Quiz Chp 16 BA 1301

Electronic communications networks (ECNs):

have permitted the creation of the fourth market

municipal bonds

have some risk (a city can go bankrupt)

investment bankers

help companies raise long term financing

junk bonds

high risk and high return (unless that risk thing happens)

online investing

if you dont feel the need for a stockbroker

underwriting

large banks do this. they acquire securities for an agreed upon price and hope to be able to resell them at a highter price to make a profit

future contracts

legally binding obligation to buy or sell specific quantities of commodities. risky

american stock exchange

less strict than NYSE, but smaller

stockbroker

licensed to buy and sell securities on behald of clients. they have an incentive to encourage transactions

exchange traded funds

like mutual funds but they are traded on exchanges (mostly american stock exchange: AMEX)

general obligation bonds

paid for out of tax dollars

revenue bonds

paid out of specific revenue (like toll roads)

dividends

payment to stockholders

stock dividends

payments in the form of additional stock

retained earnings

profits reinvested in the firm

The cost of inventory to the firm includes all of the following EXCEPT:

selling costs

new york stock exchange

since 1792, , while a "hybrid" now, thereis still a trading floor augmented by electronic trading

regional exchanges

smaller centralized trading

Payments in the form of more stock to existing stockholders are called:

stock dividends

Business loans available from commercial banks with terms generally five to twelve years and secured or unsecured are called _____ loans.

term

financial management

the art and science of managing afirm's money so that it can meet its goals

"When Magna Manufacturing sells hand on screwdriver sets to Malloy Building Supply Company, Magna bills the tool manufacturer for the screwdriver purchase with terms of payment, which specify when the account is due. This type of unsecured loan is called _____ credit."

trade

equity is selling part of your ownership

- Fewer restrictions - But stockholders can vote and have power - Stockholders may expect dividends (which are taxed)

debt is borrowing money

- You can deduct the interest - You can be in trouble (Financial Risk) if you cannot pay - No loss of ownership

common stock

- a security that represents an ownership interest ina corporation - The first time you sell stock to the public begins with an InitialPublic Offering (IPO). After that, a firm can issue and sell more shares - Share prices can be quite volatile. - This is a complicated and expensive thing to do. - This is how venture capitalist usually get their payday - Some big companies are still private.

short term expenses

- cash management - excess should be invested - but for how long? in what asset? - speed up collections - customers need to understand - slow down payments - but dont hurt your reputation - minimize funds in inventory - calculate when to order more

managing accounts receivable its a balancing act

- easy credit terms attract customers - but if they are too easy some wont pay - discounts for paying ealy (2-10, net -30??) speed it up, but they cost you

mutual funds

- good way to hold a diversified portfolio - professionally managed - may offer higher returns than individual investors could achieve on their own

secured short term loans

- secured loans - factoring

secondary market

- the "stock market" DOW and NASDAQ (National Association of Securities Dealers AutomatedQuotations) - Also commodities exchanges (pork bellies, corn, petroleum)

investing in bonds

- the bond market is big - when a bond matures you get the face value, which is less than it sells for

venture capitalist "vulture capitalist"

- they invest early - They want a significant share of the business - They expect a very high return - They are very selective.

main goal of the financial manager

- to maximize the value of the firm to its owners - The time frame is important: cutting cost and"pumping" sales might work in the short term but sacrifice long term survivability.

un-secured short term loans (no specific asset is pledged)

- trade credit - bank loans - commercial paper

trade credit

Accounts Payable is what you have if you buysomething with the agreement to pay later. If you are Exxonyou probably don't have to fill out an application, othersmight

cash management

Assuring Liquidity - you CAN'T run out of cashTiming is critical

capital budgeting (long term expenditures)

Deciding which big investments have the greatest potential return(and the lowest risk)

self regulation

Financial Industry Regulatory Authority (FINRA)oversees the nation's more than 3,700 brokerage firms and more600,000 registered brokers.

investment (spending money)

Investing the firm's funds in projects and securities that provide high returns in relation to their risks.

finance looks outward

Move toward accurate and clearpresentation of financial health.

vying for the crown

NYSE and NASDAQ fight for top spot

financing (raising money)

Obtaining funding for the firm'soperations and investments and seeking the best balance betweendebt (borrowed funds) and equity (funds raised through the sale ofownership in the business).

financial planning

Preparing the financial plan, which projectsrevenues, expenditures, and financing needs over a given period.

bank loans

a "line of credit" is somewhat like a credit cardbut only good for a specific time period (e.g. a year). A"revolving credit agreement" is similar but longer.

" Which of the following businesses would be most likely to require an unsecured bank loan, such as a line of credit or a revolving credit agreement?"

a Christmas tree farm

term loan

a business lone with a maturity of more than a year

bond

a long term debt that pays it's face value on a certain date.Can "mature" in many years and may be bought or sold many times before it matures

dealer markets

all electronic using market makers, only dealers invovled

secured loans

an asset is pledged to cover payment(much like a home loan or car loan)

commercial paper

an unsecured debt from a financiallystrong corporation. It's a cheaper way to borrow if you area major firm.

"Financial managers focus on _____, the inflow and outflow of cash."

cash flows

US government bonds

considered risk free

A mortgage loan is a long-term loan that uses real estate as collateral.

true

factoring

using Accounts Receivable as collateral for aloan. This can get expensive and in some cases, is a sign ofstress.

primary market

where new securities are sold (via IPO, remember?)

The Securities Investor Protection Corporation (SIPC):

"insures the accounts of customers of brokerage firms for up to $500,000 against a firm failure"

The three main types of unsecured short-term loans are:

"trade credit, bank loans, and commercial paper"

inventory (another balancing act)

- Every dollar in inventory is costing you money - The cost of the inventory, the cost of the interest youcould have recieved, the cost of storage space, insurance,the chance of spoilage or obsolescence - Running out of inventory will cost you money in the form oflost sales and maybe lost customers

"In finance, the potential for loss is called probability."

false

A term loan is a loan with a maturity of less than a year.

false

Dividends and interest payment are both tax-deductible.

false

Keisha Hunter keeps track of day-to-day operational data to make sure her employer has enough cash to run the business and will determine if and when the company she works for should open a second distribution center. Hunter is a(n) _____ manager.

financial

_____ management is the art and science used to determine the most effective ways to acquire and use funds to achieve the firm's goals.

financial

preferred stock

has a pre set dividend amount and if the firm goes bankrupt, these stockholders get paid first

mortgage loan

has real estate as collateral