Chapter 5 Flashcards

(59 cards)

1
Q

this involves the maintenance of the appropriate level of cash and investment in marketable securities to meet the firms cash requirements and to maximize income on idle funds

A

cash and marketable management

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2
Q

their objective should be invest in cash for a return while retaining sufficient liquidity to satisfy future needs

A

cash and marketable securities

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3
Q

these are crucial to a firms continuing success

A

cash and short-term investments

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4
Q

these are the primary concerns of the treasurer when dealing with highly liquid assets

A

liquidity and safety

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5
Q

these are held because of their ability to facilitate routine operations of the company

A

cash and short-term investments

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6
Q

these assets are not held for purposes of achieving investment returns

A

cash and short-term investments

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7
Q

the ff are the reasons why the company would need to hold cash

A

transaction purposes
compensating balance requirements
precautionary reserves
potential investment opportunities
speculation

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8
Q

cash balances needed to conduct the ordinary business transactions

A

transaction purposes

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9
Q

the amount left in the checking balance to be maintained at all times as part of a loan agreement

A

compensating balance requirements

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10
Q

these are used to handle unexpected problems and contingencies due to the uncertain pattern of cash inflows and outflows

A

precautionary reserves

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11
Q

used to build up in anticipation of a future investment opportunity such as a major capital expenditure project

A

potential investment opportunities

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12
Q

the practice of delaying purchases and store up cash for use later to take advantage of possible changes in prices of materials, equipment and securities as well as changes in currency exchange rates

A

speculation

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13
Q

the difference between the banks balance for a firms account and the balance that the firm shows on its own books

A

float

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14
Q

types of float

A

positive float (disbursement float)
negative float

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15
Q

occurs when the bank balance exceeds the book balance, such as when checks issued by the firm are already delivered to the supplier but the same have not yet been cleared by the bank

A

positive float

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16
Q

this type of float should be increased

A

positive float

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17
Q

occurs when the book balance exceeds the bank balance

A

negative float

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18
Q

it shows that there is more cash tied up in the collection cycle

A

negative float

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19
Q

this type of float should be decreased or if possible eliminated

A

negative float

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20
Q

negative float can be categorized as

A

mail float
processing float
clearing float

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21
Q

occurs when the payment has already been or mailed by a customer but not yet received by the company

A

mail float

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22
Q

occurs when customers payments have been received but not yet deposited

A

processing float

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23
Q

occurs when customers checks have been deposited but not yet clesred

A

clearing float

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24
Q

is one strategy for expediting the receipt of funds

A

lockbox system

25
ZBA
Zero balance accounts
26
are those with no minimum maintaining cash balance required
Zero balance accounts
27
similar with basic knowledge on break-even analysis
cash break-even chart
28
the chart would show the amount of sales in pesos or the number of units to be sold so that the total cash inflows would equal total cash outflows
cash break-even chart
29
an EOQ type model which can be used to determine the optimal cash balance where the costs of maintaining and obtaining cash are at the minimum
Baumol cash management model
30
two types of costs related to holding cash
Cost of securities Opportunity cost
31
Are those short-term money market instruments that can be easily converted into cash
marketable securities
32
the company may hold marketable securities because
substitute for cash balances temporary investment meet known financial obligations
33
it is the opportunity cost of idle cash
return on marketable securities
34
this return is the denominator of the optimal balance formula provided in the baumol cash management model
return on marketable securities
35
Risks involved in marketable securities
default risk interest rate risk inflation risk
36
The risk that the issuer may not be able to pay the interest or principal on time or at all
Default risk
37
The risk that the price of the securities would fluctuate due to changes in the market interest rates
Interest rates
38
The risk that inflation will reduce the real value of the investment
Inflation risk
39
How quickly a security can be sold before maturity without a significant price concession
Marketability
40
This focuses on plans and policies related to sales on account and ensuring the maintenance of receivables at a predetermined level and their collectability as planned
Receivables management
41
The objective of which is to have the right amount of its outstanding receivable balances and bad debts
Receivables management
42
It is the primary determinant of accounts receivable
Credit policy
43
Is a key determinant of sales so sales & marketing executive or concerned with this policy
credit policy
44
The credit policy consists of four variables
Credit period discounts credit standards collection policy
45
The length of time buyers is given to pay for their purchases
Credit period
46
Price reductions given for early payment
discounts
47
The increase in quantity may offset the reduction in price or revenue
Balance
48
The criteria that determine which customers will be granted credit and how much
Credit standards
49
Two types of credit standards
strict credit standards liberal credit standards
50
May tend to eliminate the risk of non-payment but may also decrease the potential sales due to rejected customers
Strict credit standards
51
May lead to higher sales but also higher bad debt losses and collection cost
Liberal credit standards
52
Factors to consider in traded standard or the four c's of credit
character capacity capital conditions
53
The customers willingness to pay
character
54
The customers ability to generate cash
capacity
55
The customers financial sources such as collateral
capital
56
The current economic or business conditions
conditions
57
The procedures used to collect past due accounts including the toughness or laxity used in the process
Collection policy
58
It is defined as a statement of the firm's credit period and discount policy
Credit terms
59
Factors in credit terms
Cash discounts credit and collection cost