Managing

Financial Resources
Exploring Business

Chapter 10
© 2007 Prentice-Hall, Inc. 10-1
 Chapter Objectives
Exploring Business

1. Identify functions of money and government

measures of money supply
2. Distinguish types of financial institutions,
their services/roles in money supply
3. Identify the goals of Federal Reserve and
explain its policies
4. Explain how a new business gets start-up
cash and ways existing companies finance
operations and growth
5. Show how securities market operates and is
regulated
6. Understand market performance measures
and equity/debt financing
10-2
© 2007 Prentice-Hall, Inc.
 Functions Of Money
Exploring Business

Bartering Money
Medium Of Easily Acceptable
Trade Stuff Divisible
Exchange For Stuff Portable
Durable
Measure Difficult To Easy To
Of Value Determine Value State Price
Store Of Stuff Cannot
Value Always Be Saved Keeps Value

10-3
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Exploring Business
Money Supply

M1

M2

Federal Reserve Board Website

Census Population Clock 10-4
© 2007 Prentice-Hall, Inc.
 Depository Institutions
Exploring Business

Commercial Banks

Savings Banks

Credit Unions

10-5
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 Nondepository
Institutions
Exploring Business

Finance Companies

Insurance
Companies

Brokerage Firms
10-6
© 2007 Prentice-Hall, Inc.
 Financial Services
Exploring Business

Checking/Savings Accounts
ATMs
Credit/Debit Cards
Loans
Financial Advice
Sells Financial Products
Insurance
Electronic Banking
10-7
© 2007 Prentice-Hall, Inc.
 Bank Regulation
Exploring Business

Federal Depository Insurance

Corporation
• 1933
• Insures Deposits
• Periodic Examinations
Office of Thrift Supervision
National Credit Union
Administration
10-8
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 Money Multiplier
Exploring Business

10-9
© 2007 Prentice-Hall, Inc.
 Federal Reserve System
Exploring Business

Central Banking (1913)

12 Districts/
Banks

Board of Governors
10-10
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 Tools Of The Fed
Exploring Business

Goals
Price Stability
Sustainable Economic
Growth
Full Employment
Tools
$ Reserve Requirements
$ Discount Rate
$ Open Market Operations
10-11
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 Federal Funds Rate
Exploring Business

%Federal Funds
(Discount Rate)

%Prime Rate
10-12
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 Interest Rates
Exploring Business

10-13
© 2007 Prentice-Hall, Inc.
 Banker’s Bank &
Government’s Banker
Exploring Business

Check Clearing
U.S. Treasury’s
Checking Account
Paperwork in
Government Securities
Collect Federal Tax Payments
Lender to Government
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© 2007 Prentice-Hall, Inc.
 Financial Manager
Exploring Business

“…finance is all of the activities

involved in planning for, obtaining,
and managing a company’s funds.”

“…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…”
10-15
© 2007 Prentice-Hall, Inc.
 Developing A
Financial Plan
Exploring Business

Estimating Sales
Getting The Money
• Personal Assets
• Loans—Family/Friends
• Bank Loans
Making The Financing
Decision
10-16
© 2007 Prentice-Hall, Inc.
 Where Small
Businesses Get Funding
Exploring Business

10-17
© 2007 Prentice-Hall, Inc.
Exploring Business Loan Characteristics
Maturity
• Short-Term
• Intermediate
• Long-Term
• Line of Credit
• Amortization
Security
• Collateral
• Unsecured
Interest
10-18
© 2007 Prentice-Hall, Inc.
 Growth Stage Financing
Exploring Business

Managing
• Cash
• Accounts Receivable
• Accounts Payable—
Trade Credit

Budgeting
10-19
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 Sources Of Financing
During Growth Stage
Exploring Business

Bank

Additional
Owners

Private Investors
10-20
© 2007 Prentice-Hall, Inc.
 Investors
Exploring Business

Angels
Venture
Capitalists
Going Public
• Initial Public Offering
• Investment Banking Firm
10-21
© 2007 Prentice-Hall, Inc.
 Markets
And Exchanges
Exploring Business

Markets
• Primary
• Secondary
Organized Exchanges
• New York Stock Exchange
• American Stock Exchange
• Over-The-Counter (OTC)
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© 2007 Prentice-Hall, Inc.
 Regulating
Securities Markets
Exploring Business

 Securities and Exchange

Commission (1934)
• Prospectus
• Insider Trading
Market Indexes
• Dow Jones Industrial Average
• NASDAQ Composite
• S & P 500
Reading A Stock Listing
Bull vs. Bear Market
10-23
© 2007 Prentice-Hall, Inc.
Exploring Business
The Dow

10-24
© 2007 Prentice-Hall, Inc.
 NASDAQ Index
Exploring Business

10-25
© 2007 Prentice-Hall, Inc.
 Stock Listing
For Hershey Foods
Exploring Business

10-26
© 2007 Prentice-Hall, Inc.
 Interpreting A
Stock Quotation
Exploring Business

Term Explanation
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
10-27
© 2007 Prentice-Hall, Inc.
 Financing The
Going Concern
Exploring Business

Equity Financing
$

$ $ $

Debt Financing
$

$ $ $

10-28
© 2007 Prentice-Hall, Inc.
 Stockholders’ Equity
Exploring Business

Risk/Reward Tradeoff
Dividends
Types of Stock
• Common
• Preferred
oCumulative
oConvertible
10-29
© 2007 Prentice-Hall, Inc.
 Bonds
Exploring Business

“…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)
10-30
© 2007 Prentice-Hall, Inc.
Exploring Business
Investment Returns

10-31
© 2007 Prentice-Hall, Inc.
 Careers In Finance
Exploring Business

Commercial Banking
Corporate Finance
• Analyze Industry Trends
• Evaluate Corporate Investment
• Financial Planning
• Evaluate Acquisitions
• Review Top Managers’ Needs
Investment Industry
Graduate Education/Certification
10-32
© 2007 Prentice-Hall, Inc.