Chapter 1 Flashcards

1
Q

Financial Planning Activities

A

Those activities relating to managing money

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2
Q

Financial Markets

A

Markets used to transfer financial assets between borrowers and investors

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3
Q

Real assets

A

Assets that are tangible, such as land, buildings and machinery

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4
Q

Financial assets

A

Securities issued by a corporation or economic unit for purchase by another individual or corporate investor

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5
Q

Time value of money

A

The concept that a dollar owned today is worth more than the same dollar would be worth in the future

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6
Q

Risk

A

The variability of returns resulting from an investment

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7
Q

Securities

A

Financial instruments used to finance an organisations operations

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8
Q

Financial instruments

A

Instruments, such as convertible debt or preference shares, that allow funds to be transferred between investors (or lenders) and borrowers

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9
Q

Lender

A

Person who grants the use of money or any other asset to another for a set period of time and receives income in return

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10
Q

Borrower

A

An individual, or organisation, who obtains or receives something such as money, temporarily from another individual or organisation, with the intention of repaying it

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11
Q

Finance

A

The allocation of scarce resources, such as money, over time

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12
Q

Shares

A

Entitlement to a proportion of the ownership of a company or firm

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13
Q

Bonds

A

Fixed-interest investments whereby the individual receives a number of payments at fixed intervals until the bond is repaid. They represent the long term debt obligations of a company or government

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14
Q

Invest

A

To apply or put money to some use in order to defer consumption and receive a return in the future

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15
Q

Return

A

Gains or losses received from the investment of funds for a given period of time

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16
Q

Company

A

A legal entity that operates and functions independently from its owners and, as such, is responsible for all debts incurred in the course of business

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17
Q

Asset

A

A commodity or quality that is useful or valuable

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18
Q

Financial system

A

A network which operates via a set of financial markets, bringing together investors and borrowers who buy and sell both real and financial assets; includes financial intermediated, individuals, corporations, regulatory bodies and financial service organisations

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19
Q

Market

A

A network whereby buyers and sellers are able to come together, either physically or through communication channels, to trade goods and/or services

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20
Q

Foreign exchange

A

The process of converting New Zealand dollars into the currency of another country

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21
Q

Financial institutions

A

Banks, insurance companies and other organisations that facilitate the flow of funds between investors and borrowers

22
Q

Investors

A

Individuals who acquire the financial assets of corporations or other organisations in order to receive compensation for the loan of their funds

23
Q

Investment

A

The activity of investing in real and/or financial resources

24
Q

Accrual

A

Accrual accounting records cash and credit transactions as they are incurred and not when the cash flows arise

25
Q

Profit

A

Excess of income over expenses. Alternatively referred to as net profit, net income or net earnings

26
Q

Cash flows

A

The inflow (receipts) and outflow (disbursements) of funds

27
Q

Monetary policies

A

The management of a nation’s money supply, and how this relates to interest rates to interest rates, prices and other economic variables

28
Q

Currency

A

An exchange medium within a country; that is, money

29
Q

Marginal analysis

A

Technique used in managerial finance whereby a proposal is accepted is only when the added benefits exceed the added costs

30
Q

Shareholder

A

Any individual or entity owning shares in a company

31
Q

Stakeholders

A

Groups such as investors, suppliers, regulators, employees, customers and the public with interests in a firm

32
Q

Finance company

A

Finance companies lend the funds they have raised in the markets to people and businesses who need money to finance the purchase of durables, such as equipment, cars and home improvements. They normally charge higher interest rates to compensate for the riskier lending

33
Q

Financial crises

A

Major disturbances in financial markets typified by steep declines in asset prices and widespread company failures

34
Q

Global financial crisis

A

A worldwide financial crisis that occurs when financial-market participants recognise the risk and over inflated values of financial contracts, leading to a severe contraction in the flow of funds and rapidly declining asset values

35
Q

Act

A

A codified decision provided by a legislative body

36
Q

Prospectus

A

A document required by law to inform prospective investors in a firm of the details of the security and the firm’s financial position

37
Q

Dividends

A

The portion of a company’s net profit paid to its shareholders (owners)

38
Q

Unlimited liability

A

The state of being personally liable for all debts and monies owed by a business or organisation

39
Q

Limited liability

A

The set of being liable for all debts and monies owed up to a pre-defined amount

40
Q

Debt

A

An obligation of one party (the borrower) to repay a specified amount of money to another party (the lender)

41
Q

Equity

A

Money, in the form of shares, supplied to a company or organisation by its owners

42
Q

Liquidation

A

The process of winding up the assets of an organisation and distributing the funds to creditors and owners

43
Q

Ethics

A

The ability to know the difference between right and wrong

44
Q

Agency problems

A

Issues that arise when managers, who are hired as agents of a company, work in their own interests rather than in those of the shareholders

45
Q

Conflicts of interest

A

Issues that arise when a manager, or director, uses company information to benefit themselves or another organisation

46
Q

Pure market system

A

A system in which all scarce resources are freely allocated so that the maximum benefit is received by everyone as a result of the allocation

47
Q

Efficient market

A

This market exists when the price of any good (asset) fully reflects all information associated with it

48
Q

Homogeneous

A

Something that is of a similar kind of nature

49
Q

Public goods

A

Goods or services, such as education, provided by the government for use by members of its society

50
Q

Externalities

A

Influences on the activities of an individual or business that are not controlled by the individual or business

51
Q

Budget

A

A forecast of expected future income and expenses that will assist the planning and control of an individuals, or organisations, financial management