Lesson 15 Financing a business

1. The difference between assets and liabilities is net worth.

2. Mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the securities markets.

3. Since the funds come from within the firm they are described as internal funds. The rest must come from outside or external funds.

4. A firm sells its product or services; it receives money which it uses to meet its expenses.

5. Businesses use internal funds to cover the cost of depreciation.

6. Short-term loans are used to finance the everyday costs of doing business.

7. Long-term loans come due in more than a year.

8. Creditors expect to receive interest and the return of the principal at the end of specific period of time.

9. All corporations issue common stock.

10. Security exchange is a market where brokers meet to buy and sell stocks and bonds for their customers.

Exercise 3. Read and translate the text “Financing a business”:

    Most of the money used by business comes from the sale of its products and services. Since the funds come from within the firm they are described as internal funds. The rest must come from outside or external funds. As a firm sells its product or services; it receives money which it uses to meet its expenses. One of these expenses, depreciation, represents the cost of assets (like tools, machinery, and building). Businesses use internal funds to cover the cost of depreciation. Business loans are generally classified as short-term loan or long-term loans. For short-term loans, the principal must be repaid within one year. Long-term loans come due in more than a year. Short-term loans are used to finance the everyday costs of doing business, such as raw materials and merchandise. Long-term loans are more likely to be used to purchase equipment, buildings and others high cost items. All corporations issue common stock.

    A security exchange is a market where brokers meet to buy and sell stocks and bonds for their customers. The largest of the security exchanges are the New York Stock Exchange and the American Stock Exchange.

    There is some risk of default. For this reason many people invest in mutual funds. Mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the securities markets.

    The government relies upon two sets of strategies: fiscal policy and monetary policy. Fiscal policy is applied by changing the level of tax. When taxes are reduced, business firms will have more money for the things they want. Monetary policy refers to regulating the supply of money as way of stabilizing the economy. There is the level of business activity.

Exercise 4. Answer the following questions: