Podcast
Questions and Answers
Which concept explains why receiving cash sooner is more valuable?
Which concept explains why receiving cash sooner is more valuable?
- Risk preference theory
- Time value of money (correct)
- Liquidity preference model
- Investment growth theory
What is a primary goal of effective cash management?
What is a primary goal of effective cash management?
- Maximizing profits through risky investments
- Minimizing communication with stakeholders
- Acquiring funds from the wrong sources
- Creating detailed cash flow budgets (correct)
In inventory management, what is a consequence of understocking?
In inventory management, what is a consequence of understocking?
- Increased cash flow efficiency
- Decreased operational costs
- Higher product turnover rates
- Loss of customers (correct)
Which of the following is NOT a component of funds management?
Which of the following is NOT a component of funds management?
What type of asset includes life insurance?
What type of asset includes life insurance?
Which of the following best describes a firm’s decision in managerial finance?
Which of the following best describes a firm’s decision in managerial finance?
What characterizes riskier assets in financial management?
What characterizes riskier assets in financial management?
What is typically a significant cost of overstocking inventory?
What is typically a significant cost of overstocking inventory?
Flashcards
Cash Flow System
Cash Flow System
Circulation of money, credit, investments, and banking services.
Value Preference
Value Preference
More value is preferred to less; making money grow is prioritized.
Time Value of Money
Time Value of Money
The sooner cash is received, the more valuable it is.
Risk and Value
Risk and Value
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Financial Services
Financial Services
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Managerial Finance
Managerial Finance
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Inventory Management
Inventory Management
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Investment Decisions
Investment Decisions
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Study Notes
Funds and Resources
- Focuses on funds management and cash flow
- System includes circulation of money, credit, investment, and banking
- Universal Interest: 0.125% (per deposit)
- Interest Spread: Difference in total interest earned from banks based on deposits
Concepts (Everything Else Being Equal)
- More value is preferred to less (makes money grow even more)
- Sooner cash is received, the higher value (more money grows)
- Less risky assets are more valuable than riskier assets
General Areas
- Financial Markets and Institutions: Banks, insurance, savings, loans, and credit unions. Requires understanding of factors causing interest and returns in financial markets
- Capital Market: Long-term securities (stocks) traded
- Money Market: Short-term securities
- Derivative Market: Requires underlying assets (crops, options) to grow; includes contracts
Investment
- Focuses on decisions of businesses and individuals choosing securities for portfolios
- Functions
- Determining the value, risks, and returns associated with stocks and bonds
- Determining the optimal mix of holdings in portfolios (retirement funds)
- Higher returns, higher risk
Financial Services
- Functions provided by organizations dealing with money management (e.g., banks, insurance companies)
- Aids in investing
Managerial (Business) Finance
- Deals with decisions of firms concerning cash flow, plant expansion, and security issuance
Notes
- Allocation or Utilization of Funds
- Financial resources such as cash, inventories, etc. used by a firm
Goals
- Acquire funds from appropriate sources at the right time
- Make connections for cost-effective advantage
- Effective cash management
- Detailed cash flow budget
- Plan for its use
- Inventory management
- Effective management for adequate levels (reorder point)
- Avoid overstocking (costly, money not circulating)
- Avoid understocking (losses to customers)
- Investment decisions
- Investment excess funds to match investment to expenses
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