MOS 1023 Final Exam Review.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

11172010THE FINANCIAL ENVIRONMENTFinanceThe study of how individuals institutions governments and businesses acquire spend and manage money and other financial assetsFinancial InstitutionsOrganizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals businesses and governments that seek to spend or invest the funds in physical assetsFinancial MarketsPhysical locations or electronic forums that facilitate the flow of funds among investors businesses and governmentsInvestmentsInvolves sale or marketing of securities the analysis of securities and the management of investment risk through portfolio diversificationFinancial ManagementInvolves financial planning asset management and fundraising decisions to enhance the value of the businessEntrepreneurial FinanceStudy of how growthdriven performancefocused earlystage firms raise financial capital and manage operations and assetsPersonal FinanceStudy of how individuals prepare for financial emergencies protect against premature death and property losses and accumulate wealthThree areas of FinanceInstitutions and MarketsInvestmentsFinancial ManagementTwo Finance ThemesEntrepreneurial FinancePersonal FinanceSix Principles of FinanceMoney has a time valueSome of money can be invested and grow over timeHigher returns are expected for taking on more riskTrade offs Diversification of investments can reduce riskPreferred over investing combined or diversified investmentsFinancial markets are efficient in pricing securitiesEfficient if at any point the prices of securities reflect all information available to the public Manager and stockholder objectives may differOwners want to maximize the returns on their investments but often hire professionals to run their firmsManagers seek to emphasize the size of firm salesassets have company jets for travel companypaid country club memberships Reputation matters ethical behaviourAn individuals behavior reflects his or her ethics Why Study FinanceTo make informed economic decisions1To make informed personal and business investment decisions2To make informed career decisions based on a basic understand of business finance 3Financial SystemInteraction of intermediaries markets instruments policy makers and regulations to aid the flow from savings to investmentsMonetary SystemCentral bank and banking system able to create and transfer moneyFinancial System Components and Financial FunctionsCreating money
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