10499460
| Question | Answer |
| Financial Markets... | simple ways of connecting providers with users |
| Providers of cash... | are lenders. Cash now for promise of future cash. |
| Users of cash... | are borrowers. Promise of future cash for cash now. |
| Three main forms of business organizations | Proprietorship Partnership Corporation |
| "Going public" "IPO" | IPO - Initial Public Offering First time company's shares are sold to the public. |
| Free Cash Flows (FCF) | Cash flows available for distribution to investors after - expenses and taxes paid - req'd investments to support growth paid |
| Weighted Average Cost of Capital (WACC) | The average return required by the firm's investors. |
| Weighted Average Cost of Capital (WACC) is determined by: D I Fr Mr | - Debt to equity mix (capital structure) - Interest rates - Firm's risk - Market's attitude toward risk |
| The intrinsic value of a firm depends on... | Firm's FCF: - Size BIGGER is BETTER - Timing SOONER is BETTER - and the firm's risk SAFER, not UNCERTAIN |
| Calculating a firm's intrinsic value | = FCF^1/(1+WACC)^1 + FCF^2/(1+WACC)^2 ... |
| The primary objective of management should be... | MAXIMIZE stockholders' WEALTH by MAXIMIZING the company's intrinsic VALUE. |
| Transfers of capital between borrowers and savers take place by transfers: | 1. of money and securities 2. through investment banks 3. through financial intermediaries |
| A financial security is... | Claim on future cash flows that is standardized and regulated. Examples: debt, equity, derivatives |
| Required Rate of Return | The prospect of more money in the future is REQUIRED to induce an investor to give up money today. |
| Fundamental factors that affect the Required Rate of Return (the cost of money) PO, TPC, R, I | 1. production opportunities 2. time preferences for consumption 3. risk 4. inflation |
| "Spot markets" and "futures markets" are... | Whether the assets are bought/ sold for "on the spot" delivery or for delivery at some future date. |
| Money Markets are... | the markets for debt securities with maturities of LESS THAN A YEAR. |
| Capital Markets are... | the markets for LONG-TERM debt and corporate stocks. |
| Primary Markets are... | MARKETS in which CORPORATIONS raise NEW capital. |
| Secondary Markets are... | MARKETS in which EXISTING, already-outstanding securities are traded among investors. SECONDARY = SECOND-HAND |
| A Trading Venue is a site... | Where secondary market trading occurs. TRADING => SECONDARY |
| Orders from buyers and sellers can be matched in one of 3 ways: OOA, DM, ATP | 1. open outcry auction (face to face) 2. dealer markets (computer network) 3. automated trading platforms (computers match orders and make trades) |
| Dodd-Frank Wall Street Reform and Consumer Protection Act | Passed in 2010 in an effort to PREVENT financial crises such as the one that triggered the recession of 2007. |
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