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51 Cards in this Set
- Front
- Back
What are the 5 steps in the Risk Management Process? |
1. identify risks and potential losses 2. measure the frequency and severity of losses and their impact 3. evaluate alternatives and choose the techniques that will best handle the losses 4. implement the risk-management program 5. monitor results |
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Meagan is comparing her firm's actual quarterly results to the budget projection that was completed six months ago. When analyzing these documents, she discovers that sales were lower than the firm had anticipated. Meagan is involved in ________ A) financial control B) cash flow management C) financial planning D) management accounting |
A) financial control |
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Crystal, an owner of a travel agency, is beginning to worry that her cash flows are not going to cover her current operating expenses. With the cold weather approaching, crystal knows that her cash inflows will pick up very quickly as people begin to book vacations to the sunny south. Crystal can resolve her current cash flow concerns by obtaining _______ financing A) immediate B) short-term C) contingency D) long-term |
B) short-term |
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Azim has been approved for a bank loan; however the bank manager requires Azim's signature allowing the bank to seize his car if payment is not made as agreed. Azim's car is being used as ______ A) security B) a promissory note C) equity D) collateral |
D) collateral |
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Businesses may seek long-term financing from these major sources: A) debt, equity and insurance financing B) debt, equity and hybrid financing C) government funds and bank loans D) commercial paper and promissory notes |
B) debt, equity and hybrid financing |
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Extended periods where most stock prices are increasing is characterized as a _____ market; periods where mot prices are falling is characterized as a _______ market. A) growth; decline B) recovery; recession C) bull; bear D) bear; bull |
C) bull; bear |
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Define Finance |
the business function involving decisions about a firm's long-term investments and obtaining the funds to pay for those investments |
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cash-flow management |
managing the pattern in which cash flows into the firm in the form of revenues and out of the firm in the form of debt payments |
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financial control |
the process of checking actual performance against plans to ensure that the desired financial status is achieved |
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financial plan |
a description of how a business will reach some financial position it seeks for the future; it includes projections for sources and uses of unds |
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inventory |
materials and goods currently held by the company that will be sold within the year |
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trade credit |
the granting of credit by selling a firm to a buying firm |
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secured loans |
short-term loan in which the borrower is required to put up collateral |
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unsecured loan |
short-term loan in which the borrower is not required to put up collateral |
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line of credit |
standing agreement between a bank and a firm in which the bank specifies the maximum amount it will make available to the borrower for a short-term unsecured loan; the borrower can then draw on those funds, when available |
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revolving credit agreement |
a guaranteed line of credit for which the firm pays the bank interest on funds borrowed, as well as a fee for extending the line of credit |
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commercial paper |
a method of short-run fundraising in which a firm sells unsecured notes for less than the face value and then repurchases them at the face value within 270 days; buyers' profits are the difference between the original price paid and the face value |
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debt financing |
raising money to meet long-term expenditures by borrowing from outside the company; usually in the form of long-term loans or the sale of corporate bonds |
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corporate bond |
a promise by the issuing company to pay the holder a certain amount of money on a specified date, with stated interest payments in the interim; a form of long-term debt financing |
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secured bonds |
bonds issued by borrowers who pledge assets as collateral in the event on non-payment |
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equity financing |
raising money to meet long-term expenditures by issuing common stock or by retaining earnings |
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par value |
the arbitrary value of a stock set by the issuing company's board of directors and stated on stock certificates; used by accountants but of little significance to investors |
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book value |
the value of a common stock expressed as total stockholders' equity divided by the number of shares of stock |
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market value |
the current price of one share of a stock in the secondary securities market; the real value of a stock |
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market capitalization |
the dollar value (market value) of stocks listed on a stock exchange |
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capital structure |
relative mix of a firm's debt and equity financing |
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risk-return relationship |
shows the amount of risk and the likely rate of return on various financial instruments |
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securities |
stocks, bonds, and mutual funds representing secured, or asset-based, claims by investors against issuers |
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investment bankers |
financial specialists in issuing new securities |
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stock exchange |
a voluntary organization of individuals formed to provide an institutional setting where members can buy and sell stock for themselves and their clients in accordance with the exchange's rules |
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stockbroker |
an individual licensed to buy and sell securities for customers in the secondary market; may also provide other financial services |
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over-the-counter (OTC) market |
organization of securities dealers formed to trade stock outside the formal institutional setting of the organized stock exchanges |
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market index |
a measure of the market value of stocks; provides a summary of price trends in a specific industry or the stock market as a whole |
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bull market |
a period of rising stock prices |
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bear market |
a period of falling stock prices |
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stock option |
the purchased right to buy or sell a stock |
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margin |
the percentage of the total sales price that a buyer must put up to place an order for stock or a futures contract |
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short sale |
selling borrowed shares of stock in the expectation that their price will fall before they must be replaced, so that replacement shares can be bought for less than the original shares were sold for |
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mutual fund |
any company that pools the resources of many investors and uses those funds to purchase various types of financial securities, depending on the fund's financial goals |
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exchange-traded fund (ETF) |
a bundle of stocks (or bonds) that is in an index that tracks the overall movement of the market |
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hedge funds |
private pools of money that try to give investors a positive return regardless of stock-market performance |
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future contracts |
agreement to purchase specified amounts of a commodity (or stock) at a given price on a set future date |
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blue-sky laws |
laws regulating how corporations must back up securities |
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risk |
uncertainty about future events |
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speculative risk |
an event that offers the chance for either a gain or a loss |
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pure risk |
an event that offers no possible gain; it only offers the chance of a loss or no loss |
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risk management |
conserving a firm's (or an individual's) financial power or assets by minimizing the financial effect of accidental losses |
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risk avoidance |
stopping participation in or refusing to participate in ventures that carry any risk |
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risk control |
techniques to prevent, minimize, or reduce losses or the consequences of losses |
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risk retention |
the covering of a firm's unavoidable losses with its own funds |
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risk transfer |
the transfer of risk to another individual or firm, often by contract |