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51 Cards in this Set

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  • Back

What are the 5 steps in the Risk Management Process?

1. identify risks and potential losses

2. measure the frequency and severity of losses and their impact

3. evaluate alternatives and choose the techniques that will best handle the losses

4. implement the risk-management program

5. monitor results

Meagan is comparing her firm's actual quarterly results to the budget projection that was completed six months ago. When analyzing these documents, she discovers that sales were lower than the firm had anticipated. Meagan is involved in ________

A) financial control

B) cash flow management

C) financial planning

D) management accounting

A) financial control

Crystal, an owner of a travel agency, is beginning to worry that her cash flows are not going to cover her current operating expenses. With the cold weather approaching, crystal knows that her cash inflows will pick up very quickly as people begin to book vacations to the sunny south. Crystal can resolve her current cash flow concerns by obtaining _______ financing

A) immediate

B) short-term

C) contingency

D) long-term

B) short-term

Azim has been approved for a bank loan; however the bank manager requires Azim's signature allowing the bank to seize his car if payment is not made as agreed. Azim's car is being used as ______

A) security

B) a promissory note

C) equity

D) collateral

D) collateral

Businesses may seek long-term financing from these major sources:

A) debt, equity and insurance financing

B) debt, equity and hybrid financing

C) government funds and bank loans

D) commercial paper and promissory notes

B) debt, equity and hybrid financing

Extended periods where most stock prices are increasing is characterized as a _____ market; periods where mot prices are falling is characterized as a _______ market.

A) growth; decline

B) recovery; recession

C) bull; bear

D) bear; bull

C) bull; bear

Define Finance

the business function involving decisions about a firm's long-term investments and obtaining the funds to pay for those investments

cash-flow management

managing the pattern in which cash flows into the firm in the form of revenues and out of the firm in the form of debt payments

financial control

the process of checking actual performance against plans to ensure that the desired financial status is achieved

financial plan

a description of how a business will reach some financial position it seeks for the future; it includes projections for sources and uses of unds


materials and goods currently held by the company that will be sold within the year

trade credit

the granting of credit by selling a firm to a buying firm

secured loans

short-term loan in which the borrower is required to put up collateral

unsecured loan

short-term loan in which the borrower is not required to put up collateral

line of credit

standing agreement between a bank and a firm in which the bank specifies the maximum amount it will make available to the borrower for a short-term unsecured loan; the borrower can then draw on those funds, when available

revolving credit agreement

a guaranteed line of credit for which the firm pays the bank interest on funds borrowed, as well as a fee for extending the line of credit

commercial paper

a method of short-run fundraising in which a firm sells unsecured notes for less than the face value and then repurchases them at the face value within 270 days; buyers' profits are the difference between the original price paid and the face value

debt financing

raising money to meet long-term expenditures by borrowing from outside the company; usually in the form of long-term loans or the sale of corporate bonds

corporate bond

a promise by the issuing company to pay the holder a certain amount of money on a specified date, with stated interest payments in the interim; a form of long-term debt financing

secured bonds

bonds issued by borrowers who pledge assets as collateral in the event on non-payment

equity financing

raising money to meet long-term expenditures by issuing common stock or by retaining earnings

par value

the arbitrary value of a stock set by the issuing company's board of directors and stated on stock certificates; used by accountants but of little significance to investors

book value

the value of a common stock expressed as total stockholders' equity divided by the number of shares of stock

market value

the current price of one share of a stock in the secondary securities market; the real value of a stock

market capitalization

the dollar value (market value) of stocks listed on a stock exchange

capital structure

relative mix of a firm's debt and equity financing

risk-return relationship

shows the amount of risk and the likely rate of return on various financial instruments


stocks, bonds, and mutual funds representing secured, or asset-based, claims by investors against issuers

investment bankers

financial specialists in issuing new securities

stock exchange

a voluntary organization of individuals formed to provide an institutional setting where members can buy and sell stock for themselves and their clients in accordance with the exchange's rules


an individual licensed to buy and sell securities for customers in the secondary market; may also provide other financial services

over-the-counter (OTC) market

organization of securities dealers formed to trade stock outside the formal institutional setting of the organized stock exchanges

market index

a measure of the market value of stocks; provides a summary of price trends in a specific industry or the stock market as a whole

bull market

a period of rising stock prices

bear market

a period of falling stock prices

stock option

the purchased right to buy or sell a stock


the percentage of the total sales price that a buyer must put up to place an order for stock or a futures contract

short sale

selling borrowed shares of stock in the expectation that their price will fall before they must be replaced, so that replacement shares can be bought for less than the original shares were sold for

mutual fund

any company that pools the resources of many investors and uses those funds to purchase various types of financial securities, depending on the fund's financial goals

exchange-traded fund (ETF)

a bundle of stocks (or bonds) that is in an index that tracks the overall movement of the market

hedge funds

private pools of money that try to give investors a positive return regardless of stock-market performance

future contracts

agreement to purchase specified amounts of a commodity (or stock) at a given price on a set future date

blue-sky laws

laws regulating how corporations must back up securities


uncertainty about future events

speculative risk

an event that offers the chance for either a gain or a loss

pure risk

an event that offers no possible gain; it only offers the chance of a loss or no loss

risk management

conserving a firm's (or an individual's) financial power or assets by minimizing the financial effect of accidental losses

risk avoidance

stopping participation in or refusing to participate in ventures that carry any risk

risk control

techniques to prevent, minimize, or reduce losses or the consequences of losses

risk retention

the covering of a firm's unavoidable losses with its own funds

risk transfer

the transfer of risk to another individual or firm, often by contract