M2- topic 4 financial management strategies

Question 1

list the types of finance strategies (4)

Answer 1

Global financial management

Working capital managemnet

Profitability menagment

Cash flow Managment

Question 2

what are three strategies to manage cash flow (3)

Answer 2

distribution of payments

discount for early payments

factoring

Question 3

what is distribution of payments

Answer 3

spreading out payments through out a month or year to prevent periods of short fall

Question 4

what are discounts for early payment

Answer 4

used as an incentive to get debtors to pay accounts quicker

Question 5

what is factoring

Answer 5

selling account receivable for for discounted price in order to get cash immediatly

Question 6

what things must be considered when managing working capital (3)

Answer 6

Stock levels

accounts receivable

cash

Question 7

what is wrong with having to much stock

Answer 7

it means the business has lower liquidity

Question 8

what is wrong with having to little stock

Answer 8

business can miss out on potential sales

Question 9

what is wrong with having excessive account receivables

Answer 9

limits what the business can do until the get paid

Question 10

what happens if a business has limited cash

Answer 10

can struggle to pay off day to day expenses or any unexpected costs

Question 11

how to manage working capital (2)

Answer 11

leasing

sale and lease back

Question 12

what is leasing

Answer 12

the hire of an asset

Question 13

what is sale and lease back

Answer 13

selling an asset for a cash boost, and then hiring the asset

Question 14

how to manage profitability (2)

Answer 14

Cost controls (fixed and variable costs,cost centres management)

Revenue controls (Use of Marketing strategies)

Question 15

what are fixed costs

Answer 15

costs that are constant regardless of the level of business activity

Question 16

what are variable costs

Answer 16

costs that change proportional to the level of business activity

Question 17

How are fixed and variable cost used to manage profitability

Answer 17

Compare cost with previous periods + standards = minimise costs

Question 18

what are cost centres

Answer 18

sections in the business where costs are directly associated

Question 19

how can cost centres be used to mange profitability

Answer 19

help management identify where most of the funds are going and create better financial decisions

Question 20

how can promotion and pricing strategies be used to mange profitability

Answer 20

increases revenue (eg penetration pricing)

Diffentiate product = increase sales

Question 21

why is exchange rates management important for businesses

Answer 21

when business conduct international transactions currencies must be exchanged

Question 22

where are currencies exchanges

Answer 22

foreign exchange market (forex)

Question 23

what type of currency is the Australian dollar

Answer 23

a floating currency

Question 24

what is a floating currency

Answer 24

a currency that fluctuates against other currencies

Question 25

when does it mean when the aus dollar rises (4)

Answer 25

• it means the Aus dollar appreciated
• costs foreign buyers more to purchase Australian goods
• Aus business are less internationally competitive
• Importers benefit (cheaper to buy product overseas)

Question 26

when does it mean when the aus dollar falls (3)

Answer 26

it means the aus dollar depreciated’

exporters benefit (Aus dollar cheaper for international buyers)

Australian goods more internationally competitive

Question 27

name methods of international pay (4)

Answer 27

payment in advance

clean payment

letter of credit

bill of exchange

Question 28

what is payment in advance

Answer 28

when the importer pays for the goods before the goods are shipped

Question 29

what is a clean payment

Answer 29

when the exporter ships the goods with an invoice to requesting payment on a due date

Question 30

what is a letter of credit

Answer 30

a letter giving to the exporter from the importers banks promising that the funds are ready to be release once the goods are being sent.

Question 31

what is a bill of exchange

Answer 31

a legal contract between the importer and exporter , where both parties must have proof that the funds and goods are ready to be sent, i order to exchange

Question 32

who’s risk does the letter of credit reduce

Answer 32

the exporters risk

Question 33

who’s credit doe the bill of exchange reduce

Answer 33

both parties

Question 34

what is the spot exchange rate

Answer 34

the value of the currency at a certain point

Question 35

what does hedging aim to do

Answer 35

minimise the level of risk associated with currency fluctuations

Question 36

ways of hedging exchange rates (4)

Answer 36

Insist import/export contracts be done in $AUS

Implement marketing strategies to reduce price sensitivity of the exported product

Establish offshore subsidiaries( no currency exchange) Derrivatives

Question 37

types of derivatives (3)

Answer 37

forward exchange contracts

options contract

swap contracts

Question 38

what are forward exchange contracts

Answer 38

an agreement to exchange one currency for another at a agreed exchange rate on a future date

Question 39

what are option contracts

Answer 39

an agreement where a spot exchange rate is chosen and if the market moves the price can revert to the spot exchange rate

Question 40

what are swap contracts

Answer 40

an agreement for two businesses swap there currencies