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Questions and Answers
What are the two most prominent stock markets in the United States?
What are the two most prominent stock markets in the United States?
What is the primary characteristic of the NASDAQ market?
What is the primary characteristic of the NASDAQ market?
Which of the following is a result of the rise of electronic markets?
Which of the following is a result of the rise of electronic markets?
What is the largest stock exchange by market capitalization?
What is the largest stock exchange by market capitalization?
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What is the primary characteristic of the Over-the-Counter (OTC) Market?
What is the primary characteristic of the Over-the-Counter (OTC) Market?
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What accounts for the largest total dollar value of all secondary markets?
What accounts for the largest total dollar value of all secondary markets?
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What is the primary advantage of electronic markets?
What is the primary advantage of electronic markets?
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What is the term used to describe the use of computers and algorithms to trade stocks?
What is the term used to describe the use of computers and algorithms to trade stocks?
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What is the primary difference between the NYSE and the NASDAQ market?
What is the primary difference between the NYSE and the NASDAQ market?
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What is the status of both the NYSE and the NASDAQ market?
What is the status of both the NYSE and the NASDAQ market?
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Study Notes
Managing Current Assets
- Financial managers must coordinate inventory purchases to manage cash flows
- Optimal inventory levels depend on the method of production
- Excess inventory ties up money unnecessarily, but inventory shortages could drive customers to competitors
- RFID technology helps companies manage inventory
Accounts Payable
- Trade credit is credit extended by suppliers for the purchase of goods and services
- Most widely used source of short-term financing
- Suppliers often offer discounts for early payment (e.g., "1/10 net 30")
Bank Loans
- Line of credit: a short-term financing option
- Secured loans require collateral, while unsecured loans do not
- Principal and interest must be repaid
- Prime rate is the interest rate at which banks lend to their best customers
Nonbank Liabilities
- Factor: a finance company that buys accounts receivable from businesses
- Taxes owed to the government and wages owed to employees are also nonbank liabilities
- Financial managers must plan to meet these debt obligations as they come due
Managing Fixed Assets
- Long-term assets include production facilities, offices, and equipment
- These assets require long-term financing and can be expensive
- Leasing is an alternative to owning assets, involving regular fee payments
Financing with Long-Term Liabilities
- Two common sources of long-term funds: equity financing and debt financing
- Long-term liabilities include debts that will be repaid over several years (e.g., long-term loans and bond issues)
- Heavily indebted companies may not survive a recession and may face bankruptcy
Bonds: Corporate IOUs
- Bonds are debt instruments sold to raise long-term funds
- Bondholders receive regular interest payments and the face value of the bond at maturity
- The bond contract (indenture) specifies the terms of the agreement
- The annual interest rate (coupon rate) is the percentage of face value paid yearly
Types of Bonds
- Unsecured bonds
- Secured bonds
- Serial bonds
- Floating-rate bonds
- Junk bonds
Financing with Owners' Equity
- Stockholder's equity includes:
- Common stock (par value and capital in excess of par)
- Preferred stock
- Retained earnings
- Dividend yield
The Securities Markets
- The New York Stock Exchange (NYSE) and NASDAQ are the two largest stock exchanges
- Both exchanges are now publicly traded organizations
- Electronic markets have grown quickly due to speed, low cost, and efficiency
- The Over-the-Counter (OTC) Market is a network of dealers linked by computers and telephones, accounting for the largest total dollar value of all secondary markets
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Description
Test your knowledge of financial management and securities markets with this chapter 16 quiz. Learn about key concepts, theories, and practices in finance.
