Chapter 8 Flashcards
(20 cards)
Three main factors when considering an investment
Risk, Return, Liquidity
Capital Risk
A risk that the value of the investment will go down
Risk appetite
How readily accepting an investor is of risk
Risk averse
Wants to invest in the safest way
Risk Seeker
Wants the highest return no matter the outcome
Income return
Interest or dividend
Capital return
invested principal goes up
Liquidity in regards to investing
How quickly an investment can be turned into cash
Diversification
The process of reducing risk by increasing the number of separate investments in a portfolio
Monetary Policy
implemented by BoE to bring price stability and deal with supply of money, interest rates, and availability of credit
Fiscal Policy
The balance between public spending and taxation
Contractionary fiscal policy
more taxation, less spending
The Financial Policy Committee
Analyses and addresses risks to the UK economy such as house price growth
Prudential Regulation Authority
Addresses safety of general public’s money with regards to investing and financial decisions
A company’s treasury’s role in foreign exchange
- Managing exchange rate risk
- Arranging for overseas transfers
Counter-cyclical industries
The phenomena of when an economy falters, an industry booms meanwhile. E.g. Healthcare
The business cycle
Periods of growth followed by periods of decline
difference between current ratio and acid test ratio (quick ratio)
current ratio considers all current assets and liabilities due within a year, including inventory
Quick ratio considers assets and liabilities that are due within 90 days, excluding inventory
Gearing ratio formula
total debt / equity
