CH. 16 Financial Management and Securities Market

Which of the following are examples of temporary marketable security investments utilized by firms to invest idle cash?

1. Eurodollar deposits 2. Certificates of deposit (CDs) 3. Commercial paper 4. US treasury bills

two inventory issues that negatively impact a firms finance

1. Inventory shortages may cause a customer to seek out a competitor's product for purchase 2. Excess inventory sitting in a warehouse reduces money that could be invested in some other part of the company

two largest stock markets in the United States

1. NASDAQ 2. NYSE

characteristics of preferred stock

1. a type of equity ownership in a firm 2. preference in the distribution of dividends

Long-term (fixed) asset examples

1. automobiles 2. heavy machinery 3. production facilities

examples of debt financing

1. bonds 2. lines of credit 3. long-term loans

two common choices for raising funds for long-term assets are

1. equity financing 2. debt financing

Which two of the following is true about trade credit?

1. trade credit is the most widely used source of short-term funds 2. trade credit frequently involves discounts to organizations who pay their bills early

What is NOT true regarding commercial paper?

Holders of commercial paper must wait until the maturity date before it can be sold

tagging a product with a silicon chip and an antenna and then using radio waves to track and identify those products is the technology behind the use of ____ ____

RFID Tages

Prime Rate

Rate of interest commercial banks charge their best customers, usually large corporations, for short term loans

Index

a comparison of current stock prices with those in a specified base period

variable rate loan example

a mortgage loan with a beginning interest rate of 4%, and the possibility of a rate increase of 2% each year, with a maximum rate increase of 5% over the original rate

Fixed rate loan example

a mortgage loan with a rate of 5% that will not change over the life of the loan

serial bonds

a sequence of small bond issues of progressively longer maturity

Joan owns a flower shop. As a small business owner she carefully manages the finances of her shop. If Joan purchases flowers from a local producer for $500 and agrees to pay for the flowers within a month, Joan will list the $500 bill as ______ on her balance sheet

accounts payable

the balance sheet item that reflects money owed to a business by credit customers

accounts receivable

while a loan must be repaid, factoring is the selling of ____ to a finance company who then assumes responsibility for collecting the accounts

accounts receivable

while a loan must be repaid, factoring the selling of _______ to a finance company who then assumes responsibility for collecting the accounts

accounts receivable

A line of credit

an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request

Eurodollar Market

an international market for trading US dollars in foreign countries

Treasury Bills

are considered to be the safest of all investments since it is issued by the federal government

Current assets

are short-term resources such as cash, investments, accounts receivable, and inventory

a(n) ____ is like an IOU with a promise to repay the amount borrowed, with interest, on a certain date

bond

an indenture is a ____ contract

bond

unsecured bonds

bonds not backed by specific collateral

secured bonds

bonds that are backed by specific collateral that must be forfeited in the event that the issuing firm defaults

floating-rate bonds

bonds that do not have a fixed interest rate, but rather have a rate that changes with the current rates

Quinn works for a manufacturing company and is in the process of making a decision about the funding of future projects. Quinn must select those projects that promise the greatest future return for the company. Quinn is involved in the process of

capital budgeting

a chief concern of any financial manager is effectively managing a firm's ____

cash flow

n financial management, the words short term and ___ are used interchangeably

current

accounts payable and short-term bank loans are examples of

current liabilities

the field that addresses the issues of obtaining and managing the funds and resources necessary to run a business succesfully is called

financial management

when a small business owner borrows money from a bank, they will repay the original principal amount plus ____

interest

Which of the following does NOT trade on the OTC

large corporate stocks

firms that receive thousands of checks from customers each day may benefit from the use of a(n) ____ to speed up cash collections from customers

lockbox

when individuals and businesses borrow money, the amount of money borrowed is called

principal

bond contract (indenture)

specifies all of the terms of the agreement between the bondholders and the issuing organization

in a public corporation, the ownership is held by

stockholders

Average

the calculated average of certain stock prices

ICE

the fastest-growing electronic marketbased in Atlanta and primarily trading financial and commodity features

Initial Public Offering (IPO)

the first time a company offers stock to the public

new issue

the first time sale of stocks or bonds directly to the public

idle cash typically does not earn interest for the company, thus financial managers try to keep small amounts of cash on hand, called _____, to pay current bills such as wages, supplies, and utilities

transaction balances

True/False: Commercial certificates of deposits (CDs) work exactly the same way consumer CDs work, except that commercial CDs are issued in larger amounts

False