Summary Corporate Finance Part 1

How does the financial market work?

Answer: A transfer is usually initiated from one bank or financial institution to another. Rather than cash, the participating institutions share information the recipient, the bank receiving account number, and the amount transferred. The sender pays for the transaction upfront at their bank

How to differentiate deficit and surplus?

Answer: - Deficit= when you borrow funds - Surplus= when you lend funds

What is maturity?

Answer: Is a date on which a financial agreement ends, triggering the payment of principal with interest or repayment of a loan with interest. Maturity commonly applies to fixed-income investments such as bonds, as well as loans. • Maturity for Money < than a year • Maturity for Capital > than a year

What is a fund flow and which are the markets?

Answer: A fund flow refers to the inflow and outflow of funds or assets for a company and is often measured on a monthly or quarterly basis. A fund flow statement reveals the reason for these changes or anomalies in the financial position of a company between two balance sheets. • Primary market (new issue) is where securities are created. Companies sell new stocks and bonds to the public for the first time, such as with an initial public offering (IPO). • Secondary market (existing issue) is where those securities are traded by investors. Investment offering, investors are purchasing shares from sources other than the issuer (employees, former employees, or investors).

What is market timing?

Answer: Market timing is the act of moving investment money in or out of a financial market or switching funds between asset classes based on predictive methods. If investors can predict when the market will go up and down, they can make trades to turn that market move into a profit.

Which are examples of market timing?

Answer: • Spot (current or cash) is a contract of buying or selling a commodity, security, or currency for immediate settlement (payment and delivery) on the spot date, which is normally 2 business days after the trade date. • Future (Forward) are derivative financial contracts that obligate parties to buy or sell at a predetermined future date and price. The buyer must purchase, or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.

What are securities?

Answer: Are broadly defined as financial instruments that hold value and can be traded between parties. In other words, security is a catch-all term for stocks, bonds, mutual funds, exchange-traded funds, or other types of investments you can buy or sell.