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267 Cards in this Set

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___________, or selling and shipping goods and services to another country, is one of the least risky forms of international business activity.
Exporting. Exporting permits a company to enter a foreign market gradually, with only limited marketing, research, and distribution costs.
More and more companies are using __________ agreements as a source of international revenue, allowing foreign companies to use their intellectual property in exchange for a royalty or fee.
licensing. Since a company has already incurred the costs of developing the intellectual property, a licensing agreement involves little out-of-pocket costs.
One way in which two or more companies might jointly develop, produce, or sell products in the global marketplace is by forming a long-term partnership called a ________ ___________.
strategic alliance. To increase their competitive advantage in foreign markets, many companies will form a strategic alliance with a foreign company. Companies in such a relationship will typically share ideas, risks, and profits in an attempt to reach complimentary goals.
A _______ ________is a special type of strategic alliance in which two or more organizations join together to create a new business entity that is legally separate and distinct from its parents.
joint venture. In countries where foreign companies are prohibited from owning facilities outright or from investing in a local business, a joint venture might be the only way to do business in that country.
As foreign markets continue to grow in importance, the number of ____________, or companies with operations in more than one country, is likewise increasing.
MNCs. Multinational Corporations (MNCs) will often earn more than half of their revenue from foreign sales.
__________ occurs when a multinational corporation establishes facilities in a foreign country or in some other way invests money directly into foreign business enterprises.
FDI. A company that increases its involvement in foreign countries through establishing foreign direct investment (FDI) might build marketing or production facilities, or even purchase existing firms.
Saudi Arabia’s ability to produce crude oil with fewer resources per unit of output than any other nation gives it an _________ _______ in crude oil production.
absolute advantage. Whenever a nation can produce a particular item more efficiently than all other nations, it has an absolute advantage for that product. Since such advantages are usually based on the availability of natural resources, they rarely last indefinitely.
The ____________ ____________ theory states that a country should produce and sell to other countries those items it can produce economically, and trade for those it cannot produce efficiently or at a lower cost.
comparative advantage. The comparative advantage theory is based upon the argument that specialization and exchange will increase a country’s total output and allow both trading partners to enjoy a higher standard of living.
One way to measure a nation’s level of international trade is to determine its _________ of trade – the total value of the productions a nation exports minus the total value of the products it imports, over some period of time.
balance. The balance of trade is not necessarily an accurate indicator of a nation’s competitiveness in the world market. Fluctuations in currency, intrafirm trade, and several other factors can obscure the overall picture.
When a country imports more than it exports, the resulting unfavorable trade balance is called a trade _______.
deficit. In 1999, the U.S. trade deficit soared to record heights, due to a falloff in U.S. exports rather than a surge in foreign imports.
A broader indicator of international trade than the balance of trade, the balance of __________ measure the total flow of money into the country minus the total flow of money out of the country, over some specified period of time.
payments. In addition to business transactions, the balance of payments also measures money spent on foreign investment, military expenditures, tourism, and other international transactions. A country, obviously wants a favorable balance of payments, meaning more money is coming into the country than is going out.
Some countries practice an economic policy of ___________, where they restrict international trade in order to shield a country’s industries from foreign competition and the possible loss of jobs in those industries.
protectionism. Emerging economies often practice protectionism in order to give new or weak industries an opportunity to grow and strengthen.
A type of trade restriction, _________ limit the amount of a particular good that a nation will allow to be imported during a year.
Quotas. Quotas may be set either in quantity or in value. Once a foreign product hits its quota, additional shipments typically will face stiff tariffs.
More extreme than a quota, an ________ completely bans the import or export of certain products.
embargo. Although an embargo is usually established to protect a nation’s industry from foreign competition, it can sometimes be done for other reasons. The U.S., for example, bans the importation of toys with lead paint due to health reasons.
A ________ is a type of embargo that is politically motivated, banning trade with a particular nation.
sanction. Traditionally, a sanction has been used by the government as a forceful attempt to make a country change its behavior. However, sanctions are being used more sparingly today, as studies have shown them to be generally ineffective.
Most industrialized countries have regulations against ________ – the practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its own home market.
Dumping. Dumping is a tactic often used to win foreign customers or to reduce product surpluses. Countries such as the U.S. impose stiff antidumping penalties in order to protect domestic producers of similar products.
Many recent international trade agreements and organizations have supported the basic principles of ______ _______, a theory that each nation will ultimately benefit the most if they freely trade with each other without restrictive measures.
free trade. The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) are both famous examples of organizations founded to support free trade. The WTO, in particular, has been a target for American protesters who feel that it leaves certain U.S. industries vulnerable to foreign competition.
NAFTA is a controversial example of a ________ bloc, an organization of nations that removes barriers to trade among their members and also establishes uniform barriers to trade with nonmember nations.
trading. In 1994, the United States, Canada, and Mexico formed the trading bloc known as NAFTA. Supporters of NAFTA say that jobs in the U.S. have multiplied due to increased exports. Opponents, on the other hand, contend that American jobs have been lost as manufacturers have moved production to Mexico or Canada.
In 1999, eleven European countries turned over control of their individual monetary policies to the newly created European Central Bank. One of the major reasons for joining forces was the anticipated advantages that would come from creating a unified currency called the ______.
euro. These eleven countries account for nearly 20 percent of the world’s gross domestic product, leading some to believe that the euro might one day rival the dollar or yen as the international currency of trade.
In 1997, the decision by Thailand and Indonesia to unpeg its currency from the U.S. dollar and use instead a _________ exchange rate system triggered a series of reactions around the world and ignited a worldwide economic crisis.
floating. Neither Thailand or Indonesia were ready when their currency devalued rapidly after switching to a floating exchange rate system. In such a system, the value of a currency is not determined in relation to more stable currencies, but in response to the forces of global supply and demand.
__________ is the process by which the government sets the ground rules and basic standards of proper business behavior, in order to prevent conflicts and facilitate the workings of the economic system.
regulation. In most sectors of the economy, government regulation ensures that all competitors have an equal chance of producing a product, reaching the market, and making a profit.
The Federal Trade Commission Act (1914) is a famous example of _______ legislation, intended to prevent individual companies or groups of companies from gaining control of markets in ways that restrain competition or harm consumers.
antitrust. Other famous examples of antitrust legislation include the Sherman Antitrust Act (1890) and the Clayton Antitrust Act (1914). Such regulations sought to break up the power of huge companies such as Standard Oil.
One of the practices restricted by the landmark Clayton Antitrust Act was that of the _____ contract, which attempts to force buyers to purchase unwanted goods along with goods actually desired.
tying. Microsoft was recently found guilty of violating antitrust laws, in large part because the court considered the bundling together of Web browsers and operating systems to be a tying contract.
A regulatory _______ is any of a wide variety of administrative groups established to protect the rights of one or more group of stakeholders from the potentially harmful actions of business.
agency. Some better known examples of a regulatory agency include the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), and the Environmental Protection Agency (EPA).
In the past few decades, some industries that were under strict government control have been opened up to competition through ___________, or the abandonment or relaxation of existing regulations.
deregulation. Until recent deregulation measures were taken, companies in the airline and banking industries were under such strict government control that they had little or no competition.
In the United States, _______ have traditionally been used not only to raise revenue for government, but also to encourage or discourage certain types of behavior, including the restriction of certain business activities.
taxes. Laws surrounding the taxes of businesses have developed to such an extent that entire segments of accounting and legal professionals often help companies and individuals with their interpretation and compliance.
Specific items are subject to _____ taxes – regulatory taxes that are intended to help control potentially harmful practices or to help pay for public services used by taxpayers.
excise. Gasoline, tobacco, and liquor are all subject to excise taxes. Federal excise taxes are also levied on certain services of a national scope, such as air travel and long-distance telephone calls.
Customs _______, or import taxes, vary with the product and its country of origin. They are designed to protect American businesses against foreign competition.
duties. Customs duties typically have the effect of raising the prices of imports to a level comparable to the price of similar American-made merchandise.
Because competitors in an industry often have common objectives when it comes to government action, they commonly unite to form a __________ group in an attempt to persuade legislators to vote for their group’s interest.
lobbying. The American Banking Association and the American Medical Association are both examples of associations typically involved in lobbying activities.
Since campaign laws limit the abilities of a business to donate money directly to a candidate, businesses will often instead funnel money through a _______.
PAC. Through a political action committee (PAC), a business can solicit contributions from its employees and then allocate the money to various candidates. PACs are controversial and will likely be a target of campaign reform in the near future.
In addition to the full body of laws that apply to individuals, companies must also comply to a subset of laws commonly referred to as __________ law.
Business. Business law includes those legal elements that directly affect business activity, including laws pertaining to business licensing, employee safety, and corporate income taxes.
Business owners pay as much as $150 billion every year due to product ________ lawsuits, which hold the producer or seller responsible for damages or injuries to the consumer.
liability. Because many of these product liability lawsuits seem frivolous and excessive, many lawmakers are beginning to question the strictness with which the laws are interpreted.
The term _________ refers to the coordination of an organization’s resources for the manufacture of goods or the delivery of services.
POM. Production and operations management (POM), sometimes just shortened to operations management, oversees all the activities involved in producing a firm’s goods or services.
A company’s sequence of events that transforms resources (or inputs) into products and services is called the _________ process.
conversion. The conversion process can be either an analytic system, which breaks raw materials into one or most distinct products, or a synthetic system, which combines two or more materials to form a single product.
In today’s customer-focused, quality-oriented economy, many current production systems use traditional mass production techniques to create customized goods and services – a system known as mass __________.
customization. Systems of mass customization recognize that consumers have individual needs and are best served by products that can be easily customized for them.
One of the keys to an effective production process is to prepare an accurate production ________ that estimates how much of a company’s goods and services must be produced in order to meet future demand.
forecast. Although a production forecast cannot be predicted with certainty, it is an essential tool for use in the planning, budgeting, and scheduling of resources.
In planning tools such as PERT diagrams, the longest path through the network is known as the ________ path because it represents the minimum amount of time needed to complete the project.
critical. The sequence of events that makes up the critical path requires the longest time to complete. If any step on this path falls behind schedule, then the entire operation will be delayed.
______ is widely used today to apply computer graphics and mathematical modeling in the design of products.
CAD. Computer-aided design (CAD) is just one of the major developments in manufacturing automation today. Others include computer-aided engineering (CAE), computer-aided manufacturing (CAM), and flexible manufacturing system (FMS).
Most companies use a system of _______ control to determine the right quantity of various items to have on hand and to keep track of their location, use, and condition.
inventory. To minimize risk and cost, and also to increase manufacturing efficiency, most companies have established a system of inventory control.
The ____ ____ ____ system is one of the most used methods of inventory control and production planning today, making sure that materials arrive just when they are needed with minimal inventory and waste.
just in time. A just-in-time system minimizes waste and keeps costs down. However, it requires careful coordination between manufacturers and suppliers in order to work effectively.
Quality __________ is a comprehensive system of policies, practices, and procedures implemented throughout a company to create and produce quality goods and services.
assurance. Broader than more basic quality control approaches, a quality assurance system ensures that every stage of production – from design to final product – meets or exceeds preset quality standards.
Many companies now integrate all of the facilities, functions, and activities involved in the production of goods and services, from suppliers to customers, through a process called supply ___________ management.
chain. The supply-chain begins with the provider of raw materials and ends with the company that produces the finished product. Supply-chain management is based upon the belief that all companies involved will benefit from working more closely together.
A _____ business can be defined as a company that is independently owned and operated, is not dominant in its field, and is relatively small in terms of sales and number of employees.
small. The small business is a cornerstone of the U.S. economic system – particularly following the past decade, when a drastic increase in start-up companies made the U.S. economy a growth engine for the world.
The majority of small businesses are what are known as ________ businesses. They are built around the personal and financial needs of an individual or family, and are not typically designed to grow into large enterprises.
lifestyle. Roughly 80 to 90 percent of small businesses are lifestyle businesses. The remainder are called high-growth ventures and are started with the intent of rapid expansion.
To stimulate the innovation commonly found in small businesses, many large companies have started small enterprises run by ___________, or people who create ideas and innovation of any kind from within an organization.
intrapreneurs. Work units led by intrapreneurs are formed to provide the parent company with creative ideas usually hindered by the red tape and procedures of a large-scale corporate environment.
The rise and spread of the __________ is one of the major factors contributing to the dramatic increase in small businesses, as well as the number of employees who now telecommute.
internet. The Internet has made accessible to small businesses the types of resources and information that were previously available only to larger firms.
Large companies increasingly are subcontracting work to small businesses through a process called _____________.
outsourcing. The increased practice of outsourcing specialized work has allowed many large firms to downsize and work with smaller staffs.
One of the most important ways to persuade lenders and investors to finance your business is through preparing a ________ _____, a written document that provides an orderly statement of a company’s goals and how it intends to achieve those goals.
business plan. Not only does a business plan help sway potential investors, it also provides the company with an overall strategy and guides its operations.
Roughly two-thirds of business founders start from scratch with new ventures, commonly called ________ ___________ company.
start up. Founding a start-up company is the most common form of beginning a small business. The other two ways are to buy an existing business or obtain a franchise.
A ________ is a business arrangement in which a small business obtains the rights to sell the goods or services of the supplier within a specific territory.
franchise. In exchange for an initial fee and possibly monthly royalties, a buyer can obtain a franchise of a larger company and have the right to sell its goods and services.
Facilities specifically designed to house small businesses during their early growth phase are known as __________.
incubators. Incubators are centers that provide small businesses with a professional setting and various resources – legal and accounting services, marketing support, etc. – they might need to get started.
_______ _________ are investment specialists who raise pools of capital from large private and institutional sources in exchange for a portion of the ownership, with the objective of making a considerable profit on the investment within a relatively short period of time.
venture capitalists. Small businesses that need large sums of investment (usually $10 million or more) and that have potential for rapid growth often turn to venture capitalists for financing.
Similar to venture capitalists, ______ ________ tend to be wealthy individuals who are willing to loan smaller amounts of money and to stay involved with the company for a longer period of time.
angel investors. Risky start-ups that have trouble getting loans from a bank can sometimes find angel investors to finance their business.
The _____ is a government agency that serves as an invaluable resource and advocate for small businesses, often providing them with financial assistance, training, and a variety of helpful programs.
SBA. Among other services, the Small Business Administration (SBA) will back bank loans to qualified business owners, a guarantee that usually results in longer repayment terms.
Because of the high costs and regulatory complexities of selling stock through an initial public offering (IPO), many companies are instead choosing to sell shares of stock directly to investors through a _______.
DPO. The growth of the Internet and its resources has made it easier for companies to sell stock through a direct public offering (DPO).
The ________ department plans the best way to hire employees, oversee their training, evaluate their performance, and compensate them.
HR. The human resources (HR) department is generally in charge of hiring employees for a company, ensuring the quality of their job performance, and administering their compensation and benefits.
The first step in planning for a company’s staffing needs is called ___________, when the HR department determines the numbers and kinds of employees that will be needed in the company’s future, and how many employees are currently available to meet those needs.
forecasting. After analyzing the company’s future goals, the HR department begins planning the company’s staffing needs by forecasting the supply and demand for employees.
An increasingly used recruiting strategy is for companies to hire ___________ employees to assess their on-the-job performance before hiring them permanently.
temporary. It is estimated that over a quarter of all temporary employees hired remain on the job assignment for one year or more. Businesses often try to save money and increase their flexibility by building their workforce around part-time and temp employees.
_____________, or subcontracting work to outside companies, is a common staffing strategy by companies that lack specialized resources internally.
outsourcing. Although outsourcing might give a company increased flexibility and additional expertise, it can also result in a loss of control over the work and a greater dependence on suppliers.
Once human resources has decided it needs to fill a particular position, it will then evaluate the requirements of the position through a formal, objective method called ___ _______.
Job analysis. Job analysis is the process by which jobs are studied to determine the exact tasks and dynamics needed to perform them.
Following job analysis, the human resources staff will use their findings to complete a ____ ___________, a formal statement summarizing the tasks involved in the job and the conditions under which the employee will work.
job description. The job description helps HR determine the qualifications needed by potential applicants to be considered for the job.
Usually, human resources will use the job description to develop a ____ __________, describing the skills, education, and previous experience that the job requires.
job specification. The last step in evaluating job requirements is the drafting of a job specification. This formal statement is a critical tool in determining whether or not an applicant is appropriate for the position.
__________ is the term for the process of attracting appropriate applicants for an organization’s jobs.
recruiting. Recruiting usually begins by looking for a suitable candidate from within an organization or from an employee’s recommendation. Posting a position to the public is often used as a last resort.
Particularly with the recent increase in workplace violence, human resource departments are more carefully conducting ____________ ________ to verify all educational credentials and previous jobs, to account for any large time gaps between jobs, and to check references.
background checks. Failure to conduct thorough background checks can lead to expensive lawsuits and higher health care costs, decreased productivity, and harm to employees and customers. Inadequate verification of credentials can potentially make the hiring company liable for any future action committed by the employee.
In order to ensure that all new employees understand the company’s goals, policies, and procedures, most organizations have ________ programs that help acclimate employees to their new work environment.
orientation. Although orientation programs can vary from an hour-long information session to “integration” curriculums that last several months, they all are created with the intention of helping new employees understand their role in the organization and making them feel more comfortable.
The ultimate goal of a _________ ___________ is not to judge the individual employee but rather to improve their on-the-job performance. It lets employees understand how they are presently doing, instructs them on how they can improve performance, and discusses new skills they should learn to promote future growth.
performance appraisal. Most human resources managers develop performance appraisal systems to objectively evaluate employees according to set, job-related criteria.
Administering ___________ – or the combination of payments in the form of wages or salaries, incentive programs, employee benefits, and employer services – is one of the major responsibilities of the human resources department.
compensation. Compensation is the umbrella term covering all the various money, benefits, and services paid to employees for their work.
Employees who receive _______ earn cash payment based on the number of hours the employee has worked or the number of units the employee has produced.
wages. Unlike salaried workers, workers earning wages receive cash payment directly related to the number of hours worked or pieces produced. Wages provide an incentive to an employee to produce more in order to receive a higher paycheck.
__________ are cash payments that are linked either to specific individual, group, and company-wide goals; overall productivity; and company success.
incentives. Incentives are often effective because they make achievements, not merely activities, the basis for an employee’s payment.
Usually used for sales staff, a ____________ is a form of payment that pays employees a percentage of sales made.
commission. Depending on the company and position, a commission can be either the sole compensation or else an incentive payment made in addition to salary or wages.
One common incentive program is the ________ _________ system, in which a company distributes a portion of its profits to employees. It encourages employees to work harder, since the more profits the company makes, the larger the compensation will be to the employee.
profit sharing. A company that participates in profit sharing usually distributes profits to employees on an quarterly, semi-annually, or annual basis.
A _____ ________ incentive plan rewards employees not solely on the basis of overall profits but in relation to achievement of goals such as cost savings or quality improvement.
gain sharing. Though similar to profit sharing, gain sharing differs in that it further encourages employees to think of innovative ways to save money for the company and improve its overall operation.
____________ is a common payment approach that uses wide pay grades. It allows today’s flatter companies to reward employees without having to move them up a hierarchy.
broadbanding. Because the company has fewer, broader pay grades, broadbanding allows companies to move employees to different positions without being restricted by the pay grades normally associated with specific jobs.
Financial compensation other than wages, salaries, and incentives is called employee ______________.
benefits. Some of the more common forms of employee benefits include medical and dental insurance; vacation, holiday, and sick pay; stock options; and retirement benefits.
Defined contribution plans, defined benefits plans, and 401(k) plans are all examples of _______ plans, the most popular type of retirement coverage in companies today.
Pension. Pension plans are company-sponsored programs for providing employees with income when they retire.
A _______ _______ plan ties employee compensation to company performance through allowing the employee to purchase or sell a certain number of shares of company stock at a specific price (called the grant price) during a certain time period.
stock option. Employees on a stock option plan can often buy shares of the company stock at the grant price over a number of years. Thus, so long as the stock is performing well, such plans can be considerably profitable for employees.
A termination of an employee for economic or business reasons is called a _______.
layoff. A layoff is a termination due to reasons unrelated to employee performance and is thus typically a painful experience both to the terminated and remaining employees. Many companies have recently adopted no-layoff guarantees to help promote employee loyalty and motivation.
The massive layoffs in recent years has led to an increase in ________ _______ lawsuits, with employees claiming that their firings have been done with either inadequate advance notice or explanation.
wrongful discharge. Because of the increase in wrongful discharge claims, human resources departments have taken extra precautions to try to prevent such occurrences, including requiring new employees to sign “employment at will” forms.
_________ __________, or the required dismissal of an employee who reaches a certain age, was made illegal by Congress in 1986.
mandatory retirement. In 1986, Congress amended the federal Age Discrimination in Employment Act so that it prohibited mandatory retirement. It also prohibited employers from stopping benefit contributions or accruals because of age.
Many companies encourage aging employees to retire early through various financial incentives – a process known as ________ ________.
worker buyout. Though worker buyout is more expensive than firing or laying off employees, it has several advantages as far as maintaining employee morale and minimizing the company’s legal risk against age-discrimination lawsuits.
By far, the most common form of business ownership in the U.S. is known as a sole __________, meaning it is owned by only one person.
proprietorship. A sole proprietorship is the easiest and least expensive form of business to start. Around 73% of all U.S. firms are sole proprietorships.
A disadvantage of a sole proprietorship is that the owner has unlimited ________, meaning that any damages or debts attributable to the business can also be attached to the owner because the two have no separate legal existence.
liability. Not having a separate legal existence for a business makes a sole proprietorship much easier to start, but it also means that the owner has unlimited liability and might have to use personal expenses to satisfy a business debt.
An unincorporated business owned and operated by two or more persons under a voluntary legal agreement is known as a ___________.
partnership. By setting up a partnership, the risks and rewards of the business is split among partners, rather than just one person.
In a business that is a _________ partnership, the partnership is composed of one or more general partners, who run the business, and the remaining partners, who are not directly involved in managing the business and whose liability is usually limited to the amount of their capital investment.
limited. Unlike general partnerships, where all partners are equally liable for the business’s debt, a limited partnership grants limited liability to those partners who are just passive investors.
A legally chartered enterprise that has most of the legal rights of a person, including the right to own property and to conduct business, is called a ______________.
corporation. Unlike sole proprietorships and partnerships, the legal status and obligations of a corporation exist independently of its owners.
A corporation is owned by its ____________, who can sell or bequeath their shares of stock to someone else at any time.
shareholders. Even though the company and its management may be stable, a corporation’s ownership can change drastically over time as the stock is continually passed to new shareholders.
The stock usually issued by corporations is called ________ stock. The owners of such stock have the last claim on distributed profits and assets, and are allowed one vote for each share they own.
common. Although owners of preferred stock might have first claim on the corporation’s assets, they do not have the voting rights that owners of common stock receive.
Although not mandatory, many corporations pay ___________, or distributions of corporate assets to shareholders in the form of cash or other assets.
dividends. Dividends can be paid to stockholders either in cash or in additional shares of stock.
Companies such as Kinko’s and Hallmark are examples of __________ corporations, or companies that withhold their stock from public sale and instead finance their operating costs and growth from other sources, such as company earnings.
private. Private corporations are companies owned by private individuals or companies. They are also sometimes called “closed corporations” or “closely held companies.”
A ________ corporation is held by and available for sale to the general public.
public. Going public provides a corporation with a ready supply of capital, in addition to increasing its liquidity and enhancing its visibility.
Public corporations have the advantage of _________, since their investors can easily convert their stock into cash by selling it on the open market.
liquidity. Buying stock in a corporation is attractive to many investors because of its liquidity. It’s difficult, on the other hand, to liquidate the assets of a sole proprietorship or partnership.
A _______ is a special type of corporation that combines the tax advantage of a partnership with the personal liability protection of a corporation.
LLC. Limited liability companies (LLCs) have owners who are taxed at individual income-tax rates, though the corporation itself has a separate legal status. Furthermore, unlike S corporations, LLCs are unrestricted in the number of shareholders they can have.
A corporation which is partially or entirely owned by another corporation is known as a _________ corporation.
subsidiary. A subsidiary corporation does not exist independently, but is owned by another corporation called a parent company, which supervises the operations of the subsidiary.
A special type of parent company, a _________ company owns a subsidiary only for investing purposes and exercises little control over its day-to-day operations.
holding. Though a holding company might own most or all of another company’s stock, it does not actively participate in the management of that other company.
In publicly traded corporations, the board of directors usually appoints a _______ to carry out the board’s policies and supervise the activities of the corporation.
CEO. In most corporations, the common shareholders who own the company are hardly ever involved in actually managing it. Instead, they elect a board of directors who, in turn, appoint a chief executive officer (CEO) to run the company.
In large corporations, most individual shareholders hardly ever attend the company’s annual meeting and instead vote by _______, a document authorizing another person to vote on behalf of a shareholder.
proxy. Shareholders who cannot attend the corporation’s annual meeting will usually vote by proxy, signing and returning a slip of paper allowing management to vote on their behalf.
Similar to a merger, a ___________ is created when two or more companies combine together so that the old companies cease to exist and a new enterprise is created.
consolidation. Unlike a merger, where one company purchases another and assumes controls, a consolidation means the legal termination of both companies and a pooling of interests into a new business entity.
The rise of the government antitrust movement at the beginning of the twentieth century brought an end to the wave of ____________ mergers that was resulting in giant monopolistic trusts at the time.
Horizontal. Horizontal mergers are combinations of competing companies in the same industry. The purposes of such mergers is to take control of a market and fend off competition.
In the 1960s and 70s, __________ mergers produced large combinations of companies in unrelated business, designed to augment a company’s growth and diversify its risk.
conglomerate. Companies joined together in these conglomerate mergers in an attempt to moderate the risks of a volatile economy. Since then, most of the largest conglomerates have been dismantled, or at least streamlined, in order to streamline operations and build up capital.
A situation where an outside party buys enough stock in a corporation to gain control of it against the wishes of existing management is commonly called a _______ ________.
hostile takeover. With approximately 95 percent of business combinations being friendly deals, a hostile takeover is somewhat rare. In the 1980s, however, such takeovers were more common and resulted in corporations developing a number of strategies to help defend themselves.
__________ can be broadly defined as the process of coordinating resources to meet organizational goals.
management. The four basic functions of management are planning, organizing, leading, and controlling resources.
The primary management function is _________, or establishing objectives and goals for an organization and determining the best way to accomplish them.
planning. All of the other management functions depend on what is decided in planning, which determines the company’s long-term strategies and translates them into day-to-day action plans.
Management often communicates its vision through a _________ statement, a brief document that defines the organization’s purpose, basic goals, and philosophies.
mission. A company uses a mission statement as a guiding principle. It communicates the core values of an organization and helps employees understand how their role is tied to the organization’s greater purpose.
To establish long-term goals, management must first determine its ____ ________, or the bundle of skills and capabilities that a firm has or does especially well, setting it apart from its competitors.
core competence. A company’s main strength is its core competence, which sets it apart from its competitors and is difficult for competitors to duplicate.
Unlike an objective, a _____ is a broad, long-term accomplishment that an organization wishes to attain in typically five years or more.
goal. While an objective is a specific, short-term target or aim, a goal looks towards further into the future. For either goals or objectives to be effective, they must be specific, measurable, relevant, challenging, attainable, and time-limited.
An ___________ plan lays out the actions and the resource allocation needed to achieve operational objectives and to support tactical plans. Such plans typically target a specific objective that can usually be accomplished in less than a year.
operational. Middle managers use a company’s strategic objectives and goals to create a tactical plan, which first-line managers then break down into an operational plan. Each stage of the planning process increases in specificity, until strategic goals are finally broken down into the day-to-day actions needed to accomplish them.
__________ is the function of management that arranges resources (including land, labor, capital, and information) in a manner that will efficiently carry out the organization’s plans.
organizing. During the organizing process, managers not only consider an organization’s overall activities and facilities. They also determine who will have the authority to make decisions, supervise activities, and distribute resources.
Management is commonly divided into a corporate hierarchy called the management __________.
pyramid. The management pyramid is typically split into top managers, middle managers, and first-line managers. A chain of command connects each level of management to the next, making clear who is responsible for each task and who has the authority to make official decisions.
The function of management that influences and motivates people to work effectively and willingly toward company goals is called __________.
Leading. Leading is the process of guiding and motivating people to work towards organizational goals. Although difficult to determine exactly what makes a good leader, traits such as decisiveness, self-confidence, and empathy are usually more evident in effective leaders.
Traditional, hierarchal organizational structures tend to have ___________ leaders, who do not usually involve others in decision making.
autocratic. Most organizations have shifted away from autocratic leadership, since it does little to empower employees or encourage innovation.
Sometimes referred to as free-rein leadership, the _______ _____ style of leading leaves the actual decision making up to the employees, while the leader encourages employees’ ideas, and offers insights or opinions when asked.
laissez faire. As businesses continue to shift towards a teamwork-based environment, more and more companies are adopting either democratic or laissez-faire leadership styles to guide them.
Acting as a _________ means using one’s knowledge and contacts to help guide other employees through the corporate maze, advising them on office politics, business behavior, and how to negotiate the corporate structure.
mentor. Similar to coaching, acting as a mentor is a way of helping less-experienced employees overcome obstacles and reach their full potential.
The management function that measures progress against goals and objectives, and corrects deviations if results are not as expected is called ____________.
controlling. The controlling process means monitoring a company’s progress toward meeting its goals and adjusting its course if necessary.
__________ are the criteria against which performance is measured.
standards. Control standards are usually set up during the planning function and are used in controlling to measure company progress.
___________ is a comprehensive, strategic management approach that builds quality into every organizational process as a way of improving customer satisfaction.
TQM. The four key elements of total quality management (TQM) are employee involvement, customer focus, benchmarking, and continuous improvement. One of the goals of total quality principles is to create a value for all stakeholders involved.
The ____________ structure is the framework that enables managers to divide responsibilities, ensure employee accountability, and distribute decision-making authority.
organization. The four factors to be considered in setting up an organization structure are work specialization, chain of command, vertical organization, and horizontal coordination.
Also called division of labor, _____ _______ is the degree to which organizational tasks are broken down into separate jobs.
work specialization. Management must decide on an optimal level of work specialization. It must be specialized enough to allow the employee to perfect his or her skills and perform them quickly, but not so specialized that the task becomes repetitive and boring.
In the chain of command, a manager can assign work, along with the authority and responsibility required to complete it, to those beneath him or her – a process called ___________.
delegation. Delegation breaks down managerial goals into the tasks required to complete them and assigns them to various team members or employees.
The number of people under one manager’s control is known as the ____ of management.
span. The span of management, also called the span of control, varies widely from organization to organization. Organizations with few levels in the management hierarchy will have a wide span of management, while organizations with several management levels will have a very narrow span of management.
The delegation of decision-making authority down to lower organizational levels – a process known as ____________ – is a common trend in businesses today.
Detailed Explanation:
decentralization. The process of decentralization leaves control over the essential company-wide matters with upper management, while allowing the lower management levels to deal with the day-to-day operations.
In a vertical organization, companies define jobs and activities by using ________________ – the arrangement of activities into logical groups that are then clustered into larger departments and units that form the total organizatio
Departmentalization. Departmentalization is most often done according to function, division, matrix, or network.
In a ________ departmentalization, the structure uses functional and divisional patterns simultaneously by assigning employees to both a functional group and a project team.
matrix. Departmentalization by matrix allows companies to share resources across divisions and functional groups. Thus, large companies can act like smaller ones by devoting their attention to specific projects or customers without permanently reorganizing the company’s structure.
Effective horizontal ____________ facilitates communication and activities across departments without the need to go up and down the vertical chain of command.
coordination. In order to prevent functional departments from becoming isolated from one another, horizontal coordination is necessary. It strengthens communications between departments and keeps them aligned in striving towards company goals.
A _____ is a unit of two or more people who share a mission and collective responsibility as they work together to achieve a goal.
team. The majority of organizations rely upon the team to provide synergetic innovation. The five most common forms of teams are problem-solving teams, self-managed teams, functional teams, cross-functional teams, and virtual teams.
The goal of _______ __________ in organizations is to balance the diverse needs of employees with those of management.
human relations. Balancing organizational and personal goals is what makes human relations such a challenge in organizations. With the staffing and demographic changes taking place in companies today, motivating employees and keeping them satisfied while also remaining competitive and profitable can be quite difficult.
___________ is broadly defined as a force that moves someone to take action. In organizational settings, common examples are monetary rewards, personal satisfaction, and a sense of responsibility.
motivation. While fear of losing a job might cause an employee to take action, such negative motivation is much less effective than encouraging an individual’s sense of creativity or pride in doing a good job.
In the 1960s, Frederick Herzberg defined ________ factors as those aspects of the work environment that are associated with dissatisfaction.
.hygiene. Unlike motivators, which are associated with satisfying work experiences, hygiene factors discourage motivation. Potential sources of dissatisfaction include working conditions, company policies, and job secur
More than three quarters of the large companies in the U.S. have developed a written _____ of ethics that sets forth the principles and standards guiding their decisions.
code. A code of ethics is one step businesses have taken to encourage ethical behavior. Some companies have taken even further steps, such as creating an ethics officer position to aid in decision making or establishing hot lines for employees who wish to report unethical practices.
Douglas McGregor explained that managers oriented towards _________ ________ assumptions believe that employees like work and will be motivated by intrinsic rewards that promote growth and self-direction.
Theory Y. The assumptions behind Theory Y emphasize the motivation of employees through goals that promote creativity or social causes. Theory X managers, on the other hand, motivate workers with extrinsic rewards such as money or promotions.
The concept of social _________ argues that a business has obligations to society beyond the pursuit of profits.
responsibility. Since the 1960s, the pressure on companies to have a sense of social responsibility has increased steadily.
_______ is a term describing the overall environment that results from job and work conditions.
QWL. In recent years, many companies have increased their efforts to improve the quality of work life (QWL) within their organizations. Such improvements allow employees to better balance their lives while improving their work-related skills and abilities.
A company that participates in altruistic actions such as donating money, time, goods, or services to charitable, humanitarian, or educational institutions is said to be ____________.
philanthropic. Being philanthropic is just one of many indicators of a company’s social responsibility. Several companies now undergo an annual social audit to objectively inform its various stakeholders of all its activities and assess their social performance.
In attempts to accommodate employees’ diverse scheduling needs, many organizations now offer _________, or a scheduling system in which employees are allowed certain options regarding time of arrival and departure.
flextime. Three of the most popular alternative work arrangements being used today are telecommuting, job sharing, and flextime. Such arrangements are necessary, considering today’s staffing and demographic challenges being faced by companies.
The spirit of activism in the 1960s started a movement known as ___________, which pressures businesses to consider consumer needs and interests.
Consumerism. Consumerism prompted President Kennedy to announce a “bill of rights” for consumers, including the right to safety, the right to be informed, the right to choose, and the right to be heard. These rights laid the foundation for consumer-oriented legislation in the decades to come.
The application of moral rules or standards to business situations is called business __________.
ethics. Business ethics governs the way in which a company conducts its business. Because of the number of stakeholders to whom a company is responsible – including employees, customers, governments, and society at large – making business decisions that will be considered ethical by everyone is difficult.
The process of reducing the threat of loss from uncontrollable events and funding potential losses is called _____ management.
risk. The main functions of risk management are to assess risk, control risk, and finance risk by shifting it to an insurance company or by self-insuring to cover possible losses.
A contractual agreement whereby one party agrees to compensate another party for losses is called __________.
insurance. For risks that meet certain predefined criteria, one can purchase insurance to cover potential losses. Such risks are called insurable risks.
Risk managers who try to reduce (but not totally eliminate) the chance of a given loss by removing hazards or taking preventative measures are practicing _____ ________.
loss prevention. Loss prevention techniques, such as hiring additional security guards or posting warning signs, is one of the major risk-control techniques used by companies. Such techniques are used by companies to minimize losses, particularly if the loss is not covered by insurance.
By compiling statistics of losses, predicting the amount needed to pay claims over a given period, and calculating the amount needed to cover these expenses plus any anticipated operating costs, _________ determine how much income insurance companies need to generate.
actuaries. Those employed by the insurance company to calculate the costs of premiums are called actuaries.
_________ insurance provides protection against financial losses suffered by firms or individuals held responsible for property damage or for injuries suffered by others.
liability. Medical malpractice and faulty product manufacturing are examples of cases in which losses could be covered by liability insurance.
For companies that depend upon a crucial employee or executive, they can often purchase ______ ________ insurance that will cover losses in income due to that person’s illness, disability, death, or unplanned retirement.
key person. Following fashion designer Gianni Versace’s death, his company was paid $21 million by his key-person insurance policy.
Rather than buying insurance from another company, an increasing number of businesses are adopting _______ _______ plans, in which they accumulate funds each year to pay for predicted liability losses.
self insurance. Self-insurance plans can save large companies a significant amount of money, since they are not subject to state regulation, mandates, or premium taxes. To fully succeed, however, they require a sizeable financial investment, regular contributions, and a long-term commitment.
As an alternative to health maintenance organizations (HMOs), some employers choose to join a _______________. While such plans usually save employers money, they also restrict the employees choice of hospitals and doctors.
PPO. A preferred-provider organization (PPO) is a health care provider that contracts with employers, insurance companies, or other third-party payers to deliver health care services to an employee group at a reduced fee. Employees typically are offered incentives to use preferred providers, though they are not required to do so.
To cover the losses associated with premature death, life insurance policies will pay predetermined amounts to any listed ___________ when the covered individual dies.
beneficiaries. Term insurance, whole life insurance, and variable life insurance are all examples of different types of life insurance that provide proceeds to the beneficiaries upon the insured’s death.
Employees who are laid off for reasons not related to performance can benefit from _______________ insurance programs.
unemployment. Unemployment insurance is a government-sponsored program designed to meet the perils of unemployment caused by the business cycle and other factors which workers cannot control.
The term ___________ describes the planning and executing of the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.
marketing. Because marketing involves an exchange between the buyer and selling organization, it plays a pivotal role in society by helping people satisfy their needs and wants, and helping organizations determine what to produce.
Marketing is not always concerned with selling tangible goods for profit. ________ marketing, for example, tries to attract people and organizations to a particular geographic location.
Place. Place marketing tries to lure tourists, residents, or businesses to a specific geographic location. Cause-related marketing and permission marketing are two other common kinds of marketing that do not focus on the selling of tangible products.
More specific than needs, _______ are those things that are desirable in light of a person’s experiences, culture, and personality.
wants. While the basic motivation to buy products are created by needs, it is a person’s wants that leads him or her to buy a particular brand or type of product over another. Marketing aims to transform the customer’s basic need for a general product into a want for a specific brand.
The appeal of a product or service is based upon its ________, or the power of a good or service to satisfy a human need.
utility. Organizations can create utility in four different ways – by changing raw materials into finished goods and services (form utility), by making a product available at a convenient time (time utility) or location (place utility), and by facilitating the process of product ownership (possession utility).
In a _______ market, the demand for products exceeds supplies, making it easy for the manufacturer to sell all that it produces.
sellers. . A sellers’ market existed in the U.S. until the 1930s, when technological advancements increased production capacity and the market for manufactured goods became more competitive. The resulting overabundance of products then created a buyers’ market that lasted through the 1950s.
As companies became increasingly customer-centered in the last half of the twentieth century, many began to adopt the ________ concept. This approach to business management stresses customer needs and wants, seeks long-term profitability, and coordinates marketing efforts within the organization.
marketing. Increased competition has led most companies to adopt the marketing concept, allowing them to more fully understand and target their customers’ needs and wants.
_________ marketing focuses on building and maintaining satisfying relationships with customer, suppliers, and distributors in order to retain their long-term business.
relationship. Sometimes referred to as customer relation ship management (CRM), relationship marketing focuses on learning more about a customer with each transaction and continually changing the product or service so that it more precisely meets the customer’s needs.
To learn about the needs and wants of their customers, companies collect and analyze information about customers, markets, and related marketing issues – a process called marketing ________.
research. Among other things, companies use marketing research to determine their target market, develop new products according to customer needs, and plan future marketing programs.
Often used in conjunction with relationship marketing, ___________ marketing records and analyzes all customer interactions, preferences, and buying behavior, for the purpose of future contact and transactions with those customers.
database. Analyzing the data collected through database marketing allows companies to determine which customers to target and how to customize marketing efforts for the best response.
The overall plan for marketing a product is called a marketing _________. Its main steps are segmenting the market, choosing what markets to target, deciding how to position the product in those markets, and then developing the right marketing mix to obtain that position.
strategy. In the strategic marketing planning process, a company develops a marketing strategy to help achieve its chosen marketing objectives.
The process of _________ _____________ divides the total market into smaller, rather homogenous groups.
market segmentation. Marketers commonly practice market segmentation by using demographics, psychographics, geographic location, and behavior to divide the market. Each market segment can then be targeted by offering products that are priced, distributed, and promoted differently.
Those companies that sell a variety of different products to several customer groups practice _____________ marketing.
differentiated. Only companies with substantial resources can practice differentiated marketing, since it requires specially tailored products, prices, promotions, and distribution efforts for each customer group.
___________ a product means differentiating a good or service from those of competitors through the use of promotion, distribution, product, and price.
positioning. Through positioning, a company creates for its offering a unique and meaningful position in the minds of its target market. Price, performance, quality, design, and customer support are some examples of factors that help differentiate a product from its competitors.
A firm’s ____________ _____ consists of the four key elements of marketing strategy – product, price, distribution, and promotion.
marketing mix. A company’s marketing mix is basically the way in which it goes about achieving its marketing strategy – i.e., how it uses product, price, distribution, and promotion to obtain its desired position in the selected target market.
A ________ is any tangible object or intangible service that is offered for the purpose of satisfying a want or a need in a marketing exchange.
product. Each stage of a product’s life cycle is marked by distinct patterns of supply and demand. After introducing a product (introductory stage) and growing its sales (growth), a company usually gains its maximum market share for the product (maturity), before the increased competition forces sales and profits to diminish (decline).
A product’s _____ _______ usually consists of four stages – introduction, growth, maturity, and decline.
life cycle. Each stage of a product’s life cycle is marked by distinct patterns of supply and demand. After introducing a product (introductory stage) and growing its sales (growth), a company usually gains its maximum market share for the product (maturity), before the increased competition forces sales and profits to diminish (decline).
life cycle. Each stage of a product’s life cycle is marked by distinct patterns of supply and demand. After introducing a product (introductory stage) and growing its sales (growth), a company usually gains its maximum market share for the product (maturity), before the increased competition forces sales and profits to diminish (decline).
test. Test marketing a product usually gives the marketer experience with how to best market the product before going through the expense of a full introduction.
A ________ _____ is a series of related products owned by one company that is similar in terms of use or characteristics.
product line. Most large companies will have at least one product line. This allows the company to continually add and drop products, so that the sales of new products can replace the lost revenue of declining items.
Those organizations that have several different product lines have what is called a __________ ____, a collection of various goods or services offered for sale.
product mix. A company’s product mix can be described in terms of width (the number of product lines), length (the number of items in each product line), and depth (the number of varieties of each individual product).
A company differentiates its products from its competitors through a distinct _______ identity – the name, term, sign, symbol, design, or combination of these elements that enables consumers to recognize the product as belonging to a particular company.
brand. Marketers use a variety of different methods to create a recognizable brand. A brand usually consists of a brand name – the portion of a brand that can be expressed orally – and a brand symbol – a symbol that can not be expressed verbally.
Many retailers offer ________ products, which are alternatives to branded products and typically cost significantly less because of the uneven quality, plain packaging, and lack of promotion.
generic. Generic products have no brand name or advertising, and usually have just plain labeling. The success of such products in the grocery industry illustrates that a niche market for them definitely exists among cost-conscious consumers.
The loyalty of customers to a particular brand is called ________ __________.
brand loyalty. The three different degrees of brand loyalty are brand awareness, brand preference, and brand insistence. Marketers strive to have customers at the brand insistence stage, since it means they are unwilling to try alternatives and insist on buying products by their preferred brand.
______ _____ analysis is used by companies to determine the minimum volume of sales of a product are needed at a given price to cover all costs.
break even. In order to avoid losing money, a company must reach what is known as its break-even point, which is the minimum sales volume necessary to cover all of the company’s manufacturing and selling costs.
In determining the break-even point, companies must not only consider the variable costs associated with production, but also certain _______ costs, such as rent payments, insurance premiums, and real estate taxes.
fixed. While variable costs change with the level of production, fixed costs are those expenses that remain stable regardless of the number of products produced.
While demand usually helps determine the price of a product, companies also need to consider how responsive the demand for a product is relative to its price – a concept known as price ____________.
elasticity. Since the demand for some products is more sensitive to changes in price than others, a company must consider a product’s price elasticity when setting its market price.
During a product’s introductory phase, companies often try to recoup their manufacturing costs quickly by charging a high initial price and then lowering it later – a practice known as __________.
skimming. Skimming works best for high-quality products in markets that competitors cannot easily enter with competing products. Skimming is a common practice with technological products, which will often have inflated prices until enough competitors enter the market to successfully bring them down.
Auction pricing, group buying, and name-your-price selling are three popular examples of __________ pricing.
dynamic. The opposite of fixed pricing, dynamic pricing charges different prices depending on the individual customer and situation. Many companies have switched to dynamic pricing in recent years, using the Internet to electronically reprice items based upon current supply and demand levels.
________ __________ are systems of firms organized to facilitate the moving of goods and services from producers to customers.
distribution channels. Also called marketing channels, distribution channels are responsible for moving products to the end users. How they are moved through these channels can play a major role in a product’s success or failure.
Any individual or firm found in a distribution channel between the producer and end user is called a ___________ ______________. They are also commonly called “middlemen.”
marketing intermediary. A marketing intermediary provides an efficient process for transferring products from the producer to consumer and helps add place utility, time utility, and possession utility to the product.
Inexpensive convenience goods or organizational supplies are goods that sell best with an ___________ distribution strategy, which tries to place a product in as many outlets as possible.
intensive. Unlike selective and exclusive distribution strategies, an intensive distribution marketing strategy does not require specialized sales and service support. Thus, it does not limit the number of outlets through which it sells.
A _________ is a planned distribution channel in which the producer, wholesaler, and retailer coordinate their efforts to optimize distribution activities.
vms. In a vertical marketing system (VMS), one channel member tends to control the channel, influencing the actions of all other members. The single firm might own the others (corporate VMS), have contracts with them (contractual VMS), or wield so much power that the others must cooperate (administered VMS).
A _________ is a intermediary that sells products to other firms for resale or for organizational use.
wholesaler. Unlike a retailer, a wholesaler seldom deals directly with individual consumers but rather sells to retailers or to organizational buyers.
All the activities required to move finished products from the producer to the consumer – including inventory control, order processing, warehousing, materials handling, and outbound transportation – is known collectively as __________ distribution.
physical. In addition to selecting effective distribution channels, a company must also efficiently move its product through physical distribution, an area concerned primarily with the logistics of the supply chain.
___________ is the use of persuasive techniques by a company to communicate with its target market
promotion. Of the four ingredients in the marketing mix, promotion is the one most often associated with marketing. Advertising, public relations, personal selling, direct marketing, and sales promotion are all components of an effective promotional mix.
Person-to-person communication between a seller and one or more potential buyers is called _________ selling
personal. Personal selling allows for immediate interaction between the buyer and seller, and also enables the seller to adjust the message to the specific needs, interests, and reactions of the individual customer.
Sponsored communication to a target market through mass communications channels is called ___________
advertising. By economically bringing a consistent message to a large target consumer group, advertising helps create product awareness and stimulate demand.
Recent advances in technology has led to an increase in __________ advertising, a two-way communication in which the customer controls the amount and type of information received.
interactive. The Internet, interactive TV, and kiosks in retail outlets have allowed companies to increase their amount of interactive advertising.
_________ marketing can be defined as any direct communication other than personal sales contacts designed to generate either a response in the form of an order, a request for further information, or a visit to a place of business for purchase of a specific product or service.
direct. Advertising on the Internet is the most rapidly growing form of direct marketing. Other examples include telemarketing, infomercials, and direct mail.
One of the two basic categories of sales promotion, __________ promotion is aimed at the final users of the product.
consumer. Coupons and rebates are the most popular forms of consumer promotion. The other category of promotion, trade promotion, targets distributors and retailers in an effort to get them to push a producer’s product.
_______ _________ encompasses all the non-sales communications that business have with their various audiences in order to foster positive relations with them and build a favorable corporate image.
public relations. Two common public relations tools are the news release and the news conference, both of which are used when company news is of widespread interest, when products need to be demonstrated, or when company officials want to be available to answer questions from the media.
The strategy of coordinating and integrating all communications and promotions efforts with customers to provide the greatest efficiency and effectiveness is called __________.
IMC. Developing all the elements of promotion for a company to result in one consistent message is called integrated marketing communications (IMC).
When a producer uses a ____ strategy to promote a product, it appeals to consumers to help stimulate demand, which subsequently exerts pressure on wholesalers and retailers to carry a product.
pull. A pull strategy uses a combination of promotional tools to appeal directly to the consumer. A push strategy, on the other hand, focuses on persuading intermediaries to carry an item.
__________ ___________ is the planning for a company’s current and future money needs through the effective acquisition and use of money.
financial management. The goal of financial management is to maximize a company’s value through implementing a company’s financial plan, budgeting its expenditure, and developing a plan to fund future growth.
Most financial managers use a _________ ______ to forecast the financial requirements of a company, as well as the financing sources to be used.
financial plan. . Financial managers usually work form a financial plan, a document showing the funds a company will need for a period of time, as well as the sources and uses of those funds.
One of the primary objectives of a financial manager is to create a positive _____ _____, or a ready supply of money needed to purchase the assets and supplies a company needs to operate and pay dividends to shareholders.
cash flow. Most financial managers can improve cash flow through monitoring and improving the company’s working capital accounts – i.e., cash, inventory, accounts receivable, and accounts payable.
Marketable __________ are those short-term investments that can be turned into cash quickly.
securities. In order to earn as much interest as possible, financial managers invest any excess cash in interest-bearing or dividend-paying marketable securities.
One of the main responsibilities of financial managers is the development of a ________, a planning and control tool that reflects estimated revenues, expenses, and cash flows over a given period (often one year).
budget. Companies compare the actual results of operating to those proposed in the budget. If variances are discovered, corrective action is then recommended – a process known as financial control.
Major expenditures in buildings or equipments are examples of ___________ ___________, major investments for the purpose of acquiring something of permanent value in a business.
capital investments. In order to decide which capital investments a company can afford, the financial manager will go through a financial evaluation called capital budgeting to determine the investments that will return the greatest revenue.
Any financing typically repaid in a period of a year or more is called ____ ______ financing. Such financing is usually for the purpose of acquiring assets such as buildings or equipment, or to fund company expansion via other growth options.
long term. Long-term financing is generally needed for a company’s long-term plans for growth, whereas a company uses short-term financing to maintain its ability to meet day-to-day operating costs.
Rather than relying solely on its own cash to finance its growth, a company might choose to use __________ to increase the rate of return on an investment by financing it with borrowed funds.
leverage. If a company uses leverage effectively, then it can use borrowed money to increase profits to such an extent that it can cover additional interest rates and also generate a greater return.
Commonly referred to as a loan, _____ financing is when a creditor agrees to lend money to a debtor in exchanged for repayment, with accumulated interest, at some future date.
debt. Specific kinds of debt financing are trade credit, commercial paper, and secured and unsecured loans.
Known as ________ __________, this category of U.S. financial institutions accepts deposits from customers or members, and offers checking and savings accounts, loans, and other banking services.
deposit institutions. Commercial banks, thrifts, and credit unions are the most popular forms of deposit institution
___________ banks are smaller banks that concentrate on serving the needs of local consumers and businesses.
community. As an alternative to the larger banks, community banks are becoming increasingly popular. Because these smaller banks know their clients better, they might go out of their way to make a loan or other decision possible for a small business owner.
Created in 1913, the _________ _________ system manages the U.S. money supply so that the country avoids both recession and inflation. It also supervises and regulates banks and serves as a clearinghouse for checks.
Federal Reserve. Serving as the central bank, the Federal Reserve System is the most powerful financial institution in the United States. It is commonly referred to simply as the Fed.
__________ is the term for anything generally accepted as a means of paying for goods and services.
money. The U.S. money supply consists of currency, demand deposit, and time deposits. In some societies, the bartering system still exists, though it is becoming increasingly obsolete in the global economy.
Coins, bills, traveler’s checks, cashier’s checks, and money orders are forms of __________.
currency. The bills and coins that make up the cash supply of a society is its currency.
Any accounts that pay interest and require advance notice before withdrawals can be made are called ______ _________.
time deposits. Savings accounts, certificates of deposit, and money-market deposit accounts are all examples of time deposits.
____, the Fed’s broadest measure of the money supply, includes all M2 plus time deposits of $100,000 and higher and other restricted deposits.
M3. The M3 measure is the broadest of the three measures used by the Fed to get a rough idea of the size of the money supply.
One way in which the Fed influences the money supply is by changing the _________ ___________ of U.S. banks. This technique modifies the percentage of a bank’s deposit that must be set aside.
reserve requirement. Adjusting the reserve requirement can have a drastic effect on the economy. A small increase in the reserve requirement decreases the amount of money banks can lend and thus slows down the economy. The opposite occurs when a decrease in the requirement greatly increases the bank’s lending ability.
The most common tool used by the Fed to influence the money supply is known as ____ _______ operations, in which it uses its power to buy and sell U.S. government bonds.
open market. The Fed can increase or decrease the money supply through its open-market operations. For example, it put cash into circulation and increase the money supply by buying back previously issued government bonds.
The most common tool used by the Fed to influence the money supply is known as ____ _______ operations, in which it uses its power to buy and sell U.S. government bonds.
open market. The Fed can increase or decrease the money supply through its open-market operations. For example, it put cash into circulation and increase the money supply by buying back previously issued government bonds.
Stocks, bonds, options, futures, and commodities are instruments known as __________.
securities. Securities are traded in organized markets where individual and institutional investors can buy and sell them to meet their investment goals.
When stock certificates are issued to shareholders, they include a ____ ________, a dollar value assigned to the stock primarily for bookkeeping purposes and, in the case of some stocks, for use in calculating dividends.
par value. A stock’s par value differs from both its market value, the price at which a share currently sells, and its book value, the amount of a corporation’s net assets represented by one share of common stock.
The per share value of a stock will decrease when a company announces a _______ ________, increasing the number of shares that each stock certificate represents.
stock split. A company will announce a stock split whenever it wants to make a share price more affordable.
Investing in _____ _____ stocks means purchasing equity from large, well-established companies with consistent records of stock price increases and dividend payments.
blue chip. Conservative investors minimize risk by investing in blue-chip corporations that have a long record of solid earnings and dividends.
With a bond, the amount borrowed from an investor is known as the __________.
principal. The purchaser of a bond will receive a certificate listing the issuer’s name, the principal, the date this principal amount will be repaid with any due interest, and the annual interest rate investors receive.
Unsecured bonds backed only by the corporation’s reputation are known as ___________.
debentures. Because of the greater risk involved with investing in debentures, investors generally can expect higher interest rates than they would receive with secured bonds.
When government agencies need to raise money for public services, they often will issue ___________ bonds. The interest on such bonds is exempt from federal income tax and from taxes in the issuing jurisdiction.
Detailed Explanation:
municipal. The two types of municipal bonds are general obligation bonds, which are backed by the government’s taxing power, and revenue bonds, which are backed by the money to be generated by the project being financed.
Any difference between the price at which a financial asset is sold and its original cost is called a _________ ______.
capital gain. As in the case with government bonds, generally tax-exempt securities might nevertheless be taxable on any capital gain earned by the investors.
Speculating in ___________ is an extremely risky investment strategy where one invests in raw materials and agricultural products, such as petroleum, gold, coffee beans, pork bellies, beef, and coconut oil.
commodities. Investors sometimes hedge the risk of trading in commodities by investing in trading commodities futures, which guarantee the price of a commodity and protect against violent price swings.
___________ investors are companies that invest money entrusted to them by others, such as pension funds, insurance companies, banks, and colleges and universities.
institutional. The U.S. securities market is dominated by institutional investors. Such investors often buy blocks of 10,000 shares or more per transaction, and their investment decisions thus have a major impact on the overall behavior of the securities market.
For both institutions and individuals, a common strategy to manage their investment portfolio is to shift their investments to adapt them to the current investment environment – a method known as _______ _________.
Asset allocation. Asset allocation balances a portfolio in such a way as to gain the highest rates of return while reducing risks as much as possible.
Besides asset allocation, another way investors reduce the risk of their investment portfolio is through ____________, which invests funds in several different securities in such a way that a loss in one investment will not hurt the entire portfolio.
diversification. Common methods of diversification include investing in securities from unrelated industries or from different countries, or by allocating assets to different investment types (i.e., bonds, stocks, and money-markets).
Pools of money that are raised from many investors in order to buy a diversified mix of stocks, bonds, or other securities are known as ________ ______.
mutual funds. For investors who want to spread a fixed amount of money over a variety of investments but do not have the time or experience to search out and manage investment opportunities, mutual funds are good investment opportunities.
Whereas newly issued shares are sold to initial investors in the primary market, subsequent investors buy and sell shares in organized secondary markets, known as _____ exchanges.
stock. The stock exchanges, also sometimes called securities exchanges, are those locations where traders buy and sell stocks and bonds. The New York Stock Exchange (NYSE) is the world’s largest and most famous stock exchan
The New York Stock Exchange is an example of an ________ exchange, a centralized marketplace where securities are traded by specialists on behalf of investors.
auction. Whereas an auction exchange has all trading take place physically on an auction floor, other types of exchanges, known as dealer exchanges, have no central marketplace but rely rather on executing sales through computers. The NASDAQ is a well known example of a dealer exchange.
In recent years, the ____________ has become an increasingly popular method to invest in stock, using the Internet to link buyers and sellers without using a middleman.
ECN. Sometimes refereed to as virtual stock markets or cybermarkets, electronic communications networks (ECNs) now control approximately a third of all security trades, and that number is growing.
A _________ order gives authorization to a broker to buy or sell securities at the best price that can be negotiated at the moment.
market. A specific type of market order is the limit order, which stipulates the highest or lowest price at which the customer is willing to trade.
Borrowing money from stockbrokers in order to buy stock, paying interest on the borrowed money, and leaving the stock with the broker as collateral is a practice called _________ _________.
margin trading. Although margin trading allows one to purchase stock without paying for it in full, it also increases the risk. If the price of stock purchased on margin falls, the investor must pay the broker even more money, or else the broker will sell the stock.
A _____ ________ is a term to describe a stock market in which stock prices have been rising over a long period.
bull market. A bull market is a rising stock market, as opposed to a bear market. Looking at the timing of such markets is important, since if a certain type of market has lasted for an overly extended period, a reversal of fortunes is likely imminent.
A common method of determining the current strength of a market is to look at indicators called _________ ________, which are based upon the prices of a selection of securities.
market indexes. The two best known U.S. market indexes are the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 Stock Average (S&P 500).
A stock’s _____________ _________ ratio is its current market price divided by issuer’s annual earnings per share.
price earnings. One indicator of a stock’s present status is to compare its price-earnings ratio (p/e ratio) to the industry average. If it is low, than either the company is in trouble or it is a newly emerging company with a relatively low stock price.
A ____________ is any activity or enterprise that provides goods or services to satisfy a society’s needs.
business. Whether a business is for profit or some other motive, it must use the same basic principles of efficiency in order to reach its goals.
Service businesses typically are _______________ intensive, since the investment in labor is usually greater than the costs of capital.
labor. Labor-intensive businesses rely predominantly upon human resources to prosper. Capital-intensive businesses, on the other hand, require large amounts of money or equipment.
Most of the jobs created in the U.S. over the past two decades have been in the ___________ sector.
service. Changing demographics, increasingly technological needs, and the rise of e-commerce are just a few of the factors attributing to the rise of service sector jobs.
___________ is the study of how society uses scare resources to produce and distribute goods and services.
economics. Free-market systems and planned systems are the two basic structures most commonly found in economics.
The basic inputs that a society uses to produce goods and services are called ________ of production.
factors. Natural resources, human resources, capital, entrepreneurs, and knowledge are what economists call the five factors of production.
Individuals in a ______ ________ system are free to decide what products to produce and in what quantities.
free market. The lack of government intervention in a free-market system leaves the success or failure of a business up to the individual.
The most common free-market system is called __________, a system based upon eighteenth-century philosophical theories of economic freedom and competition.
capitalism. Philosophers such as Adam Smith developed the theory of capitalism, in which the market’s buyers and sellers determine what is to be produced without any regulations from the government. In modern practice, however, limited intervention from the government is usually necessary in capitalism.
The government controls most of the factors of production and regulates their allocation in a ________ economic system.
planned. One of the main goals of a planned system is social equality.
The planned system that allows individuals the least amount of economic freedom is called ___________. It is a system in which all productive resources are owned and operated by the government.
communism. Communism exists today in such countries as Cuba and North Korea. In such a system, private ownership is limited primarily to personal and household goods.
Though considered a planned system, ___________ actually lies somewhere in between capitalism and communism. In this system, key industries are owned and operated by the government, while less vital industries are privately owned.
socialism. Because government absorbs the costs of medical care, education and other social services in socialism, taxes tend to be high.
Many socialists and communist economies are ______________ some of their government-owned enterprises – a process that is moving them increasingly towards free-market systems.
privatizing. The privatizing process converts public ownership to private ownership. Many countries are attracted to the financial benefits that can come from private ownership, but are not adequately preparing themselves for the transformation to a free-market economy.
________ is the buyer’s willingness and ability to purchase products.
demand. In a free-market system, supply and demand regulates the market, determining the the quantity of goods produced and at what price they are sold.
When graphing a market’s supply and demand for a certain product, the point at which the quantity of goods supplied equals the quantity demanded is called the __________ _______.
equilibrium price. On a graph, supply and demand curves meet at the equilibrium price. It is at this point that the intentions of buyers and sellers interact.
The free-market ideal of _____ __________ is characterized by so many buyers and sellers of a single product existing at once that no single buyer or seller can individually influence market prices.
Pure competition. Pure competition ensures that it is the market interests that regulate supply and demand – not an individual buyer or seller.
When only one producer of a given product exists in a given market, it is called a ____________.
monopoly. A monopoly enables a producer to determine the price of a product and the quantity it will supply. In most capitalist societies, the governments enact legislation to forbid monopolies.
Most competition in today’s free-market economies is defined as __________ competition, in which many sellers offer products that can be distinguished from competing products in at least some small way.
monopolistic. Pure competition can be rare in free markets. More common is monopolistic competition, where many sellers offer very similar products that are just different enough to distinguish themselves from the competition.
When the market becomes filled with competitors and products begin to look too similar, companies look for a way to gain a ____________ ____________ over their competitors by performing in one or more ways that competitors cannot match.
competitive advantage. Companies might use price, speed, quality, service, or innovation to gain a competitive advantage over the rest of the market. Although price is one way to compete with others, ensuing price wars can do serious harm to an entire industry. Thus many companies will try to find other ways to gain an advantage instead.
The process of ____________ removes or relaxes government rules and restrictions affecting businesses.
deregulation. Airlines, banks, and telecommunications have all undergone significant deregulation in the past, in hopes that the increased competition will provide consumers with lower prices and improved products or services.
Producing large quantities of similar products allows businesses to achieve economies of _______ – savings gained from manufacturing, marketing, or buying in sizeable quantities.
scale. At the beginning of the twentieth century, growing American businesses achieved economies of scale. As these business increased in size, some of them also grew more powerful and gained control of their industries, thus leading to an increase in government’s antitrust legislation.
A period when national income, employment, and production all fall is called a __________.
recession. A recession usually occurs in response to a variety of factors – including changes in investment patterns, world events, and basic economic forces. The opposite of a recession is a recovery.
The recurrent swings between recession and recovery are known as the __________ _______.
business cycle. The fluctuations of the business cycle are to be expected and are to a degree predictable. Nonetheless, government tries to avoid the hardships caused by such swings through adjusting its fiscal and monetary policy.
The government’s ___________ policy involves the actions taken by the Federal Reserve Board to regulate the nation’s money supply, such as the raising or lowering of interest rates to help control inflation.
monetary. The government’s monetary policy works in conjunction with its fiscal policy (adjustments to government revenue collection and spending) to help minimize the damage done by business cycle fluctuations.
The broadest measure of an economy’s health is a nation’s ______ , which measures a country’s output by computing the sum of all the final goods and services produced by businesses located within a nation’s borders.
GDP. So long as goods are produced within a nation’s boundaries, they are included within a nation’s gross domestic product (GDP). This differs from a nation’s gross national product (GNP), which excludes the value of production from any foreign-owned businesses and includes receipts from any domestic company’s overseas operations.
_________ is the economic condition in which the general price level for goods and services falls steadily throughout the economy.
deflation. Purchasing power increases during deflation, since the falling price level means more can be purchased per dollar than would have been possible before.
An economic indicator often used to measure the rate of inflation is the _______, which measures changes in the prices of about 400 representative goods and services that consumers buy.
CPI. Measured monthly, the consumer price index (CPI) is often used by businesses to adjust rent increases and to keep employees’ wages aligned with the current cost-of-living rate.
The increasing tendency of the world’s economies to act as a single interdependent system is known as ________________.
globalization. One of the major challenges facing business today is globalization. With financial and product markets being more interconnected than ever before, U.S. businesses now face increased competition in a marketplace that is increasingly unpredictable.
One of the reasons for the resurgence of the U.S. economy in the late 1990s was the rise in __________, or the buying and selling of goods and services on the Internet.
e-commerce. E-commerce utilizes the reach and convenience of the Internet to collapse boundaries and reach new markets around the world. In the e-commerce era, businesses are rapidly redefining their business structures and exploring new ways in which the Internet can maximize customer value.
The faster growth, lower inflation, and technology-driven expansion of the past decade has led to such drastic changes in the economy that it is now being referred to as the ____ ________.
new economy. A decreased concern with physical goods, the loosening of geographic boundaries, and an increased ease of entry into the market are all characteristics of what is being called the new economy.
____________ is a system a business uses to measure, interpret, and communicate financial information to support internal and external decision-making.
Accounting. Accounting is used both internally to help management and owners make informed business decisions (management accounting) and also externally to communicate relevant financial information to lenders, investors, and government agencies (financial accounting).
All companies with publicly-traded stock are required to undergo regular ________, which evaluate the fairness and reliability of their financial statements.
audits. Only certified public accountants (CPAs) have the authority to conduct audits, during which they determine whether or not a company’s financial statements fairly present the financial position and operating results of the firm.
The _________ principle is a basic accounting principle requiring that expenses incurred in producing revenue be deducted from the revenues they generated during the same accounting period.
matching. The matching principle is a necessary tool in presenting an accurate picture of the profitability of a business. To match revenue to expenses accurately, accountants use the accrual basis – recording revenue at the time the sale is made or the service provided, not when payment is received.
A ________ ________ is a statement of a firm’s financial position on a particular date, freezing all business actions and providing a baseline from which a company can measure change.
balance sheet. Such a statement is called a balance sheet because it shows the balance between assets on one side and liabilities and owners’ equity on the other. Though businesses are ever changing, a balance sheet freezes a business’s financial position as if it were static.
The profitability of an organization over time is revealed in its _________ _________, which records a company’s revenue, expenses, and profits over a specific time period.
income statement. While a balance sheet gives a static picture of a company’s financial position. an income statement records net income or loss over time. Such statements are helpful in evaluating past performance and predicting future behavior.
In addition to preparing a balance sheet and an income statement, most companies also prepare a statement of _____ _______ to report how much cash the company generated over time and where it went.
cash flow. By looking at its statement of cash flows, a company can determine a sense of its ability to pay its short-term obligations when they become due. Cash flows also help a company analyze how liquid its assets are and what proportion of its assets are fixed.
Accountants determine a company’s debt to _______________ ratio in order to measure the extent to which it is financed by debt as opposed to invested capital.
equity. The debt-to-equity ratio is calculated by dividing the company’s total liabilities by the total equity. From a lender’s standpoint, a lower ratio is better, since it means the company has very little existing debt.
The process of ______ ____________ builds an organized central database out of files and databases gathered from various functional areas. It then uses this central database to sort and analyze the information, so that informed recommendations can be made.
data warehousing. . With the increasing complexity of today’s organizations, data warehousing makes it possible to cross-reference vast amounts of data and use the findings to answer intricate, multi-departmental queries.
More and more organizations are hiring a _______ to oversee and manage the company’s information and information systems.
CIO. The intricacies of turning data into useful information in today’s business world have caused several companies to hire a chief information officer (CIO). It is the CIO’s responsibility to assess a company’s information needs and develop efficient ways to meet them.
A computer system that provides structured, routine information for managerial decision making is called a ____________ ____________ system.
management information. A variety of management information systems (MISs) exist today that supply information and support to managers for making effective routine decisions. Such systems structure data into useful reports such as monthly sales figures, daily inventory levels, product manufacturing schedules, etc.
One of the most important issues in business computing today is _____ _______________, or the process of connecting multiple computers and allowing them to send data back and forth.
Data communications. Data communications uses networks to transmit information between users both inside and outside the organization, as well as to connect users to expensive, powerful resources such as supercomputers.
When a company’s data communications needs encompasses only a small geographic area (such as an office or college campus), then a ________ will likely link the hardware, software, and communications media.
LAN. An intranet is an example of a local area network (LAN). For networks that cover a larger geographic area, a wide area network (WAN) links computers in different places through one of several transmission media.