Day 4

Stock Dividend

You will receive newly created stock shares if you get this kind of dividend.

Declaration Date

The day when a company declares publicly that they're going to offer dividends.

Dividend in Kind

A type of dividend where a company provides products or physical goods instead of money or stocks.

Stock Repurchase

A process that occurs if a company decides to re-purchase its stock shares, often because they believe their stock is undervalued.

Cash Dividend: Payment Schedule

Dividends are usually paid out annually or quarterly.

Date of Record

The day when an organization records all the shareholders who will receive a dividend.

Ex-Dividend Date

The day after the cum-dividend date when the dividend is paid to the seller of the stock.

Stock Split

A process that decreases the price per share of stocks by increasing the number of shares held.

Low Dividends: Benefits

May be desired by high-income investors as they can help lower taxes.

Clientele Effect

Investors tend to invest in companies that offer the types of dividends they prefer.

Information Content of Dividends Theory

Suggests that companies that pay high dividends are likely strong investments.

Cash Dividend

Dividends paid out in cash, typically via bank transfer or check.

Stock Split: 3-for-1

A stock split that triples the number of shares held while reducing the value of each share.

Cum-Dividend Date

The last date to buy stock and qualify for the upcoming dividend.

Dividend

A payment made to shareholders from a company's profits based on how many shares they own.

Stock Split: Company Ownership

Investors maintain the same level of ownership despite a decrease in individual stock value.

Zero-Balance Account

An account that ends each day with a zero balance by removing any remaining funds.

Default Risk

The chance that a borrower will not repay their debt.

Statement of Cash Flow

A financial document that records the cash transactions of a business.

Baumol-Allais-Tobin Model / BAT model

A method for companies to decide how much cash to keep on hand.

Compensating Balances

A requirement for businesses to maintain a minimum cash level after taking out a loan.

Default

A risk associated with repaying investments; not faced if one holds onto cash.

Cash Concentration

Combining funds from multiple accounts into one account.

Miller-Orr Model

A model that helps businesses set cash flow limits.

Accelerating Collections

Reducing the time it takes to turn sales into available cash.

Disbursement

The action of a business spending money.

Net Float

The difference between collection float and disbursement float.

Holding Cash: Motives

Speculative, precautionary, transaction.

Holding Cash: Disadvantages

High levels of cash do not generate interest and can be better utilized for returns.

Lockbox System

A collections system where customers send payments to a post office box for deposit.

Economic Order Quantity Model

A model for determining optimal inventory levels.

Treasury Bills

Short-term government securities used to hold excess cash.

Cash Float

The difference between recorded cash and the actual cash in the bank.

Mutual Funds

A collection of securities managed by professionals.

Check 21 / Check Clearing for the 21st Century Act

An act allowing electronic processing of checks.

Collection Float

The delay between receiving a check and its deposit.

Short-Term Security

Investments that can be liquidated within a year.

Accounts Receivable Days

The average time to collect on sales.

Controlled Disbursement Account

An account where banks inform businesses of checks to be disbursed.

Disbursement Float

The cash float that starts when a check is written.

Interest Arbitrage

Trading money across currencies to profit from exchange rates.

International Fisher Effect

A rule that links interest rate changes to exchange rate shifts.

Foreign Currency Exchange Rate: Supply

Changing supply influences the demand for currencies.

Absolute Purchase Price Parity

A criteria to balance the price of goods in different countries.

Translation Exposure

Investment risk in foreign currencies that affects reported finances.

International Corporate Finance: Political Risks

Risks arising from political changes affecting currency value.

Forward Exchange Rate

An exchange rate predicted for future transactions.

Foreign Currency Exchange Rate: Demand

Demand for goods influences the currency's exchange rate.

International Capital Management: Long-Run Approach

A strategy focusing on long-term risks in capital management.

Arbitrage

Buying products from foreign markets to capitalize on price differences.

Inflation

A process that reduces a country's real purchasing power.

Short-Run Exposure

The risk of unfavorable exchange rates in the short-term.

Law of Supply

As prices increase, supply increases; as prices decrease, supply decreases.

Purchasing Power Parity Theory

Identical goods in different countries should have equivalent prices when adjusted for exchange rates.

Spot Exchange Rate

The current exchange rate at which currencies are traded.

International Capital Management: Home Currency Approach

Basing all business transactions on the local currency.

Law of Demand

Higher prices lead to lower demand for a product.

Interest Rate Parity

The relationship between interest rates and forward and spot exchange rates.