FINA 3313 Business Finance - Chapter 1: Introduction to Finance

A comprehensive set of vocabulary flashcards covering the core concepts of Business Finance, including financial management areas, market types, and corporate roles.

Finance

The study of the management, movement, and raising of money.

Business Finance

The application of financial principles to maximize firm value in a risky environment with the goal of maximizing shareholder wealth.

Investments

Products and processes used to create and grow wealth, involving financial instruments, delivery vehicles, and risk-and-return opportunities.

Financial Markets and Institutions

The system of mechanisms (exchanges, OTC), firms (banks, brokers), and regulations (SEC, Federal Reserve) that facilitate the movement of money.

Working Capital Management

The management of a firm's short-term assets and liabilities to ensure the company can pay its daily bills.

Capital Budgeting

The process of choosing which long-term projects or assets to invest in to maximize shareholder value.

Capital Structure

The decision regarding the optimal mix of debt and equity financing used to fund the firm.

CFO (Chief Financial Officer)

The senior-most finance leader who oversees financial strategy, sets working capital policy, and makes final capital budgeting decisions.

Treasurer

The individual responsible for handling funding, external financing, and being the primary contact for bankers and underwriters.

Controller (Comptroller)

The person responsible for managing day-to-day financial operations and maintaining accounting records.

Income Statement

A financial statement showing revenues, costs, and net profit or loss over a specific period of time.

Cash Flow Statement

A financial statement tracking actual cash inflows and outflows across operating, investing, and financing activities.

Balance Sheet

A snapshot of financial health at a point in time based on the equation $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Primary Market

The market where securities are sold by the issuer for the first time and the company receives the proceeds directly.

Secondary Market

The market where investors buy and sell existing securities among themselves without the company receiving any proceeds.

Brokers

Market participants who match buyers and sellers, do not own the assets, and earn a commission on transactions.

Dealers

Market participants who hold a portfolio of assets, trade directly with buyers or sellers, and earn the bid-ask spread.

Money Markets

Markets for short-term, low-risk, and highly liquid securities with maturities of $< 1$ year.

Capital Markets

Markets for long-term, higher-risk instruments with maturities of $> 1$ year, including stocks and bonds.

Treasury Bills (T-bills)

Short-term U.S. government debt that is considered the benchmark for the risk-free rate.

Commercial Paper (CP)

Short-term, unsecured corporate debt used for inventory and payables.

Default Risk

The risk that an issuer of a financial instrument will be unable to make its contractual payments.

Diversifiable Risk

Also known as unsystematic risk; it can be eliminated by holding a diversified portfolio.

Non-diversifiable Risk

Also known as systematic risk; it affects the entire market and cannot be eliminated through diversification.

Microeconomics

The study of decisions made by individuals, firms, and organizations regarding incentives and supply and demand.

Macroeconomics

The study of the overall economy, including topics such as inflation, unemployment, and interest rates.

Financial Intermediary

An entity that changes or creates new financial products, such as a bank turning deposits into mortgage loans.