1-1 Define each of the following terms: a. Proprietorship; partnership; corporat

Question

1-1 Define each of the following terms: a. Proprietorship; partnership; corporation; charter; bylaws b. Limit c. Stockholder wealth maximization d. Money market; capital market; secondary market e. Public markets; derivatives f. Investment bank; financial intermediary g. Money market fund h. Physical location exchange; computer/telephone network i. Open outcry auction; dealer market: automated trading platform ed partnership; limited liability partnership; professional corporation j. Production opportunities; time preferences for consumption k. Foreign trade deficit

Explanation / Answer

a. Sole Proprietorship

Sole proprietorship is an unregistered business which is owned by a single owner. The owner is personally liable for all the business’ debts. It has no separate legal identity of its own.

Partnership

It’s a business organization in which two or more persons come together to operate a business and undertaking to share skills, money and profits.

Corporation

Corporation is an organization that is owned by shareholders who elect the board of directors. The board of directors oversee all the activities of a company. It is a separate legal entity from its owners. The shareholders share the profits of the company through dividends and are liable for the debts of the company.

Charter

A charter is a legal document, which contains the basic information about the company such as the company name, location, profit or profit status, company ownership and the board of directors.

Bylaws

Bylaws covers the purpose of organization and the rules of the corporation which is established by the board of directors

b.Limited Partnership

Limited partnership refers to an organization in which two or more people come together to operate a business. Limited partners are liable for business debts only upto their initial capital contribution.

Limited Liability Partnership

Limited liability partnership is a separate legal entity distinct from the partners. There is no requirement of a minimum capital contribution in the formation of the partnership. Each partner is not liable for the actions of the other partners; they are only liable for their own. The liability of each partner is limited to his or her share of initial capital investment. It has perpetual succession. That is, the partnership will not be wind up on the death or insolvency of a partner.

Professional Corporation

Professional corporations were formed to allow professional like doctors, lawyer, accountants and engineers to do business by forming a corporation.

c.Stockholder wealth maximization

Stockholder wealth maximization is the objective of a company. A stockholder’s wealth is maximized when the net worth of shareholders are maximized. The net worth is maximized when the market price of a company is increased.

d.Money Market

Money market is the market where high liquid market instruments with a maturity of less than a year are traded.

Capital Market

Capital market is the market where long-term instruments, that is those having a maturity of more than a year are traded. Both debt and equity instruments are traded in the capital market. Both individuals and entities exchange debt and equity securities in a capital market.

Secondary Market

Secondary market is a market where previously issued stocks and bonds are traded among investors.

e.Public Market

Public markets are markets where public companies whose shares trade freely in a public market. They are subject to periodic filings.

Derivative

Derivative is an instrument which derives its value from an underlying asset or a group of assets. The common types of derivatives are forwards, futures, swaps and options.

f.Investment Bank

Investment bank is a financial intermediary which performs large and complex financial transactions such as underwriting and mergers and acquisitions. They act as an intermediary between investors and corporations.

Financial Intermediary

Financial intermediaries act as middlemen between two partners in a financial transactions. Examples of financial intermediaries are commercial banks, mutual funds and insurance companies.

g.Money Market Fund

Money market fund is an investment whose objective is to increase interest for its shareholders. It is a type of mutual fund.

h.Physical Location Exchange

Physical location exchange refers to a securities exchange where buyers and sellers meet to buy and sell securities. It has been operated on an open outcry system.

Computer/Telephone Network

It is a stock exchange where buyers and sellers buy and sell securities over an open and transparent computer network and over the telephone.

i.Open outcry auction

Open outcry auction is a financial system where auction is conducted by shouting out the bids and asks rather than conducting than conducting the same online and over a telephone.

Dealer Market

Dealer market is a market where buyers and sellers specializing in particular commodities, buy and sell them for their own accounts.

Automatic Trading Platform

Automatic trading platform is a platform, which use computers to execute trade.

j.Production Opportunities

A production opportunity is the ability to turn cost into profits.

Time preference for consumption

It is the preference for current consumption rather than saving.

k. Foreign Trade Deficit

Foreign trade deficit occurs when a country imports more than it exports.

I hope that was helpful :)

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