Exploring Business 2.0 © 2012 Flat World Knowledge 13-1 Chapter 13: Managing Financial Resources

Exploring Business 2.0 © 2012 Flat World Knowledge 13-2 Chapter Objectives 1.Identify the functions of money and describe the three government measures of the money supply. 2.Distinguish among different types of financial institutions. 3.Discuss the services that financial institutions provide and explain their role in expanding the money supply. 4.Identify the goals of the Federal Reserve System and explain how it uses monetary policy to control the money supply and influence interest rates.

Exploring Business 2.0 © 2012 Flat World Knowledge Chapter Objectives 5.Explain the ways in which a new business gets start- up cash. 6.Identify approaches used by existing companies to finance operations and growth. 7.Show how the securities market operates and how it’s regulated. 8.Understand how market performance is measured. 9.Define equity and debt financing, and discuss the advantages and disadvantages of each financing approach. 10.Discuss career opportunities in finance.

Exploring Business 2.0 © 2012 Flat World Knowledge 13-4 Functions Of Money Medium Of Exchange Measure Of Value Store Of Value

Exploring Business 2.0 © 2012 Flat World Knowledge 13-5 Bartering v. Money Bartering Trade Stuff For Stuff Difficult To Determine Value Stuff Cannot Always Be Saved DivisiblePortableDurable Hard to Counterfeit Easy To State Price Stores Value Money

Exploring Business 2.0 © 2012 Flat World Knowledge 13-6 Money Supply M1 Census Population Clock Census Population ClockM2 Liquidity

Exploring Business 2.0 © 2012 Flat World Knowledge 13-7 U.S. Money Supply

Exploring Business 2.0 © 2012 Flat World Knowledge 13-8 Depository Institutions  Commercial Banks  Savings (Thrifts) Banks  Credit Unions

Exploring Business 2.0 © 2012 Flat World Knowledge 13-9 Nondepository Institutions  Finance Companies  Insurance Companies  Brokerage Firms

Exploring Business 2.0 © 2012 Flat World Knowledge Where Our Money Is Deposited

Exploring Business 2.0 © 2012 Flat World Knowledge Services Offered By Banks  Checking/Savings Accounts  ATMs  Credit/Debit Cards  Loans  Financial Advice  Sell Financial Products  Insurance  Electronic Banking

Exploring Business 2.0 © 2012 Flat World Knowledge Bank Regulation  Federal Depository Insurance Corporation Insures Deposits ($250,000) Insures Deposits ($250,000) Periodic Examinations Periodic Examinations  Office of Thrift Supervision  National Credit Union Administration

Exploring Business 2.0 © 2012 Flat World Knowledge Crisis in the Financial Industry Financial crisis in the banking industry Banks and other institutions that made mortgage loans were the first sector of the financial industry to be hit. Losses felt by two publicly traded government-sponsored organizations –The Federal National Mortgage Association –The Federal Home Loan Mortgage Corporation

Exploring Business 2.0 © 2012 Flat World Knowledge The Effect of the Money Multiplier Money Multiplier = 1/Reserve Requirement

Exploring Business 2.0 © 2012 Flat World Knowledge The Fed and Monetary Policy  Goals  Price Stability  Sustainable Economic Growth  Full Employment Tools Reserve Requirements Discount Rate Open Market Operations

Exploring Business 2.0 © 2012 Flat World Knowledge Key Interest Rates

Exploring Business 2.0 © 2012 Flat World Knowledge Banker’s Bank & Government’s Banker  Clears Checks  Holds U.S. Treasury’s Checking Account  Processes Paperwork in Buy/Sell Government Securities  Collects Federal Tax Payments  Lends to Government using T-Bonds

Exploring Business 2.0 © 2012 Flat World Knowledge 13-18Finance “…all the activities involved in planning for, obtaining, and managing a company’s funds.”

Exploring Business 2.0 © 2012 Flat World Knowledge Financial Manager “…financial manager determines how much money the company needs, how and where it will get the necessary funds, and how and when it will repay the money…”

Exploring Business 2.0 © 2012 Flat World Knowledge Developing A Financial Plan  Calculate Funds Needed  Estimating Sales  Project Costs  Getting The Money  Owner’s Personal Assets  Loans- Family/Friends  Bank Loans  Making The Financing Decision

Exploring Business 2.0 © 2012 Flat World Knowledge Where Small Businesses Get Funding

Exploring Business 2.0 © 2012 Flat World Knowledge Loan Characteristics 1) Maturity Short-Term, Intermediate, Long-Term Short-Term, Intermediate, Long-Term Line of Credit Line of Credit Amortization Amortization 2) Security Collateral Collateral Unsecured Unsecured 3) Interest

Exploring Business 2.0 © 2012 Flat World Knowledge Growth Stage Financing  Managing Cash Flow Cash Flow Accounts Receivable Accounts Receivable Accounts Payable- Trade Credit Accounts Payable- Trade Credit  Budgeting- financial plan Cash Cash Capital Capital

Exploring Business 2.0 © 2012 Flat World Knowledge 13-24Investors  Private Funding  Angels and Venture Capitalists  Public Financing  Steps in Going Public Initial Public Offering Initial Public Offering Investment Banking Firm Investment Banking Firm Securities and Exchange Commission Securities and Exchange Commission

Exploring Business 2.0 © 2012 Flat World Knowledge Securities Markets Markets Markets Primary Primary Secondary Secondary Organized Exchanges Organized Exchanges New York Stock Exchange New York Stock Exchange American Stock Exchange American Stock Exchange Over-The-Counter Over-The-Counter NASDAQ NASDAQ

Exploring Business 2.0 © 2012 Flat World Knowledge Securities & Exchange Commission Congress created SEC in 1934 Congress created SEC in 1934 Purpose: To provide investors with confidence in the stock market Purpose: To provide investors with confidence in the stock market Enforces Securities Laws Designed to: Enforces Securities Laws Designed to: Promote full disclosure Promote full disclosure Protect investors against misconduct Protect investors against misconduct Maintain integrity of securities markets Maintain integrity of securities markets

Exploring Business 2.0 © 2012 Flat World Knowledge Measuring Market Performance Market Indexes Market Indexes Dow Jones Industrial Average Dow Jones Industrial Average NASDAQ Composite NASDAQ Composite S & P 500 S & P 500 Bull vs. Bear Market Bull vs. Bear Market Reading A Stock Listing Reading A Stock Listing

Exploring Business 2.0 © 2012 Flat World Knowledge DJIA for 10-Year Period

Exploring Business 2.0 © 2012 Flat World Knowledge NASDAQ for 10-Year Period

Exploring Business 2.0 © 2012 Flat World Knowledge Stock Listing for Hershey Foods

Exploring Business 2.0 © 2012 Flat World Knowledge Interpreting A Stock Quotation TermExplanation 52-Week HI Highest price in last year 52-Week LO Lowest price in last year Stock (Symbol) Symbol of listing DIV Annual dividend per share YLD % D/E yield on closing price PE Investors pay on $1 earnings VOL Volume of shares traded Close Price at close of business day

Exploring Business 2.0 © 2012 Flat World Knowledge Options for Financing The Going Concern Equity Financing Equity Financing – Stock Debt Financing Debt Financing – Bonds

Exploring Business 2.0 © 2012 Flat World Knowledge Stockholders’ Equity  Risk/Reward Tradeoff  Types of Stock Common Common Preferred Preferred Cumulative Cumulative Convertible Convertible

Exploring Business 2.0 © 2012 Flat World Knowledge 13-34Bonds “…debt securities that obligate the issuer to make interest payments to bondholders and to repay the principal when the bond matures.” Treasury Bills/Bonds & Municipals (munis)

Exploring Business 2.0 © 2012 Flat World Knowledge Career Positions In Finance  Commercial Banking  Corporate Finance Analyze Industry Trends Analyze Industry Trends Evaluate Corporate Investment Evaluate Corporate Investment Conduct Financial Planning Conduct Financial Planning Evaluate Acquisitions Evaluate Acquisitions Review Financial Needs Review Financial Needs  Investment Industry  Graduate Education & Certification CFA CFA CFM CFM CCM CCM CFP CFP