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| financing decisions: how much debt versus equity used? |
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| long-term investmen decisions: what fixed assets are needed? |
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| macro finance, working capital, investment decisions |
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| views responsibilities of the CFO as typical responsibilites |
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| 2 typical responsibilities of a CFO |
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Definition
| aquires funds, manages cash, banking relationships, dividend policy, pension fund management, foreign exchange, management, (external) |
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Definition
| accounting, reporting, and internal auditing, (internal) |
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| long-term maximization of shareholder's wealth |
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Definition
| why is finance important? |
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| when perceived value or stock = intrinsic value of stock |
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| ture, inherent, long-term value |
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| those demanding capital (funds) |
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| those demanding capital (funds) |
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| commercial banks, investment banks, mutual funds, hedge funds, insurance companies, pension funds, private equity |
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Term
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Definition
| securities which represent a legal claim on physical assets: stocks, bonds, CDs, martgages, leases, derivatives |
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| US treasury bills (money market) |
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Definition
| sold by US treasury to finance federal expenditures (almost risk free) |
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| dealer commercial paper (money market) |
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Definition
| issued by financially secure firms to large investors (low default risk) |
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| negotiable certificates of deposit (CDs) (money market) |
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Definition
| issued by major money-center commercial banks to large investors (risk depends on strength of issuing bank) |
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| money market mutual funds (money market) |
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Definition
| invest in treasury bills, CDs, and commercial paper, help by individuals and businesses (low risk) |
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Term
| consumer credit (including credit card debt) (money market) |
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Definition
| isssued by banks, credit unions, and finance companies to individuals (variable risk) |
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| US treasury notes and bonds (capital market) |
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Definition
| issued by US government, no default risk, but affected by interest rates |
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| mortgages (capital market) |
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Definition
| loans to individuals and businesses secured by real estate, bought by banks and other institutions (cariable risk) |
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| state and local government bonds (capital market) |
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Definition
| issued by state or local governments, help by individuals and institutional investors (riskier than US gov't securities) |
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| corporate bonds (capital market) |
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Definition
| issued by corporations, held by individuals and institutional investors (riskier than US gov't securities, less risky than stock; depends on strength of issuer) |
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| prederred stock (capital market) |
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Definition
| issued by corporations to indivuduals and institutional investors (riskier than corporate bonds, less risky than common stock) |
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| common stock (capital market) |
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Definition
| issued by corporations to individuals and institutional investors (risky; varies by company) |
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Term
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Definition
| security whose value is derived from price of some underlying asset (ex. stock options) |
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Term
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| help corporations design securities with features attractive to investors, buy securities from the corporation, and resell them to savers (generally guarantees a raise in capital) (also called underwriters) |
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Definition
major institutions handling checking accounts, through which the federal reserve system expanded or contracted the money supply
(ex. bank of america, citibank)
(called "department stores of finance") |
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Term
| financial services corporations |
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Definition
| large conglomerates combining many different financial institutions within a single corporation; most have diversity within the financial spectrum (one company may own a commercial bank, and investment bank, securities brokerage organization, insurance companies, and leasing companies) |
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Definition
| cooperative associations whose members have a common bond (such as being employees of the same firm); loans are only granted to other members (this is often the cheapest source of funds available to individual borrowers) |
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Definition
| retirement plans funded by corporations or government agencies for their workers and administered primarily by the trust department of commercial banks or life insurance companies (invest primarily in bonds, stocks, mortgages, real estate) |
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Term
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Definition
| take savings in the form of annual premiums and invest in stocks, bonds, real estate, and mortgages, then pay beneficiaries of insured parties (also provide tax-deferred savings plan to provide retirement benefits) |
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Term
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Definition
| corporations accepting money from savers, then using these funds to buy stock, long-term bonds, or short-term debt instruments issued by business or government units; pool funds; offer different funds for objectives of different savers (reduce risk by diversification and achieve economnies of scla ein analyzing securities, managing portfolios, and buying and selling securities) |
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Definition
| similar to mutual funds; often operated by mutual fund companies; buy a portfolio of a certain type of stock, then sell their own shares to the public (generally traded in the public markets) |
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Definition
| similar to mutual funds; accept money from savers and use it to buy securities; used to avoid risk (largely unregulated) |
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Definition
| operate like hedge funds; players buy and manage entire firms (mostly with borrowed money) |
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| market place where suppliers and demanders interact |
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Term
| commercial paper market (money market) |
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Definition
| unsecured promissory note with fixed maturity (1-270 days: short term), issued by large nanks and corporations to get money for short term obligations |
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| borrowing security (debt) |
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| initial public offering (IPO) |
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Definition
| transitions private company public; stocks traded physically or electronically, performance measured in indexes |
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Term
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Definition
| buys commodities in future market for PROFIT |
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Term
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| buys in future market as preventative precautions |
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| perceived and intrinsic values are equal |
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Definition
| how do you reach efficiency? |
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Term
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Definition
| all pasat stock movements are embodied into stock price; can't make excess returns from charting |
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Term
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Definition
| stock prices reflect all publicly available info, but there must be private info to achieve excess returns (most efficient) |
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Term
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Definition
| in addition to public info, all private info about company is embodied into stock price- no chance for excess returns |
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| efficiency market hypothesis |
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Definition
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Term
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Definition
| gain or loss achieved (or expected) upon an investment over time |
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Term
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Definition
| perol, exposure to loss, chance of unfavorable outcome |
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Term
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Definition
| uncertainty, instability, variability of actual/ expected return |
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| risk- indifferent investor |
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Definition
| willing to take on additional risk as long as they're compensated |
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Term
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Definition
| will take on additional risk only if compensated with increasingly incremental returns |
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Term
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Definition
| will take on additional risk with additiona lreturn |
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Term
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Definition
| expected return above risk free rate demanded to take on additional risk |
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Term
| E(possible return (%) X probability (%)) |
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Definition
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Term
| E( PR - ER ) ^2 x probability |
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Definition
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Definition
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Definition
| how many units of risk associated with each unit of return |
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| st. dev / expected return |
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Definition
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Definition
| measures two assets in relation to eachother; how they are correlated |
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| perfect correlation; same direction, same magnitude |
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Definition
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| uncorrelated; doesn't matter; don't affect eachother |
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Definition
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| perfect opposites; perfect negative correlation; opposite direction, same magnitude |
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Definition
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Term
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Definition
| company specific risk, can be lessened by a diversified portfolio |
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Term
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Definition
| unforeseen, difficult to diversify away (ex. terrorist attacks) |
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| bonds, real estate, derivatives, small cap stock, international stock |
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Definition
| 5 ways to bring diversifiable line down (to market line) |
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Definition
| how easily it can be converted into cash |
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Term
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Definition
| go-between for management and owners and agents |
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Definition
| conflict of interest between owners and managers |
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Definition
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| promise of the option to buy stock over a set time period into the future |
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| cheaper stocks make this more possible |
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Definition
| management of company votes for stockholders (stockholder forfeits their vote) |
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