Definitions

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Financial Management Flashcards on Definitions, created by nadz_k on 03/05/2013.
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Flashcards by nadz_k, updated more than 1 year ago
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Created by nadz_k over 11 years ago
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Question Answer
Payback Period The length of time before the cumulated stream of forecasted cashflows equals the intial investment
Discounted Payback Future cash flows are discounted prior to calculating the payback period
Accounting Rate of Return (ARR) The ratio of the accounting profit to the investment in the project, expressed as a percentage
Internal Rate of Return The rate of return you recieve by putting your money into a project
Long Term Debt Finance (Borrowing) The concept of borrowing money is to invest in real assets within a business
Long Term Debt Finance (Borrowing) The concept of borrowing money is to invest in real assets within a business
Market Is a place where people 'meet' to buy and sell
Financial Market Is a place where people 'meet' to buy and sell financial products
Financial Institutions Act as an intermediary between buyers and sellers in a financial market
Derivatives Market Trading in financial instruments that are derived from an underlying asset
Forward Is a binding agreement between two parties to exchange specific assets at a specific point in time
Future Similar to a forward, and is traded on a recognised exchange
SWAP Is an agreement between two parties to exchange the cash flows associated to any two underlying assets
Risk Seeking Both parties wish too 'gamble' on their predictions of future interest rate movements
Risk Averting One party wishes to guarantee the return to be received. Other party needs to be a risk taker
Convertible Debt Debt that includes an option. The debt holder has the option to convert the debt into shares
Debt with a Warrant The debt remains. The warrant is a detachable option. Warrant may be sold or excercised
Risk A future return has a variety of possible values. Sometimes measured by standard deviation
Asymmetric Information One party in a negotiation or relationship is not in the same position as other parties, being ignorant of, or unable to observe, some information which is essential to the contracting and decision-making process
Cost of Capital The rate of return that a company has to offer finance providers to induce them to buy and hold a financial security
Market Capitalisation The total value at market prices of the shares in issue for a company (or a stock market, or a sector of the stock market)
Capital Market Where those raising finance can do so by selling financial investments to investors e.g. bonds and shares
Money Markets Wholesale financial markets (those dealing with large amounts) in which lending and borrowing on a short term basis takes place (<1 year)
Operational Efficiency Refers to the cost, speed and reliability of transactions in securities on the exchange
Allocational Efficiency Society has a scarcity of resources and it is important that we find mechanisms which allocate those resources to where they can be most productive
Pricing Efficiency EMH applies to this form of efficiency only
Random Walks The movements in (share) prices are independent on one another; one days price change cannot be predicted by looking at the previous days price changes
Weak-Form Efficiency Share prices fully reflect all the relevant publicly available information.
Semi-Strong Form Efficiency Share prices fully reflect all the relevant publicly available information
Strong-Form Efficiency All relevant info and private info is reflected into the share price
Option A contract giving one party the right, but not the obligation, to buy or sell a financial instrument, commodity or some other underlying asset at a given price, at or a specified date
Working Capital The difference between current assets and current liabilities
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