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Exam2
chapters 4, 6, 7
19
Economics
Undergraduate 2
10/01/2010

Additional Economics Flashcards

 


 

Cards

Term
sole proprietorship
Definition
a firm owned by a single individual and not organized as a corporation.
Term
Partnership
Definition
a firm owned jointly by two or more persons and not organized as a corporation
Term
corporation
Definition
a legal form of business that provides owners with protection from losing more than their investment should the business fail
Term
asset
Definition
anything of value owned by a person or a firm
Term
limited liability
Definition
the legal provision that shields owners of a corporation from losing more than they have invested in the firm
Term
corporate governance
Definition
the way in which a corporation is structured and the effect a corporation's structure has on the firm's behavior
Term
separation of ownership from control
Definition
a situation in a corporation in which the top management, rather than the shareholders, control day-to-day operations
Term
principal-agent problem
Definition
a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired them (stockholders)
Term
How firms raise funds...
Definition
1.reinvest the profits(retained earnings) back into your firm
2. Recruiting additional owners to invest in the firm-->increases firm's financial capital
3. Borrow funds from family/friends/relatives
Term
Unless firms rely on RE, they have to raise external funds from others who have funds available to invest which they do in two ways...
Definition
1.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
2.Direct Finance--a flow of funds from savers to firms through financial markets, such as the NY Stock Exchange. Usu takes the form of the borrower selling the lender a financial security(stock/bonds)
Term
Bond
Definition
A financial security that represents a proise to repay a fixed amount of funds. many have terms, or maturities, or 30yrs
Term
coupon payment
Definition
an interest payment on a bond
Term
interest rate
Definition
the cost of borrowing funds, usually expressed as a percentage of the amount borrowed.
Term
stock
Definition
a financial security that represents partial ownership of a firm; do not have a maturity date so the firm is not obliged to return the investor's funds at any particular date
Term
dividends
Definition
payments by a corporation to its shareholders. (remaining profits are paid to shareholders
Term
accounting profit
Definition
a firm's net income, measured by revenue-operating expenses-taxes paid
Term
explicit cost
Definition
a cost that involves spending money
Term
implicit cost
Definition
a nonmonetary opportunity cost
Term
economic profit
Definition
a firm's revenues-all implicit and explicit costs
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