Managerial Finance Test 2 Matching

Front 1

Cash flow cycle

Back 1

the pattern in which cash moves in and out of the firm. The primary consideration in managing the cash flow cycle is to ensure that inflows and outflows of cash are properly synchronized for transaction purposes.

Front 2

Float

Back 2

The difference between the corporation's recorded cash balance on its books and the amount credited to the corporation by the bank.

Front 3

Check Clearing for the 21st Century Act of 2003 (Check 21 Act)

Back 3

A 2003 law that allows banks and others to electronically process checks.

Front 4

Lockbox system

Back 4

A procedure used to expedite cash inflows to a business. Customers are requested to forward their checks to a post office box in their geographic region, and a local bank picks up the checks and processes them for rapid collection. Funds are then wired to the corporate home office for immediate use.

Front 5

Cost-Benefit analysis

Back 5

A study of the incremental costs and benefits that can be derived from a given course of action.

Front 6

Electronic funds transfer

Back 6

A system in which funds are moved between financial institutions using computers.

Front 7

Automated clearinghouses (ACH)

Back 7

transfers information between one financial institution and another and from account to account via computer tape. There are approximately 31 regional clearinghouses throughout the United States that claim the membership of over 11,000 financial institutions.

Front 8

International electronic funds transfer

Back 8

The movement of funds across international boundaries. It is mainly carried out through SWIFT (Society for Worldwide Interbank Financial Telecommunications).

Front 9

Sweep account

Back 9

an accounts that allows companies to maintain zero balances with all excess cash swept into an interest-earning account

Front 10

Treasury bills

Back 10

short-term obligations of the federal government.

Front 11

Federal agency securities

Back 11

securities issued by agencies such as the Federal Home Loan Banks and the Federal Land Bank.

Front 12

Certificate of deposit (CD)

Back 12

a certificate offered by banks, savings and loans, and other financial institutions for the deposit of funds at a given interest rate over a specified time period.

Front 13

Commercial paper

Back 13

an unsecured promissory note that large corporations issue to investors. The minimum amount is usually $25,000.

Front 14

Banker's acceptances

Back 14

short-term securities that frequently arise from foreign trade. The acceptance is a draft that is drawn on a bank for approval for future payment and is subsequently presented to the payer.

Front 15

Eurodollar certificate of deposit

Back 15

based on U.S. dollars held on deposit by foreign banks.

Front 16

Passbook savings account

Back 16

a savings account in which a passbook is used to record transactions. It is normally the lowest yielding investment at a financial institution.

Front 17

Money market fund

Back 17

a fund in which investors may purchase shares for as little as $500 or $1,000. The fund then reinvests the proceeds in high-yielding $100,000 bank CDs, $25,000 - $100,000 commercial paper, and other large denomination, high-yielding securities. Investors receive their pro rata portion of the interest proceeds daily as a credit to their shares.

Front 18

Money market accounts

Back 18

accounts at banks, savings and loans, and credit unions in which the depositor receives competitive money market rates on a typical minimum deposit of $1,000. These accounts may generally have three deposits and three withdrawals per month and are not meant to be transaction accounts, but a place to keep minimum and excess cash balances. These accounts are insured by various appropriate governmental agencies up to $250,000.

Front 19

5 Cs of credit

Back 19

these are used by bankers and others to determine whether a loan will be repaid on time. character, capital, capacity, conditions, and collateral

Front 20

Dun & Bradstreet information services (DBIS)

Back 20

an information company that publishes many different reports that help businesses make credit decisions.

Front 21

Data universal number system (D-U-N-S)

Back 21

a system in which a unique nine-digit code is assigned by Dun & Bradstreet to each business in its information base.

Front 22

Average collection period

Back 22

accounts receivable divided by average daily credit sales; calculates how many days it takes to collect the company's accounts receivable.

Front 23

Aging of accounts receivable

Back 23

analyzing accounts by the amount of time they have been on the books.

Front 24

Carrying costs

Back 24

the cost to hold an asset, usually inventory. For inventory, these include such items as interest, warehousing costs, insurance, and material-handling expenses.

Front 25

Cost of ordering

Back 25

the cost component in the inventory decision model that represents the expenditure for acquiring new inventory

Front 26

Economic ordering quantity (EOQ)

Back 26

the most efficient ordering quantity for the firm. This will allow the firm to minimize the total ordering and carrying costs associated with inventory.

Front 27

Safety stock of inventory

Back 27

inventory that is held in addition to regular needs to protect against being out of an item.

Front 28

Just-in-time inventory management (JIT)

Back 28

a system of inventory management that stresses taking possession of inventory just before the time it is needed for production or sale. It greatly reduces the cost of carrying inventory.

Front 29

Liquidity Premium Theory

Back 29

this theory indicates that long-term rates should be higher than short-term rates. The premium of long-term rates over short-term rates exists because short-term securities have greater liquidity, and, therefore, higher rates have to be offered to potential long-term bond buyers to entice them to hold these less liquid more price-sensitive securities.

Front 30

Market Segmentation Theory

Back 30

a theory that Treasury securities are divided into market segments by various financial institutions investing in the market. The changing needs, desires, and strategies of these investors tend to strongly influence the nature and relationship of short-term and long-term interest rates.

Front 31

Expectations Hypothesis (Theory)

Back 31

the hypothesis maintains that the yields on long-term securities are a function of short-term rates. The result of the hypothesis is that, when long-term rates are much higher than short-term rates, the market is saying that it expects short-term rates to rise. Conversely, when long-term rates are lower than short-term rates, the market is expecting short-term rates to fall.