Transcript Document

EXAM 3
REVIEW
EXAM 3
REVIEW
Chapters
19, 20, A, B,
C, D
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 19
Using
Securities
Markets for
Financing
and Investing
Opportunities
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
The Function
of Securities
Markets
LG1
The BASICS of
SECURITIES MARKETS
• Securities markets are
financial marketplaces for
stocks and bonds and serve
two primary functions:
19-3
The Function
of Securities
Markets
LG1
TYPES of
SECURITIES MARKETS
• Securities markets are divided into primary and
secondary markets:
- Primary markets handle the sale of newly issued
securities. Proceeds go to the company
- Secondary markets handle the trading of securities
between investors with the proceeds of the sale going to
the seller.
• Initial Public Offering (IPO) -- The first offering
of a corporation’s stock. First time a corporation's
stock is offered and sold to persons outside of the
company. IPOs occur in the primary market!
19-4
The Role of
Investment
Bankers
LG1
INVESTMENT BANKERS
and INSTITUTIONAL INVESTORS
• Investment Bankers -- Specialists who assist in
the issue and sale of new securities.
• Institutional Investors -Large organizations such as
pension funds or mutual
funds that invest their own
funds or the funds of others.
19-5
Stock
Exchanges
STOCK EXCHANGES
LG2
• Stock Exchange -- An organization whose
members can buy and sell (exchange) securities on
behalf of companies and individual investors.
• Over-the-Counter (OTC) Market -- Provides
companies and investors with a means to trade
stocks not listed on the national securities
exchanges. Does not need to be listed on one of the
major stock exchanges…ie like NASDAQ
19-6
Securities
Regulations
and the SEC
LG2
The SECURITIES and
EXCHANGE COMMISSION
• Securities and Exchange Commission (SEC) - The federal agency responsible for regulating the
various stock exchanges; created in 1934 through the
Securities and Exchange Act. (…prohibits insider
trading). Definitely involved with IPOs
19-7
Advantages &
Disadvantages
of Issuing Bonds
LG4
Stocks and Bonds –
Terminology to know
• Issuing stock is considered equity financing
• Issuing Bonds is considered debt financing.
• Program Trading -- Giving instructions to
computers to automatically sell if the price of a stock
dips to a certain point to avoid potential losses.
• Buying Stock on Margin -- Borrowing some of the
stock’s purchase cost from the brokerage firm.
•
Diversification -- Buying several different types of
investments to spread the risk of investing.
19-8
Investing in
Mutual Funds &
ExchangeTraded Funds
LG8
INVESTING in MUTUAL FUNDS
and EXCHANGE-TRADED FUNDS
• Mutual Fund -- An organization that buys stocks
and bonds and then sells shares in those securities
to the public. The fund pools investors’ money and
buys stocks according to the fund’s purpose.
• To reduce the risk of investing in an individual
stock, an ownership position in many different
companies can be achieved by purchasing
shares in a mutual fund.
19-9
Chapter 20
Money,
Financial
Institutions,
and the
Federal
Reserve
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
What is
Money?
WHAT’S MONEY?
LG1
• Money -- Anything people generally accept as
payment for goods and services.
• Barter -- The direct
trading of goods or
services for other goods
or services.
20-
What is
Money?
LG1
STANDARDS for a
USEFUL FORM of MONEY
• Portability
• Divisibility
• Stability
• Durability
• Uniqueness – not easily duplicated. The US
has done it’s best to prevent duplication of
bills.
20-
What is the
Money
Supply?
The MONEY SUPPLY
LG2
• Money Supply -- The amount of money the Federal
Reserve makes available for people. The money
supply is referred to as:
- M1 -- Money that can be accessed quickly (coins,
paper money, travelers’ checks, etc.).
- M2 -- M1 + money that may take a little time to
obtain (savings accounts, mutual funds, etc.).
- M3 -- M2 + big deposits like institutional money
market funds.
20-
What is the
Money
Supply?
The MONEY SUPPLY
LG2
Why is it important to control the supply of money?
•
To control the prices of goods and service.
•
Prices of goods and services are affected by
inflation and deflation.
Inflation…. Too much money chasing too few
goods…prices go up. (more money available prices
increase)
Deflation…. Just the opposite. Oversupply of goods
compared to the amount of money available to
but...prices fall. (less money available prices decrease)
20-
Basics About
the Federal
Reserve
LG2
Who is the Federal Entity in charge
of US monetary policy and
controlling the US money supply?
The Federal Reserve
Changes in the money supply
produce significant changes in
inflation, employment and
economic growth.
20-15
Basics About
the Federal
Reserve
LG2
The Federal Reserve
Chairman is in control
of what?
The US money supply
20-16
Basics About
the Federal
Reserve
LG2
The 12 FEDERAL RESERVE
DISTRICT BANKS
20-17
International
Banking and
Banking Services
LG7
Banks help companies conduct
business in other countries by
providing three services:
• Letter of Credit -- A promise by the bank to pay the
seller a given amount if certain conditions are met.
• Banker’s Acceptance -- A promise the bank will
pay some specified amount at a particular time.
• Money exchange (aka Currency Exchange)
allows companies to go to a bank and exchange
currencies to use in a particular country (i.e.
dollars for euros).
20-18
The World Bank
and the
International
Monetary Fund
LG7
LEADING INSTITUTIONS in
INTERNATIONAL BANKING
• World Bank -- Responsible for
financing economic development in
less-developed countries
• International Monetary Fund
(IMF) -- monitors the monetary
policies of member nations to ensure
a global monetary system that works
best for all nations
20-19
Bonus
Chapter A
Working
within the
Legal
Environment
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
The Case for
Laws
The NEED for LAWS
LG1
• Laws are a key part of a civilized society, but
must change with the times.
• Judiciary -- The branch of government chosen to
oversee the legal system through a system of courts.
• The U.S. courts system is organized at the
federal, state, and local levels.
A-21
Product Liability
PRODUCT LIABILITY LAWS
LG2
• Product Liability -- Holds businesses liable for
harm that results from the production, design, or
inadequate warnings of products they market.
Average case costs businesses $5M
• Strict Product Liability -- Liability without regard
to fault; a company can be held liable for a defective
product even if they didn’t know of the defect.
A-22
The Case for
Laws
TYPES of LAW
LG1
• Criminal law defines crimes, establishes
punishments, and regulates the investigation and
prosecution of people accused of committing crimes.
• Civil law proceedings cover non-criminal acts divorce, marriages, personal injury lawsuits and
more.
• Business Law -- Refers to the rules, statutes,
codes and regulations that provide a legal framework
for the conduct of business. These include product
liability, sales, compensation, consumer protection.
A-23
Statutory and
Common Law
MAJOR AREAS of LAW
LG1
• Statutory Law -- Includes state and federal
constitutions, legislative enactments, treaties of the
federal government and ordinances; written law.
• Common Law -- The body of law that comes from
decisions handed down by Judges/courts; unwritten
law.
• Precedent -- Decisions judges have made in
previous cases to guide their handling of new
cases.
A-24
Administrative
Agencies
ADMINISTRATIVE AGENCIES
LG1
• Administrative Agencies -- Federal or state
institutions and other government organizations with
delegated power to create rules and regulations
within their given area of authority. Issue more rulings
affecting business than courts do.
• Examples of Administrative Agencies:
- The Federal Reserve Board
- The Securities and Exchange Commission
- The Equal Employment Opportunity Commission
- The Federal Trade Commission
A-25
Tort Law
WHAT is TORT LAW?
LG2
• Tort -- A wrongful act that
causes injury to another
person’s body, property or
reputation…example recent
tobacco lawsuits
• An intentional tort is a willful
act that results in injury.
• Negligence – Behavior that
causes unintentional harm or
injury.
A-26
Legally Protecting
Ideas: Patents,
Copyrights and
Trademarks
LG3
PATENTS, COPYRIGHTS, and
TRADEMARKS
• Patent -- A document that gives inventors exclusive
rights to their inventions for 20 years.
• Copyright -- Protects a
creator’s rights to materials such
as books, articles, photos,
paintings, and cartoons. Lifetime
plus 70 years
A-27
Deregulation
vs. Regulation
DEREGULATING COMMERCE
LG9
• Deregulation -- The government withdraws certain
laws and regulations that seem to hinder
competition… ( these regulations do not always
benefit customers ..ie lack of competition = lack of
choice)
• Deregulation efforts
were active in:
- The airline industry
- Telecommunication
- Some public utilities
A-28
Bonus
Chapter B
Using
Technology to
Manage
Information
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Evolution from
Data Processing
to Business
Intelligence
Business TECHNOLOGY
in the 1970s was known as:
LG1
• Data Processing (DP) -- primarily used to improve
the flow of financial information.
• Many people use the terms data and information
interchangeably but they mean different things…
• Data: are the raw, unanalyzed and unorganized
facts and figures.
• Information: is processed and organized data that
managers can use for decision-making.
B-30
Evolution from
Data Processing
to Business
Intelligence
LG1
TECHNOLOGY in the
EARLY 2000s
• Business Intelligence (BI) -changes the traditional flow of
information so that the database
goes to the individual rather than
the individual going to the database
B-31
Types of
Information
LG2
KEY TYPES of BUSINESS
INFORMATION AVAILABLE
• Business process
information – point of sale
• Physical-world observations
– cameras, sensors, RFID
• Biological data - fingerprints
• Public data – public sources
• Data that indicate personal
preferences or intentions –
internet shopping personal
likes dislikes
B-32
Managing
Information
LG2
FOUR CHARACTERISTICS that
MAKE INFORMATION USEFUL
1. Quality – accurate and reliable
2. Completeness - enough to make a
decision
3. Timeliness – gets to manager in
time to make critical decisions
4. Relevance – too much data.
Managers must learn which
questions to ask to get the correct
data
B-33
Software
LG5
SOFTWARE: TELLING
the COMPUTER WHAT to DO
Major types: Word processors, spreadsheets,
databases, graphics, communicating, and accounting.
• Shareware -- Is copyrighted, but is distributed free
of charge with a request that users send a specific
fee to the developer if they decide to use it.
• Public Domain Software (Freeware) -- Software
that is free for the taking.
B-34
The Road to
Knowledge:
The Internet
BEYOND the INTERNET
LG3
• Intranet -- A companywide network closed to public
access that uses Internet-type technology. A firm would
use an intranet if it wanted to enable its employees to
use and share data without allowing outsiders to gain
access
• Extranet -- A semiprivate network that lets more
than one company access the same information or
allows people on different servers to collaborate.
B-35
Computer
Networks
COMPUTER NETWORKS
LG4
• Network Computing System -- the tasks are
performed by personal computers using
information stored in databases controlled by a
server.
• Also known as client/server systems.
Networks can be expensive. Expensive to
maintain and expensive to upgrade.
B-36
Security
Issues
VIRUSES and PHISHING
LG6
• Virus -- A piece of
programming code inserted into
other programming that usually
lies dormant until triggered;
then causes unexpected,
undesired events.
• Phishing attempts to trick
victims into giving important
information to a bogus
website.
B-37
Security
Issues
CYBERTERRORISM
LG6
• Cyberterrorism is the idea that
terrorist hackers could shut down:
- Entire communications
- Money supply
- Electricity
- Transportation
When it comes to computers and
information technology, government
and corporate security officials are
now most worried about
cyberterrorism
B-38
Bonus
Chapter C
Managing
Risk
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Managing Risk
WHAT’S RISK?
LG2
• Risk -- The chance of loss,
the degree of probability of
loss, and the amount of
possible loss.
Two kinds:
•Speculative Risk -- A chance of either
profit or loss…entrepreneur takes speculative
risk when starting a business
•Pure Risk -- The threat of loss with no
chance for profit…chance of fire, accident or
theft…most concerns business people
C-40
Understanding
Business Risks
LG1
WHAT’S ENTERPRISE RISK
MANAGEMENT?
• Companies adopt risk management procedures to
minimize the chance of business failure due to
unplanned events such as security breaches, terrorist
attacks, and natural disasters.
• Goals of enterprise risk management (ERM):
1) Defining which risks the program will manage.
2) What risk management processes, technologies, and
investments will be required.
3) How risk management efforts will be coordinated across
the firm.
C-41
Buying
Insurance to
Cover Risk
WHAT RISKS are INSURABLE?
LG2
• Insurable Risk -- A risk that the typical insurance
company will cover, using the following guidelines:
1) The policyholder must have an insurable interest.
2) The loss must be measurable.
3) The chance of loss must be measureable.
4) The loss must be accidental.
5) The insurance company’s risk should be dispersed
among different areas…one of the reasons for high
price of earthquake insurance
6) The insurance company can set standards for accepting
risks.
C-42
Understanding
Insurance
Policies
LG3
BASICS of
INSURANCE POLICIES
• Rule of Indemnity -An insured person or
organization can’t collect
more than the actual loss
from an insurable risk.
C-43
Health
Insurance
LG4
EMPLOYER HEALTH
INSURANCE OPTIONS
• Health Maintenance Organizations (HMOs) -Offer a full range of healthcare benefits, members do
not receive bills and do not have to fill out claim forms
but must obtain the HMO's approval before medical
treatment is provided
• Health Savings Accounts (HSAs) -- are taxdeferred accounts that allow people to save money for
medical costs such as prescription drugs, office visits,
and routine medical procedures.
C-44
Disability
Insurance and
Workers’
Compensation
OTHER TYPES of INSURANCE
LG4
• Disability insurance
replaces part of your
income if you become
disabled and can’t work.
• Important for younger
people because they are
more likely to be disabled
by accident or disease than
death.
C-45
Liability
Insurance
LIABILITY INSURANCE
LG4
• Professional liability
insurance covers people
found liable for professional
negligence; also known as
malpractice insurance…
stock brokers, doctors, real
estate agents
• Product liability insurance
covers liability arising out of
the sale of good to
customers.
Photo Courtesy of: Paul Wilson
C-46
Bonus
Chapter D
Managing
Personal
Finances
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Financial
Planning Begins
with Making
Money
LG1
FINANCIAL PLANNING BEGINS
with MAKING MONEY
• An investment in education pays the best interest
rate:
- A typical full-time worker with a four-year degree earns
about $50,000, 62% more than a person with a high
school diploma.
- The lifetime earnings of a family with bachelor’s degrees
will be about $1.6 million more than a family with high
school diplomas.
D-48
Building Your
Financial Base
LG2
BUILDING YOUR
FINANCIAL BASE
• Live frugally. If married,
try to live on one
income.
• Your first major
investment might be a
low-priced home.
• Buy for the long term
and don’t live beyond
your means.
D-49
Real Estate:
Historically, a
Relatively Secure
Investment
LG2
FINANCIAL BENEFITS of
BUYING a HOME
• Once they've accumulated enough money, buying a
low-priced home is often a good investment for young
adults.
• Paying for a home is a good way of forcing yourself to
save.
• Interest paid on your home
loan is tax deductible.
• Three keys to optimal return
on your home are: location,
location, location.
D-50
Where to Put Your
Savings &
Learning to
Manage Credit
SAVING and MANAGING CREDIT
LG2
• Contrarian Approach -- Buying stock whenever
everyone else is selling or vice versa.
• Take courage to do invest this way.
• When stocks fall this is the time to invest.
• This is the way the rich get richer
D-51
Where to Put Your
Savings &
Learning to
Manage Credit
LG2
SAVING and
MANAGING CREDIT
• Credit cards serve useful purposes and are
important to own but must be used discriminately.
Three advantages of using a credit card are:
(1) You may need a credit card to buy certain
goods or rent a car,
(2) credit cards allow you to easily track your
expenses, and
(3) they are more convenient than carrying cash
or writing checks.
D-52
Learning to
Manage Credit
CREDIT CARDS and DEBT
LG2
• If you use a credit card to
make purchases, you
should make a strong effort
to pay off the balance in full
each month.
• Disadvantage of using credit
cards: they can make it easy
to pile up a large amount of
debt quickly
D-53
401(k) Plans
401(k) PLANS
LG4
• 401(k) Plan -- An
employer-sponsored
savings plan that
allows you to deposit
a set amount of
pretax dollars and
collect compounded
earnings tax-free until
withdrawal.
• Only retirement many
individuals have
• Only 70% of employees
contribute – some employers
match up to 50 centers on
the dollar
D-54
Estate
Planning
LG4
PLANNING for THOSE
WHO WILL INHERIT
Estate planning
• Will -- A document that names the
guardian for minor children, states how
you want your assets distributed and
names the executor for your estate.
• Executor -- Person who assembles and
values your estate, files income and
other taxes, and distributes assets.
D-55
Protecting Your
Financial Base:
Buying Insurance
INSURING YOUR LIFE
LG3
• Term Insurance -- A pure insurance protection for a
given number of years that typically costs less the
younger you buy it. Recommended for most people
because it is cheaper than whole.
• Whole Life Insurance -- Combines pure insurance
with savings, so you buy both insurance and a
savings plan.
D-56
Health & Other
Insurance
LG3
OTHER INSURANCE
PROTECTION
• Disability Insurance -- is a relatively low cost
way of protecting yourself from lost income due
to an accident or prolonged illness.
• Umbrella Policy -- Combining all your insurance
(life, health, homeowner’s, auto) from one company
is less costly. Insurance companies usually give a
discount to families who buy several types of
insurance coverage from them.
D-57
EXAM 1
EXAM 3 Structure
60 minutes to complete
50 multiple choice x 4 pts each = 200 pts
50 T/F x 2 pts each = 100 pts
100 questions total – no written
300 points totals
Must have a pencil and
Red full size scantron
Chap 19 : 8 x T/F and 8 x multiple choice
Chapter 20: 8x T/F and 8 x multiple choice
Chapter A: 8T/F and 8x multiple choice
Chap B: 8 T/F and 8 x multiple choice
Chap C: 9x T/F and 9 x multiple choice
Chap D: 9x T/F and 9 x multiple choice
5-58