tmexam.com printable flash cards section 3 ch 8 - 14 in essentials...
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TMExam.com
Printable Flash Cards Section 3
Ch 8 - 14 in Essentials
Version 4.1
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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
compilation of publicly available financial management information. All information in this file is segmented into associated chapters in Essentials of
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
place of the book.
A special thanks to http://www.investopedia.com/ which has proven to be a great resource for explanations and descriptions.
NOTE: TMExam.com does not guarantee that this information is accurate or will be on the Certified Treasury Professional (CTP) ® exam. Essentials
of Treasury Management, 4th Ed is the body of knowledge for the CTP® exam and these flash cards are not meant to take the place of this text but
are meant to be used as a GREAT study aid in conjunction with other study material.
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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
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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”.
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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.
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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
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Cash Conversion Efficiency
Cash Conversion Efficiency = Sales
nsomOperatioCashFlowFr
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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.
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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.
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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.
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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).
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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).
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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
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Cash Turnover Ratio
Cash Turnover = sionCycleCashConver
365
Determines how many Cash Conversion Cycles a company will
experience in a year.
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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.
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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.
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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.
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Availability Float
Experienced by the Payee (Seller of goods)
Time between when check is deposited and funds are available.
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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.
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Types of Inventory
Raw Materials
Work in Progress (WIP)
Finished Goods
Scrap or Obsolete items
Stores and Supplies
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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.
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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.
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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%
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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.
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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
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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
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The Five C’s of Credit
Character
Capacity
Capital
Collateral
Conditions
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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.
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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.
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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)
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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.
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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.
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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.
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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.
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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)
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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
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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)
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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.
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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.
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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).
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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
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Collection Float, Disbursement Float
Coll. Float = Availability Float + Processing Float + Mail Float
Disb. Float = Clearing Float + Processing Float + Mail Float
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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.
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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.
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Average Daily Credit Sales
Average Daily Credit Sales = ePeriodAbovTotalDayof
RMonthAveARMonthAveA ...)2/1/(
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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
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Days Inventory, Days Receivables, Days Payables
Days’ Inventory = 365COGS
Inventory
Days’ Receivables = 365Re
sAnnualSale
ceivablesAccounts
Days’ Payables = 365COGS
yableAccountsPa
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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
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Cash Conversion Cycle (CCC)
Cash Turnover
CCC = Days’ Inventory + Days’ Receivables – Days’ Payables
Cash Turnover = CCC
365
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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
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Collection Float, Disbursement Float
Coll. Float = Availability Float + Processing Float + Mail Float
Disb. Float = Clearing Float + Processing Float + Mail Float
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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)
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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)
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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
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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
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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
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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.
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Discount
Discount = 1 – )]
365(1[
1
rTDx
TD = Total days difference in timing between check and electronic
payments
R = Opportunity cost annual rate
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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.
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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.
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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)
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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
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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.
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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.
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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.
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International ACH Transaction (IAT)
IAT: ACH Debit or credit that originated from outside the US, or is
being sent outside of the US
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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
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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: _____________________________________________
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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
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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.
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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.
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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.
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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
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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
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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
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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
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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
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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)
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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
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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
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Annual Interest Rate, Available Amount
Annual Interest Rate = UsedLineAmount
FeesestTotalInter
= ngBalanceCompensatiowedAmountBorr
FeesestTotalInter
Available Amt = Borrowed Amt – (Comp. Bal. %)(Borrowed Amt)
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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)
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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
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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
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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
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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
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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.
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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
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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
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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.
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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.
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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.
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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.
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