M2- topic 4 financial management strategies Flashcards Preview

Business study Year 12 > M2- topic 4 financial management strategies > Flashcards

Flashcards in M2- topic 4 financial management strategies Deck (40)
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1
Q

list the types of finance strategies (4)

A

Global financial management

Working capital managemnet

Profitability menagment

Cash flow Managment

2
Q

what are three strategies to manage cash flow (3)

A

distribution of payments

discount for early payments

factoring

3
Q

what is distribution of payments

A

spreading out payments through out a month or year to prevent periods of short fall

4
Q

what are discounts for early payment

A

used as an incentive to get debtors to pay accounts quicker

5
Q

what is factoring

A

selling account receivable for for discounted price in order to get cash immediatly

6
Q

what things must be considered when managing working capital (3)

A

Stock levels

accounts receivable

cash

7
Q

what is wrong with having to much stock

A

it means the business has lower liquidity

8
Q

what is wrong with having to little stock

A

business can miss out on potential sales

9
Q

what is wrong with having excessive account receivables

A

limits what the business can do until the get paid

10
Q

what happens if a business has limited cash

A

can struggle to pay off day to day expenses or any unexpected costs

11
Q

how to manage working capital (2)

A

leasing

sale and lease back

12
Q

what is leasing

A

the hire of an asset

13
Q

what is sale and lease back

A

selling an asset for a cash boost, and then hiring the asset

14
Q

how to manage profitability (2)

A

Cost controls (fixed and variable costs,cost centres management)

Revenue controls (Use of Marketing strategies)

15
Q

what are fixed costs

A

costs that are constant regardless of the level of business activity

16
Q

what are variable costs

A

costs that change proportional to the level of business activity

17
Q

How are fixed and variable cost used to manage profitability

A

Compare cost with previous periods + standards = minimise costs

18
Q

what are cost centres

A

sections in the business where costs are directly associated

19
Q

how can cost centres be used to mange profitability

A

help management identify where most of the funds are going and create better financial decisions

20
Q

how can promotion and pricing strategies be used to mange profitability

A

increases revenue (eg penetration pricing)

Diffentiate product = increase sales

21
Q

why is exchange rates management important for businesses

A

when business conduct international transactions currencies must be exchanged

22
Q

where are currencies exchanges

A

foreign exchange market (forex)

23
Q

what type of currency is the Australian dollar

A

a floating currency

24
Q

what is a floating currency

A

a currency that fluctuates against other currencies

25
Q

when does it mean when the aus dollar rises (4)

A
  • it means the Aus dollar appreciated
  • costs foreign buyers more to purchase Australian goods
  • Aus business are less internationally competitive
  • Importers benefit (cheaper to buy product overseas)
26
Q

when does it mean when the aus dollar falls (3)

A

it means the aus dollar depreciated’

exporters benefit (Aus dollar cheaper for international buyers)

Australian goods more internationally competitive

27
Q

name methods of international pay (4)

A

payment in advance

clean payment

letter of credit

bill of exchange

28
Q

what is payment in advance

A

when the importer pays for the goods before the goods are shipped

29
Q

what is a clean payment

A

when the exporter ships the goods with an invoice to requesting payment on a due date

30
Q

what is a letter of credit

A

a letter giving to the exporter from the importers banks promising that the funds are ready to be release once the goods are being sent.

31
Q

what is a bill of exchange

A

a legal contract between the importer and exporter , where both parties must have proof that the funds and goods are ready to be sent, i order to exchange

32
Q

who’s risk does the letter of credit reduce

A

the exporters risk

33
Q

who’s credit doe the bill of exchange reduce

A

both parties

34
Q

what is the spot exchange rate

A

the value of the currency at a certain point

35
Q

what does hedging aim to do

A

minimise the level of risk associated with currency fluctuations

36
Q

ways of hedging exchange rates (4)

A

Insist import/export contracts be done in $AUS

Implement marketing strategies to reduce price sensitivity of the exported product

Establish offshore subsidiaries( no currency exchange) Derrivatives

37
Q

types of derivatives (3)

A

forward exchange contracts

options contract

swap contracts

38
Q

what are forward exchange contracts

A

an agreement to exchange one currency for another at a agreed exchange rate on a future date

39
Q

what are option contracts

A

an agreement where a spot exchange rate is chosen and if the market moves the price can revert to the spot exchange rate

40
Q

what are swap contracts

A

an agreement for two businesses swap there currencies

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