CPA #2 Notes
Popular in Principles of finance management
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This 3 page Class Notes was uploaded by Callie Lusk on Friday September 2, 2016. The Class Notes belongs to FIN 330 at Western Kentucky University taught by Rhoades in Fall 2016. Since its upload, it has received 11 views. For similar materials see Principles of finance management in Finance at Western Kentucky University.
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Date Created: 09/02/16
Finance 330 Exam #1 Preparation Material from CPA #2 Financial Institutions and Markets Financial Institution: o An intermediary that channels the savings of individuals, businesses, and governments into loans. o Most pay interest to those who have a savings account and others provide a fee for services of other accounts, an example would be a checking account. o The key suppliers are individuals, businesses, and organizations. Net Suppliers o Save more than they borrow o Individuals as a group Net demanders o The firms; they are borrowing more than they are saving. Commercial Banks: o Provide savers a secure place to invest their funds o Offer loans to borrowers. o Examples of Commercial banks include: Bank of America Chase Wells Fargo Investment Banks: o Assist companies with raising capital o Advise firms on major transactions o Engage in trading and market making activities o Examples of Investment Banks include: Bank of America Barclays Capital Citigroup Financial markets: o Suppliers of funds and demanders of funds can transact business directly. o Two key markets: Primary and Secondary o Primary Market: Sells stock or bonds to investors and receive cash in return o Secondary Market: Pre-owned securities (not new) are traded between investors. Money market: o A financial relationship between suppliers and demanders of short- term funds. The funds have a maturity level of one year or less. Short-term market o Money market mutual funds: The funds that are not insured and are invested in low-risk, highly-liquid investments (i.e. the U.S. Treasury security) o Money market deposit accounts Held in commercial banks FDIC insured Marketable Securities: o Short-term debt instruments that include: Treasury bills Negotiable certificates of deposit issues by government o Most money market transactions are made in marketable securities Capital Market o A market that enables suppliers and demanders of long-term funds to make transactions. Typically used for fixed assets making companies use them over several years NASDAQ market o An all-electric trading platform used to execute securities trade This would be considered an over-the-counter market (smaller, unlisted securities are traded) Broker Markets o Include: The New York Stock Exchange (NYSE Euronext) The American Stock Exchange (AMEX) o These markets account for 60% of the total dollar volume of all shares traded within the U.S. Stock Market. Key Securities Traded Common Stock o Those who own common stock essentially own company in which they are investing, which gives them the right to vote within the company. o Common shareholders receive dividends, BUT their dividends are not always as much as those who have invested in Preferred stock. Preferred Stock o Those who own preferred stock are promised a fixed dividend that is required to be paid before any other dividend is paid This means, preferred stockholders get paid before anyone else. Preferred stockholders also give up their rights to vote Bonds o Long-term debt instruments used to raise large sums of money. o A common example of bonds are corporate bonds Pay interest semi-annually Maturity of 10-30 years Par value of $1,000 that must be repaid at maturity.