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Managerial Finance > Final Managerial Finance > Flashcards

Final Managerial Finance Flashcards

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1
Q

the potential of losing something of value vs the potential of gaining something of value

A

risk

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2
Q

preventing a risk from being unfavorable

A

minimize risk

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3
Q

once risks are unfavorable, keep it from getting worse

A

mitigate risks

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4
Q

the return on a risky asset (stock) expected in the future

A

expected returns

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5
Q

a risk that influences a large number of assets

has market-wide effects

A

systematic risk

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6
Q

this is also called a non-diversifiable risk

A

systematic risk

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7
Q

a risk that influences a small number of assets

is firm or industry specific

A

unsystematic risk

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8
Q

also called diversifiable risk

A

unsystematic risk

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9
Q

systematic risk + unsystematic risk = ?

A

total risk

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10
Q

the expected return on a risky asset depends only on that assets (or that stocks) systematic risk

A

Systematic Risk Principle

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11
Q

spreading investments over a number of assets to eliminate unsystematic risk (but not systematic risk)

A

Principle of Diversification

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12
Q

a group of assets held by an investor

A

portfolio

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13
Q

the amount of systematic risk present in a particular risky asset, relative to that of the average asset

A

Beta

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14
Q

Levels of Risk in Beta:

less than average risk

A

0-1

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15
Q

Levels of Risk in Beta:

Average Risk

A

1

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16
Q

Levels of Risk in Beta:

More than Average Risk

A

1+

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17
Q

positively sloped line displaying the relationship between expected return and beta

A

Security Market Line (SML)

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18
Q

the return an investor receives is the cost of that security to the company that issued it

A

cost of capital

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19
Q

the return common stock investors require on their investment in the firm

A

cost of equity

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20
Q

the return preferred stock investors require on their investment

A

cost of preferred stock

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21
Q

the purpose of the cost of equity

A

for every $1 in common stock, equity is how much we are paying investors

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22
Q

Advantages of Dividend Growth Model to find the Cost of Preferred Stock and Cost of Equity

A

Simple model

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23
Q

Disadvantages of Dividend Growth Model to find Cost of Preferred Stock and Cost of Equity

A
  1. Only applies to companies issuing dividends
  2. Dividends must be fixed (for preferred stock)
  3. Dividends must be constant rate (common stock)
  4. Estimated Growth Rates
  5. Fails to consider risk
24
Q

The return lenders require on the firm’s debt

A

Cost of Debt

25
Q

the purpose of cost of debt

A

to see for every $1 in bonds, how much we pay our lenders

26
Q

the cost of equity for the firm as a whole and can be interpreted as the required return on the overall firm

A

WACC

27
Q

looks at how products and money move through a company

A

Cash Flow Timeline

28
Q

measures time from when money leaves company to when it comes back

A

Cash Cycle

29
Q

financial managers use this to estimate cash in and out of a company
- primary concern is to find if there’s a surplus or deficit of cash

A

Cash Budget

30
Q

what is an unsecured loan?

A

a short term loan with no collateral

31
Q

what is the most common type of loan?

A

unsecured loan

32
Q

how long does a line of credit last?

A

1 year

33
Q

what is a revolving credit arrangement?

A

just like a line of credit but last 2+ years

34
Q

how does a line of credit work?

A
  1. last for 1 year
  2. Pay $0 for 60 days (clean up period)
  3. Can be commited (formal) or uncommited (informal)
35
Q

what is a committed line of credit?

A

there is a commitment fee, and and application fee (floating interest)

36
Q

what is a uncommited line of credit?

A

re-borrow on a previous loan

37
Q

what is a secured loan?

A

have collateral attatched

38
Q

bank gets first priority over me if you aren’t making payments on loans

A

accounts receivable financing

39
Q

inventory is collateral up for loan

A

Inventory Loans

40
Q

how many currencies are there in the world?

A

over 160

41
Q

what factors are there to consider with international currencies?

A 
different exchange rates
different interest rates
Accounting Methods (GAAP)
Taxes
Foreign Government (Government Intervention/Regulation)
42
Q

what job in international finance has you paying for goods in foreign currency?

A

Importer

43
Q

What job in international finance has you receiving foreign currency for our goods?

A

Exporters

44
Q

What does a portfolio manager do? (international finance)

A

Buy and sell foreign stocks

45
Q

What does a trader do in international finance?

A

“make a market” in foreign currency

Try to find inconsistencies in exchange rates

46
Q

US shares of foreign stock

company sponsered, investment bank

A

American Depository Receipt (ADR)

47
Q

the price of one currency expressed in another

A

Exchange Rates

48
Q

British and Irish Government Securities

A

Gilts

49
Q

Agreement to deliver one currency for another

A

Currency Swap

50
Q

market in which currencies are traded

A

Foreign Exchange Market (FOREX)

51
Q

what is the largest financial market in the world?

A

Foreign Exchange Market (FOREX)

52
Q

what currencies are accepted in the FOREX?

A

USD, Euro, British Pound, Japanese Yen

53
Q

Exchange of currencies is completed within 2 business days

A

Spot Trade

54
Q

Exchange currenies, agree when this will happen today, but have up to 1 year to settle

A

Forward Trade

55
Q

the idea that exchange rates are constantly adjusting to keep purchasing power constant

A

Purchasing Power Parity (PPP)

56
Q

a commodity should cost the same regardless of the currency used to purchase it - but according to exchange rates

A

Absolute PPP

57
Q

the process of converting through 2 or more currencies, then back to the original for the purpose of profit

A

Triangular Arbitriage

Managerial Finance (6 decks)

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