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MGTA02H3 (136)

Chapter 10.docx

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University of Toronto Scarborough
Management (MGT)
Tarun Dewan

2 Kinds of People With Ideas But No Money With Money But No Ideas Finance - Purpose Pass money from one group to other Finance - Definition: Business function responsible for acquiring and disbursing funds Financial Institutions: An organization that assists in collecting and disbursing money from those that have it (investors, depositors) to those that don’t (entrepreneurs, borrowers). Banks Investment Banks Insurance Companies Pension Fund Companies Collect, package, distribute $$$ Sometimes called “intermediaries” i.e they get in the middle Banks collect from depositors (people who have cash but no immediate need to spend it) Banks pay a small rate of interest to depositors lend to borrowers(OSAP loans, credit cards, car loans, mortgages) Insurance Companies collect monthly/annual premiums make payments to people who have accidents. Pension Fund Companies collect monthly from people who are working make payments to people who are retired. Investment Banks collect money from investors buying shares make capital available to entrepreneurs. Why Businesses Need Finance: Timing of inflow/outflow of funds not co-ordinated Like people, business have periods of wealth/poverty Most businesses seasonal/cyclical Examples of Seasonal / Cyclical Businesses Retail Stores - busy before Christmas / slow in Jan - Feb Hotels & Tourism - busy May - Oct / slow Nov - April Ski Resorts - busy Dec - Mar / slow April - Nov Construction - busy when economy growing, interest rates low Autos - busy when unemployment, interest rates low Argos & Blue Jays - busy when winning / slow when losing Finance Needed to Cover Seasons/Cycles nee
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