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Questions and Answers
What is financial management?
All the activities concerned with obtaining money and using it effectively.
Which of the following are typical job titles in finance? (Select all that apply)
Trade credit is the most popular form of short-term financing because it does not require immediate payment after delivery.
True
What is a promissory note?
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Which of the following is true about unsecured bank loans?
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What is venture capital?
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Angel investors primarily focus on earning huge profits.
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Which type of bond is backed only by the reputation of the issuing company?
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What is a bond indenture?
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Study Notes
Financial Management
- Financial management encompasses activities like obtaining and utilizing money effectively.
- Proper financial management ensures:
- Funds are readily available when needed.
- Funds are obtained at the lowest possible cost.
- Funds are used efficiently.
- Financing priorities align with organizational goals.
- Spending is planned and controlled.
- Credit customers pay bills on time.
- Bills are paid promptly to protect credit rating and borrowing capacity.
- Funds are available for timely tax payments.
- Excess cash is invested in conservative, marketable securities.
Careers in Finance
- Common finance job titles include:
- Chief Financial Officer
- Financial Manager
- Consumer Credit Officer
- Financial Analyst
- Financial Planner
- Insurance Analyst
- Investment Account Executive
- Finance professionals must possess:
- Honesty
- Strong background in finance, accounting, or mathematics
- Proficiency in data analysis using computers
- Excellent written and oral communication skills
Short-Term Financing
- Trade Credit is a common form of short-term financing where sellers extend credit without immediate payment requirements.
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Promissory Notes are written pledges by borrowers to repay a specified amount to creditors at a future date.
- Promissory notes typically require interest payments.
- They provide legal binding and enforceability, acting as contracts.
- They are negotiable instruments.
Unsecured Bank Loans
- Prime Interest Rate is the lowest rate charged by a bank for short-term loans, typically reserved for large companies with excellent credit ratings.
- Unsecured bank loans may require a compensating balance (deposit) and loan clean-up (full repayment) at least once a year.
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Commercial Paper is a short-term promissory note issued by large corporations.
- The interest rate depends on the company's credit rating and repayment ability.
Venture Capital and Angel Investors
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Venture Capital is invested in small, potentially successful businesses.
- Venture capitalists typically receive equity and profit shares in exchange for financing.
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Angel Investors provide financial backing to startups and entrepreneurs.
- Angel investors prioritize business success over maximizing profits.
- They often offer favorable financial terms compared to venture capitalists and financial institutions.
- Private Placement involves selling stock and other securities directly to institutional investors like insurance companies, pension funds, and mutual funds.
Corporate Bonds
- Debenture Bonds are unsecured bonds backed by the issuing company's reputation.
- Mortgage Bonds are secured by the issuing company's assets.
- Convertible Bonds can be exchanged for a specified number of common stock shares at the owner's discretion.
Corporate Bond Repayment Provisions
- Bond Indenture is a legal document outlining all conditions related to a bond issue.
- A company may use various repayment options for bondholders, including:
- Sinking fund - Periodically set aside funds for repaying bonds.
- Serial bonds - Bonds with staggered maturity dates.
- Callable bonds - Bonds that can be redeemed before maturity at the issuer's option.
- Participating bonds - Bonds that allow bondholders to share in the company's profits.
- The bond indenture typically outlines:
- Maturity date
- Interest rate
- Repayment provisions
- Protective covenants, safeguarding bondholders' interests.
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Description
This quiz covers key concepts in financial management, including effective fund utilization and management practices that align with organizational goals. Additionally, it explores various careers in finance and the necessary qualifications for professionals in the field.