Assam ASSEB Higher Secondary Finance flashcards
Assam ASSEB Higher Secondary Finance · Build recall with a focused review session.
36 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Financial system
- A network of institutions, markets, instruments, and services that channels funds from savers to borrowers, enabling payments, savings, investment, and risk transfer in an economy.
- Primary market
- The market where new securities are issued for the first time by companies or governments to raise capital, for example through an initial public offering or a fresh issue of shares.
- Secondary market
- A market where existing securities are bought and sold among investors after issuance, providing liquidity and price discovery without raising new funds for the issuer.
- Financial intermediary
- An institution such as a bank, mutual fund, or insurer that channels funds between savers and borrowers, reducing transaction costs and information asymmetry while pooling and diversifying risk.
- Money market
- The segment of the financial market for short-term instruments with maturity up to one year, including treasury bills, commercial paper, certificates of deposit, and call money.
- Credit creation
- The process by which commercial banks expand deposits by lending out a portion of deposits while keeping reserves; the deposit multiplier equals one divided by the reserve ratio.
- Treasury bill
- A short-term money market instrument issued by the government at a discount and redeemed at face value on maturity, used to manage temporary cash needs.
- Net asset value
- The per-unit value of a mutual fund, calculated as total assets minus total liabilities divided by the number of units outstanding, usually computed daily.
- Future value
- The amount to which a present sum grows after compounding at a given interest rate for a specified number of periods, calculated as PV multiplied by (1 + r)^n.
- Present value
- The current worth of a future cash flow or series of cash flows discounted at an appropriate rate, calculated as FV divided by (1 + r)^n.
- Annuity
- A series of equal periodic cash flows occurring at regular intervals; an ordinary annuity pays at period end, while an annuity due pays at period beginning.
- Effective annual rate
- The actual annual return or cost after accounting for compounding within the year, calculated as (1 + r/m)^m minus 1, where m is compounding periods per year.
- Rule of 72
- A quick approximation stating that the number of years needed to double an investment equals 72 divided by the annual interest rate expressed as a percentage.
- Equity share
- A unit of ownership in a company that carries voting rights and a residual claim on profits and assets, with dividends that vary and are not guaranteed.
- Debenture
- A long-term debt instrument issued by a company that pays fixed interest and is repaid on maturity; debenture holders are creditors and rank before shareholders on liquidation.
- Trade credit
- A spontaneous source of short-term finance in which suppliers allow buyers to pay later; forgoing a cash discount creates an implicit cost of credit.
- Retained earnings
- Profits kept in the business instead of being distributed as dividends; an internal source of finance with no flotation cost but an opportunity cost equal to shareholders' required return.
- Current ratio
- A liquidity measure calculated as current assets divided by current liabilities; a ratio above one indicates that short-term assets cover short-term obligations.
- Debt-to-equity ratio
- A leverage measure calculated as total debt divided by total equity, showing the proportion of debt relative to owners' funds and indicating financial risk.
- Return on equity
- A profitability ratio calculated as net profit divided by shareholders' equity, measuring how efficiently a company uses owners' funds to generate profit.
- DuPont analysis
- A framework that decomposes return on equity into net profit margin, asset turnover, and equity multiplier, showing how profitability, efficiency, and leverage drive returns.
- Net present value
- The difference between the present value of expected cash inflows and the initial investment; a positive NPV indicates the project adds value and should be accepted.
- Internal rate of return
- The discount rate at which a project's net present value equals zero; a project is acceptable when the IRR exceeds the cost of capital.
- Payback period
- The time required to recover the initial investment from cumulative cash inflows; it is simple but ignores the time value of money and cash flows after payback.
- Profitability index
- The present value of cash inflows divided by the initial investment; a value greater than one indicates an acceptable project and helps rank projects under capital rationing.
- Weighted average cost of capital
- The average cost of a firm's long-term funds, calculated by weighting the after-tax cost of debt and the cost of equity by their proportions in the capital structure.
- Capital asset pricing model
- A model that estimates the cost of equity as the risk-free rate plus beta multiplied by the market risk premium, linking required return to systematic risk.
- Financial leverage
- The use of debt in the capital structure; it magnifies the effect of changes in operating profit on earnings per share and increases financial risk.
- Operating cycle
- The period from purchasing inventory to collecting cash from customers, calculated as inventory conversion period plus receivables collection period minus payables deferral period.
- Economic order quantity
- The order size that minimizes total inventory costs, calculated as the square root of twice annual demand times ordering cost divided by carrying cost per unit.
- Non-performing asset
- A loan or advance on which principal or interest has remained overdue for more than 90 days; such assets require provisioning and reduce bank profitability.
- Cash reserve ratio
- The percentage of net demand and time liabilities that banks must hold as cash with the central bank, used as a monetary policy tool to control liquidity.
- Insurance indemnity
- The principle that general insurance restores the insured to the same financial position as before the loss, without allowing profit from the claim.
- Moral hazard
- The tendency of insured individuals or borrowers to take greater risks after obtaining insurance or a loan because the cost of adverse outcomes is partly borne by another party.
- Emergency fund
- Liquid savings set aside to cover essential expenses for three to six months, held in easily accessible accounts to handle unexpected financial shocks without borrowing.
- Asset allocation
- The process of dividing an investment portfolio among asset classes such as equity, debt, and gold to balance risk and return according to goals and risk tolerance.