Finance

• Overdraft refers to a line of credit that covers transactions if a bank account drops below zero for a predetermined limit and period of time
• Retained profits refer to the profit generated by the business that is not issued as dividends and is therefore kept by the business for future expansion and growth
• Commercial bills refer to a short term loan from a bank for a set amount and set period
• Factoring refers to raising cashflow by selling accounts recievable to a finance company at a reduced rate
• Mortage refers to a long term debt instrument secured by the property of the borrower
• Debentures refer to a long term debt instrument issued to public investors at a predetermined interest rate and loan period
• Unsecured notes refer to the issuing of a long term debt instrument to public investors without security from the business's assets
• Leasing refers to the payment of money for the use of assets owned by another individual/business for an agreed period of time
• New issues refer to the first shares issued to investors through an initial public offering (IPO)
• A rights issue allows existing shareholders to buy new shares, in proportion to the amount that they already own
• Placements refer to shares offered to specific institutions or investors rather than the general public
• Share purchase plans refer to an offering to existing shareholders to purchase more shares in that company without brokerage fees
• Private equity refers to money invested in a private exchange by an investor (individual/business)
• Banks recieve savings as deposits from individuals, businesses and governments and in turn make investments and loans to borrowers.
• Investment banks provide debt and equity as well as specialised financial services to larger businesses.
• Finance companies refer to non bank financial intermediaries that specialise in small commercial finance (debt: short to medium term)
• Superannuation funds collect savings from investors through compulsory superannuation and voluntary contribution
• Life insurance companies are non bank financial intermediaries that provide cover and lump sum payment in the event of death.
• Unit trusts pool funds from a large number of small investors and invest them in specific types of financial assets
• The ASX is the primary stock exchange group in Australia
• ASIC is an independent statutory commission accountable to the Commonwealth parliament
• Company taxation refers to the direct tax imposed by the Australian government
• Economic outlook refers to the projected changes to the level of economic growth within economies throughout the world which subsequently influences business behaviour
• Availability of funds refers to the ease with which a business can access funds (for borrowing) on the international financial markets
• Interest rates refer to the cost of borrowing money
• Fixed costs refer to those that are not dependent on the level of operating activity in a business
• Variable costs refer to those that vary in direct relationship to the levels of operating activity or production in a business
• Cost centres refer to particular areas, departments or sections of a business in which costs can be directly attributed to
• Marketing objectives refer to the realistic and measurable goals to be achieved through the marketing plan - in relation to finance, marketing objectives assist with increased sales revenue
• Exchange rates refer to the value of one currency in comparison to another currency
• The strategic role of financial management refers to the process of determining and managing the financial resources of a business to achieve short and long term objectives
• Payment in advance method allow the exporter to receive payment and then arrange for the goods to be sent

  
  

  Very low risk for exporter

  High risk for importer
• Letter of credit refers to a document that a buyer can request that guarantees the payment of goods will be transferred to the seller

  
  

  Moderately low risk for exporter

  Moderate risk for importer
• Clean payment refers to when the exporter ships the goods directly to the importer before payment is received

  
  

  Very high risk for exporter

  Very low risk for importer

  
  

  Most suitable for trustworthy relationships between client/supplier
• Bill of exchange is a document drawn up by the exporter demanding payment from the importer at a specific time.

  
  

  Exporter maintains control over the goods until payment made or guaranteed

  
  

  Moderate risk for exporter

  Moderate risk for importer
• Hedging is the process of protecting against exchange rate and currency fluctuations
• Derivatives refer to a financial instrument that is used to minimise the risk associated with currency fluctuations
• A forward exchange contract is a contract to exchange one currency at an agreed exchange rate on a future date (usually after a period of 30, 90 or 180 days)
• A swap contract is a contract to exchange currency on the spot market with an agreement to reverse the transaction in the future
• An options contract gives the buyer the right but not the obligation to buy or sell foreign currency at some time in the future