1.

2.

3.

What is Business? Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy societys needs. The main types of economic systems. 1) Traditionaleconomy is one in which economic behaviour is based primarily on tradition, custom and habit. It is characteristic of primitive societies. 2)Command/plannedeconomy is one in which some central authority state or determines economic behaviour. Such type of economic system was in the former USSR. 3)Marketeconomy is one in which markets play a dominant role in taking economic decisions process. It is characteristic of the Western European countries. 4)Mixedeconomy is one in which both free markets and governments have significant effects on the allocation of resources and the distribution of income. Supply, demand, kind of competitions! The supply of a particular product is the quantity of the product that producers are willing to sell at each of various prices. The demand for a particular product is the quantity that buyers are willing to purchase, at each of various prices.

Pure (or perfect) competition is the complete form of competition. The above definition includes several important ideas: - there is a demand for a single product; - all sellers offer the same product for sale; - all buyers and sellers know everything there is to know about the market; -the market is not affected by the actions of any one buyer or seller. In pure competition the sellers and buyers must accept the going price Monopolistic competition is a market situation in which there are many buyers along with relatively many sellers who differentiate their products from the products of competitors and it is very easy to enter into this market. An oligopoly is a market situation (or industry) in which there are few sellers (2-8). Generally these sellers are quite large, and sizable investments are required to enter into their market. A monopoly is a market (or industry) with only one seller. Because only one firm is the supplier of a product, it has complete control over price.. 4. Sole proprietorship; adv/disadv Sole propietorship is a business that is owned by one person. Advantages of Sole Proprietorships Ease and Low cost of Formation and Dissolution No contracts, agreements, or other legal documents are required to start a sole proprietorship. Retention of All Profits All profits earned by a sole proprietorship become the personal earnings of its owner. Flexibility The sole owner of a business is completely free to make decisions about the firm's operations. Possible Tax Advantages The sole proprietorship's profits are taxed as personal income of the owner. Secrecy Sole proprietors are not required by federal or state governments to publicly reveal their business plans, profits, or other vital facts. Disadvantages of Sole Proprietorships Unlimited Liability Unlimited liability is a legal concept that holds a sole proprietor personally responsible for all the debts of his or her business. Lack of Continuity Legally, the sole proprietor is the business.

Limited Ability to Borrow Banks and other lenders are usually unwilling to lend large sums to sole proprietorships. Limited Business Skills and Knowledge Managers perfonn a variety of functions (inclu3ing planning, organizing, and controlling) in such areas as finance, marketing, human resources management, and operations. Lack of Opportunity for Employees The sole proprietor may find it hard to attract and keep competent help.

5.

Partnership.

Partnership is an association of two or more persons to act as co-owners of a business for profit.
Types of Partners
General Partners A general partner is one who assumes full or shared operational responsibility of a business. Limited Partners A limited partner is a person who contributes capital to a business but is not active in managing it; his or her liability is limited to the amount that he or she has invested.

Advantages of Partnerships
Ease and Low Cost of Formation Like sole proprietorships, partnerships are relatively easy to form. Availability of Capital and Credit Partners can pool their funds so that their business has more capital than would be available to a sole proprietorship. Retention of Profits As in a sole proprietorship, all profits belong to the owners of the partnership. Personal Interest General partners are very much concerned with the operation of the firmperhaps even more so than sole proprietors. Combined Business Skills and Knowledge Partners often have complementary skills. If one partner is weak in, say, finances, another may be stronger in that area. Possible Tax Advantages Like sole proprietors, partners are taxed only on their individual income from the business.

Disadvantages of Partnerships
Unlimited Liability Each general partner is personally responsible for all debts of the business, whether or not that particular partner incurred those debts. Lack of Continuity Partnerships are terminated in the event of the death, withdrawal, or legally declared incompetence of any one of the general partners. Effects of Management Disagreements The Uivjsion of responsibilities among several partner, means ihe partner must work together as a team. FrozenInvestment It is easy to invest money in a partnership, but it is sometimes quite difficult to get it out.

6.

Forming a corporation.

Where to Incorporate A business is allowed to incorporate in any state it chooses. Most small and madium-sized business are incorporated in the state where they do the most business. The Corporate Charter Once a "home state" has been chosen, the incorporator submit articles of incorporation to the secretary of state. Usually the charter includes die following information: Firm's name and address The incorporators' names and addresses The purpose of the corporation The maximum amount of stock and the types of stock to be issued

7.

The rights and privileges of shareholders The corporate statue, kinds of stocks and stockholders rights.

Stockholders Rights There are two basic kinds of stock. The owners of common stock may vote on corporate matters, but their claims on profit and assets are subordinate to the claims of others. e dividends but the amount of these dividends depends on the profitability of the company. The owners of preferred stock usually do not have voting rights, but their claims on profit and assets take precedence over those of common-stock owners. Organizational Meeting As the last step in forming a corporation, the original stockholders meet to elect their first board of directors.

8.

Corporate structure. Types of corporation. Corporate structure

Board of Directors The board of directors is the top governing body of a corporation, and, as we noted, directors are elected by the shareholders. Corporate Officers A corporate officer is appointed by the board of directors. The chairman of the board, president, executive vice presidents, and corporate secretary and treasurer are all corporate officers.

9.

+/- of corporation Advantages of Corporations

Limited Liability One of the most attractive features of corporate ownership is limited liability. Ease of Transfer of Ownership Let us say that a shareholder of a public corporation wishes to sell his or her stock. Ease of Raising Capital The corporation is by far the most effective form of business ownership for raising capital. Perpetual Life Because a corporation is essentially a legal person, it exists independently of its owners and survives them. Specialized Management Typically, corporations are able to recruit more skilled and knowledgeable managers than proprietorships and partnerships. Disadvantages of Corporations Difficulty and Expense of Formation Forming a corporation can be a relatively complex and costly process. Government Regulation Most government regulation of business is directed at corporations. Double Taxation Unlike sole proprietorships and partnerships, corporations must pay a tax on their profits. Lack of Secrecy Because open corporations are required to submit detailed reports to government agencies and to stockholders, they cannot keep their operations confidential.

10. Money, function and caracteristics. Money is anything used by a society to purchase goods and services or resources. The Functions of Money Money Serves as a Medium of Exchange A medium of exchange is anything that is accepted as payment for products and resources. Money Serves as a Measure of Value A measure of value is a single standard or yardstick that is used to assign values to, and compare the values of, products and resources. Money Represents a Store of Value Money that is received by an individual or firm need not be used immediately.

Important Characteristics of Money Divisibility The standard unit of money must be divisible into smaller units to accommodate small purchases as well as large ones. Portability Money must be small enough and light enough to be carried easily. For this reason, paper currency, is issued in larger denominations multiples of the standard unit. Stability Money should retain its value over time. When it does not (during periods of high inflation), people tend lo lose faith in their money. Durability The objects that serve as money should be strong enough to last through reasonable usage. Difficulty of Counterfeiting If a nations currency were easy to counterfeitthat is, to imitate or fakeits citizens would be uneasy about accepting it as payment.

11. Sypply of money. Money Supply is the total amount of money that exists in the economy of a country at a particular time. The Mi supply of money consists only of currency and demand deposits. By law, currency must be accepted as payment for products and resources. Checks are accepted as payment because they are convenient, convertible to cash, and generally safe. The M2 supply of money consists of Mi (currency and demand deposits) plus certain specific securities and small-denomination time deposits. Another common definition of money M3 consists of Mi and M2 plus large time deposits of $100,000 or more. The definitions of money that include the M2 and M3 supplies are based on the assumption that time deposits are easily converted to cash for spending. 12. Banking system. The modem banking system includes three groups of financial institutions: - the central bank; - commercial banks; - other specialized financial institutions that include both banking and non-banking organizations. The central bank, which depending on the country may be called the State Bank or the National bank (as in our country), bears the name of the Federal Reserve System in the USA, the Bank of England in the UK, and the European Central Bank in single-currency Europe. In a way it is the bank for all the other banks in a country. It oversees the banking system. 13. Central Bank. The central bank may be owned and controlled by the guvernment or it may have considerable political independence. There are three common duties that all central banks perform: holding reserves, assuring stability of the banking and monetary systems, and lending money to commercial banks and the government, Holding Reserves Central banks are sometimes called reserve banks. Commercial banks lend only a part of their funds to individuals and businesses and keep the rest in reserve. Assuring Stability The central bank also acts to assure stability in the national banking and monetary systems. Lending Money The final duty of the central bank involves one of the primary functions of all the banks - it lends money.

14. Types of financial institutions. Savings and Loan Associations A savings and loan association (S&L) is a financial institution that primarily accepts savings deposits and provides home-mortgage loans.

Credit Unions A credit union is a financial institution that accepts deposits from, and lends money to, only those people who are its members. Mutual Savings Banks A mutual savings bank is a bank that is owned by its depositors. Located primarily in the northeastern part of the United States, mutual savings banks accept deposits and lend money for home mortgages. Organizations That Perform Banking Functions There are three types of financial institutions that are not actually banks but that are nevertheless involved in various banking activities to a limited extent. Insurance companies provide long-term financing for office buildings, shopping centers, and other commercial real estate projects throughout the United States. 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 (so-called money-market rates).

15. Services provided by banks. The financial services provided by the banking industry are the following: 1. 2. 3. 4. 5. 6. 7. 8. Demand deposits Time deposits Loans Electronic transfer of funds Financial advice Trust services Certified checks Safe-deposit boxes 16. Securities markets. The Primary Market The primary market is a market in which an investor purchases financial securities from the issuer of those securities. An investment bank is an organization that assists corporations in raising fluids, usually by helping sell new security issues. For a large corporation, the decision to sell securities is often complicated, time- consuming, and expensive. The second method used by a corporation trying to obtain financing through the primary market is to sell directly to current stockholders.

The Secondary Market The secondary market is a market for existing financial securities that are currently traded between investors. Securities Exchanges A securities exchange is a marketplace where member brokers meet to buy and sell securities. The over-the-counter market (OTC) sells and buys unlisted securities, often of smaller companies, outside of the organized securities exchanges. About 5,000 brokers of OTC are scattered all over the country.

17. The mecanics of stock exchange tranzition. The Mechanics of a Transaction Once an investor and his or her account executive I have decided on a particular transaction, the investor gives the account executive an order for that transaction. A market order is a request that a stock be purchased or sold at the current market price. The brokers representative on the exchange's trading floor will try to get the best possible price, and the trade will be completed as soon as possible.

A limit order is a request that a stock be bought or sold at the price that is equal to or better (lower for buying, higher for selling) than some specified price. Suppose you place 11 limit order to sell General Dynamics common stock at $49 per share. Then the brokers representative sells the stock only if the price is $49 per share or more.

18. The role of financial management. Finance is important in every business. Decisions made by managers throughout the enterprise have financial implications. No business can be started without raising the funds to begin operations. Managerial finance, sometimes called financial management, involves decisions within enterprise The basic goal of managerial finance is to maximize the wealth of an enterprises owners over the long run. In the proprietor ship and partnership forms of business organization, this means increasing the owners equity. In the corporation, this means increasing the market price of the corporations common stock shares. Financial management begins with the creation of a financial plan. The plan includes timing and amount of funds and the inflow and outflow of money. The financial manager develops and controls the financial plan. He also forecasts the economic conditions, the companys reve nues, expenses and profits. The financial managers job starts and ends with the companys objectives. He reviews them and determines the funding they require. The financial manager compares the expenses involved to the expected revenues. It helps him to predict cash flow. Cash flow is the movement of money into and aut of an organization

19. Short-term financing. Short-term financing is money that will be used for a period of one year or less and then repaid. A firm might need short-term financing to pay for a new promotional campaign that I expected to increase sales revenue. A promissory note is a written pledge by a borrower to pay a certain sum of money tosSi creditor at specified future date. Commercial banks lend money to their customers by direct unsecured loans. Only customers with an excellent credit rating can get these loans. They usually repay them whhift I a years time. Banks also lend money by setting up lines of credit The line of credit is I prearranged short-term loan. Commercial paper is short-term promissory notes issued by large corporations. . Commercial paper is secured only by the reputation of the issuing firm; no collateral is , involved. A commercial draft is a written order requiring a customer (the drawee) to pay * - specified sum of money to a supplier (the drawer) for eoods or services. Loans Secured by Inventory Normally, marketing intermediaries and producers have large amounts of money invested in finished goods or merchandise inventories In addition, producers carry raw materials and work-in-process inventories. A special type of secured financing called floor planning is used by automobile, furniture, and appliance dealers. Floor planning is a method of financing where the title to merchandise is given to lenders in return for short-term financing. Loans Secured by Receivables Accounts receivable are amounts that are owed to a firm by its customers. They arise primarily from trade credit and are usually due in less than sixty days. Sometimes a company might sell its accounts receivable to a special financial broker, a factoring company or a factor. The factor immediately pays the firm cash, usually 50 to 80 % of the value of the accounts receivable. When customers make the payments on the firm s accounts, the money goes directly to the factor.

20. Long-term financing.

Long-term financing is money that will be used for longer than one year. Long-term financing is obviously needed to start a new business. It is also needed for executing business expansions and mergers, for developing and marketing new products, and for replacing equipment that becomes outmoded or inefficient. Sources of long-term financing vary with the size and type of business. If the business is a sole proprietorship or partnership, equity capital is acquired by the business when the or owners invest money in the business. A long-term loan is a loan that has a maturity of from 1 to 10 years. Within this period of time the firm pays interest on the debt. A corporate bond is a corporations written pledge that it will repay a specific amount of money, with interest. A registered bond is a bond that is registered in the owner's name by the issuing company. Interest cheques for registered I bonds are mailed directly to the bondholder. A coupon bond, sometimes called a bearer bond, is a bond whose ownership is not registered by the issuing company.

21. Entreprise. An enterprise is a property complex used for performing entrepreneurial activityI comprises all types of property used for this activity including: 1. plots of land 2. buildings and constructions, highway transportation facilities and rail facilities 3. equipment 4. inventory 5. raw materials 6. products 7. debts ' 8. incorporeal rights (company name, trademark, service mark). The enterprise is an independent economic entity based on professionally organized workforce. capable of manufacturing products demanded by consumers using capital goods available.