitive advantage, efficiency and growth advantage | objectives |
| specify what should be done, by whom, where, when done, by whom, where, when and how | plans |
| establish the long range objectives and overall strategy or course of action by which the firm fulfills its mission | strategic plans |
| short range and designed to implement the activities and objectives specified in the strategic plan | tactical plans |
| Very short-term plans, specify actions for individuals, work groups, or departments (by qtr, month, week) | operational plans |
| dealing with potential disasters | contingency plans |
| The structuring of resources and activities to accomplish objectives in an efficient and effective manner | organizing |
| Motivating and leading employees to achieve organizational objectives | directing |
| The process of evaluating and correcting activities to keep the organization on course | controlling |
| responsible for tactical and operational planning that will implement the general guidelines established by top management | middle managers |
| those who supervise workers and the daily operations of the organization | first line managers |
| focus on obtaining the money needed for the successful operation and using that money in accordance with organizational goals | financial managers |
| Develop and administer the activities involved in transforming resources into goods, services and ideas ready for the marketplace | Production and operations managers |
| Handle the staffing function and deal with employees in a formalized manner | human resources manager |
| Responsible for planning, pricing, and promoting products and making them available to customers | marketing managers |
| Responsible for implementing, maintaining, and controlling technology applications in business, such as computer networks | Information Technology (IT) Managers |
| Manage an entire business or a major segment of a business; they are not specialists but coordinate the activities of specialized managers | Administrative Managers |
| the specialized knowledge and training required to perform jobs related to their area of management | technical expertise |
| The ability to think in abstract terms and to see how parts fit together to form the whole | conceptual skills |
| The ability to influence employees to work toward organizational goals | leadership |
| make all the decisions then tell employees what must be done and how to do it | autocratic leaders |
| involve their employees in decisions | democratic leaders |
| let their employees work without much interference; setting performance standards and letting employees find their own way to meet them | free rein leaders |
| (1) defining the situation (2) developing options to resolve the situation (3) analyzing the options (4) selecting the best option (5) implementing the decision (6) monitoring the consequences of the decision | Decision making process |
| A calendar, containing both specific and vague items that covers short-term goals and long-term objectives | agenda |
| The building of relationships and sharing of information with colleagues who can help managers achieve the items on their agendas | networking |
| occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs | employee empowerment |
| Companies that practice employee empowerment use managers for ______. (Select all that apply.) | making major decisions setting goals guiding employees |
| The highest level of management is _____ and consists of the president and other key company executives who develop strategic plans and have overall responsibility for the organization. | top management |
| ______ skills refer to the ability to identify relevant issues and recognize their importance, understand the relationships between them, and perceive the underlying cause of the situation. | Anlytical |
| Why is it critical that managers monitor the consequences of their decisions? (Select all that apply.) | The decision may not have been implemented properly and thus the desired result was not achieved. The decision may have been the wrong decision and thus not achieved the desired result. The situation may have changed since the decision was made. |
| Managers are engaged in the ______ function of management when they review plans and determine what activities are necessary to implement them; then, divide the work into small units and assign it to specific individuals, groups, or departments. | organizing |
| The interpersonal type of managerial role includes which three specific roles? | Liaison Figure Leadership |
| After managers have implemented a decision, they must determine whether it has accomplished the desired result, this is called ______. | monitoring |
| When a manager attends an award banquet, he or she is acting in which interpersonal role? | Figure |
| Brainstorming is a technique in which ______. | group members suggest ideas to solve problems |
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