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Key Terms

banker's acceptance

a written order for the bank to pay a third party a stated amount of money on a specific date

bond indenture

a legal document that details all the conditions relating to a bond issue


a financial statement that projects income and/or expenditures over a specified future period

capital budget

a financial statement that estimates a firm's expenditures for major assets and its long-term financing needs

cash budget

a financial statement that projects cash receipts and expenditures over a specified period

cash flow

the movement of money into and out of an organization

certificate of deposit (CD)

a document stating that the bank will pay the depositor a guaranteed interest rate for money left on deposit for a specified period of time.


a written order for a bank or other financial institution to pay a stated dollar amount to the business or person indicated on the face of the check

chief financial officer (CFO)

a high-level corporate executive who manages a firm's finances and reports directly to the company's chief executive officer or president


real estate or property pledged as security for a loan

commercial paper

a short-term promissory note issued by a large corporation

convertible preferred stock

preferred stock that the owner may exchange for a specified number of shares of common stock

corporate bond

a corporation's written pledge that it will repay a specified amount of money with interest

debit card

a card that electronically subtracts the amount of your purchase from your bank account at the moment the purchase is made

debt capital

borrowed money obtained through loans of various types

electronic funds transfer (EFT) system

a means of performing financial transactions through a computer terminal or telephone hookup

equity capital

money received from the owners or from the sale of shares of ownership in a business


a firm that specializes in buying other firms' accounts receivable

financial leverage

the use of borrowed funds to increase the return on owners' equity

financial management

all the activities concerned with obtaining money and using it effectively

financial plan

a plan for obtaining and using the money needed to implement an organization's goals

initial public offering (IPO)

when a corporation sells common stock to the general public for the first time

investment banking firm

an organization that assists corporations in raising funds, usually by helping sell new issues of stocks, bonds, or other financial securities

letter of credit

: a legal document issued by a financial institution guaranteeing to pay a seller a stated amount for a specified period of time

line of credit

: a loan that is approved before the money is actually needed

long-term financing

money that will be used for longer than one year

maturity date

the date on which a corporation is to repay borrowed money

prime interest rate

the lowest rate charged by a bank for a short-term loan

private placement

occurs when stock and other corporate securities are sold directly to insurance companies, pension funds, or large institutional investors

promissory note

a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date

registered bond

a bond registered in the owner's name by the issuing company

retained earnings

the portion of a business's profits not distributed to stockholders

revolving credit agreement

a guaranteed line of credit

risk-return ratio

a ratio based on the principle that a high-risk decision should generate higher financial returns for a business and more conservative decisions often generate lesser returns

serial bonds

bonds of a single issue that mature on different dates

short-term financing

money that will be used for one year or less

sinking fund

a sum of money to which deposits are made each year for the purpose of redeeming a bond issue

speculative production

the time lag between the actual production of goods and when the goods are sold

term-loan agreement

a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments

trade credit

a type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise


an individual or an independent firm that acts as a bond owner's representative

unsecured financing

financing that is not backed by collateral

zero-base budgeting

a budgeting approach in which every expense in every budget must be justified

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