Financial 3 Flashcards
creditor should monitor
debt to equity ratio and times interest number
gordon growth models
Dividend
Ks = ——————- + G
Price (1-flotation)
financial leverage
% change in net income / % change in operating income
Required rate of return for equity
Risk-free rate + beta(LT average risk premium for the market - Risk-free rate)
onomic rate of return =
[Dividends received + (Ending price - Beginning price)] ÷ Beginning price
financial risk managnement includes :
- interest rat risk
- Foreign currency risk
- credit risk
FFIEC basis risk test :
changes in the relationship between key interest rates
A floating (freely fluctuating) exchange rate is
free, unhampered foreign trade by eliminating balance-of-payment surpluses or deficits.
The liquidity preference (LP) function
relates money demand to the rate of interest. As interest rates fall, the quantity of money demanded increases. As rates rise, the quantity of money demanded decreases.
financial risk under ERM:
- Business risk
- Operations risk
- Supply-chain risk
- Political and economic risk
Sovereign wealth funds (SWFs) are:
government investments funded by foreign currency reserves that are managed separately from official currency reserves and invested for profit.
Repatriation restrictions
limit the parent’s ability to receive cash from international subsidiaries
An American depository receipt is
a negotiable security that replaces securities of non-U.S. firms traded on U.S. markets.
Default risk premium is
the addition to the price of a security due to the risk of the principal not being paid when due.
The foreign trade deficit is
a measure of how much imports exceed exports in the economy as a whole, not for one particular company.
