Financial Management Sample Essay

1. Required Return – return necessary to bring on an person to do an investing 2. Hazard – possibility loss ; the uncertain that the awaited return will non be achieved 3. Diversifiable Hazard – hazard associated with single events that affect a peculiar plus: • Firm – specific hazard that’s reduced through the building of diversified portfolios 4. Business Risk – hazard associated with the nature of a concern 5. Financial Risk – hazard associated with the types of funding used to get assets 6. Non-diversifiable hazard ( systematic hazard ) – hazard associated with fluctuations in securities monetary values and other non-firm-specific factors ; market hazard that is non reduced through the building of diversified portfolios 7. Market hazard – hazard associated with fluctuations in securities monetary values 8. Interest rate hazard – hazard associated with alterations in involvement rates 9. Reinvestment rate hazard – the hazard associated with reinvesting net incomes on principal at a lower rate than was ab initio earned

10. Buying power hazard – uncertainness that future information will gnaw the buying power of assets and income 11. Exchange rate hazard – hazard of loss from charges in the value of foreign currencies 12. Standard divergence – step of scattering around an mean value ; a step of hazard 13. Beta Coefficient – index of systematic hazard ; step of volatility of a stock’s return relation to the market return 14. Portfolio hazard – sum hazard associated with having a portfolio ; amount of systematic and unsystematic hazard 15. Capital Asset Pricing Model ( CAPM ) – theoretical account used in the rating of an plus that specifies the needed return for different degree of hazard 16. Common stock – security stand foring ownership in a corporation: proprietors have a concluding claim on the firm’s assets and net incomes after the house has met its duty to creditors and preferable shareholders 17. Board of Directors ( BOD ) – organic structure elected by & A ; responsible to shareholders to put policy & A ; high direction to run a corporation 18. Accumulative Voting – vote system that encourages minority representation by allowing shareholders to project all their portions for one campaigner for the houses BOD 19. Preemptive rights – right of current shareholders to keep their proportionate ownership in the house.

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1. What are Fiscal Markets?
Fiscal Markets refer to a conceptual “mechanism” instead than a physical location or a specific type of organisation or construction. It is a system of persons & A ; establishments. instruments & A ; processs that bring together borrowers and rescuers

2. Importance of Financial Markets

The primary function of fiscal markets is to ease the flow of financess from persons and concern that have surplus financess to persons. concern and authorities that have demands for financess in surplus of their income 3. Flow of financess

a. Direct Transfer – occurs when a concern sells its stocks/bonds straight to rescuers ( investors ) without traveling through any type of intermediary/financial establishment B. Investing banking house – serves as a jobber that facilitates the issue of securities by houses that need to raise financess c. Financial Intermediaries – the intermediary obtains financess from rescuers and so uses the money to impart out or to buy another company’s securities

4. Market Efficiency

a. Economic Efficiency – financess are allocated to their optimum usage at the lowest costs in the fiscal markets b. Informational efficiency – the monetary values of investing reflect bing information and adjust rapidly when new information enters the market 3 Classs

• Weak – efficiency provinces that all information contained in past monetary value motion is to the full reflected in current market monetary values • Semistrong-Form – efficiency provinces that current market monetary values reflect all publically available information • Strong-Form – efficiency provinces that current market monetary values reflect all pertinent information whether. it is publically available or in private held


1. Money Market versus Capital markets

2. Debt Markets versus Equity Markets

3. Primary Markets versus Secondary Market

4. Derived functions Markets – fiscal markets where options & A ; hereafters are traded

1. Recognition policy – a set of determinations that includes a firm’s recognition criterions. recognition footings. and methods used to roll up recognition histories. and recognition monitoring processs. 2. Recognition criterions – criterions that indicate the minimal fiscal strength client must hold to be granted recognition 3. Footings of recognition – the payment conditions offered to recognition clients ; these footings include the length of the recognition period and any hard currency price reductions offered 4. Cash period – the length of clip for which the recognition is granted ; after that clip. the recognition history is considered delinquent 5. Cash price reduction – decrease in the invoice monetary value of goods offered by the marketer to promote early payment 6. Collection policy – the processs followed by a house to roll up its histories receivable

7. Receivables supervising – the procedure of measuring the recognition policy to find whether a displacement in the customers’ payment spiels has occurred 8. Dayss Gross saless Outstanding ( DSO ) – the mean length of clip required to roll up histories receivables ; besides called the Average Collection period 9. Aging Schedule – a study demoing how long histories receivables have been outstanding ; the study divides receivables into specified period. which provides information about the proportion of receivables that is current and the proportion that is past due for give lengths of clip

Stock Market

1. Listing Requirements – features a house must possess to be on a stock exchange 2. Nonprescription market ( OTC ) – a aggregation of agents & A ; traders. connected electronically by telephones & A ; computing machines. that provide for trading in securities non listed on the physical stock exchange 3. Securities and Exchange Commission ( SEC ) – the US authorities that regulates the issue & A ; trading of stocks and bonds 4. Double listing – when stocks are listed for trading in more that one stock market 5. Investing banker – an organisation that underwrites & A ; distributes new issues of securities. it helps concern and other entities obtain needful funding 6. Underwrite arrangement – understanding for the sale of securities in which the investing bank guarantees the sale by buying the securities from the issuer. therefore holding to bear any hazard involved in selling the securities in the fiscal market 7. Best-efforts agreements – understandings for the sale of securities in which the investing bank managing the dealing gives no warrant that the securities will be sold

8. Flotation cost – the costs associated by publishing new stocks/bonds 9. Registration statement – a statement of facts with the SEC about a company that plans to publish securities 10. Prospectus – a papers depicting a new security issue and the publishing company 11. Underwriting mob – a group of investing banking houses formed to distribute the hazard associated with the purchased and distribution of a new issue of securities 12. Shelf enrollment – enrollment of securities with the SEC for sale at a ulterior due. The securities are held “on the shelf” until the sale 13. Fiscal mediators – organisation that create assorted loans & A ; investings financess provided by depositor. Types of Financial Intermediaries

1. Commercial Bank – are the traditional “department shops of finance” . They offer a broad scope of merchandises and services to a assortment of clients.

2. Credit Unions – is a depository establishment that is owned by its depositors

3. Thrift Institution – besides known as nest eggs and loan associations. cater to rescuers. particularly single who has comparatively little nest eggs or necessitate long-run loans to purchase houses

4. Common Funds – are investing companies that use financess provided by rescuers to purchase assorted types of fiscal assets. including stocks and bonds

5. Whole-life Insurance Company – provides long-run contract that provides life-time protection

6. Pension financess – are retirement programs funded by corporation/government bureaus for their workers

Physical Stock exchanges – are touchable physical entities

Types of Exchange Member:

1. Floor Brokers – act as agent for investors who want to buy/sell securities 2. Specialists – their function is to guarantee that the auction trading procedure is completed in a just and efficient mode

Investing Banking Procedure

Phase 1

1. Dollars to be raised
2. Type of securities used
3. Competitive command VS. negotiated trade
4. choice of an investing banker
Phase 2

1. reassessing the initial determinations
2. best attempts or underwritten issue
3. Issuance ( floatation ) costs
4. puting the offering monetary value

Benefits with the Financial Intermediaries

1. Reduced Costss
2. Risk/Diversification
3. Finds divisibility / Pooling
4. Fiscal Flexibility
5. Related Servicess

The sections of the fiscal markets where the instruments that are traded have adulthoods equal to one twelvemonth or less

The sections of fiscal market where the instrument that are traded have adulthoods greater than one twelvemonth

Fiscal markets where loans are traded

Fiscal markets where corporate stocks are traded

Markets in which assorted organisation raise financess by publishing new securities.

Markets where fiscal assets that have antecedently been issued by assorted organisation are traded among investors


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