1 Order Code RL34400 Economic Factors Affecting Small Business Lending and Loan Guarantees February 28, 2008 N. Eric Weiss Analyst in Financial Economics Government & Finance Division
2 Economic Factors Affecting Small Business Lending and Loan Guarantees Summary A slowdown in the U.S. economy is likely to reduce the demand for loans by small businesses because the slowdown would reduce the number of profitable projects, and the decrease in loans to small businesses could reduce the demand for Small Business Administration (SBA) loan guarantees. Increases in mortgage delinquencies and defaults that started in 2007 and continue into 2008 are making lenders more cautious about the risks of all kinds of loans, including business loans. This could increase the demand for Small Business Administration guarantees. The ultimate impact of these factors, which work in opposite directions, cannot, however, be predicted with any confidence. This report lists some sources of information about the condition of the small business loan market. It will be updated as developments warrant.
3 Contents The Demand and Supply for Business Loans...1 Demand for Capital...1 Supply of Capital...2 Debt and Equity...3 How Do Small and Large Businesses Differ?...4 Likely Impact of An Economic Slowdown on Small Business Borrowing.. 5 Monitoring Small Business Borrowing...7 Conclusion...7 List of Figures Figure 1. Supply and Demand for Business Loans...6
4 Economic Factors Affecting Small Business Lending and Loan Guarantees The Demand and Supply for Business Loans Most economic and financial analysts view the market for business loans in the U.S. economy in a traditional supply and demand framework that takes into consideration the alternate ways to finance a business and various ways for those controlling capital to invest. A business large or small with a project it thinks will meet its profit requirements, considers internal and external funding sources. Many times, these businesses weigh borrowing money (debt) against selling an ownership stake. Those with money to invest the current owners, friends of the current owners, banks, pension funds, hedge funds, trusts, mutual funds, etc. examine the financial returns and risks on a loan, compare what one company offers against the offers of other firms, and examine alternatives to business loans such as consumer loans or government bonds. This report analyzes the factors influencing the decision to finance for businesses in general and for small businesses in particular. Demand for Capital. A business undertakes the projects expected to most increase its value. It does this by proceeding with the projects that have the greatest risk-adjusted rate of return. A risky project should be anticipated on average to produce a greater yield than a riskless investment, such as U.S. Treasury bonds, to compensate for the probability of a loss (or less than expected profit). When there are a large number of projects that are expected to be profitable after adjusting for risk, a company will desire to borrow more money than when it finds fewer projects that are profitable after adjusting for risk. As the economy fluctuates, the supply and demand for loans changes. When the economy is growing rapidly, a typical company will find many more projects that would be profitable than when the economy is growing slowly or even shrinking. Changes in specific business sectors increase or decrease the supply and demand for capital in those business sectors. All economic sectors (consumers, businesses, and government) at times compete with each other to borrow for various purposes. Businesses borrow long term to finance plant and equipment and short term to obtain working capital to meet payrolls or finance inventory. Business borrowing is sensitive to interest rates, other loan terms (such as the life of the loan, any collateral, and any other restrictions), and the economic outlook. Interest rates matter because the cost of borrowing can be critical in determining whether a project will be profitable. The economic outlook is more important for long-term borrowing because of its impact on a project s profitability. Frequently, these two factors work together. An increase in interest
5 CRS-2 rates and a deteriorating economic outlook can impact some sectors, such as new home construction, more than others, such as fast food. Other factors influencing business demand are the cost of investment goods, the durability of the goods, and tax treatment of investments. A business s alternatives to finance a project may depend in part on its size. Banks, other corporations, individuals, and governments make loans. Many of these lenders have minimum and maximum size loans that they will make. Some loans could be too small for a large lender to process and service. Some lenders have application or processing fees that could make borrowing small amounts uneconomical. These concerns are one reason that the Small Business Administration (SBA) created the microloan program. Large loans could exceed the financial capacity or legal limits on lending. Firms can sell bonds to the public (in some cases by private placement). The advantage to those who purchase bonds is that, unlike many business loans, they can be sold in the secondary market. For some companies there is a ready, liquid market for bonds. The disadvantage of bonds is that they have high fixed costs; as a result, bond issues typically are for tens of millions of dollars. This size makes it uneconomical for small businesses to issue bonds. Consumers and governments compete with businesses to borrow money. Consumers frequently borrow to purchase homes and consumer durables such as cars and large home appliances. 1 Consumers also borrow to meet short term needs or shortfalls in income. In general, household income is the largest determinant of consumer borrowing. Other factors that influence the demand for consumer loans include fluctuations in income, seasonal factors, interest rates, and expectations about the future. Governments (federal, state, local, and foreign) borrow to allow spending to exceed revenues. The federal government is relatively insensitive to changes in interest rates. State and local governments, especially those required to balance their budgets, can be sensitive to interest rates. Foreign governments are sensitive to the inflation, interest, and exchange rates. Supply of Capital. The same sectors individuals, companies, or governments that borrow also lend funds. Sometimes, this is done to take advantage of differences in interest rates, and in other cases timing differences are important. In general, the motivation to save depends on current interest rates, current and expected future inflation, and the timing of future income and expenditures. Sometimes, financial intermediaries like banks borrow money for the purpose of lending to others. For example, one business model used by banks is to offer the Federal Deposit Insurance Corporation s guarantee to collect inexpensive, relatively small deposits that are then combined into much larger loans. 2 1 See Sangkyun Park, The Determinants of Consumer Installment Credit, Federal Reserve Bank of St. Louis Review, (Nov./Dec. 1993), p Many large banks in the United States and other countries also invest on their own (continued...)
6 CRS-3 Businesses lend money to other businesses for a variety of purposes, including to finance the purchase of goods and services from the first firm. Profitable companies may accumulate funds for possible future investment. For example, as of December 31, 2007, Microsoft had $21 billion in cash, cash equivalents, and short-term investments. 3 Microsoft proposes to use some of its retained earnings to purchase Yahoo for an estimated $44.6 billion. 4 Consumers supply money for lending through deposits in banks and other financial intermediaries. In addition to traditional deposits such as checking accounts, savings accounts, and certificates of deposit, consumers have specialized vehicles like Individual Retirement Accounts (IRAs) and Section 529 college savings accounts. 5 Governments use financial intermediaries to lend either short or long term. For example, tax revenues might be put into a certificate of deposit for several months before they are used to pay salaries or other expenses. Foreign governments put their money in other countries for a variety of reasons, including the desire to hold reserves in stronger currencies and greater security. Over the last few years, many governments have created sovereign wealth funds (SWFs) to invest internationally. 6 Debt and Equity An alternative to borrowing to finance projects is to find investors to purchase ownership shares or equity. The SBA s Small Business Investment Company (SBIC) program is designed to stimulate private equity investments and long-term loans to small businesses. 7 There are numerous differences between debt and equity. Those who hold debt are contractually entitled to specified interest payments for a specified time period. The principal is repaid according to the loan agreement. If a company fails to make its payments, lenders can force it into bankruptcy and seize the company s assets to pay off the loan. Sometimes lenders require collateral to secure the debt. A company might set aside money in a sinking fund that is pledged to pay the interest and/or 2 (...continued) accounts. In this case they are not acting as financial intermediaries. 3 U.S. Securities and Exchange Commission, Microsoft Corporation, Form 10-Q for the Quarter Ending Dec. 31, Available at [http://edgar.sec.gov/archives/edgar/data/ / /d10q.htm]. 4 Michael S. Malone, Microsoft s Yahoo Gambit, Wall Street Journal, Feb. 5, 2008, p. A17. 5 CRS Report RL33482, Savings Incentives: What May Work, What May Not, by Thomas L. Hungerford. 6 CRS Report RL34336, Sovereign Wealth Funds: Background and Policy Issues for Congress, by Martin A. Weiss. 7 See CRS Report RL33243, Small Business Administration: A Primer on Programs, by N. Eric Weiss for additional information on SBICs. The SBA s website on the SBIC program is at [http://www.sba.gov/aboutsba/sbaprograms/inv/index.html].
7 CRS-4 principal. Lenders to small businesses sometimes require an SBA 7(a) or 504 guarantee to reduce the loan s risk to a level that is acceptable. 8 The SBA seeks, but does not require, to have the business owners pledge real estate or other assets as collateral. 9 The SBA requires holders of at least 20% of the ownership of a company to personally guarantee the loan. Holders of common stock (usually just called stockholders) have no claim on a specific amount of money. They are entitled to a share of profits (usually called dividends), but management may decide to retain the profits so that the firm can take advantage of a good opportunity. Microsoft s offer to purchase Yahoo is a case in point. Microsoft will use some of its retained earnings and borrow the rest. Shareholders unhappy with this decision have little recourse unless they can convince the board of directors to change its policy. Some companies issue preferred stock, which combines some characteristics of debt and equity. Preferred stock promises to pay a certain dividend; it has a lower claim on company revenues than bonds, but a higher claim than common stock. Preferred stockholders cannot force a firm into bankruptcy for failure to pay dividends, but common stockholders cannot receive a dividend unless the preferred stockholders are paid. Lastly, in the United States, business interest payments are tax deductible. Corporate profits (from which dividends are paid) are subject to corporate income taxes. How Do Small and Large Businesses Differ? For many purposes, the Small Business Administration defines a small business as one with 500 or fewer employees. Small businesses by their nature have fewer employees than large firms. They have fewer assets, less equipment, and undertake smaller projects. As a result, a representative small business needs to raise less money than a large business in the same industry. On the one hand, small businesses are unable to take advantage of economies of scale in raising capital such as bonds. For example, a small business borrowing $10,000, may pay a higher interest rate than a large business borrowing $10 million. On the other hand, large businesses may find only a few lenders who can accommodate their financing needs, whereas small businesses may borrow from one of many lenders. Those who are concerned about the availability of credit to small businesses frequently suggest a number of reasons that small businesses may pay a higher 8 The SBA can guarantee 75%-85% of a certain private sector loans to small businesses under Sections 7(a) and 504 of the Small Business Act as amended (15 U.S.C. 636) see CRS Report RL33243, Small Business Administration: A Primer on Programs, by N. Eric Weiss for additional information C.F.R and In some SBA programs collateral is not optional.
8 CRS-5 interest rate or face more requirements to get a loan than an equally creditworthy, larger business. 10 These include the following:! Small businesses are thought to be more affected by swings in the economy and consequently are riskier.! Small businesses have a higher failure rate than comparable larger businesses and consequently are riskier.! Potential lenders have a harder time assessing how creditworthy a small business is. There are great differences between small businesses in the same industry and many reasons for borrowing money. This variation makes it difficult to develop general standards that can be applied to small businesses.! There is limited reliable financial information on many small businesses. Many small businesses are young, have a short credit history, and have not been through a difficult economy. Most small businesses are privately owned and do not publish current, detailed financial information. Many small businesses use staff instead of independent accountants to create financial reports.! Small businesses have less collateral than large organizations to pledge for a loan than a large business. This can lead to borrowers (and the Small Business Administration) requiring owners to use personally owned real estate as collateral. Financial institutions, such as commercial banks, that have ongoing relationships with a small business are considered by many to have an advantage in lending because of their experience working with the small business. The history between a small business and the bank that serves it gives the bank information on the owners, managers, markets, and potential of the loan applicant that is not available to other lenders. This can lead to better lending decisions and may facilitate monitoring the business s financial health, which reduces the risk to the lender. Likely Impact of An Economic Slowdown on Small Business Borrowing An economic slowdown or a recession could have several impacts on small business borrowing.! As lenders become more risk averse, they could decline to make loans that they would have made in more prosperous times. SBA 10 Testimony of Federal Reserve Governor Frederic S. Mishkin before U.S. Congress, House Committee on Small Business, Availability of Credit to Small Businesses, 110 th Cong., 1 st sess., Nov. 7, Available at [http://www.federalreserve.gov/newsevents/testimony/ mishkin a.htm].
9 CRS-6 loan guarantees might offset this caution and help small businesses to expand.! An economic slowdown could reduce the risk-adjusted profitable opportunities for small businesses to invest, reducing small businesses demand for loans.! Small businesses might become more risk averse and decide not to undertake projects with risk and profit characteristics that previously would have been undertaken.! The decline in house prices since 2007 is likely to have reduced the collateral value of any real estate owned by a small business and of the business owner s home. The SBA seeks, but in general does not require, collateral for its guarantees. Figure 1, below, illustrates the supply and demand for capital during times of economic prosperity and slowdown. The supply curve, which shows the amount of capital (measured on the horizontal axis) that is available in the economy at the interest rates (measured on the vertical axis), shifts to the left indicating that less capital is available at the same interest rate. The demand curve, which shows the volume of loans (also measured on the horizontal axis) that business would take out at various interest rates (also measured on the vertical axis), shifts to the left illustrating that fewer business loans are desired at the same interest rate. Economists refer to the interest rate where the supply and demand for business loans is equal as the equilibrium interest rate. Figure 1. Supply and Demand for Business Loans
10 CRS-7 The graph shows the interest rate declining, but this depends on the steepness of the supply and demand curves and the amount that each shifts. If the supply curve shifts more to the left than is drawn, or if the demand curve shifts less to the left than is drawn, interest rates could rise. In this case, although supply and demand have both decreased, supply declined more than demand. In both cases, however, loan volume falls. Monitoring Small Business Borrowing Only limited information on small business borrowing is available. The Federal Reserve conducts a Survey of Small Business Finances and makes a report to Congress every five years; the most recent survey was completed in 2003, and the next is being conducted in The report using the 2003 survey was released in Another source is the Federal Reserve s Senior Loan Officer Opinion Survey on Bank Lending Practices, which is conducted quarterly, in January, April, July, and October. 12 It asks those surveyed about changes in lending terms to small businesses (those with annual sales of $50 million or less). It also asks about the demand for small business loans. Given that the Federal Reserve does not use the SBA s industry based definition of small, the results are more indicative than an exact measure of what is happening to small business lending as viewed by the SBA. The Federal Reserve conducts a quarterly Survey of Business Lending on loans made by various types of banks to businesses. 13 Some of the information is broken down by the size of the loan ($3,000 to $99,000; $100,000 to $999,999; $1,000,000 to $9,999,000; and $10,000,000 and more). The survey is released in the last month of the quarter (March, June, September, and December). The SBA s Office of Advocacy publishes annual reports on small business lending. The most recent is for Upon request, the SBA may be able to provide information on the volume of loan guarantees. Conclusion Precise economic forecasts are frequently difficult to make. Forecasting the impact of an economic slowdown or recession on the demand for SBA guarantees on 11 Traci L. Mach and John D. Wolken, Financial Services Used by Small Businesses: Evidence from the 2003 Survey of Small Businesses, Federal Reserve Bulletin, Oct. 2006, p. A167-A195. Available at [http://www.federalreserve.gov/pubs/bulletin/2006/ smallbusiness/smallbusiness.pdf]. 12 Board of Governors, Federal Reserve, Senior Loan Officer Opinion Survey on Bank Lending Practices. Available at [http://www.federalreserve.gov/boarddocs/snloansurvey/]. 13 Board of Governors, Federal Reserve, Survey of Terms of Business Lending. Available at [http://www.federalreserve.gov/releases/e2/]. 14 Available under various titles at [http://www.sba.gov/advo/research/lending.html] and [http://www.sba.gov/advo/research/banking.html].
11 CRS-8 loans to small businesses is particularly difficult for two reasons. First, the impact on SBA guarantees of declining small business investment may or may not be offset by an increase in lenders seeking to avoid risk. Second, there is only limited information on which to base such a forecast.
Athens University of Economics and Business MSc in International Shipping, Finance and Management Corporate Finance George Leledakis An Overview of Corporate Financing Topics Covered Corporate Structure
University of California, Merced EC 121-Money and Banking Chapter 2 Lecture otes Professor Jason Lee I. Introduction In economics, investment is defined as an increase in the capital stock. This is important
FINANCIAL INSTITUTIONS AND MARKETS T Chapter Summary Chapter Web he Web Chapter provides an overview of the various financial institutions and markets that serve managers of firms and investors who invest
ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common
Stock Market Game Test A test of basic economic concepts and institutions related to saving, investing, risk, the stock market, and productivity 1. A personal investment such as purchasing stocks or corporate
11-1 Introduction Financial contracts are made between lenders and borrowers Non-traded financial contracts are tailor-made to fit the characteristics of the borrower In business financing, the differences
Q&A for Small Business Owners What did the Obama Administration announce today? The Treasury Department will commit up to $15 billion to help unlock the secondary markets for small business loans. By purchasing
CHAPTER 11 Solutions STOCKHOLDERS EQUITY Chapter 11, SE 1. 1. c 4. 2. a 5. 3. b 6. d e a Chapter 11, SE 2. 1. Advantage 4. 2. Disadvantage 5. 3. Advantage 6. Advantage Disadvantage Advantage Chapter 11,
The Capital Markets Initiative January 2014 TO: Interested Parties FROM: David Hollingsworth and Lauren Oppenheimer RE: Capital Requirements and Bank Balance Sheets: Reviewing the Basics What s on a bank
A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe
Because money doesn t come with instructions.sm Robert C. Eddy, CFP Margaret F. Eddy, CFP Matthew B. Showley, CFP Basic Investment Terms ANNUITY A financial product sold by financial institutions pay out
, Spring 2010 March 16, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section H01 Midterm 2 Multiple Choice. 2.5 points each. 1. What would
The consequence of failing to adjust the discount rate for the risk implicit in projects is that the firm will accept high-risk projects, which usually have higher IRR due to their high-risk nature, and
MACROECONOMIC AND INDUSTRY ANALYSIS VALUATION PROCESS BUSINESS ANALYSIS INTRODUCTION To determine a proper price for a firm s stock, security analyst must forecast the dividend & earnings that can be expected
Working Capital and the Financing Decision C H A P T E R S I X Limited 2000 Figure 6-1a The nature of asset growth A. Stage I: Limited or no Growth PPT 6-1 Dollars Temporary current assets Capital assets
GLOSSARY GLOSSARY Following are definitions for key words as they are used in the financial life skills resource. They may have different or additional meanings in other contexts. A account an arrangement
Bank Liabilities Survey Survey results 13 Q3 Bank Liabilities Survey 13 Q3 Developments in banks balance sheets are of key interest to the Bank of England in its assessment of economic conditions. Changes
Introduction Trading in shares has become an integral part of people s lives. However, the complex world of shares, bonds and mutual funds can be intimidating for many who still do not know what they are,
CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics July 2 (May 2 data) Highlights First quarter data revisions were modest. The number of credit unions was revised down by and assets and loans were
Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Credit is the lifeblood of South Louisiana business, especially for the smaller firm. It helps the small business owner get started, obtain equipment, build inventory,
Part III Answers to End-of-Chapter Problems 97 CHAPTER 1 ANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS Why Study Money, Banking, and Financial Markets? 7. The basic activity of banks is to accept
CHAPTER 17 Financial Management Chapter Summary: Key Concepts The Role of the Financial Manager Financial managers Risk-return trade-off Executives who develop and implement their firm s financial plan
Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding
a guide to Bond Mutual Funds A bond mutual fund is an investment company that pools money from shareholders and invests primarily in a diversified portfolio of bonds. Table of Contents What Is a Bond?...
How credit analysts view and use the financial statements Introduction Traditionally it is viewed that equity investment is high risk and bond investment low risk. Bondholders look at companies for creditworthiness,
Part 10. Small Business Finance and IPOs In the last section, we looked at how large corporations raised money. In this section, we will examine some of the financing issues facing small and start-up businesses.
Savings, Investment Spending, and the Financial System 1. Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is
ESOP Financial Advisory 3 S CORPORATION ESOPS CREATE INVESTMENT, ACQUISITION, AND EXIT STRATEGY OPPORTUNITIES FOR PRIVATE EQUITY GROUPS William W. Merten, Esq. M&A advisers are becoming increasingly familiar
FINANCIAL SERVICES BOARD COLLECTIVE INVESTMENT SCHEMES INTRODUCTION This booklet will provide you with information on the importance of understanding ways in which Collective Investment Schemes ( CIS )
Prospectus Socially Responsible Funds Calvert Social Investment Fund (CSIF) Balanced Portfolio Equity Portfolio Enhanced Equity Portfolio Bond Portfolio Money Market Portfolio Calvert Social Index Fund
Saving and Investing How does investing contribute to the free enterprise system? How does the financial system bring together savers and borrowers? How do financial intermediaries link savers and borrowers?
Plan and Track Your Finances 9.1 Financing Your Business 9.2 Pro Forma Financial Statements 9.3 Recordkeeping for Businesses Lesson 9.1 Financing Your Business Goals Estimate your startup costs and personal
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College email@example.com http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial
Chapter 6 Interest Rates And Bond Valuation Learning Goals 1. Describe interest rate fundamentals, the term structure of interest rates, and risk premiums. 2. Review the legal aspects of bond financing
Chapter 2 Practice Problems MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assume that you borrow $2000 at 10% annual interest to finance a new
Business Studies - Financial Planning and Management Study Notes Financial Planning and Management Study Notes: The Role of Financial Planning: The strategic role of financial management: Organisational
The relationship of accounting ratios in balance sheets Accounting Ratios are the ratios show the relationship between accounting data in a balance sheet, profit and loss account in a particular organization.
Corporate Financing Strategies For Emerging Companies What is Corporate Finance? The process by which companies raise capital, especially to fund growth, acquisitions etc. The primary goal of corporate
Wealth for Life Glossary Aggressive growth fund: A mutual fund that aims for the highest capital gains. They often invest in smaller emerging companies that offer maximum growth potential. Adjustable Rate
22.1 An Introduction to Stocks and Bonds There are many different ways to invest your money. Each of them has different levels of risk and potential return. Stocks and bonds are two common types of financial
PROSPECTUS February 28, 2015 Please carefully read the important information it contains before investing. DFA INVESTMENT DIMENSIONS GROUP INC. DFA ONE-YEAR FIXED INCOME PORTFOLIO Ticker: DFIHX DFA TWO-YEAR
Saving and Investing Being an educated investor will help enable you to become financially sound Chapters 30 and 31 Essential Questions How do you know when to save and when to invest? What are some reasons
Finding the Right Financing Mix: The Capital Structure Decision Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate
CHAPTER 3 THE LOANABLE FUNDS MODEL The next model in our series is called the Loanable Funds Model. This is a model of interest rate determination. It allows us to explore the causes of rising and falling
MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the following 33 questions designed to test your knowledge of the
ALLOCATION STRATEGIES A, C, & I SHARES PROSPECTUS August 1, 2015 Investment Adviser: RidgeWorth Investments A Shares C Shares I Shares Aggressive Growth Allocation Strategy SLAAX CLVLX CVMGX Conservative
Stocks: An Introduction Page 1 of 7, see disclaimer on final page Stocks: An Introduction What are stocks? Stock equals ownership A stock represents a share of ownership in a business. When you hold one
CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics June 2 (April 2 data) Highlights During April, credit unions picked up 3, new memberships, credit union loan balances grew at an annualized 1.7% pace,
Page 12 County of Bucks Community Services Division Lynn T. Bush, Executive Director and County Chief Clerk Community and Business Development Department Vitor A. Vicente, Director Neshaminy Manor Center
1 WHAT IS BUSINESS CREDIT? Why Do I Need Credit? Establishing a good credit rating is an important financial priority for every business. Having good business credit means that owners of businesses can
Econ 330 Exam 1 Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If during the past decade the average rate of monetary growth
1 Market Organization and Structure Larry Harris Los Angeles, U.S.A. Contents: LEARNING OUTCOMES... 3 1 INTRODUCTION... 3 2 THE FUNCTIONS OF THE FINANCIAL SYSTEM... 4 2.1 HELPING PEOPLE ACHIEVE THEIR PURPOSES
Chapter 17 Financial Management and Institutions 1 2 3 4 Identify the functions performed by a firm s financial managers. Describe the characteristics and functions of money. Identify the various measures
Answers to Review Questions 1. The real rate of interest is the rate that creates an equilibrium between the supply of savings and demand for investment funds. The nominal rate of interest is the actual
Simplified Prospectus July 23, 2015 Marquest Money Market Fund Marquest Short Term Income Fund (Corporate Class*) Marquest Canadian Bond Fund Marquest Canadian Fixed Income Fund Marquest Monthly Pay Fund
Borrowing Money for Your Business After you have developed a cash flow analysis and determined when your business will make profit, you may decide you need additional funding. Borrowing money is one of
Chapter 1 An Overview of Corporate Finance and The Financial Environment ANSWERS TO END-OF-CHAPTER QUESTIONS 1-1 a. A proprietorship, or sole proprietorship, is a business owned by one individual. A partnership
BUSINESS PLANS A business plan is absolutely essential to the creation of a new business entity as well as the continued profitable operation of an established business. The conduct of a business in the
Chapter 1 The Scope of Corporate Finance MULTIPLE CHOICE 1. One of the tasks for financial managers when identifying projects that increase firm value is to identify those projects where a. marginal benefits
Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment 1 Financial Institutions and Financial Markets 1) The term "capital," as used in macroeconomics, refers to A) the
1 Regional Bank Regional banks specialize in consumer and commercial products within one region of a country, such as a state or within a group of states. A regional bank is smaller than a bank that operates
Importance of Credit Rating A credit rating estimates ability to repay debt. A credit rating is a formal assessment of a corporation, autonomous governments, individuals, conglomerates or even a country.
CHAPTER 27 Short-Term Financial Planning Chapter Synopsis 27.1 Forecasting Short-Term Financing Needs The first step in short-term financial planning is to forecast the company s future cash flows. This
Dealing With Your Banker & Other Lenders Your financing The success or failure of your business will depend on whether or not you have enough capital to: buy the equipment and inventory you need; pay overhead
Marblehead Financial Services Bill Bartin, CFP Located at Marblehead Bank 21 Atlantic Avenue Marblehead, MA 01945 781-476-0600 781-715-4629 firstname.lastname@example.org Stocks: An Introduction Page 1 of 7,
ADVISORSHARES YIELDPRO ETF (NASDAQ Ticker: YPRO) SUMMARY PROSPECTUS November 1, 2015 Before you invest in the AdvisorShares Fund, you may want to review the Fund s prospectus and statement of additional
How to Choose a Life Insurance Company *YP½PPMRK 4VSQMWIW A 2014 GUIDE THROUGH RELEVANT INDUSTRY INFORMATION Because the most important people in your life will car, or computer, most people are completely
2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible
Investments To meet your financial goals you will need a plan. Part of this plan is to create a portfolio. This portfolio reflects what type of risk you are willing to accept. Within this portfolio, you
This week its Accounting and Beyond Monday Morning Session Introduction/Accounting Cycle Afternoon Session Tuesday The Balance Sheet Wednesday The Income Statement The Cash Flow Statement Thursday Tools
Table 2 SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES AT SELECTED BRANCHES AND AGENCIES OF FOREIGN BANKS IN THE UNITED STATES 1 (Status of policy as of April 2003) Questions 1-5 ask about
A Quick Guide to Real Estate IRAs American IRA, LLC Declare independence from Wall Street! Self-directed IRAs and other retirement accounts let you take personal control of your assets. YES! You CAN Own
CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,
Answers to Concepts in Review 1. An investment is any asset into which funds can be placed with the expectation of preserving or increasing value and earning a positive rate of return. An investment can
Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper
Current Shareholders in Best Buy should hold their stock until price increases, and new investors should not invest if looking for fast money, Best Buy s stock may not more until more economic growth occurs.
HOUSTON BUSINESS SOLUTIONS CENTER 611 Walker St., Lobby Level Houston, Texas 77002 www.houstontx.gov/obo www.houstontx.gov/hbsc 832-393-0954 TABLE OF CONTENTS TABLE OF CONTENTS WHAT IS AN ALTERNATIVE LENDER
Chapter 14 Understanding Financial Contracts Learning Objectives Differentiate among the different mechanisms of external financing of firms Explain why mechanisms of external financing depend upon firm
BANKERS GUIDE TO SECURE LENDING WAREHOUSE RECEIPTS, ORDER OR STRAIGHT BILLS OF LADING, OTHER NEGOTIABLE AND NON-NEGOTIABLE DOCUMENTS OF TITLE, INCLUDING WAREHOUSE AND BAILEE OR DOCK RECEIPTS Lending Rationale
What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK
7 2 TRADITIONAL SYSTEM OF FINANCING NEW CAPITAL FORMATION That the acquisition of privately owned capital in the United States and throughout the Western world has been financed almost entirely through
Activity Sheet 1: What is a Stock? Stocks represent a share of ownership in a publicly held company. Private companies do not issue stock. As a stockholder, the investor has a claim on the assets of the