Summary: Finance
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1 Introduction to Finance
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What is the main objective in finance?
To maximise shareholders' value -
What is the difference between money markets and capital markets?
Money markets is where the supply to and demand of short-term (shorter than a year) credits, loans, swaps, commercial papers and other short-term securities are provided and raised. The capital market on the other hand, is where financial securities with a lifetime of more than a year are traded. -
What is a stock exchange?
The place that makes it possible to trade in securities -
What is an auction market?
An auction market is where supply and demand meet on one regulated market, that is transparent and transactions are registered and made public. -
What are the 2 main differences between auction and dealer markets?
1. On auction markets, transactions take place on one centralised location, this is not the case on dealer markets
2. Completed transactions are immediately made public in auction markets, in contrast to dealer markets -
What are the 2 types of private companies?
1. Sole proprietorship - company owned by only one person
2. Partnership - At least 2 persons -
What are the characteristics of a sole proprietorship?
1. Cheap and easy to start
2. Owner is unlimitedly, personally liable for firm's debts
3. SP does not pay corporate, but income tax
4. No legal distinction between owner and business
5. Life of SP is limited to owners' life
6. Equity is limited to owners' resources -
What are the characteristics of a partnership?
1. Cheap and easy to start up
2. All partners are unlimitedly, personally liable for firm's debt
3. Partnership ends on death or withdrawal of any single partner (unless stated in agreements that partners will continue)
4. Hard to obtain large amounts of capital
5. Partners pay income tax, not corporate tax
6. Management is in the hands of all partners -
What are the 2 types of partnerships?
1. General partnership - all partners are unlimitedly, personally liable
2. Limited partnership - responsibility of partners is limited to the share of equity that partner brought in -
Why are sole proprietorships and partnerships called private companies?
Because the natural persons are responsible for the actions of the organisation
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