ch. 16 financial management and planning

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savings account (time desposit)

a bank account that pays low interest and doesn't allow check writing

line of credit

a bank specifies how much it is willing to lend the borrower during a specified period of time

M2

a broader definition of the money supply.. 1. money that can be accessed more quickly and easily (M1) AND 2. money that takes more time to access

demand deposit

a commercial bank's or other financial institution's checking account, from which you may make withdrawals at any time

fianancial control

a company from time to time compares its actual revenues and expenses with those predicted in its budget

commercial bank

a ferderal- or state-charted profit-seeking financial institution that accepts deposits from individuals and businesses and uses part of them to make personal, residential and business loans

derivative

a financial contract that "derives" its value from a wide range of sources, including stocks, loans and market indexes. investors pay a set price in return for possible profits later

factoring accounts receivable

a firm sells its accounts receivable at a discount to a financial institution

pledging accounts receivable

a firm uses its accounts receivable as collateral, or security, to obtain a short-term loan

operating budgets

a firm's sales and production goals and specify the costs required to meet those goals

financial plan

a firm's strategy for reaching its financial goals. it has three parts: 1) forecasting 2) budgeting and 3) financial controls

smart card

a plastic card with built-in microprocessor and memory chips that can combine the functions of credit, debit, phone, bridge-toll, and national-health-care cards

long-term forecasts

a prediction about how money will come into and go out of a firm during the next 1, 5, or 10 years

short term forecasts

a prediction about how money will come into and go out of a firm during the next 4-12 months

cash flow forecast

a prediction about how money will come into and go out of a firm in the near further, usually within the next 1-3 months

term-loan agreement

a promissory note indicating specific installments, sun as months or yearly, for repayment

certificate of deposit (CD)

a savings (time deposits) account that pays interest upon the certificate's maturity date

promissory note

a written contract prepared by the buyer who agrees to pay the seller a certain amount by a certain time (ex. jewlerly)

debit card

allows you to immediately transfer money from you bank account to pay for purchases electronically

NOW account

an account that pays interest and allows you to write an unlimited number of checks, but you have to maintain a minimum monthly balance

FDIC

an independent agency of the us government that insures bank desposits

national credit union administration (NCUA)

an independent federal agency that provides up to $250,000 insurance coverage per individual per credit union

money

any medium of value that is generally accepted as payment for goods and services

secured bonds

backed by some form of the firm's collateral, such as real estate or equipment

unsecured bonds

backed only by the reputation of the firm issuing the bonds

money market accounts

bank accounts that offer interest rates competitive with those of brokerage firm money market funds, but they require higher minimum balances and limit check writing to as few as three per month

financial budgets

capital budgets and cash budgets. they concentrate on the company's financial goals and the resources needed to achieve them.

how banks make money

charging interest on loans, charging fees for other services and by offering other financial products

brokerage firms

companies that buy and sell stocks and bonds for individuals and now compete with banks by offering high-interest-rate combination checking and savings

electronic funds transfer systems or EFTS

computerized systems that move funds from one institution to another over electronic links

commercial paper

consists of unsecured, short-term promissory notes over 100,000 issued by large banks and corportations

bonds

contracts between issuer and buyer in which the purchase price represents a loan by the buyer and for which the issuing firm pays the buyer interest

transaction loan

credit extended by a bank for a specific purpose

budget

defined as a detailed financial plan showing estimated revenues and expenses for a particular future period, usually one year

time deposits

defined as bank funds that can't be withdrawn without notice or transferred by check

money supply

defined as the amount of money the fed makes available for people to buy goods and services. the money supply is customarily referred to in two ways--as M1 (the narrowest messure) or M2 (more generous and more commonly used measure)

credit unions

depositor-owned, nonprofit financial cooperatives that offer a range of banking services to their members

capital budgets

estimate a firm's expenditures for purchasing long-term assets that require significant sums of money

investment bank

financial institution that deals primarily with raising capital, structuring corporate mergers and acquisitions, and handling securities

nonbanks

financial institutions (insurance companies, pension funds, finance companies, and brokerage firms) that offer many of the same services as banks provide.

savings and loan associations (S&Ls)

financial institutions that accept deposits and were originally intended to make loans primarily for home mortgages

risk-return trade-off

financial managers continually try to balance the firm's investment risk with the expected return, or payoffs, from its investments

mutual saving banks

for-profit financial institutionals similar to savings and loans, except that they are owned by their depositors rather than by shareholders

cash budgets

forecast inflows and outflows for a stated period, usually 1-3 months

venture capital

funds acquired from wealthy individuals and institutions that invest in promising startups or emerging companies in return for their giving up some ownership

currency

gov-issued coins and paper money

private placements

involve selling stock to only a small group of large investors

public offerings

involve selling stock to the general public in securities markets

subprime loans

loans for people with blemished or limited credit histories, which carried a higher rate of interest than prime loans to compensate for increased credit risk

capital expenditures

major investment in tangible or intangible assets

reasons firms borrow money

managing everyday business activities, extending credit to their customers, keeping enough product available, and making major investments

three functions of money

medium of exchange store of wealth standard of value

e-cash

money held, exchanges, and represented in electronic form and transacted over the Internet

insurance companies

non deposit companies that accept payments (called premiums) from policyholders-individuals or firms who have purchased insurance policies that guarantee financial protection in the event something goes wrong

finance companies

non deposit companies that make short-term loans at higher interest rates to individuals or businesses that don't meet the credit requirements of regular banks

pension funds

non-deposit institutions that provide retirement benefits to workers and their families

SAIF

now part of FDIC, insures depositors with accounts in savings and loan associations

standard of value

or unit of account, it can be used as a common standard to measure the values of goods and services

commercial finance companies

organizations willing to make short-term loans to borrowers who can offer collateral ex. wells fargo and b of a

store of wealth

people can save it until they need to make new purchases

characteristics of money

portability, divisibility, durability, uniqueness, stability

forecasting

predicting revenues, costs, and expenses for a certain period of time three types: cash flow, short-term, and long term

terms of trade

refers to the condition the supplier (seller) gives the buyer when offering short-term credit.

revolving credit

resembles a line of credit, except that the bank guarantees the loan and is obligated to loan funds up to the credit limit

trade credit

short-term financing by which a firm buys a product, then receives a bill (an invoice) from the supplier, then pays it later (usually in 30-90 days)

medium of exchange

that it makes economic transactions easer and eliminates the need to barter

collateral

the asset that is pledged to secure the loan and can be seized by the lender if the borrower does not repay the loan

unsecured loan

the borrower does not pledge some sort of asset as collateral (usually only given to people the lender has known for a long period)

secured loan

the borrower pledges some sort of asset, such as personal property, that is forfeited if the loan is not repaid

finance (corporate finance)

the business function of obtaining funds for a company and managing them to accomplish the company's objectives

fed reserve system

the central bank of the us and controls the us money supply

open-market operations

the federal reserve controls the money supply by buying and selling US treasury securities, or gov bonds, to the public

discount rate

the interest rate at which the federal reserve makes short-term loans to member banks

financial management

the job of acquiring and managing funds is called financial management

net period

the length of time for which the supplier (seller) extends credit

m1

the narrowest definition of the money supply, defined as money that can be accessed quickly and easily

financial managers

the people responsible for planning and controlling the acquisition and uses of funds

reserve requirements

the percentage of total checking and savings deposits that a bank must keep as cash in its vault or in a non-interest-bearing deposit at its regional federal reserve bank

interest rate

the price paid for the use of money over a certain period of time

cost of capital

the rate of return a firm must earn to cover the cost of generating funds in the marketplace

financial leverage

the technique of using borrowed funds to increase a firm's rate of return

indenture terms

the terms of the lending agreement

barter

the trading of goods and/or services for other goods and/or services

master budgets

tie together the above three budgets-operating, capital, and cash budgets-to present the company's overall plan of action for a particular period of time


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