Olpsfm02 Finals Quiz 10

1. Venture capital is a type of funding for a new or growing business.
It usually
comes from venture capital firms that specialize in building high risk financial
portfolios. With venture capital, the venture capital firm gives funding to the start-
up company in exchange to the returns in the future. Brings financial viability:
Through their assistance, the venture capital institutions not only improve the
borrowing concern but create a situation whereby they can raise their own capital
through the capital market. In the process they strengthen the capital market
also.
2. An initial public offering (IPO) refers to the process of offering shares of a private
corporation to the public in a new stock issuance for the first time. An IPO allows
a company to raise equity capital from public investors. IPOs provide companies
with an opportunity to obtain capital by offering shares through the primary
market. An IPO can be seen as an exit strategy for the company’s founders and
early investors, realizing the full profit from their private investment.
3. Capital markets allow traders to buy and sell stocks and bonds, and enable
businesses to raise financial capital to grow. Businesses also have reduced risk
and expenses in acquiring financial capital because they have reliable markets
where they can obtain funding. Capital markets include the stock and the bond
markets. Capital markets bring together savers who want to invest with
entrepreneurs and businesses that want to borrow.
4. The international capital markets allow individuals, companies, and governments
to access more opportunities in different countries to borrow or invest, which in
turn reduces risk.
5. Financial innovation refers to the process of creating new financial or investment
products, services, or processes. These changes can include updated
technology, risk management, risk transfer, credit and equity generation, as well
as many other innovations. A derivative is an instrument whose value is derived
from the value of one or more underlying, which can be commodities, precious
metals, currency, bonds, stocks, stocks indices. Derivatives are financial
contracts, set between two or more parties, that derive their value from an
underlying asset, group of assets, or benchmark. A derivative can trade on an
exchange or over-the-counter. Prices for derivatives derive from fluctuations in
the underlying asset. Derivatives are usually leveraged instruments, which
increases their potential risks and rewards.
6. The Federal Reserve System works to promote the effective operation of the
U.S. economy and, more generally, to serve the public interest. The specific
duties of the Fed have changed over time as banking and economics have
evolved. The Fed provides the country with a safe, flexible, and stable monetary
and financial system. The Fed's main duties include conducting national
monetary policy, supervising and regulating banks, maintaining financial stability,
and providing banking services. The Federal Reserve promotes the safety and
soundness of individual financial institutions and monitors their impact on the
financial system as a whole.
7. Securities are financial instruments issued to raise funds. The primary function
of the securities markets is to enable to flow of capital from those that have it to
those that need it. Securities market help in transfer of resources from those with
idle resources to others who have a productive need for them.
8. Capital requirements are regulatory standards for banks that determine how
much liquid capital (easily sold assets) they must keep on hand, concerning their
overall holdings. Express as a ratio the capital requirements are based on the
weighted risk of the banks' different assets. Capital requirements are often
tightened after an economic recession, stock market crash, or another type of
financial crisis. Capital requirements are set to ensure that banks and depository
institutions' holdings are not dominated by investments that increase the risk of
default. They also ensure that banks and depository institutions have enough
capital to sustain operating losses (OL) while still honoring withdrawals. Capital
requirements aim not only to keep banks solvent but, by extension, to keep the
entire financial system on a safe footing. In an era of national and international
finance, no bank is an island as regulatory advocates note—a shock to one can
affect many. So, all the more reason for stringent standards that can be applied
consistently and used to compare the different soundness of institutions. Still,
capital requirements have their critics. They charge that higher capital
requirements have the potential to reduce bank risk-taking and competition in the
financial sector (on the basis that regulations always prove costlier to smaller
institutions than to larger ones). By mandating banks to keep a certain
percentage of assets liquid, the requirements can inhibit the institutions' ability to
invest and make money and thus extend credit to customers. Maintaining certain
levels of capital can increase their costs, which in turn increases costs for
borrowing or other services for consumers.
9. The Department of the Treasury operates and maintains systems that are critical
to the nation's financial infrastructure, such as the production of coin and
currency, the disbursement of payments to the American public, revenue
collection, and the borrowing of funds necessary to run the federal government.
10. Institutions are a part of the social order of society and they govern behaviour
and expectations of individuals, while at the same time they regulate business
operations and ethics. In fact, the morality of institutions is guaranteed by the
process of social evolution. The individuals play an important role in the
functioning of the organization. The members of an organization must be
induced, coerced or forced to participate in it. People participate in the
organizations when they are going to gain something out of them. The individual
motives play an important role in the fulfillment of organization goals. People
cannot work in organization without any motives, purposes or thinking. They do
not work in an automatically or mechanically or in impulsive manner. The
success of an organization depends not only on the proper coordination and
cooperation of its members but also on the cooperation of others. The others
must also be made to contribute to the smooth functioning of the organization.

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1. Venture capital is a type of funding for a new or growing business.

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