Upgrade to remove ads
Terms in this set (76)
What refers to the relatively greater losses that occur under unfavorable business conditions when financial leverage is high?
What is caused by variations in weather, disease,
Is random variation common?
What is a major concern with production uncertainty?
the effects of the El Nino & La Nina weather phenomena and effects of global warming.
What caused by price fluctuations (often due to
What type of fluctuations can be severe because of perfect competition?
What includes property losses due to fire, flood, windstorms, theft, etc.?
What can generally be covered by insurance but income may still be reduced by interruption of normal business activity?
What y is caused by adoption of new techniques or
methods of production?
What type of uncertainty includes behavior of
landlords, tenants, employees, and relatives that may cause losses for a farmer?
Uncertainty Caused by Actions of Others
What arises because you or your family members may
suffer sickness, injury, or death, and this can have a large impact on business operations of a family farm?
What type of behavior do most managers exhibit?
What kind of behavior describes when increased risk must be compensated for by a higher expected return?
The level of compensation for higher risk required by individuals tends to vary widely from person to person. T/F
What are 4 ways for reducing risks and uncertainty?
Financial strategies, marketing strategies, production strategies, and insurance for insurable risks
Carrying adequate financial reserves, reserve borrowing capacity, and balance short-term and long-term debts are what type of strategies for reducing risk and uncertainty?
Hedging on the futures market, commodity options, forward contracting, and spreading sales over time are what kind strategies?
Diversification and flexibility, including time, cost, and product flexibility, are what kind of strategies for reducing risk and uncertainty?
Protection against catastrophic losses (risk vs cost) are what kind of strategies for reducing risk and uncertainty?
insurance for insurable risks
What is the most common cause of farm failure?
too much debt
What is the most common way to begin farming?
gift and inheritance
What are the three most common forms of farm organization?
sole proprietorship, partnership, and incorporation(corporation)
What type of farm organization is described when all partners are jointly liable for the activities of other farmers?
What are some advantages of an incorporation?
limited liability, more formal management and easier to share, and in some cases tax savings
Which form of a farm organization requires a stronger need for attorneys and accountaints
What is the basic purpose of insurance?
provide protection against economic losses arising from adverse events
How does insurance work?
by combining and pooling enough small unpredictable risk so that annual losses for combined group become statistically predictable
What is described when actual results tend to equal expected results as the number of cases increases (sample mean approaches population mean)?
law of large numbers
What makes an event insurable?
probability of occurrence is predictable
cost of event to insured party can be determined
Why are very large (catastrophic) losses not often insured?
a relatively small number of claims would jeopardize liquidity of insurer
Is home insurance required if you buy a home with a mortgage loan?
What type of insurance is backed by USDA, actual yield is less than planned stated in contract which results in producer getting paid the difference.
What type of insurance guarantees gross income/acre (price guarantee) and is more expensive?
Who subsidizes the insurance premiums for crop insurance?
What kind of claims occur when person suffers physical injury or economic loss can prove someone's negligence was the cause?
What kind of insurance when claims involve compensation for actual damage and legal costs?
What is the underlying problem with adverse selection?
how many workers per beneficiary in 2013 were there?
When is the social security projected to be insolvent by?
What refers to the capacity to borrow, regardless of whether or not it is used?
What is a resource that can be used or held in reserve?
How do you secure a loan?
prove to the lender you don't really need it
What kind of financing is it when the lender agrees to advance funds up to a specified limit when needed by the borrower?
line of credit financing
What does a line of credit provide the lender and borrower with?
an opportunity to review and analyze the entire business operation
Line of credit provides assurance that what?
funds will be available for the business when needed
What refers to the capital structure of the firm?
Do higher leveraged firms results in more variable or fixed returns to equity?
What is the DuPont Model used for?
mathematical analysis of leverage decisions
What does return on equity depend on?
margin of sales, asset turnover, and financial leverage
Does leverage increase or decrease the variance of return on equity?
What should you do if you have high variance of business risk?
keep leverage low
True or False: Business risk can be controlled
Why does high leverage increase return on equity?
Greater financial risk, repayment problems, and reduced liquidity
What percentage is the favorable preferred values of leverage?
less than 25%
What percentage is the satisfactory preferred values of leverage?
What percentage is the unfavorable preferred values of leverage?
more than 50%
If you could not rest easy with the debt load, don't take on additional debt is known as the?
What is a firm's capacity to generate cash to meet cash demands as they occur?
What provides funds for responding to unanticipated events?
What addresses long-term viability of firm's assets to cover its debts (Non-current portion of the balance sheet)?
Net working capital, current ratio, quick ratio are all ratios that measure what?
What 3 demands is liquidity needed for?
transaction demands, precautionary demands, & investment demands
What liquidity demand describes having sufficient liquidity to meet cash demands from anticipated transactions?
What liquidity demand describes liquidity to respond to possible business adversities?
What liquidity demand describes funds needed to respond to new, unanticipated investment opportunities?
What kind of liquidity management issues is matching the timing of cash outflows with expected inflows?
Expenses and sales within a year & payments on debt with returns from investments are examples of what kind of liquidity management issues?
What are the 2 types of liquidity management issues?
scheduling and risk issues
What kind of liquidity management issues is handling random variability in cash flows (increased
expenses or reduced income)?
Monthly (periodic) cash flow projections & annual sources and uses of funds for 3-5 years into the future are examples of what kind of liquidity management issues?
Consumer durable - boats, cars, firearms, etc. & anything with a "fast" sale are what?
assets as liquidity reserves
What type of assets are Bank deposits (CDs, etc.), Mutual funds, Stocks/bonds and others?
Farmland - perhaps sell with a leaseback or rental agreement, machinery - defer replacement, sell, & livestock - easy to sell are what kind of assets?
The "Rule of 72" tells you what?
how long it takes to double your money
You don't always get back what with fast sales?
What kind of risks do you have with high leverage?
YOU MIGHT ALSO LIKE...
RMI 4347 Commercial Risk Management - Raab
CTP - Module 5
OTHER QUIZLET SETS
Comunidad Latina Inmigrantes
Art 1 exam 1 1/12/15
ROTC Study Guide
psych 2314 chapter 7