Introduction to Finance

Financial institutions
Organizations or 
intermediaries that help the fi nancial system 
operate effi
ciently and transfer funds from 
savers and investors to individuals, businesses, 
and governments that seek to spend or invest 
the funds in physical assets
Financial intermediation
Process by which 
individual savings are accumulated in depos-
itory institutions and, in turn, lent or invested 
Documentary draft
Draft that is accom-
panied by an order bill of lading along with 
other papers, such as insurance receipts, cer-
tificates of sanitation, and consular invoices
Dodd-Frank Wall Street Reform and Con-
sumer Protection Act
Promotes fi nancial 
stability of the United States by improving 
accountability and transparency in the fi nancial 
system
Draft (bill of exchange)
An 
unconditional 
written order, signed by the party drawing it, 
requiring the party to whom it is addressed 
to pay a certain sum of money to order or to 
bearer
Dual banking system
Allows 
commercial 
banks to obtain charters from the federal 
government or a state government
Due diligence
Detailed study of a corpora-
tion
DuPont analysis
Technique of breaking 
return on total assets and return on equity into 
their component parts
Dutch auction
A bidding process, which 
allows smaller fi rms and individual investors to 
purchase securities
Dynamic actions
Fed actions that stimulate or 
repress the level of prices or economic activity
EBIT/eps analysis
Allows managers to see 
how diff erent capital structures aff ect the earn-
ings and risk levels of their fi rms
Economic risk
Risk associated with possible 
slow or negative economic growth, as well as 
variability in economic growth