Chapter 16 Understanding Financial Management and Securities Markets Flashcards
Key terms used in Chapter 16 of Openstax Introduction to business
Questions
Answers
The art and science of managing a firm’s money so that it can meet its goals is called __________.
financial management
The inflow and outflow of cash for a firm are called ___________.
cash flows
A(n) ___________ is an opportunity for profit.
return
The potential for loss or the chance that an investment will not achieve the expected level of return is called ______________.
risk
The ____________________ is a basic principle in finance that holds that the higher the risk, the greater the return that is required.
risk-return trade-off
____________ is the process of making sure that a firm has enough cash on hand to pay bills as they come due and to meet unexpected expenses.
cash management
___________________ are short-term investments that are easily converted into cash.
marketable securities
Unsecured short-term debt, an IOU, issued by a financially strong corporation is ______________.
commercial paper
Sales for which a firm has not yet been paid are _____________.
accounts receivable
Investments in long-lived assets, such as land, buildings, machinery, equipment, and information services, that are expected to provide benefits over a period longer than one year are ___________.
capital expenditures
The process of analyzing long-term projects and selecting those that offer the best returns while maximizing the firm’s value is called _______________.
capital budgeting
Borrowers does not have to pledge specific assets as security for ____________ loans.
unsecured loans
The extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them is called __________________.
trade credit
Purchases for which a buyer has not yet paid the seller are ____________.
accounts payable
An agreement between a bank and a business that specifies the maximum amount of unsecured short-term borrowing the bank will allow the firm over a given period, typically one year, is a(n) _______________.
line of credit
A guaranteed line of credit whereby a bank agrees that a certain amount of funds will be available for a business to borrow over a given period, typically two to five years, is a(n) _______________.
revolving credit agreement
Loans for which the borrower is required to pledge specific assets as collateral or security are ________________.
secured loans
___________ is a form of short-term financing in which a firm sells its accounts receivable outright at a discount to a factor.
factoring
______________ is the chance that a firm will be unable to make scheduled interest and principal payments on its debt.
financial risk
An unsecured or secured business loan with a maturity of more than one year is called a(n) ___________.
term loan
_________ are Long-term debt obligations (liabilities) issued by corporations and governments.
bonds
A fixed amount of money paid by the issuer of a bond to the bondholder on a regular schedule, typically every six months is called ___________ and stated as the coupon rate.
interest
The par value, or ______________, is the amount borrowed by the issuer of a bond.
principal
A long-term loan made against real estate as collateral is a(n) ____________________.
mortgage loan
____________ is a security that represents an ownership interest in a corporation.
common stock
Payments to stockholders from a corporation’s profits are _________.
dividends
Payments to stockholders in the form of more stock are called ______________. They may replace or supplement cash dividends.
stock dividends
Profits that have been reinvested in a firm are _____________________.
retained earnings
______________ is an equity security for which the dividend amount is set at the time the stock is issued and the dividend must be paid before the company can pay dividends to common stockholders.
preferred stock
______________ are investment certificates issued by corporations or governments that represent either equity or debt.
securities
Investment professionals who are paid to manage other people’s money are called ____________.
institutional investors
The securities market where new securities are sold to the public is the ____________ market.
primary market
The ________________ is a securities market where old (already issued) securities are bought and sold, or traded, among investors. It includes broker markets, dealer markets, the over-the-counter market, and the commodities exchanges.
secondary market
Firms that act as intermediaries, buying securities from corporations and governments and reselling them to the public are called _________________.
investment bankers
______________ is the process of buying securities from corporations and governments and reselling them to the public. This is the main activity of investment bankers.
underwriting
A(n) ___________________ is a person who is licensed to buy and sell securities on behalf of clients.
stockbroker
Bonds issued by states, cities, counties, and other state and local government agencies are called __________________.
municipal bonds
____________ are letter grades assigned to bond issues to indicate their quality or level of risk They are assigned by rating agencies such as Moody’s and Standard & Poor’s (S&P).
bond ratings
A financial-service company that pools investors’ funds to buy a selection of securities that meet its stated investment goals is a(n) ____________________.
mutual fund
A security similar to a mutual fund is a(n) _____________. It holds a broad basket of stocks with a common theme but trades on a stock exchange so that its price changes throughout the day.
exchange traded fund (ETF)
______________ are legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed-on price at a future date.
futures contracts
Contracts that entitle holders to buy or sell specified quantities of common stocks or other financial instruments at a set price during a specified time are called __________.
options
National and regional securities exchanges that bring buyers and sellers together through brokers on a centralized trading floor are called _________________.
broker markets
Securities markets where buy and sell orders are executed through dealers, or “market makers,” linked by telecommunications networks are called ________.
dealer markets
The __________________________ is the first and largest electronic stock market, which is a sophisticated telecommunications network that links dealers throughout the United States.
National Association of Securities Dealers Automated Quotation (NASDAQ) system
Markets, other than the exchanges, on which small companies trade are called ___________ and includes the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets.
over-the-counter (OTC) markets
Private trading networks that allow institutional traders and some individuals to make direct transactions in the fourth market are _________________________.
electronic communications networks (ECNs)
______________ is the use of information that is not available to the general public to make profits on securities transactions.
insider trading
Corrective measures that, under certain conditions, stop trading in the securities markets for a short cooling-off period to limit the amount the market can drop in one day are called ____________.
circuit breakers
