Introduction to Finance

See also
Bank
balance sheet, 394–395
defined, 393
examination, 397
historical returns, 354, 354
t
historical risk, 354
investment, 522
requirements, 443–445
returns, standard deviation, 354
t
securitization, 262
tangible and intangible, 593
total risk, components, 364
trends, example, 492
f
values, write down, 71
Asset-specific risk, 365
At-the-money, defined, 339
Automated clearinghouses (ACHS), 97
Automatic stabilizers
defined, 111
pay-as-you-go progressive income tax, 111
Automatic transfer service (ATS) accounts, 36
Automatic transfer service (ATS) accounts, 
defined, 33
Automobile bailout, financial statements 
(relationship), 400–401
Average collection period, calculation, 430, 
459, 481
Average payment period
calculation, 428, 459
usage, 459
B
Balance due, depository institutions, 63–64
Balance of payments. 
See
United States
Balance-of-payments
accounts, 151–153
deficit, U.S. operation, 169
defined, 151
Balance of trade, defined, 152
Balance sheet, 391, 393–395. 
See also
Bank
See also Common-sized balance sheets
assets, 394–395
defined, 393
diagram, 567
f
equation, 393, 455
example, 411
f
liabilities, 395–396
negative net working capital, 492
f
owners’ equity, 396
positive net working capital, 491
f
ratio analysis, 424–425
term, usage, 63
Banker’s acceptance, 473
defined, 35–36, 149
example, 147
f
usage, 145, 147
Bank for International Settlements (BIS), 
capital adequacy requirements 
(establishment), 70
Bank holding companies, 62
multibank holding companies (MBHCs), 
defined, 62
one-bank holding companies (OBHCs), 
defined, 62
Bank Holding Company Act of 1956, 
62, 94
Banking Act of 1933, 57
passage, 52
Banking legislation, 56–60
Banking practices, safety (promotion), 57
Banking system
checks
clearing, 53
processing, 53, 79, 95
defined, 53
deposits, 115
efficiency, requirement, 25
functions, 53–54
historical system, 54–55
loanable fund role, 194–195
overview, 51–54
regulation, 56–60
Banking union, establishment, 133
Bank lenders, protection, 225
Bank Merger Act of 1960, 94
Bank of America, Merrill Lynch 
(sale), 47
Bank of England (BOE), 98
Bank of Japan (BOJ), 98
Bank reserves, 121–124
changes, 124
defined, 87, 121
transactions, impact, 122
f
Bankruptcy costs, 588–590
defined, 588
Index

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620
INDEX
federal income taxes, 393
finance, career decisions (making), 7
financial planning, career opportunities, 431
firm, life cycle stages, 180
goals, 383
idea, development, 180
international dealings, 137
ethical considerations, 144–145
investment decisions, making, 7
long-term external financing sources, 
253–255
organization, forms (
See
United States)
risk
defined, 348, 584
effects, 585
t
SBA loan guarantees, usage, 502
starting, 382–384
decision, 350
Business risk, 584, 593
Business-to-business (B2B) transactions, 477
Buying on margin, defined, 318
Bylaws, defined, 388
C
Callable bonds, defined, 264
Callable preferred stock, defined, 269
Call deferment period, defined, 264
Call option
defined, 336
payoff profiles from buying/writing, 340
f
Call price, defined, 264
Call risk, defined, 264
Cannibalization, 541
Capacity, defined, 479
Capital
accumulation, 174
adequacy requirements, establishment, 70
cost, 571–574
defined, 479, 566
requirement, 569–570
defined, 479
expenditures, career, 16
management, 69–71
ratio requirements, meeting (bank manager 
incentives), 71
requirements, 523
spending decisions, 526
Capital account, defined, 152
Capital account balance, defined, 152
Capital asset pricing model (CAPM), 364–368
Capital budgeting
defined, 521
process, 524–527
question, 410
risk-related considerations, 547–549
stages, 524
techniques, 527–530
theory, practice (differences), 539–540
Capital budget projects, identification, 
522–524
Capital consumption adjustment 
(depreciation), defined, 169, 176
Capital formation, 166–171
acceleration, 174
defined, 166
process, 22, 24
Bond ratings, 256–259
categories, examples, 258
t
defined, 257
ethics, impact, 282
Bonds
collateral provisions, impact, 258
coupon rate, 261
covenants, 257
elements, 255
t
income generation, 264–265
long-term debt instruments, 181
portfolio, stocks/Treasury bond returns/
returns (example), 360