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final
stuff
48
Finance
Undergraduate 2
05/09/2011

Additional Finance Flashcards

 


 

Cards

Term
• Technical analysis
Definition
Technicians examine past trends and patterns that exist in the financial markets to determine the direction markets and investments will move in the future
Term
Fundamental analysis
Definition
Fundamentalists evaluate the economy, the industry, and the firm to determine the firm’s true value
Term
what is a business cycle?
Definition
the movement in aggregate economic activity as measured by the gross domestic product (GDP)
Term
why do analysts monitor the business cycle?
Definition
Forecasting business cycles
to determine when to expect changes in the business cycle, or the direction in which aggregate economic activity is moving
Term
expansion
Definition
increasing economic activity
Term
contraction
Definition
decreasing economic activity
Term
recession
Definition
two consecutive quarters of economic contraction, or decline, in the GDP
Term
types of economic indicators
Definition
Leading economic indicators
economic measures that tend to move prior to, or precede, movements in the business cycle

Coincident indicators
economic measures that tend to mirror, or move at the same time as, business cycles


Lagging economic indicators
economic measures that tend to move after, or follow, movements in the general economy (business cycles)
Term
importance of fiscal policy
Definition
Fiscal Policy
Government spending, which is primarily supported by the government’s ability to tax individuals and businesses
Term
importance of deficit spending
Definition
Deficit spending
situation that occurs when the government spends more than it collects in taxes
Term
phases of the industry life cycle
Definition
1. industry sales
2. introductory
3. expansion (growth)
4. mature
Term
• Ways to use financial statement analysis
Definition
Financial statement analysis
comparison to other similar firms
forecast direction for future
predict earnings and dividends
risk evaluation
Term
• How and why to use P/E ratios
Definition
Term
• Importance of using graphs to determine trend line penetration
Definition
Term
• General rules for investing
Definition
Be disciplined with your investment approach
Know the company in which you invest
Choose firms that are in strong financial positions
Stay with the investment until it no longer satisfies your investment goals
Term
• Reasons for and Impact of Globalization
Definition
o Improvements in transportation and communications
o Political clout of consumers
o Cost of developing new products has increased
Term
sustainability
Definition
o Sustainability is about going beyond the company’s immediate and current stakeholders to consider the total future impact of operations and policies. Businesses should plan for the future, and responsible behavior is necessary for long term success.
Term
lean manufactring
Definition
o “Lean manufacturing” is a term that comes from manufacturing, but applies to all elements of the business. Whether it is production, service, or financial reporting, efficient methods should be used to minimize the resource cost.
o
Term
Preferred Stock Features
Definition
o –fixed payment - but not obligated
o –no voting rights (does not dilute ownership)
o –higher after-tax cost since dividends are not deductible expenses
o
Term
Common stock
Definition
–no obligation of dividend payments
–no maturity date for “repayment”
–increases creditworthiness
–prospects affect terms (can be better than debt)
–gives control to stockholders
–shares the income of the firm
–higher costs of distribution than debt
–dividends are not deductible
Term
Money Markets
Definition
instruments traded mature in one year or less
Term
Capital Markets
Definition
includes instruments with maturities greater than one year
Term
Debt Markets
Definition
loans - treasury, corporate, mortgage-backed, money market, municipal, etc...
Term
Equity Markets
Definition
stock markets
Term
Primary
Definition
corporations raise funds by issuing new securities
Term
Secondary
Definition
securities are traded among investors after they have been issued
Term
Derivative market
Definition
—Options, futures and swaps are securities whose values are determined, or derived directly from other assets
—Derivatives can be used to manage risk or to speculate
Term
Weak-form efficiency
Definition
all information contained in past price movements is fully reflected in current market prices
• —information about recent or past price trends is of no use when searching for abnormal returns
Term
Semistrong-form efficiency
Definition
—current market prices reflect all publicly available information
—financial analysis is of no use for consistently finding mispriced securities
—insiders can profit on their own company’s stock
Term
Strong-form efficiency
Definition
—current market prices reflect all pertinent information, whether publicly available or privately held
—even insiders cannot earn abnormal returns
Term
• Importance of the Federal Reserve System
Definition
• —Manages the monetary policy of the country
• —Decentralized network of regional, district banks
• —Supervised by the Board of Governors, who are appointed by the President
Term
• Fractional Reserve Banking System
Definition
to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates
Term
o Inflation premium
Definition
A premium for expected inflation that investors add to the real risk-free rate of return
Term
Default Risk Premium
Definition
Difference between the interest rate on a U. S. Treasury bond and a corporate bond of equal maturity and marketability
Compensates for risk that a borrower will default on a loan
Term
Liquidity Premium
Definition
Premium added to the rate on a security if the security cannot be converted to cash on short notice and at close to the original cost
Term
Maturity Risk Premium
Definition
Premium that reflects the interest rate risk
Bonds with longer maturities have greater interest rate risk
Reinvestment rate risk is greater for short-term bonds
Term
multinational corporations
Definition
• —Operate in more than one country
• —To seek new markets
• —To seek raw materials
• —To seek new technology
• —To seek production efficiency
• —To avoid political and regulatory hurdles
Term
• Advantages of a Corporation
Definition
• —Separate and distinct from its owners
• —Unlimited life
• —Easy transferability of ownership
• —Limited liability
Term
Disadvantages of a Corporation
Definition
• —Setting up and filing state and federal reports is complex
• —corporate charter is filed with the state providing information about the company and directors
• —bylaws are for internal management and procedures
• —Earnings are subject to double taxation
Term
• Trend analysis
Definition
o an analysis of a firm’s financial ratios over time
o used to determine improvement or deterioration in its
financial situation
Term
• Comparative ratio analysis (benchmarking)
Definition
an analysis based on a comparison of a firm’s ratios with those of other firms in the same industry
Term
• Uses of and limitations to ratio analysis
Definition
Term
• rSIMPLE = Simple (Quoted) Rate
Definition
used to compute the interest paid per period
Term
• EAR = Effective Annual Rate
Definition
the annual rate of interest actually being earned
Term
• APR = Annual Percentage Rate
Definition
rSIMPLE periodic rate X the number of periods per year
Term
• Periodic rate = rPER = rSIMPLE
Definition
m, where m is number of compounding periods per year. m = 4 for quarterly, 12 for monthly, and 360 or 365 for daily compounding.
Term
Breakeven Analysis
Definition
An analytical technique for studying the relationship among sales revenues, operating costs, and profits

Only deals with the operating section of the income statement
Term
value of a bond
Definition
Value is based on present value of:
stream of interest payments
principal repayment at maturity
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