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Finance
Managing money for an individual, business, or other organization
Pure Risks
Loss or no loss - insurable
Speculative Risks
Profit or loss
Natural risks
Risks relating to the natural environment
Human Risks
Risks caused directly by human actions and behavior
Internal Risks
Operational, financial, strategic risks that originate from within a business - these are under the business’s control
External Risks
Market, regulatory, geopolitical risks that originate from outside a business - beyond the business’s control
Reinvestment Risk
The risk that an investor may not be able to reinvest the proceeds from a matured investment at the same rate of return as the original investment
Risk Transfer
Business transfers risk to an insurance company through an insurance policy
Risk Retention
Business keeps part of the risk instead of transferring it entirely to an insurance company
Environmental Scan
A study of external factors that influence a business’s success - economic indicators and political factors
Internal Analysis
A study of internal factors that influence a business’s success - products, policies, and productivity
SWOT Analysis
Strengths, weaknesses, opportunities, and threats
Strengths
Internal factors that give a business a competitive advantage
Weaknesses
Internal factors that put businesses at a disadvantage
Opportunities
External factors that a business can exploit to its advantage
Threats
External factors that could harm a business
Contingency plan
Alternative course of action to be followed if a specific problem arises
Risk Management
Monitoring the opportunity for loss for a business
Enterprise Risk Management (ERM)
Comprehensive risk managment strategy that involves identifying all the risks that threaten a company, deciding which risks to focus on, and sharing that information with stakeholders
Accounts Payable
Money a company owes - suppliers
Accounts Recievable
Money a company is owed - customers
Solvency
The ability of a business to meet its financial obligations
Aging Accounts
Categorizing and analyzing accounts recievable based on the length of time invoices are outstanding
Delinquent Account
Money owed to a company that is at least 30 days past due
Tax
A fee charged by the government for the services they provide
Tax Law
Area of law that governs taxation
Estate (Death) Tax
A tax paid on wealth collected after a person has died
Marital Deduction
A tax deduction on estate tax due to the dead person’s property passing directly to the surviving spouse
Excise Tax
A tax paid on goods to discourage their consumption and fund public initiatives
Excise Tax Goods
Alcohol, tobacco, gasoline, luxury items
Indirect Tax
Included in the price of a product paid by the consumer
Luxury Tax
A tax paid on high-end non-essential goods and services
Income Tax
Percentage of the taxable income workers earn on the job
Voluntary Compliance
The assumption that taxpayers will comply with tax laws and accurately report their income and tax deductions fairly and honestly
Social Security (FICA)
Tax paid by workers so they may get benefits upon retirement
Sales Tax
Charged to customers as a percentage of the price of the item being purchased
Property Tax
Tax paid based on the value of property such as land and buildings - main source of money for local governments
Gift Tax
Tax paid on the transfer of property or money from one individual to another to prevent individuals from avoiding estate tax by giving away their assets before death
Progressive Tax System
People with higher incomes pay a higher percentage of income in taxes
Regressive Tax System
People with lower incomes pay a lower percentage of income in taxes
Proportional Tax System
Everyone pays the same percentage of income in taxes
Double Tax System
Two different taxes are levied on the same income
Taxation Department
Collects various types of taxes
Tax-Excemption
Money that is not taxed such as charitable donations
Tax-Deferred Income
Income that is earned but not immediately taxed, often related to retirement
Tax-Deductible
Subtract the expense from one’s taxable income
Annuities
Offered by insurance companies that provides a stream of periodic payment to the owner for a specified period in exchange for a lump sum and can offer tax-deferred growth
Insurance
A contract between a business and the insurer that covers a specific risk
Premium
Monthly payment the insured makes to the insurance company for the insurance plan
Deductible
Money the insured is expected to pay in case the insured event occurs
Renters Insurance
Provides coverage for tenants to protect the tenant’s personal property
COBRA Insurance
Short-term group coverage that can be obtained when one is between jobs
Life Insurance
Provides a payout to beneficiaries in the event of the policyholder’s death
Universal Life Insurance
Insured for life and able to grow savings tax-free
Cash Value Component (Life Insurance)
Savings or investment account linked to a universal life insurance policy for tax-deferred growth
Term Life Insurance
Provides coverage for a set period of time and only pays if you are insured at the time of death
Death Benefit
Money paid to the beneficiaries upon the death of the policyholder
Beneficiaries
People named by the policyholder that recieve benefits
Liability Insurance
Provides financial protection including legal defense costs against claims or lawsuits arising from injuries or damages caused to other people or their property
General Liability Insurance
Protects against claims related to bodily injury, property damage, and personal injury
Professional Liability Insurance
Provides financial protection for certain types of professionals to reduce risk of financial loss to the individual and the company if a client sues them
Occurence Policy
Covers incidents that occur during the policy period, regardless of when the claim is filed
Claims-Made Policy
Covers claims filed during the policy period regardless of when the incident occurred - requires continuous coverage for incidents to be covered
Disability Insurance
Pays a percentage of employees’ salaries if they are unable to work for long periods of time due to illness or injury - nontaxable
Long-Term Care Insurance
Needed if you lose your independence due to physical or mental limitations following an accident or illness
Life Settlement
Owner of a life insurance policy sells the policy to a third party for a lump sum cash payment
Cash Surrender Value
The amount of money an insurance policyholder is entitled to recieve if they decide to terminate their life insurance policy before it’s maturity or before death
Lump Sum Cash Payment
A single, large payment made at once as opposed to smaller, periodic payments
Risk Retention Group
A type of insurance company that is owned by its members
Captive Insurance Company
Aids its parent groups by reducing premium expenses, freeing up capital, and covering risks not commonly addressed by the greater insurance company
Securities
Legal owning and lending agreements between two parties
Securities Information
Information provided regarding an investment intrument issued that demonstrates whether it is debt or equity
Invest
Any activity where money is put at risk in the short-term for the purpose of creating a profit in the long-term
Time Value of Money
The increase of an amount of money due to interest earned over time or dividends paid
Maturity Date
The date the principal amount is repaid to the securityholder
Face Value
The amount of money that the issuer promises to repay the holder at maturity
Interest (Coupon) Rate
The amount of interest the debtor pays the creditor periodically
Callable
Can be called back by the issuer before the maturity date
Non-Callable
Cannot be called back by the issuer before the maturity date
Lien
A claim the lender has against an asset of the borrower to secure the repayment of a debt
Secured
Borrower pledges the lender collateral to guarantee that the borrowed money will be repaid
Unsecured (Signature)
Money is borrowed simply by signing a promissory note to repay the borrowed money
Market Price
The actual price that prevails in a market at any particular moment
Capital Gains
The difference between the purchase price and selling price of an investment
Stockturn
The number of times stock is sold in a given period of time
Market Value
The price at which an asset would sell in an auction setting
Dividend
A portion of a company's profits distributed to shareholders
Portfolio Turnover Rate
A percentage that indicates how frequently assets within an investment portfolio are bought or sold over a specific period
Compounding
Earning interest upon interest
The Rule of 72
To estimate the number of years it takes for an investment to double in value, given a fixed annual rate of return - divide 72 by the annual rate of return
Debt Securities
Lending securities
Bonds
Debt security that represents a loan made by an investor to a borrower, typically a government or corporation
Discount Bond
Investor pays less than the face value to purchase the bond
Premium Bond
Investor pays more than the face value to purchase the bond
Savings Bond
Bond issued by a government as a way to raise funds
Yankee Bond
Bond issued in the US by a foreign entity, denominated in US dollars
Eurobond
A bond issued in a currency other than the currency of the country in which is is issued - typically issued in international markets
Notes
Typically has a shorter maturity period, have fixed interest rates paid at regular intervals, can be secured or unsecured, tradeable, callable or non-callable
Treasury Bills (T-Bills)
Short-term debt security issued by a government and doesn’t have periodic interst payments