TMExam.com Printable Flash Cards Section 3 Ch 8 - 14 in Essentials...

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Printable Flash Cards Section 3

Ch 8 - 14 in Essentials

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All information in this document was cross-referenced with or obtained from Essentials of Treasury Management, 4th Ed, which, itself, is a great

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Treasury Management, 4th Ed. This is not all of the information in the text, Essentials of Treasury Management, 4th Ed and is not meant to take the

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Cash Conversion Cycle

1. Acquire Materials

2. Convert to finished goods and build inventory

3. Sell finished goods

4. Collect Payment

Then Back to #1

Acquire → Convert → Sell → Collect

Notes: ___________________________________________________

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TMExam.com III Correct: __ __ __

In-House Banking

In-House Banking – In an In-House Banking arrangement, Treasury

becomes the company’s center for banking service. This allows

treasury to manage the overall banking relationship and receive

discounts by creating a banking “economy of scale”.

Notes: _____________________________________________

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Opportunity Costs

Opportunity Costs – The cost of using a resource compared to what could

have been earned in the next best alternative.

Notes: _____________________________________________

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FV and PV Equations and Uses

FV = PV x (1 + i) n

Determines Future Value of an investment based on interest rate (i).

PV = ni

FV

)1( =

niFV

)1(

1

i = Interest rate

n = # of Periods

Notes: _____________________________________________

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Cash Conversion Efficiency

Cash Conversion Efficiency = Sales

nsomOperatioCashFlowFr

Notes: _____________________________________________

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Current Ratio

Current Ratio = iesntLiabilitTotalCurre

ntAssetsTotalCurre

Shows the company’s ability to pay back current Liabilities with

current Assets.

A high Current Ratio is a sign of strong liquidity and a sign of lower

risk to lenders and investors.

Notes: _____________________________________________

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Quick Ratio (Acid Test)

Quick Ratio = iesntLiabilitTotalCurre

ceivablesAccountsntsSTInvestmeCash Re

Also called the Acid Test Shows company’s ability to pay back ST

Liabilities with its most liquid assets.

Notes: _____________________________________________

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Cash Flow to Total Debt Ratio

Cash Flow to Total Debt Ratio = LTDebtSTDebt

onDepreciatiNetIncome

Helps determine how able a company is to pay its debt with its cash

flow.

Remember: Cash Flow pays off debt, not Revenues. So this

information is very important to lenders and investors.

Notes: _____________________________________________

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Cash Conversion Cycle

Cash Conversion Cycle = Days Inventory + Days Receivable –

Days Payable

Shows the average number of days between when cash is paid for materials

and when cash is received for the sale of finished goods.

Can be reduced by: 1) Reducing Days Inventory (selling more quickly), 2)

reducing Days Receivable (speeding up collections), and 3) stretching Days

Payable (paying slower).

Notes: _____________________________________________

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Payment Float

Experienced by the buyer

Time between when invoiced is received and when funds are debited

from company account.

Total of Accounts Payable Time (invoice received until payment is

sent) and Disbursement Float Time (Payment Sent and Funds

Debited).

Notes:

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Restrictive Current Asset Strategy

Relaxed Current Asset Strategy

Restrictive – Keeps current assets as low as possible. May use JIT inventory

management. Restrictive strategy may be most profitable but is riskier.

Relaxed – Keeps high amount of current assets, which may result in a less

strict A/R credit policy. May be less profitable because funds are tied up in

assets, but less vulnerable to inventory shortages. May also result in a higher

current ratio

Notes: _____________________________________________

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Cash Turnover Ratio

Cash Turnover = sionCycleCashConver

365

Determines how many Cash Conversion Cycles a company will

experience in a year.

Notes: _____________________________________________

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Disbursement Float

Experienced by the buyer

Time Between when payment is sent and when funds are debited from the

buyers account.

Sum of Mail Float, processing time, and clearing time.

Notes: ___________________________________________________

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Collection Float

Experienced by the seller

Time between when the customer mails payment and funds are

available.

Sum of Mail Float, Processing time, and availability float.

Notes:

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Invoicing Float

Experienced by the seller

Time between when customer order is received and when invoice is

received (not when it is sent) by the buyer.

Notes: ___________________________________________________

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Availability Float

Experienced by the Payee (Seller of goods)

Time between when check is deposited and funds are available.

Notes:

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Maturity Matching Financing Strategy

Maturity Matching – Total Permanent Assets* are financed with

Long-term financing (Essentials). Short-term Financing is used for current

assets.

*Total Permanent Assets = Fixed assets + permanent current assets

ST financing is “matched” with needs for temporary current assets.

Notes: _____________________________________________

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Types of Inventory

Raw Materials

Work in Progress (WIP)

Finished Goods

Scrap or Obsolete items

Stores and Supplies

Notes: _____________________________________________

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Conservative Financing Strategy

Conservative Financing Strategy – LT financing is used for permanent

assets and temp current assets. ST financing is used only when necessary.

Higher cost but lower risk since not as open to interest rate changes.

Notes: _____________________________________________

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Aggressive Financing Strategy

Aggressive Financing Strategy –ST financing is used for a majority

of temporary assets and for some long-term assets.

Generally produces a lower cost but higher risk.

Uses more ST financing than Maturity Matching and Conservative.

Notes: _____________________________________________

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Aging Schedule

An aging schedule is a list of A/R amounts separated by the number of days

it takes to collect.

0-30 days $200,000 32%

31-60 days $300,000 48%

61- 90 days $100,000 16%

Over 90 days $25,000 4%

Notes: _____________________________________________

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Monthly Billing, Bill of Lading, Seasonal Dating,

Consignment

Monthly Billing – Seller issues monthly bill with the payment terms.

Bill of Lading – Documentary Collections – Goods are shipped and

forms are sent to bank. Buyer receives forms (to receive goods) after

making payment (or agreeing to pay) to the bank.

Seasonal Dating – Buyer pays at the end of a selling season (Kmart

paying after Christmas)

Consignment – Goods are sent to buyer. Buyer pays for goods after

selling.

Notes: _____________________________________________

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Cost of Trade Discount to Seller

This shows how much the seller is gaining (losing) if the buyer takes the

discount. The difference between the two Present Values (PV) is the amount

saved (lost) because of the discount

NPV = PV of funds on discount day – PV of funds on net day

Notes: _____________________________________________

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Cost of Trade Discount to Buyer

This shows the effective interest rate of the discount for the days

between the discount period and the net period. If this amount is

higher than the cost of funds, the buyer should take the discount.

Discount Cost = )(

365

)100( TND

D

D = Discount %

N = Net Period

T = Discount Period

Notes: _____________________________________________

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The Five C’s of Credit

Character

Capacity

Capital

Collateral

Conditions

Notes: _____________________________________________

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Types of Credit Extension:

Open Account, Installment Credit

Open Account – Most Common type of trade credit in US. Buyer

receives invoice and pays by credit terms. Invoices are sent

periodically or by order.

Installment Credit – Buyer makes regular monthly payments for

purchase. Usually interest is charged.

Notes: _____________________________________________

___________________________________________________

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Types of Credit Extension:

Revolving Credit, Letter of Credit

Revolving Credit – Buyer receives credit amount and makes purchases on

credit. Purchase amounts must be paid regularly or interest is charge. Allows

buyer and seller to set amount without approving each purchase made.

Letter of Credit – Generally used for International Trade. Bank guarantees

the seller that the amount owed for purchases will be paid.

Notes: _____________________________________________

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Cash Before Delivery, Cash on Delivery, Cash

Terms, Net Terms, Discount Terms

CBD must pay in full before goods are shipped or received.

COD – Buyer pays in full upon receipt of goods.

CT – Buyer has low number of days to pay in full after receipt.

Generally less days than Net & used for perishable items (Essentials).

NT – Buyer has certain number of days to pay in full (Ex. Net30)

DT – Buyer can receive discount on goods if paid within a certain

number of days or must pay in full if after days (3/5 Net 45 = 3%

discount if paid in 5 days or must pay full if between 5 and 45 days)

Notes: _____________________________________________

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Collection Float - Experienced by Payee

Collection Float Time between when check is mailed and when funds are

withdrawn

Mail Float – Time between when check is mailed and day it is received.

Processing Float – Time between when check is received and when it is

deposited into payee’s account.

Availability Float – Time between when check is deposited and when funds

are available.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

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A/R Balance Pattern, Distribution Forecast,

Receipts and Disbursements (R&D) Forecast

A/R Balance Pattern Shows % of A/R that are collected in each month.

Useful to forecast amount of funds to be received based on the months

total sales.

Distribution Forecast – Estimates the amount from the event of a

disbursement before the amounts are debited (Ex. Payroll checks and the

est. days after payment they are cashed)

R&D Forecast – Predicts the needed amount of cash based on historical

Receipts and Disbursement information. Help a company determine

what borrowing needs it may have and any funds that may be available

for investment.

Notes: _____________________________________________

___________________________________________________

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Letter of Credit

Letter of Credit international banking product where the issuing bank

guarantees payment of the buyer’s international purchases as long as

certain requirements are met. This is a credit based product since the

issuing bank is guaranteeing the purchase will be satisfied.

Notes: _____________________________________________

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Banker’s Acceptance

Banker’s Acceptance – starts as an order to a bank by a bank's

customer to pay a sum of money at a future date, typically within six

months. At this stage, it is like a postdated check. When the bank

endorses the order for payment as "accepted", it assumes responsibility

for ultimate payment to the holder of the acceptance. At this point, the

acceptance may be traded in secondary markets much like any other

claim on the bank.

Notes: _____________________________________________

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Barter, Counter trade, Trading Companies

Barter – A trade method where parties exchange goods (or services)

instead of money.

Counter trade – Similar to Barter but used when one of the traders to not

have access to “hard currency”. In this situation, the trading partners

exchange goods and one of the trading partners uses the goods for sale

elsewhere. (Essentials).

Trading Companies – “Used when the exporter (Seller) sells products at

a discount to an export trading company, which then resells the products

internationally” (Essentials)

Notes: _____________________________________________

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Notional Pooling, Overlay

Notional Pooling – Funds are not actually transferred, but are totaled

between accounts to offset deficits in other accounts or to show total

investment for the day. Usually must be in the same currency.

Overlay Structure – Used when a primary bank has branches in

countries that do not offer as extensive of services. Balances are

pooled (actual or notional) so the company receives credit

Notes: _____________________________________________

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Moving Average Forecast

Exponential Smoothing Forecast

Moving Average Forecast = (Sum of Historic Periods) / # of Historic Periods

Exponential Smoothing (Next Period) Forecast = (Alpha)(Actual Period CF) + (1-Alpha)(Moving Ave. Forecast)

Notes: _____________________________________________

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Explain Float Neutralized

Since Electronic transactions clear faster that paper items, a company

can wait longer to send a payment to the payee. By sending an ACH

with an effective date equal to the expected availability date of a

check, the company is neutralizing the expected float.

Payee’s often offer different credit terms to buyers who pay

electronically in order to assure that the buyer does not lose the float

benefit.

Notes: _____________________________________________

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Documentary Collection,

Collection Letter(Essentials)

Documentary Collection international banking product where the

remitting bank (seller’s bank) prepares the documents and sends them to

the collecting bank (buyer’s bank). The collecting bank then collects the

payment from the buyer and, in exchange, provides the buyer with the

documents required to collect the goods.

The Collection Letter document that spells out the exact requirements to

be met before the buyer can receive the documents.

Notes: _____________________________________________

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Concentration needs and methods

Needs: Field locations receiving deposits (checks) into the main

company bank or in a different bank funds need to be consolidated.

Methods: ACH (CCD, CCD+), Wire Transfer (standing wire,

drawdown wire), Zero Balance Account (ZBA – used when company

and field locations have same bank), Deposit Reconcilement (used

when field locations use 1 bank account. Bank will reconcile deposit

from each location).

Notes: _____________________________________________

___________________________________________________

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Disbursement Float- Experience by Payor

Time between Check being mailed and when funds are available.

Mail Float – Time Between when check is mailed and when received

payee

Processing Float – Time between when check is received and when it is

deposited.

Clearing Float – Time between when check is deposited and when funds

are debited

Notes: _____________________________________________

___________________________________________________

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___________________________________________________


Collection Float, Disbursement Float

Coll. Float = Availability Float + Processing Float + Mail Float

Disb. Float = Clearing Float + Processing Float + Mail Float

Notes: _____________________________________________

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Netting, Bilateral Netting

Netting – A method of reducing transfers between a group of trading

partners or intercompany divisions where only the net amount of all debits

and credits are transferred. Meant to reduce the total number of transfers.

Bilateral Netting – A netting arrangement between 2 intercompany

divisions where only the net amount is transferred at the end of a period.

Notes: _____________________________________________

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International Transfer Leading and Lagging

Leading – If the currency of the business unit to be credited is

expected to increase in value opposed to the sending unit’s currency,

the transfer will be made ahead of time with the expectation of an

appreciation in value.

Lagging – If the currency of the business unit to be credited is

expected to decrease in value opposed to the sending unit, the transfer

will be delayed, with the expectation of depreciation in the value of the

currency to be receiving the credit.

Notes: _____________________________________________

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Average Daily Credit Sales

Average Daily Credit Sales = ePeriodAbovTotalDayof

RMonthAveARMonthAveA ...)2/1/(

Notes: _____________________________________________

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Multilateral Netting System

Determine the flow of funds to & from each sending location prior to

the netting system.

Flow from/to each subsidiary = Incoming funds – Outgoing funds

If above amount is negative, flow will be to netting center

If above amount is positive, flow will be from netting center

If above amount is 0, no funds will be transferred to/from netting

center

Notes: _____________________________________________

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Days Inventory, Days Receivables, Days Payables

Days’ Inventory = 365COGS

Inventory

Days’ Receivables = 365Re

sAnnualSale

ceivablesAccounts

Days’ Payables = 365COGS

yableAccountsPa

Notes: _____________________________________________

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Days Sales Outstanding (DSO)

DSO is the number of days it takes a company to collect funds from

sales.

Days’ Sales Outstanding (DSO) = editSalesAveDailyCr

RdingAOus /tan

Notes: _____________________________________________

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Cash Conversion Cycle (CCC)

Cash Turnover

CCC = Days’ Inventory + Days’ Receivables – Days’ Payables

Cash Turnover = CCC

365

Notes: _____________________________________________

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Wire Transfer Breakeven Point

Determines Min. Amount of transfer before higher cost of Wire

Transfer will be offset by daily interest earned.

Minimum Transfer =

Days

yCostOpportunitDaysSaved

ACHCostWireCost

365

Notes: _____________________________________________

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Collection Float, Disbursement Float

Coll. Float = Availability Float + Processing Float + Mail Float

Disb. Float = Clearing Float + Processing Float + Mail Float

Notes: _____________________________________________

___________________________________________________

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___________________________________________________


Next Period Forecast

Next Period Forecast = (Alpha)(Current Period Actual) + (1 – Alpha)(Current Period

Forecast)

))(1(1 ttt FXF

t = Time Period

1tF = Next Period Cash Flow forecast

tF = Current Period Cash Flow forecast

tX = Current Period Cash Flow Actual

= Smoothing constant (Alpha)

Notes: _____________________________________________

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Moving Average Forecast

Exponential Smoothing Forecast

Moving Average Forecast = (Sum of Historic Periods) / # of Historic Periods

Exponential Smoothing Forecast = (Alpha)(Actual Period CF) + (1-Alpha)(Moving Ave. Forecast)

Notes: _____________________________________________

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Benefits of Concentration of Funds

Allows companies to take advantage of investment

opportunities with larger balances, which will increase interest

income

Allows companies to efficiently use funds to pay down debt,

which can save interest expense

Allows companies to take advantage of purchase discount

opportunities, such as early payment discounts

Allows companies to balance cash among accounts

Notes: _____________________________________________

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Open Item

Balance Forward

Open Item: Common type of sales collection – company A sells products

to company B and then company B pays for the items at some point in the

near future. Once it’s paid, the amount is matched to the invoice.

Balance Forward: Company A sells products to company B and the sale

amount is added to Company B’s credit line (with company A). As

payments are made, the credit line is paid down but payments are not

matched to a specific invoice

Notes: ___________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________


Factoring

Factoring: Selling accounts receivable to another company at a

discount (called a factor). Payments made towards those receivables

are received by the Factor. The benefit to the company using a factor

is the receipt of immediate cash.

Sale without Recourse means the factor must take any losses from the

receivables. Sale with recourse means the company is responsible for

any non-payment

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Controlled Disbursement

Zero Balance Account (ZBA)

Controlled Disbursement Service provided by bank where bank notifies

company of checks that will clear later in the day. Allows the company to

hold funds in investment or refrain from using borrowed funds until

necessary.

ZBA – Allows company to maintain different accounts for each deposit

location. At the end of the day, funds are transferred from these accounts to

one main account, leaving these at a Zero Balance. This eliminates manual

transfers and allows company to have control over funds.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Discount

Discount = 1 – )]

365(1[

1

rTDx

TD = Total days difference in timing between check and electronic

payments

R = Opportunity cost annual rate

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Types of Wires (5)

Repetitive – Used to make wires to the same receiver. Only the date and $

amt can be changed with each wire.

Semi-Repetitive – Used to make wires to the same receiver. Description,

Date, and $ amount can change with each wire.

Non-Repetitive – Free Form Wire – All information can change with

each wire

Drawdown – Basically a request to another bank to originate a wire

transfer from an account to the sender’s account.

Standing – A request to another bank to originate a wire transfer from an

account whenever it reaches a certain balance.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Corporate Trade Exchange (CTX), Check

Represent (RCK), A/R truncation (ARC)

CTX – Business to Business payment. Addenda in ASCX12, up to

9,999 records, each having up to 80 characters.

RCK – ACH Debit used for checks that are returned NSF. Checks

cannot be business checks or exceed $2500. Check writer must have

prior notice of this policy in order to be valid.

ARC – Used for Retail Lockbox payments. Checks are truncated and

converted to an ACH debit for faster processing.

BOC – A check conversion that happens after the check is accepted in a

back office. For single payments.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Prearranged Payment or Deposit (PPD), Cash

Concentration and Disbursement (CCD, CCD+)

PPD – Business to Consumer Credits (Payroll) or Debits

(Mortgage Payments)

CCD – Business to Business payments for Funds Concentration

or Disbursement (allows 94 character addenda record)

CCD+ Business

to Business payments for Funds Concentration

or Disbursement (allows 94 character + 80 additional character

addenda record)

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Cust. Init. Entry (CIE),

Tel. Init Entry (TEL), Internet Init. Entry (WEB),

Destroyed Check Entry Format (XCK)

POP – Check MICR line is scanned for the transaction and the check

is give back to check writer.

CIE – Preauthorized payments initiated by consumers

TEL – Not preauthorized but are approved by consumers over the

phone (Usually a one-time purchase (Essentials))

WEB – Not preauthorized but are approved by consumers over

the Internet

XCK – Used when the original paper item was destroyed

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Wholesale Lockbox, Retail Lockbox

Wholesale Lockbox: Low volume, high dollar payments (B2B). Decrease

time to available funds because of amounts. Can process check and

remittance so company can verify all needed data (to determine discounts,

etc).

Retail Lockbox – High volume, low dollar payments (C2B). Decreases

cost because is able to handle large volume of payments efficiently. Float

is reduced but cost savings is major benefit.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Hybrid Lockbox

Hybrid Lockbox: Can handle both B2B large dollar payments and

C2B low dollar payments. Basically used for companies that receive

both types of payments and want to process efficiently.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Positive Pay, Reverse Positive Pay

Multiple Drawee Checks

Positive Pay – Check Fraud prevention service. Company sends check

issued file to bank for comparison with checks as they are paid. If

information is different, bank asks for Pay/no pay decision.

Reverse Positive Pay – bank sends file of checks to company for

company to verify if should be paid.

Multiple Drawee Check – Can be paid by more than one bank.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


International ACH Transaction (IAT)

IAT: ACH Debit or credit that originated from outside the US, or is

being sent outside of the US

Notes: __________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


Imprest Account

Payment Factory

Imprest Account: Basically a petty cash account that allows a employees

of a company to make small purchases that are needed

Payment Factory: A centralized accounts payable center that processes

payments for the company

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Factoring, Securitization

Factoring – Sale of company’s A/R to a third party as a source of funds.

Sold with recourse (company is responsible for uncollected amounts) or

without recourse (Factor is responsible for collecting in cases of

nonpayment from customers).

Securitization – Bundling of a company’s assets that are then sold as a

security. Can use A/R, certain assets, etc.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Point of Purchase (POP), Cust. Init. Entry (CIE),

Tel. Init Entry (TEL), Internet Init. Entry (WEB)

POP – Check MICR line is scanned for the transaction and the check is

give back to check writer.

CIE – Preauthorized payments initiated by consumers

TEL – Not preauthorized but are approved by consumers over the phone

(Usually a one-time purchase (Essentials))

WEB – Not preauthorized but are approved by consumers over

the Internet

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Yield Curve

Normal Yield Curve - slopes upwards where ST rates are lower than

LT rates.

Inverted Yield Curve - slopes downwards where ST rates are higher

than LT rates.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


What is CAPM

CAPM is meant to estimate an investor’s rate of return using both Time

Value of Money and risk. If an investments’ expected return is below the

required rate determined by CAPM, it is considered overpriced. If the

expected return is above the required rate of return

, it is underpriced.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Advantages and Disadvantages of Short Term Debt

Advantages

Often more flexible and easier to access than LT debt.

May provide temporary source of financing for a ST need for

funds (funds shortage, seasonal financing, etc).

Better allows the use of maturity matching

Disadvantages · When in need for ST debt (economic distress), may

not qualify or it may be more expensive.

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Money Market Yield, Bond Equivalent Yield

Money Market Securities are calculated on 360 day basis.

Money Market Yield = Holding Period Yield x rityDaysToMatu

360

Bond Equivalent Yield = Money Market Yield x 360

365

= Holding Period Yield x rityDaysToMatu

365

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Preferred Stock Dividend, Price of Preferred Stock

Preferred Stock Dividend = Preferred Stock Dividend Rate x

Par Value

Price of Preferred Stock = Preferred Stock Dividend ÷

Required Rate of Return

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Taxable Equivalent Yield, Holding Period Yield,

Annual Yield

Taxable Equivalent Yield = )1( TaxRate

ieldTaxExemptY

Holding Period Yield =

AmountInvestment

AmountInvestmentturityceivedatMaAmount Re

Annual Yield = Holding Period Yield x rityDaystoMatu

365

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


365 day basis Yield, Effective Annual Yield,

CP Nominal Yield

Money Market Securities are calculated on 360 day basis.

365-Day Basis Yield = 360-Day Basis Yield x 360

365

CP Nominal Yield = rityDaystoMatuicePurchase

ountDollarDisc 365

Pr

Notes: _____________________________________________

___________________________________________________

___________________________________________________

___________________________________________________


Discount Rate, Prorated Dealer Fee,

Prorated Backup LOC

Discount Rate = rityDaysToMatu

xParValue

ountDollarDisc 360

Prorated Dealer Fee

= Ann. Fee Rate x CP Issue Size x 360

rityDaystoMatu

Prorated Backup LOC

= Ann. Backup LOC Rate x Issue size x 360

rityDaystoMatu

Notes: _____________________________________________

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Annual CP Interest, Usable Funds, After Tax Yield

Annual CP Interest =

rityDaystoMatusUsableFund

BackupFeeDealerFeeDiscount 365

Usable Funds = Face Value – Discount

After Tax Yield = Taxable Yield x (1 – Investor’s Marginal Tax Rate)

Notes: _____________________________________________

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Dollar Discount

Dollar Discount = Par Value – Purchase Price

= Cash Received at Maturity – Amount Invested

= Discount Rate x Par Value x 360

rityDaystoMatu

Notes: _____________________________________________

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Bond Purchase Price, Interest Paid,

Fees on Unused Portion

Purchase Price = Par Value – Dollar Discount

Interest Paid = Average Borrowing x All In Rate

Fees on Unused Portion = Unused Amount x Commitment Fee

Notes: _____________________________________________

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Annual Interest Rate, Available Amount

Annual Interest Rate = UsedLineAmount

FeesestTotalInter

= ngBalanceCompensatiowedAmountBorr

FeesestTotalInter

Available Amt = Borrowed Amt – (Comp. Bal. %)(Borrowed Amt)

Notes: _____________________________________________

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PV of a security

Present value of a security is determined by the Present Value of

Future Cash Flows based on an interest rate (i) – the following formula

is used to calculate this. This will be used to determine the value of an

asset (stock) based on the expected rate of return.

Vo = n

i

n

ii

j

i

jn

j k

CF

k

CF

k

CF

k

CF

)1(...

)1()1()1( 2

2

1

1

1

Vo = Net Cash Flow to t

jCF = Cash Flows for period 1 through n

ik = Required rate or return or opportunity costs of funds (i)

Notes: _____________________________________________

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Preferred Stock Dividend, Price of Preferred Stock

Preferred Stock Dividend = Preferred Stock Dividend Rate x

Par Value

Price of Preferred Stock = Preferred Stock Dividend ÷

Required Rate of Return

Notes: _____________________________________________

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Common Stock Price

Common Stock Price = Gr

GD

Gr

DP

ss

o

)1(01

0D = Current Dividend

G = Estimated Growth Rate

sr = Return on Stock

Notes: _____________________________________________

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Present Value of Stock (2nd formula)

PVo (Alternative Calculation) =

1

0

)1(

)1(

nn

i

n

k

GD

nD = Dividend for period 1 through n (assumes it’s consistent)

0D = Current Dividend

G = Estimated Growth Rate

n = Number of Periods

Notes: _____________________________________________

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Interest Rate Charged

Interest Rate Charged = MPxIPxDPxLPxRRF

RFR = Risk Free Rate

IP = Inflation risk Premium

DP = Default risk Premium

LP = Liquidity risk Premium

MP = Maturity risk Premium

Notes: _____________________________________________

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Buy and hold to maturity strategy

Actively managed portfolio strategy

Buy and Hold is a strategy where a company purchases a security where

the maturity lines up with projected cash flow. Also called the maturity

matching strategy.

Actively Managed is a strategy where a company attempts to maximize

interest income by purchasing longer term instruments than needed. Has

been called riding the yield curve.

Notes: ___________________________________________________

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Electronic Data Interchange (EDI)

EDI – A standardized information format used to share information

between companies. There are various sets of standardized EDI

formats: ASC X12 by ANSI, UN/EDIFACT, and multiple others

specific to certain industries

Notes: _____________________________________________

___________________________________________________

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TMS Technology Platforms (Essentials)

Standalone – Users are able to select the specific applications their

business needs.

Client/Server – TMS is installed on a server and individual computers

connect to that server

Hosted– TMS is installed remotely (on the cloud) and accessed

ERP – TMS modules are part of an overall ERP system

Notes: _____________________________________________

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Five key factors that must be provided for

information to be secure (Essentials)

Privacy – Message is only readable by the intended recipients.

Authentication – ability to know with reasonable certainty who sent

the message.

Authorization – Limiting access to certain aspects based on the

individual

Integrity – ability to ensure that a message was not modified while

being transmitted.

Non-repudiation – inability of the sender or receiver to deny sending

or receiving the message.

Notes: _____________________________________________

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Public Key

Public Key – Encryption method used to send information over the

internet. Anyone who does not have the key cannot view the data.

Notes: _____________________________________________

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Digital Signature, Digital Certificates,

Security Tokens

Digital Signature – Message is sent with the sender’s private key

(signature). Assures the recipient of the authenticity of the message.

Digital Certificates – Helps verify a user is who he/she claims to be.

Binds the user’s information to the user’s private key to verify that the

person accessing the information is valid.

Notes: _____________________________________________

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Opportunity Costs

Opportunity Costs – The cost of using a resource compared to what

could have been earned in the next best alternative.

Notes: _____________________________________________

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Notes: _____________________________________________

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Notes: _____________________________________________

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Notes: _____________________________________________

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Notes: _____________________________________________

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Notes: _____________________________________________

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TMExam.com Printable Flash Cards Section 3 Ch 8 - 14 in Essentials...

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