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1. What is business.A business (also known as enterprise or firm) is an organization engaged in the trade of goods,

services, or both to consumers. Businesses are predominant in capitalist economies, where most of them areprivately owned and administered to earn profit to increase the wealth of their owners. Businesses may alsobe not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company,although that term also has a more precise meaning.

The etymology of "business" relates to the state of being busy either as an individual or society as awhole, doing commercially viable and profitable work. The term "business" has at least three usages,depending on the scope — the singular usage to mean a particular organization; the generalized usage torefer to a particular market sector, "the music business" and compound forms such as agribusiness; and thebroadest meaning, which encompasses all activity by the community of suppliers of goods and services.However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.

Although forms of business ownership vary by jurisdiction, there are several common forms:Sole proprietorship : A sole proprietorship is a for-profit business owned by one person. The

owner may operate on his or her own or may employ others. The owner of the business has unlimitedliability for the debts incurred by the business.Partnership : A partnership is a for-profit business owned by two or more people. In most forms

of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typicalclassifications of partnerships are general partnerships, limited partnerships, and limited liabilitypartnerships.

Corporation : A corporation is a limited liability business that has a separate legal personalityfrom its members. Corporations can be either government-owned or privately-owned, and corporations canorganize either for-profit or not-for-profit. A privately-owned, for-profit corporation is owned byshareholders who elect a board of directors to direct the corporation and hire its managerial staff. A

privately-owned, for-profit corporation can be either privately held or publicly held.Cooperative : Often referred to as a "co-op", a cooperative is a limited liability business that can

organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation in that it hasmembers, as opposed to shareholders, who share decision-making authority. Cooperatives are typicallyclassified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to theideology of economic democracy.

2. The main types of economic systems.An economic system is the combination of the various agencies, entities (or even sectors as

described by some authors) that provide the economic structure that defines the social community. Theseagencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing.An economic system is composed of people, institutions, rules, and relationships. For example, the

convention of property, the institution of government, or the employee-employer relationship. Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Todaythe world largely operates under a global economic system based on the capitalist mode of production.

"Economic systems" is the economics category that includes the study of such systems.

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Economic systems can be divided by the way they allocate economic inputs (the means of production) and how they make decisions regarding the use of inputs. A common distinction of greatimportance is that between capitalism (a market economy) and socialism (economic planning).

In a capitalist economic system, production is carried out to maximize private profit, decisionsregarding investment and the use of the means of production are determined by competing business ownersin the marketplace; production takes place within the process of capital accumulation. The means of

production are owned primarily by private enterprises and decisions regarding production and investmentdetermined by private owners in capital markets. Capitalist systems range from lassiez-faire, with minimalgovernment regulation and state enterprise, to regulated and social market systems, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see welfare state) or ameliorating marketfailures (see economic intervention).

In a socialist economic system, production is carried out to directly satisfy economic demand byproducing goods and services for use; decisions regarding the use of the means of production are adjustedto satisfy economic demand, investment (control over the surplus value) is carried out through a mechanismof inclusive collective decision-making. The means of production are either publicly owned, or are ownedby the workers cooperatively. A socialist economic system that is based on the process of capitalaccumulation, but seeks to control or direct that process through state ownership or cooperative control toensure stability, equality or expand decision-making power, are market socialist systems.

The basic and general economic systems are:Market economy ("hands off" systems, such as Laissez-faire capitalism)Mixed economy (a hybrid that blends some aspects of both market and planned economies)Planned economy ("hands on" systems, such as state socialism)Traditional economy (a generic term for older economic systems)Participatory economics (a system where the production and distribution of goods is guided by

public participation)

Gift economy (where an exchange is made without any explicit agreement for immediate orfuture rewards)

Barter economy (where goods and services are directly exchanged for other goods or services)

3. Supply and Demand. Kinds of competition.Supply and demand is an economic model of price determination in a market. It concludes that in a

competitive market, the unit price for a particular good will vary until it settles at a point where the quantitydemanded by consumers (at current price) will equal the quantity supplied by producers (at current price),resulting in an economic equilibrium of price and quantity.

The supply of a particular product is the quantity of the product that producers are willing to sell ateach of various prices. Supply is thus a relationship between prices and the quantities offered by producers.

The demand for a particular product is the quantity that buyers are willing to purchase at each of various prices. Demand is thus relationship between prices and the quantities purchased by buyers.

The four basic laws of supply and demand are:If demand increases and supply remains unchanged, then it leads to higher equilibrium price and

quantity.

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If demand decreases and supply remains unchanged, then it leads to lower equilibrium price andquantity.

If supply increases and demand remains unchanged, then it leads to lower equilibrium price andhigher quantity.

If supply decreases and demand remains unchanged, then it leads to higher price and lowerquantity.

A free-market system implies competition among sellers of products and resources. Economistsrecognize four different degrees of competition: pure competition, monopolistic competition, oligopoly andmonopoly.

Pure (or perfect) competition is the complete form of competition. It is the market situation in whichthere are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect theprice of that product. In pure competition the sellers and buyers must accept the going price. The price of each product is determined by the actions of all buyers and all sellers together, through the forces of supplyand demand. Under pure competition, the market price of any product is the price at which the quantitydemanded is exactly equal to the quantity supplied.

Monopolistic competition is a market situation in which there are many buyers along with relativelymany sellers who differentiate their products from the products of competition and it is very easy to enterinto this market. The various products available in a monopolistically competitive market are very similar innature, and they are all intended to satisfy the same need. However, each seller attempts to make its productsomewhat different from the others by providing unique product features-an attention-getting brand name,unique packaging, or services such as fre e delivery or a ―lifetime‖ warranty.

An oligopoly is a market situation in which there are few sellers. Generally these sellers are quitelarge, and sizable investments are required to enter into their market. For this reason, oligopolistic industriestend to remain oligopolistic. Because there are few sellers in an oligopoly, each seller has considerablecontrol over price. At the same time, the market price, the market actions of each seller can have a strong

effect on competitor’s sales. Examples of olig opolies are the American automobile, industrial chemicalsand oil refining industries.

A monopoly is a market with only one seller. Because only one firm is the supplier of a product, ithas complete control over price. The few monopolies in American busin ess don’t have even that muchleeway in setting prices because they are all carefully regulated by government. Most monopolies inAmerica are public utilities, such us electric power distribution. They are permitted to exist because thepublic interest is best served by their existence, but they operate under the scrutiny and control of variousstate and federal agencies.

4. Sole proprietorships. Their advantages and disadvantages. A sole proprietorship , also known as the sole trader or simply a proprietorship , is a type of

business entity that is owned and run by one individual and in which there is no legal distinction betweenthe owner and the business. The owner receives all profits (subject to taxation specific to the business) andhas unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietorand all debts of the business are the proprietor's. This means that the owner has no less liability than if theywere acting as an individual instead of as a business. It is a "sole" proprietorship in contrast withpartnerships.

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A sole proprietor may use a trade name or business name other than his or her legal name. In many jurisdictions there are rules to enable the true owner of a business name to be ascertained. In the UnitedStates there is generally a requirement to file a doing business as statement with the local authorities. In theUnited Kingdom the proprietor's name must be displayed on business stationery, in business emails and atbusiness premises, and there are other requirements.

Advantages: There are many advantages of corporations that are described in that article; chieflythey are the ability to raise capital either publicly or privately, to limit the personal liability of the officersand managers, and to limit risk to investors

Disadvantages: Raising capital for a proprietorship is more difficult because an unrelated investorhas less peace of mind concerning the use and security of his or her investment and the investment is moredifficult to formalize; other types of business entities have more documentation.

As a business becomes successful, the risks accompanying the business tend to grow. One of themain disadvantages of sole proprietors is unlimited liability where the owner's personal assets can be takenaway. This is particularly true for doing or liabilities created by employees; a corporation only partiallyshields an owner or officer for his own actions according to the principle of piercing the corporate veil . Also, being alone in business, sole proprietors generally lack money which leads to failure. The small sizeof the business limits the breadth of management skills because there are fewer people working together. Asemployees generally seek stable employers, small independent businesses that have a high chance of failinghave more difficulty attracting skilled people. Lack of continuity. The enterprise may be crippled orterminated if the owner becomes ill or dies. Relative difficulty obtaining long-term financing. Becausethe enterprise rests exclusively on one person, it often has difficulty raising long-term capital.

5. Partnerships. Advantages and disadvantages. Partnership is an association of two or more persons to act as co-owners of a business for profit. All

partners need not to be equal. General partner is one who assumes full or shared operational responsibilityof a business. General partners are active day-to-day business operations, and each partner can enter intocontracts on behalf of all others. Each partner is taxed on his or her share of the profit. If one generalpartner withdraw from the partnership, he/she must give notice to creditors, customers and suppliers toavoid future liability. A limited partner is a person who contributes capital to a business but is not active inmanaging it; his/her liability is limited to the amount that he/she has invested. In return for their investment,limited partners share in the profits of the firm.

Partnerships present the involved parties with special challenges that must be navigated untoagreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority andsuccession, how success is evaluated and distributed, and often a variety of other factors must all benegotiated. Once agreement is reached, the partnership is typically enforceable by civil law, especially if well documented. Partners who wish to make their agreement affirmatively explicit and enforceabletypically draw up Articles of Partnership.

While partnerships stand to amplify mutual interests and success, some are considered ethically

problematic. When a politician, for example, partners with a corporation to advance the corporation'sinterest in exchange for some benefit, a conflict of interest results. Outcomes for the public good maysuffer.

Partnerships may enjoy special benefits in tax policies. Among developed countries, for example,business partnerships are often favored over corporations in taxation policy, since dividend taxes only occuron profits before they are distributed to the partners. However, depending on the partnership structure andthe jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liabilitythan they would as shareholders of a corporation. In such countries, partnerships are often strongly

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regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free market competition. Governmentally recognized domestic partnerships typically enjoy tax benefits, as well.

6. Forming a corporation. The corporate charter. Kinds of stocks.Stockholder’s rights.

The process of forming a corporation is called incorporation. The people who actually start thecorporation ate its incorporators. A corporation is created under the laws of a state as a separate legal entitythat has privileges and liabilities that are distinct from those of its members. There are many different formsof corporations, most of which are used to conduct business. Early corporations were established by charter(i.e. by an ad hoc act passed by a parliament or legislature). Most jurisdictions now allow the creation of newcorporations through registration. Historically, corporations were created by a charter granted bygovernment. Today, corporations are usually registered with the state, province, or national government andregulated by the laws enacted by that government. Registration is the main prerequisite to the corporation'sassumption of limited liability. The law sometimes requires the corporation to designate its principal address,as well as a registered agent (a person or company designated to receive legal service of process). It may alsobe required to designate an agent or other legal representative of the corporation.

Generally, a corporation files articles of incorporation with the government, laying out the generalnature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create by laws that govern theinternal functions of the corporation, such as meeting procedures and officer positions.

The Corporate Charter. Once a ―home state‖ has been chosen, the incorporators submit articles of incorporation to the secretary of state. If the articles of incorporation are approved, they become the firm’scorporate charter. A corporate charter is a contract between the corporation and the state, in which the staterecognizes the formation of the artificial person that is corporation.

There are two basic kinds of stock: common stock and preferred stock. Common stock is usuallyvoting shares, though not always. Holders of common stock are able to influence the corporation throughvotes on establishing corporate objectives and policy, stock splits, and electing the company's board of

directors. Preferred stock usually carries no voting rights, but may carry a dividend and may have priorityover common stock in the payment of dividends and upon liquidation. There are two basic kinds of stock. Each type entitles the owner to a different set of rights and

privileges. The owners of common stock may vote on corporate matters, but their claims on profit and assetsare subordinate to the claims of others. All common stock owners receive dividends but the amount of thesedividends depends on the profitability of the company. The owners of preferred stock usually do not havevoting rights, but their claims on profit and assets take precedence over those of common-stock owners.Preferred stock often pays a lower profit return than common stock dividends but that return is fixed andguaranteed.

Perhaps the most important right of owners of both common and preferred stock is to share in theprofit earned by the corporation. Other rights include pre-emptive rights – the rights of current stockholders

to purchase any new stock that the corporation issues before it is sold to the general public; examiningcorporate records; voting on the corporate charter; and attending the corporation’s annual stockholders’meeting, where they may exercise their right to vote.

7. Corporate structure. Types of corporations.The Board of directors is the top governing body of a corporation, and, as we noted, directors are

elected by the shareholders. A corporation is an artificial person. Thus it can act only through its directors,who represent the corporation’s owners. Directors who are elected within the corporations are usually its topmanagers. Those who are elected from outside the corporation are generally experienced managers withproven leadership ability and specific talents that the organization seems to need. The major responsibilities

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of the board of directors are to set company goals and develop general plans for meeting those goals. Theyare also responsible for the overall operation of the firm. A corporate officer is appointed by the boar of directors. The chairman of the board, president, executive vice presidents, corporate secretary and treasurerare all corporate officers. They help the board make plans, carry out the strategies established by the board,and manage day-to-day business activities.

An incorporated business is called a domestic corporation in the state in which it is incorporated. Inall others states where it does business, it is called a foreign corporation. A corporation chartered by a foreigngovernment and conducting business in the United States is an alien corporation. The institution most oftenreferenced by the word "corporation" is a publicly traded corporation, the shares of which are traded on apublic stock where shares of stock of corporations are bought and sold by and to the general public. Most of the largest businesses in the world are publicly traded corporations. However, the majority of corporationsare said to be closely held , privately held or close corporations , meaning that no ready market exists for thetrading of shares. Many such corporations are owned and managed by a small group of businesspeople orcompanies, although the size of such a corporation can be as vast as the largest public corporations.

8. Advantages and disadvantages of corporations.

A corporation sounds very promising, but before sole proprietors and partners decide to incorporatetheir businesses, we should first study the following advantages and disadvantages of a corporation.Advantages

Limited liability for the owners . Since a corporation is a separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation. This means that the creditorsof a corporation can only run after the assets of the corporation and not the personal assets of thestockholders in the settlement of the corporation’s debts and obligations. In other words stockholders enjoy a―shield‖ from most creditors.

Ease on the sell and transfer . If the stock of a corporation is publicly traded, owners and investorscan sell their ownership interest in a corporation in a matter of minutes through a stockbroker. If the stock isnot publicly traded, the stock certificate can be transferred or assigned to another owner by executing a deedof assignment of shares of stock.

Continuity . The corporation’s power of succession enables it to enjoy a continuous existence. Unlikea sole proprietorship, the death of a stockholder will not terminate the corporation. The corporation willcontinue as a separate and distinct legal entity and the shares of its interest can be transferred from one ownerto another owner.

Ease in raising money . Because of limited liability, ease of transfer of shares and continuity,investors are more attracted to investing in corporations rather than in sole proprietorships and partnerships.This attraction allows corporations to raise the capital needed to manage and expand their operations.

Disadvantages Complexity in organization and regulation. To incorporate a business, an application with the

Securities and Exchange Commission must be filed and approved. A higher capital requirement is alsosometimes required for other type of corporations. Once approved, the corporation must comply with thenumbers of regulations and reportorial requirements which are specifically implemented for corporations.

Double taxation . A possibility of ―double taxation may arise on the dividends it pays. Thecorporation is taxed on its income. Then, if the corporation distributes some of the net income to thestockholders as a dividend, the dividend will be taxed again on the stockholders’ personal income tax returns.

Limited liability may weaken credit capacity. A corporation which doesn’t have a good financialcondition and performance may drive away creditors specially that owners are enjoying limited liabilities.This may weaken the corporation’s capacity to borrow money to expand its operations.

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Centralized management. Its centralized management restricts a more active participation bystockholders who are not major owners in the conduct of corporate affairs.

9. Money. Functions and characteristics.

Money is any object or record that is generally accepted as payment for goods and services andrepayment of debts in a given country or socio-economic context. The main functions of money aredistinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, astandard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions canserve as money.

Money originated as commodity money, but nearly all contemporary money systems are based onfiat money. Fiat money is without intrinsic use value as a physical commodity, and derives its value by beingdeclared by a government to be legal tender; that is, it must be accepted as a form of payment within theboundaries of the country, for "all debts, public and private".

The money supply of a country consists of currency (banknotes and coins) and bank money (thebalance held in checking accounts and savings accounts) . Bank money usually forms by far the largest part of the money supply.

In the past, money was generally considered to have the following four main functions, which aresummed up in a rhyme found in older economics textbooks: "Money is a matter of functions four, a medium,a measure, a standard, a store." That is, money functions as a medium of exchange, a unit of account, astandard of deferred payment, and a store of value. However, modern textbooks now list only three functions,that of medium of exchange, unit of account, and store of value, not considering a standard of deferredpayment as a distinguished function, but rather subsuming it in the others.

There have been many historical disputes regarding the combination of money's functions, somearguing that they need more separation and that a single unit is insufficient to deal with them all. One of thesearguments is that the role of money as a medium of exchange is in conflict with its role as a store of value: itsrole as a store of value requires holding it without spending, whereas its role as a medium of exchangerequires it to circulate. Others argue that storing of value is just deferral of the exchange, but does notdiminish the fact that money is a medium of exchange that can be transported both across space and time.The term 'financial capital' is a more general and inclusive term for all liquid instruments, whether or not theyare a uniformly recognized tender.

Medium of exchangeWhen money is used to intermediate the exchange of goods and services, it is performing a function

as a medium of exchange . It thereby avoids the inefficiencies of a barter system, such as the 'doublecoincidence of wants' problem.

Unit of accountA unit of account is a standard numerical unit of measurement of the market value of goods,

services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferredpayment, a unit of account is a necessary prerequisite for the formulation of commercial agreements thatinvolve debt. To function as a 'unit of account', whatever is being used as money must be:

Divisible into smaller units without loss of value; precious metals can be coined from bars,or melted down into bars again.

Fungible: that is, one unit or piece must be perceived as equivalent to any other, which iswhy diamonds, works of art or real estate are not suitable as money.

A specific weight, or measure, or size to be verifiably countable. For instance, coins areoften milled with a reeded edge, so that any removal of material from the coin (lowering its commodity value)will be easy to detect.

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Store of valueTo act as a store of value , a money must be able to be reliably saved, stored, and retrieved – and be

predictably usable as a medium of exchange when it is retrieved. The value of the money must also remainstable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.

10. The supply of money.

In economics, money is a broad term that refers to any financial instrument that can fulfill thefunctions of money (detailed above). These financial instruments together are collectively referred to as themoney supply of an economy. In other words, the money supply is the amount of financial instrumentswithin a specific economy available for purchasing goods or services. Since the money supply consists of various financial instruments (usually currency, demand deposits and various other types of deposits), theamount of money in an economy is measured by adding together these financial instruments creating amonetary aggregate .

Modern monetary theory distinguishes among different ways to measure the money supply,reflected in different types of monetary aggregates, using a categorization system that focuses on the liquidityof the financial instrument used as money. The most commonly used monetary aggregates (or types of money) are conventionally designated M1, M2 and M3. These are successively larger aggregate categories:M1 is currency (coins and bills) plus demand deposits (such as checking accounts); M2 is M1 plus savingsaccounts and time deposits under $100,000; and M3 is M2 plus larger time deposits and similar institutionalaccounts. M1 includes only the most liquid financial instruments, and M3 relatively illiquid instruments.

Another measure of money, M0, is also used; unlike the other measures, it does not represent actualpurchasing power by firms and households in the economy. M0 is base money, or the amount of moneyactually issued by the central bank of a country. It is measured as currency plus deposits of banks and otherinstitutions at the central bank. M0 is also the only money that can satisfy the reserve requirements of commercial banks.

11. Banking system.

A bank is a financial institution and a financial intermediary that accepts deposits and channelsthose deposits into lending activities, either directly or through capital markets. A bank connects customerswith capital deficits to customers with capital surpluses.

Banking is generally a highly regulated industry, and government restrictions on financial activitiesby banks have varied over time and location. The current set of global bank capital standards are called BaselII. In some countries such as Germany, banks have historically owned major stakes in industrial corporationswhile in other countries such as the United States banks are prohibited from owning non-financialcompanies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. InIceland banks had very light regulation prior to 2008 collapse.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, whichhas been operating continuously since 1472.

The modern banking system includes 3 groups of financial institutions: The central bank Commercial banks Other specialized financial institutions that include both banking and non-banking

organizations.

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The central bank, which depending on the country may be called the State Bank or the nationalBank. In a way it is the bank for all the other banks in country. It oversees the banking system.

A commercial bank is a privately owned profit-making organization hat accepts deposits, makesloans, and provides related services to its customers.

Financial institutions are business that trade in money. They have different rights, different powersand obligations. The most familiar financial institutions are commercial banks, credit unions, mutual savingsbanks and other organizations that perform banking functions.

12. Central bank.A central bank , reserve bank , or monetary authority is a public institution that usually issues the

currency, regulates the money supply, and controls the interest rates in a country. Central banks often alsooversee the commercial banking system of their respective countries. In contrast to a commercial bank, acentral bank possesses a monopoly on printing the national currency, which usually serves as the nation'slegal tender. Examples include the European Central Bank (ECB), the Federal Reserve of the United States,and the People's Bank of China.

The primary function of a central bank is to provide the nation's money supply, but more activeduties include controlling interest rates (monetary policy) , and acting as a lender of last resort to the bankingsector during times of financial crisis. It may also have supervisory powers, intended to prevent banks andother financial institutions from reckless or fraudulent behaviour. Central banks in most developed nationsare independent in that they operate under rules designed to render them free from political interference.

The central bank may be owned and controlled by the government or it may have considerablepolitical independence. There are three common duties that all central banks perform: holding reserve,assuring stability of the monetary systems, and lending money to commercial banks and the government.

Central banks are sometimes called reserve banks. Commercial banks lend only a part of their fundsto individuals and business and keep the rest in reserve. The central bank holds these reserves to influence theamount of loanable funds banks have available. This allows the central bank to control the money supply.

The central bank also acts to assure stability in the national banking an monetary system. Also, itcontrols the way money is issued and circulated.

The final duty of the central bank involves one of the primary functions of all the banks- it lendsmoney.

13. Types of financial institutions.

In financial economics, a financial institution is an institution that provides financial services for itsclients or members. Probably the most important financial service provided by financial institutions is actingas financial intermediaries. Most financial institutions are highly regulated by government.

Broadly speaking, there are three major types of financial institutions:1. Deposit- taking institutions that accept and manage deposits and make loans, including banks,

building societies, credit unions, trust companies, and mortgage loan companies2. Insurance companies and pension funds; 3. Brokers, underwriters and investment funds. Financial institutions provide service as intermediaries of financial markets. They are responsible for

transferring funds from investors to companies in need of those funds. Financial institutions facilitate theflow of money through the economy. To do so, savings a risk brought to provide funds for loans. Such is theprimary means for depository institutions to develop revenue.

A savings and loan association is a financial institution that primarily accepts savings deposits andprovides home-mortgage loans.

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A credit union is a financial institution that accepts deposits from, and lends money to, only thosepeople who are its members. Usually the membership is composed of employees of a particular firm, peoplein a particular profession, or those who live in a community served by a local credit union.

A mutual saving bank is a bank that is owned by its depositors. Their profits are distributed todepositors. They are controlled by state banking authorities.

Insurance companies provide long-term financing for office buildings, shopping centers, and other

commercial real estate.Pension funds are established by employers to guarantee their employees a regular monthly income

upon retirement.Brokerage firms offer combination savings and checking accounts that pay higher-than usual

interest rates.

14. Services provided by banks.The three most important banking services are accepting deposits, making loans and providing

electronic funds transfer.

Firms and individuals deposit money in checking accounts (demand deposits) so that they can writechecks to pay purchases. Savings accounts (time deposits) provide a safe place to store money and a veryconservative means of investing. A depositor who id willing to leave money with a bank for a set period of time can earn a higher rate. To do so, the depositor buys a certificate of deposit that is a document stating thatthe bank will pay the depositor a guaranteed interest rate of money left on deposit for a specified period of time.

Commercial banks, savings and loan associations, credit unions and other financial institutionsprovide short- and long- term loans to both individuals and business. Short-term loans are those that are berepaid within one year. Long-term business loans have a longer repayment period- generally three to sevenyears but sometimes as long as fifteen years. Most lenders prefer some type of collateral for both businessand personal long-term loans that is pledged as a security for a loan.

The newest service provided by financial institutions is electronic banking. An electronic fundtransfer system is a means for performing financial transactions through a computer terminal. Present EFTsystems can be used in several ways: Automated teller machines(ATMs) is an electronic bank teller-a machinethat provides almost any service a human teller can provide. Most ATMs can also accept deposits andprovide information about current account balances. Point-of-sale is a computerized cash register that islocated in a retail store and connected to a bank’s computer.

15. Securities Markets.

Securities market is an economic institute within which take place sale and purchase transactionsof securities between subjects of economy on the base of demand and supply. Also we can say that securitiesmarket is a system of interconnection between all participants (professional and nonprofessional) thatprovides effective conditions: to buy and sell securities,

to attract new capital by means of issuance new security (securitization of debt), to transfer real asset into financial asset, to invest money for short or long term periods with the aim of deriving profit.

Primary market The primary market is that part of the capital markets that deals with the issue of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a new stock orbond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues

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to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering(IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found inthe prospectus. Primary markets creates long term instruments through which corporate entities borrow fromcapital market.

Features of primary markets are: This is the market for new long term equity capital. The primary market is the market where

the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for

expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the

economy. The new issue market does not include certain other sources of new long term external

finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capitalfor converting private capital into public capital; this is known as "going public."

The financial assets sold can only be redeemed by the original holder.Methods of issuing securities in the primary market are: Initial public offering; Further public offerings Rights issue (for existing companies); Preferential issue.

Secondary Market The secondary market , also known as the aftermarket, is the financial market where previously

issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. Theterm "secondary market" is also used to refer to the market for any used goods or assets, or an alternative usefor an existing product or asset where the customer base is the second market (for example, corn has beentraditionally used primarily for food production and feedstock, but a "second" or "third" market hasdeveloped for use in ethanol production). Stock exchange and over the counter markets.

With primary issuances of securities or financial instruments, or the primary market, investorspurchase these securities directly from issuers such as corporations issuing shares in an IPO or privateplacement, or directly from the federal government in the case of treasuries. After the initial issuance,investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented tocentralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the NewYork Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondarymarket for the investors who own stocks that trade on those exchanges. Most bonds and structured productstrade ―over the counter,‖ or by phoning the bond desk of one’s broker -dealer. Loans sometimes trade onlineusing a Loan Exchange.

16. The mechanics of a stock exchange transaction. The role of thestockbroker.

A stockbroker is an individual who buys or sells securities for clients. The stockbroker handles allsecurities- not only stocks. Most also provide securities information and advise their clients regardinginvestments. To trade at a particular exchange, a brokerage firm must be a member of that exchange.

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The Mechanics of a Transaction once a investor and their account executive have decided on aparticular transaction, the investor gives the account executive an order for that transaction. A marker orderis a request that a stock be purchased or sold at the current market price. A limit order is a request that astock be bought or sold at the price that is equal to or better than some specified price. Usually a limit order isgood for one day. Week, one month, or good until canceled. It is possible for investor to place a discretionaryorder. A discretionary order is an order to buy or to sell a security that lets the broker decide when to

execute the transaction and at what price. 1 st a discretionary order gives the account executive a great deal of authority. 2 nd financial planners argue that only investors should make investment decisions.

17. The role of financial management.

Finance is important in every business. Decisions made by managers throughout the enterprise havefinancial implications. Managerial finance , sometimes called financial management, involves decisionswithin enterprise. The basic goal of managerial finance is to maximize the wealth of an enterprise’s ownersover the long run. In the proprietorship and partnership forms of business organization, this means increasingthe owners’ equity. In the corporation, this means increasing the market price of the corporation’s commonstock shares. Financial management begins with the creation of a financial plan.The plan includes timing and amount of funds and inflow and outflow of money. The financial managerdevelops and controls the financial plan. He also forecasts the economic conditions, the company’s revenues,expenses and profits. The financial manager plans a strategy to make the ending cash positive. If cashoutflow exceeds cash inflow the company will run out of cash. Money is needed both to start a business andto keep it going. This is exactly what happens in a successful firm. The firm looks to outside sources of financing. It this situation the financial manager chooses either short-term or long-term financial techniques.

18. Short – term financing.

The seasonal financial needs of a company may be covered by short-term sources of funds.Businesses spend these funds on salaries and for emergencies. The outside sources of short-term funds aredivided into secured and unsecured ones. Unsecured financing is financing that is not backed by collateral acompany seeking unsecured short-term capital has several options: they include trade credit, promissorynotes, banks loans, commercial papers and commercial drafts.

Trade credit when a business orders goods and services, it doesn’t normally pay for them. Thesupplier provides them with an invoice requesting payment within a settled time period, say 30 days. Acompany can use the trade credit as a source of savings

A promissory note is written pledge by a borrower to pay a certain sum of money to a creditor atspecified future data. But promissory notes usually provide that the borrower pay interest.

Banks loans Only customers with excellent credit rating can get these loans. Banks also lend moneyby setting up lines of credit.

Commercial papers is a short-term promissory notes issued by large corporations. Commercialpaper is secured only by the reputation of the issuing firm: no collateral is involved

A commercial draft is a written order requiring a customer to pay a specified sum of money to asupplier for goods or services. It is often used when the supplier is unsure about the customer’s creditstanding.

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Secured financing If a business cannot obtain capital via unsecured short-term financing, it mustput up collateral to obtain the additional financing needs. The most commonly used for short-term financingare:

Loans Secured by Inventory All types of inventory may be pledge as collateral for a short-termloans. But lenders prefer the mush more salable finished goods to the other inventories.

Loans Secured by Receivables Accounts receivable are amounts that are owed to a firm by its

customers. It is possible for a firm to pledge its accounts receivable as collateral to obtain short-termfinancing. Sometimes a company might sell its accounts receivable to a special financial broker: a factorycompany or a factor .

19. Long – term financing.

A long-term loan is a loan that has a maturity of from 1 to 10 years. Within this period of time thefirm pays interest on the debt. It the firm wants to be free of lender’s restrictions, it may issue bonds.Governments issue government bonds. Corporation issue corporate bonds which may be secured orunsecured. A corporate bond is a corporation’s written pledge that it will repay a specific amount of money,with interest. It includes the interest rate and the maturity date. A corporation can issue different types of bonds. A debenture bond is a bond that is backed only by the reputation of the issuing corporation. Onlyhuge corporations can successfully issue debentures. To make its bonds more appealing to investors, acorporation may issue mortgage bonds. A mortgage bond is a corporate bond that is secured by variousassets of the issuing firm. The corporation can also issue convertible bonds. A convertible bond can beexchanged for a specified number of shares of the corporation’s common stock. If the company’s managerswant to avid increasing the company’s debt obligations, they turn to equity financing. There are at least 2reasons why equity financing is attractive to large corporations. 1 st the corporation need not repay moneyobtained firm the sale of stock, and it need not repurchase the shares of stock at a later date. Thus equity

financing does not have to be repaid. 2nd

advantage of equity financing is that a corporation is under no legalobligation to pay dividends to stockholders. Most large corporations distribute only a portion of their after-tax earnings to shareholders, the portion of a corporation’s profits that is not distributed to stockholders, iscalled retained earnings. Retained earnings are reinvested in the business. Most small and growingcorporations reinvest almost all of their earnings in the business.

20. Enterprise.The enterprise is am independent economic entity based on professionally organized workforce,

capable of manufacturing products demanded by consumers using capital goods available. So, it useseconomic resources for producing goods and rendering services for the purpose of satisfying social needs.

The enterprise is an institution which creates the wealth of a country and from which this wealth isdistributed among all people in a society. Regardless of its size, an enterprise, after it is registered by the stateauthorities, opens an account with bank and becomes legally autonomous.

Medium-sized and large-scale enterprises usually have headquarters, branch offices and subsidiaryenterprises.

Headquarters or head office is the location of the central administrative office of the company orenterprise. It is an office where top management of the enterprise, board of directors, secretariat and other

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important management departments are located. The head office of a company deals with coordinating theregional offices and developing the global strategy for running the business.

Branch office is an economically autonomous subdivision of a legal entity which is situatedsomewhere other than the firm’s main office location and exercises all or any part of the main office’sfunctions including the functions of the regional offices. Branch offices are not legal entities. They are vestedby the legal entities that have founded them and operate on the basis of the adopted regulations. Branch

managers are appointed by the legal entity and act on the power of attorney basis.Subsidiary enterprise is an enterprise set up as a legal entity by another enterprise called holding by

means of transferring part of its property under the operating control of the former. The holding is a ―parentcompany‖ and subsidiaries are ―sister companies‖ to each other. Together, the holding and its subsidiariesform a group. A large group is called a giant.

At present, many companies are multinational with manufacturing plants and trading locations inseveral countries worldwide.