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Business Finance
for bus5000
| Term | Definition |
|---|---|
| accounting is called the (blank) of business | language |
| accrual-based approach | accountants record revenues at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash. |
| finance professionals use a (blank) that focuses on current and prospective inflows and outflows of cash. | cash flow approach |
| strategic financial planning | (ong-term |
| operational financial planning | short-term |
| Financial plans help firms | identify problems before they arise and help managers line up financing before cash shortfalls become critical |
| Generally Accepted Accounting Principles (GAAP) | national governments require public companies to generate financial statements based on widely accepted accounting rules |
| Securities and Exchange Commission (SEC) | regulates publicly traded U.S. companies as well as the nation’s stock and bond markets. It mandates that companies generate financial statements following international accounting standards (IAS) |
| Financial Accounting Standards Board (FASB) | a body that examines controversial accounting topics and issues standards that, in terms of their impact on accounting practices, almost have the force of law |
| who developed the GAAP | the FASB |
| Sarbanes-Oxley Act of 2002 | established the Public Company Accounting Oversight Board (PCAOB), which effectively gives the SEC authority to oversee the accounting profession’s activities |
| The SEC requires four key financial statements | (1) the balance sheet, (2) the income statement, (3) the statement of retained earnings, and (4) the statement of cash flows. |
| International Financial Reporting Standards (IFRS) | used in many countries as the regulatory basis for the preparation of financial statements. They are designed to provide a common global language for financial reporting, particularly in the European Union |
| A firm’s balance sheet presents a (blank) view of the company’s financial position at a specific moment in time | “snapshot” |
| basic balance sheet equation | Assets = Liabilities + Stockholders’ Equity |
| Assets and liabilities appear in descending order of | liquidity |
| on a balance sheet, the most liquid asset (blank) appears first, and the least liquid comes last | cash, fixed assets |
| Current assets | easy to sell and turn into cash |
| fixed assets | physical assets like buildings and equipment |
| Assets include | everything that can be used to benefit the business or give the company the right to receive benefits |
| Current liabilities | those that must be paid within one year and include accounts payable, notes payable, and accrued expenses |
| Long-term liabilities | due after more than a year and include deferred taxes and long-term debt |
| stockholders’ equity | the owners’ residual share of the business, including their original investment plus any money the firm has earned and retained since its inception |
| last item listed on a balance sheet | stockholders equity |
| included in stockholders equity | preferred stock, common stock, paid-in-capital in excess of par, and retained earning |
| net worth of the firm includes | the common stock, paid-in-capital in excess of par, and retained earning |
| Cash and cash equivalents | assets such as checking account balances at commercial banks that can be used directly as means of payment |
| Marketable securities | liquid short-term investments, which financial analysts view as a form of “near cash.” They include Treasury notes, commercial paper, and others. |
| Accounts receivable | the amount customers owe the firm from sales made on credit |
| Inventories | raw materials, work in process (partially finished goods), and finished goods held by the firm. |
| Intangible assets | items such as patents, trademarks, copyrights, or mineral rights entitling the company to extract oil and gas on specific properties |
| Gross property, plant, and equipment (PP&E) | the original cost of all real property, structures, and long-lived equipment owned by the firm. |
| The one fixed asset that is not depreciated is (blank) because it seldom declines in value. | land |
| book value | the original cost of the assets less accumulated depreciation to date |
| Total Assets figure on the balance sheet is not, and is not intended to be | an accurate indicator of the current value of the company |
| The current liabilities on the balance sheet include three types of accounts: | Accounts Payable are the amounts owed for credit purchases by the firm.Notes Payable are outstanding short-term loans, typically from commercial banks.Accrued Expenses are costs that have been incurred by the firm that have not yet been paid. |
| Examples of accruals | taxes owed to the government and wages due to employees. |
| Accounts payable and accruals are often called (blank) because they tend to change directly with changes in sales. | spontaneous liabilities or spontaneous financing |
| A deferred tax entry | a long-term liability that reflects the difference between the taxes that firms actually pay and the tax liabilities they report on their public financial statements. |
| In the U.S. and many other countries, laws permit firms to construct two sets of financial statements | one for tax purposes and one for reporting to the public. |
| Stockholders’ equity | the owners’ residual share of the business including their original investment plus any money the firm has made and retained since its inception |
| Preferred Stock | shows the total proceeds from the sale of preferred stock. This form of ownership has preference over common stock when the firm distributes income and assets. |
| Common Stock (sometimes listed as Common Stock at Par Value) | equals the number of outstanding common shares multiplied by the par value per share. Par value (often $1) is an artifact of earlier pre-computer accounting methods used to track the number of outstanding shares |
| Paid-in-capital in excess of par | equals the number of shares outstanding multiplied by the original selling price of the shares, net of the par value |
| the combined value of common stock and paid-in-capital equals | the proceeds the firm received when it originally sold shares to investors (including initial public offerings and rights offerings) |
| Retained earnings | the cumulative total of the earnings that the firm has reinvested in its assets and operations since its inception |
| Retained earnings are not a (blank) When the retained earnings “vault” is empty, it is because the firm has already reinvested the earnings in new assets and/or has paid common stock dividends | reservoir of unspent cash |
| The treasury stock entry | records the value of common shares that the firm currently holds in reserve |
| Stockholder’s equity/ the book value of equity | the sum of all of the other amounts in this section |
| Stockholder’s equity is a permanent funding source for the company that never matures and | does not require repayment for as long as the company exists |
| income (also called profit, earnings, or margin) equals | revenue minus expenses |
| Gross profit | the amount by which sales revenue exceeds the cost of goods sold |
| expenses deducted from gross profit | various operating expenses, including selling expense, general and administrative expense, and depreciation expense. |
| resulting operating profit after deducting expenses from gross profit | represents the profits earned from the sale of products, although this amount does not include financial and tax costs. |
| When a firm has no “other income,” its operating profit and EBIT are | equal |
| earnings before interest and taxes (EBIT) | gross profit minus expenses plus other income |
| EBIT minus interest expense | pretax income |
| pretax income minus taxes | net income |
| Net income is the proverbial (blank) and the single most important accounting number for both corporate managers and external financial analysts. | bottom line |
| results in earnings per share (EPS). | Dividing earnings available for common stockholders by the number of shares of common stock outstanding |
| The final entry in the income statement is the(blank)paid to common stockholders | cash dividend per share (DPS) |
| Statement of Retained Earnings | reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of that year |
| The statement of cash flows provides a summary of | what cash has gone into and out of a firm because of its operations, investments, and financing activities during a year |
| the statement of cash flows isolates | the firm’s operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the year. |
| cash and marketable securities represent a reservoir of liquidity that (blank)with cash inflows and (blank)with cash outflows. | increases, decreases |
| operating flows | the cash inflows and outflows directly related to the production and sale of products or services |
| investment flows | cash flows associated with the purchase or sale of fixed assets and business equity |
| financing flows | result from debt and equity financing transactions |
| results in cash inflow | Taking on new debt, sale of stock |
| results in cash outflow | repaying existing debt, repurchase of stock or payment of cash dividends |
| free cash flow (FCF) | the amount of cash flow available to investors |
| what FCF represents | the net amount of cash flow remaining after the firm has met all operating needs and has made all required payments on both long-term (fixed) and short-term (current) investments |
| free cash flow equation | NOPAT = EBIT x (1-T), OCF = NOPAT + Depreciation = [EBIT x (1-T)] + Depreciation |
| noncash charges | expenses that appear on the income statement but do not involve an actual outlay of cash |
| examples of noncash charges | depreciation, amortization, and depletion allowances |
| equation to convert operating cash flow to free cash flow | FCF = OCF − ∆FA − (∆CA − ∆AP − ∆Accruals) |
| ∆FA = | change in gross fixed assets |
| ∆AP = | change in accounts payable |
| ∆CA = | change in current assets |
| ∆accruals = | change in accrued expenses |
| NOPAT | net operating profits after taxes |
| A decrease in an asset (such as inventory) is an (blank) of cash | inflow |
| an increase in inventory (or any other asset) is an (blank) of cash | outflow |
| situation where a firm can have a net loss (negative NOPAT) and still have positive operating cash flow | when depreciation and other noncash charges during the period are greater than the net loss |
| recorded as cash outflow | increase in gross fixed assets – rather than net fixed assets |
| Notes typically provide additional information about | a firm’s revenue recognition practices, income taxes, fixed assets, leases, and employee compensation plans |
| why financial ratio analysis is useful | company’s can differ in size, location, and other characteristics so there needs to be a way to put them on an equal footing for comparison |
| complication of ratio analysis | normal ratio in one industry may be highly unusual in another |
| Liquidity ratios | measure a firm’s ability to satisfy its short-term obligations as they come due. |
| measures of liquidity | current ratio and the quick (acid-test) ratio |
| current ratio equation | current ratio equals current assets divided by current liabilities |
| how the acid test ratio differs from the current ratio | it excludes inventory, which is usually the least-liquid current asset |
| quick ratio equation | current assets minus inventory divided by current liabilities |
| Inventory turnover | provides a measure of how quickly a firm sells its goods |
| inventory turnover equation | cost of goods sold divided by inventory |
| average age of inventory | dividing inventory turnover by 365 |
| average daily sales equation | annual sales divided by 365 |
| average collection period equation | accounts receivable divided by average daily sales |
| average payment period equation | accounts payable divided by average daily purchases |
| fixed asset turnover ratio equation | net sales divided by average net fixed assets |
| total asset turnover ratio equation | annual sales divided by total assets |
| Equity comes from | stockholders |
| Firms finance their assets from two broad sources: | equity and debt |
| debt ratios measure the extent to which | a firm uses money from creditors rather than from stockholders to finance its operations. |
| coverage ratios | focuses more on income statement measures of the firm’s ability to generate sufficient cash flow to make scheduled interest and principal payments |
| The debt ratio | measures the proportion of total assets financed by the firm’s creditors |
| debt ratio equation | total liabilities divided by total assets |
| assets-to-equity (A/E) ratio, aka equity multiplier | total assets divided by common stock equity |
| A (blank) equity multiplier indicates high debt and low equity | high |
| times interest earned ratio equation | earnings before interest and taxes divided by interest expense |
| The times interest earned ratio measures | the firm’s ability to make contractual interest payments |
| The gross profit margin measures | the percentage of each sales dollar remaining after the firm has paid for its goods |
| gross profit margin equation | sales minus cost of goods sold divided by sales |
| operating profit margin equation | operating profit divided by sales |
| The net profit margin measures | the percentage of each sales dollar remaining after deducting all costs and expenses including interest, taxes, and preferred stock dividends |
| net profit margin equation | earnings available for common stockholders divided by sales |
| the most closely watched financial ratio is | earnings per share (EPS) |
| earnings per share equation | earnings available for common stockholders divided by common shares outstanding |
| Return on total assets (ROA), often called return on investment (ROI), measures | management’s overall effectiveness in using the firm’s assets to generate returns to common stockholders |
| ROA equation | earnings available for common stockholders divided by total assets |
| To improve ROA, a firm needs to | improve its cost control, for example, by reducing labor costs, purchases, and overhead; or the company needs to increase its revenues |
| ROE return on common equity | captures the return earned on the common stockholders’ (owners’) investment in the firm |
| ROE equation | earnings available for common stockholders divided by common stock equity |
| duPont system | highlights the influence of both the net profit margin and the total asset turnover on a firm’s profitability, the return on total assets equals the product of the net profit margin and total asset turnover |
| ROA equation restated by the DuPont system | net profit margin times total asset turnover |
| Market ratios relate the firm’s (blank) as measured by its current share price, to certain accounting values. | market value |
| price/earnings (P/E) ratio measures | the amount investors are currently willing to pay for each dollar of the firm’s current earnings |
| P/E ratio equation | market price per common share divided by earnings per share |
| book value per share equation | common stock equity divided by common shares outstanding |
| market book ratio equation | market price per common share divided by book value per share |
| Financial managers strive to develop and implement | effective financial plans that support, but do not drive, the company’s strategic goals and objectives while managing risk and uncertainty |
| if fulfilling strategic objectives will require a significant increase in leverage, it is the finance group’s role to | communicate this trade-off to the top management team. |
| Financial analysts generally treat (blank) as a factor that limits a firm’s ability to make new investments | expected dividend payments |
| Three of the more popular measurements of growth are | the accounting return on investment (ROI), economic value added (EVA®), and growth in sales or assets |
| The accounting return on investment (ROI) is | the firm’s earnings available for common stockholders divided by its total assets |
| ROI equation | earnings available for common shareholders divided by total assets |
| cost of capital | the annual percentage cost of an average dollar of long-term funds employed in the firm from all sources and given the firms proportional mix of those sources, which is called its capital structure. |
| Economic value added (EVA®) is the difference between | net operating profits after taxes (NOPAT) and the cost of funds |
| why EVA isn't always used for financial planning | unclear degree of positive correlation with actual share valuations, conceptually valid but difficult to implement because of accrual-based accounting inputs (NOPAT and investment), increased computational complexity |
| increases in liabilities and shareholders’ equity must equal | increase in assets. |
| sustainable growth model | starts with a balance sheet identity, adds a few assumptions, and determines how rapidly a firm can grow while maintaining a balance between its outflows (increases in assets) and inflows (increases in liabilities and equity) of funds |
| The primary advantage of the sustainable growth model is | its simple way of linking together various aspects of financial planning |
| pro forma financial statements | forecasts of what they expect their income statement and balance sheet to look like a year or two ahead |
| Top-down sales forecasts rely heavily on | macroeconomic and industry forecasts. |
| Bottom-up sales forecasts begin by | assessing demand in the coming year on a customer-by-customer basis, managers add up these figures across sales territories, product lines, and divisions to arrive at the overall sales forecast for the company |
| percentage-of-sales method | firms construct pro forma statements by assuming that all items grow in proportion to sales and by extending that percentage to all income statement and balance sheet accounts |
| (A/S)ΔS, | indicates the additional investment in assets required for a firm if it plans to maintain its total asset turnover ratio and increase the dollar volume of sales by ΔS (related to External Financing Required equation) |
| (blank) do not exhibit the seasonal pattern of sales and current assets, but do follow the long-term upward trend | fixed assets |
| conservative strategy | use more expensive long term financing to finance permanent and temporary assets |
| aggressive strategy | use less expensive but riskier short term debt to finance both seasonal peaks and a part of long term growth and assets |
| matching strategy | finance permanent assets with long term funding sources and temporary asset requirement with short term financing |
| primary tool to monitor cash inflows and outflows very closely, a statement of the firm’s planned inflows and outflows of cash | cash budget |
| The most common components of cash receipts are | cash sales, collections of accounts receivable, and other cash receipts |
| Cash disbursements | include all outlays of cash by the firm in the period. |
| The most common cash disbursements are | cash purchases, fixed asset outlays, payments of accounts payable, wages, interest payments, taxes, and rent and lease payments |
| depreciation and other noncash expenses (blank) included in the cash budget | are not |
| Because the cash budget provides only month-end totals, it does not ensure that | the firm has sufficient credit to cover intra-month financing needs |
| A slowdown (speedup) in collections will | increase (reduce) the firm’s short-term financing needs |
| a speedup (slowdown) in payments will likely | increase (reduce) the firm’s financing needs |
| a (blank) is a long term guide driven by competitive forces | strategic plan |
| on what key input does a cash budget rely? | sales forecast (cash inflows) |
| real asset sometimes is called a physical asset because | it typically is a tangible (that is, physically observable) item, such as a computer, a building, or an inventory item |
| a (blank) is intangible because it represents an expectation, or promise, that future cash flows will be paid to the owner of such an asset. | financial asset |
| a financial asset can be classified as | debt, equity, or a derivative. |
| A derivative is | a contract that derives its value from the performance of an underlying entity such as asset, an index, or an interest rate |
| firms use derivatives to(blank), against a variety of risks. | hedge, or insure |
| types of debt instruments exist: | home mortgages, commercial paper, term loans, bonds, secured and unsecured notes, and marketable and nonmarketable debt |
| Debtholders have (blank) over stockholders with regard to distribution of earnings and liquidation of assets | priority |
| principal value of debt represents | the amount owed to the lender, which must be repaid at some point during the life of the debt |
| the terms par value, face value, maturity value, and principal value | are used interchangeably to indicate the amount that must be repaid by the borrower. |
| Securities that sell for less than their par value are said to be selling at a (blank) | discount |
| called installment loans | require the principal amount to be repaid in regular payments during the life of the loan |
| Debtholders do not have (blank), so they cannot attain corporate control | voting rights |
| Short-term debt | generally refers to debt with a maturity of 1 year or less |
| A repurchase agreement (repo) is | an arrangement in which one firm sells some of its financial assets to another firm with a promise to repurchase the securities at a higher price at a later date |
| When the U.S. Treasury issues T-bills | the prices are determined by an auction process where interested investors and investing organizations submit competitive bids for them |
| Federal funds, often referred to simply as "fed funds," | represent overnight loans from one bank to another |
| banker’s acceptance might be best described as a | post-dated check |
| A certificate of deposit (CD) | represents a time deposit at a bank or other financial institution |
| Negotiable CDs | can be traded to other investors prior to maturity because they can be redeemed by whomever owns them at maturity |
| A Eurodollar deposit | deposit in a bank outside the United States that is not converted into the currency of the foreign country, exposed to exchange rate risk |
| Money market mutual funds | represent funds that are pooled and managed by investment companies for the purpose of investing in short-term financial assets |
| A term loan is a | contract under which a borrower agrees to make a series of interest and principal payments on specific dates to the lender |
| A bond is | a long-term contract under which a borrower agrees to make payments of interest and principal on specific dates to the bondholder, determined by coupon rate |
| A debenture is | an unsecured bond. As such, it provides no lien, or claim, against specific property as security for the obligation |
| A subordinated debenture | is an unsecured bond that ranks below, or is "inferior to," other debt with respect to claims on cash distributions made by the firm |
| original issue discount bonds (OIDs), commonly referred to as zero coupon bonds | were offered at substantial discounts below their par values because they paid little or no coupon interest |
| junk bond | a high-risk, high-yield bond often issued to finance a management buyout (MBO), a merger, or a troubled company. |
| An indenture | a legal document that spells out any legal restrictions associated with the bond as well as the rights of the bondholders (lenders) and the corporation (bond issuer) |
| The Securities and Exchange Commission | approves indentures for publicly traded bonds and verifies that all indenture provisions have been met before allowing a company to sell new securities to the public. |
| A sinking fund | is a provision that facilitates the orderly retirement of a bond issue |
| A conversion feature | permits the bondholder (investor) to exchange, or convert, the bond into shares of common stock at a fixed price. |
| Moody's Investors Service (Moody's) and Standard & Poor's Corporation (S&P) | assign bonds quality ratings that reflect their probability of going into default |
| Double-B and lower-rated bonds | are speculative, or junk bonds |
| The triple-A and double-A bonds | are extremely safe |
| Preferred stock often is referred to as a hybrid security because | it is similar to bonds in some respects and similar to common stock in other respects. |
| Preferred stockholders have priority over common stockholders | with regard to earnings and assets |
| preemptive right | requires a firm to offer existing stockholders shares of a new stock issue in proportion to their ownership holdings before such shares can be offered to other investors |
| proxy fight | If earnings are poor and stockholders are dissatisfied, however, an outside group might solicit the proxies in an effort to overthrow management and take control of the business |
| option | a contract that gives its holder the right to buy (sell) an asset at some predetermined price within a specified period of time |
| Pure options | instruments that are created by outsiders (generally investment firms) rather than by the firm itself; they are bought and sold primarily by investors (or speculators). |
| The transaction price established in the option contract - that is, the purchase price for a call and the selling price for a put | striking/exercise price. |
| option holders do not | receive dividends nor vote for corporate directors |
| Subordinated debentures, income bonds, and preferred stocks are all | increasingly risky, and their returns increase accordingly |
| In the international markets, equity generally is referred to as | "Euro stock" or "Yankee stock.” |
| Whether the investment instrument is debt or equity, the dollar return earned by an investor can be divided into two categories: | (1) income paid by the issuer of the financial asset and (2) the change in value of the financial asset in the financial market (capital gains) over some time period. |
| dollar income to investor equals | dollar income from issuer plus capital gains on market value |
| yield equals | dollar income plus capital gains divided by beginning value |
| Four fundamental factors affect the cost of money: | the firm’s production opportunities, investors’ time preferences for consumption, risk, and inflation. |
| short-term interest rates are especially prone to(blank) during booms and then (blank) during recessions | rise, fal |
| required rate of return equals | risk free rate plus risk premium |
| one security that is free of most risks: | a U.S. Treasury bill (T-bill) |
| The difference between the quoted interest rate on a T-bond and that on a corporate bond with similar maturity, liquidity, and other features is | the default risk premium (DRP) |
| The prices of long-term bonds (blank) whenever interest rates rise | decline sharply |
| the bonds of any organization have (blank)interest rate price risk the longer the maturity of the bond. | more |
| maturity risk premiums(blank) interest rates on long-term bonds relative to those on short-term bonds | raise |
| in March 1980, all rates were relatively high, and short-term rates were higher than long-term rates, so the yield curve on that date was (blank) | downward sloping (or inverted yield curve) |
| the yield curve is generally (blank) with longer maturity securities having higher market yields than shorter maturities | upward sloping |
| investors generally prefer to hold (blank) because such securities are less sensitive to changes in interest rates and provide greater investment flexibility than longer-term securities | short-term securities |
| Borrowers generally prefer (blank) because short-term debt exposes them to the risk of having to refinance the debt under adverse conditions (e.g., higher interest rates). | long-term debt |
| positive maturity risk premium (MRP) exists and the MRP increases with years to maturity, causing the yield curve to be | upward sloping |
| expectations theory states that | the yield curve depends on expectations concerning future inflation rates |
| When inflation is expected to increase, the yield curve is (blank) sloping | upward |
| When inflation is high and expected to decline, the yield curve generally is (blank) sloping | downward |
| factors that influence both the general level of interest rates and the shape of the yield curve | Federal Reserve policy, the level of the federal budget deficit, the foreign trade balance, and the level of business activity |
| If the federal government spends more than it takes in from tax revenues, it runs a | deficit |
| increases the money supply and floods financial institutions with capital to increase liquidity and promote lending. It also decreases interest rates since the supply of money increases. | Quantitative easing |
| During recessions, short-term rates (blank) more sharply than do long-term rates | decline |
| when the cost of money increases, the value of an asset | decreases |
| provides a snapshot of the relationship between short term and long term rates, usually for treasury securities, on a particular date | yield curve |
| (blank) is an outline of planned expenditures on fixed assets, and (blank) is the process of analyzing projects and deciding which are acceptable investments and which acceptable investments should be purchased. | capital budget, capital budgeting |
| Capital budgeting analysis relies on (blank) rather than accounting profits because it is cash that pays the bills and can be invested in capital projects, not profits | after-tax cash flows |
| three most popular methods used by businesses to evaluate capital budgeting projects are | (1) net present value (NPV), (2) internal rate of return (IRR), and (3) payback period (PB). |
| The NPV shows by how much a firm's value, and thus stockholders' wealth, | will increase if a capital budgeting project is purchased. |
| The internal rate of return (IRR) is | the rate of return the firm expects to earn if a project is purchased and held for its economic (useful) life |
| the IRR is defined as the discount rate that equates | the present value of a project’s expected cash flows to the initial amount invested |
| One important caveat concerning IRR is that | the project’s cash flows must only change sign one time during its life |
| Another important caveat concerning IRR is that it implies | a constant reinvestment rate for the cash flows of the project |
| IRR is defined as the discount rate at which | a project's NPV equals $0 |
| If a project's NPV is (blank), its IRR will exceed r; if NPV is (blank), r will exceed the IRR. | positive, negative |
| the NPV method is better because it | selects the project that adds more to shareholder wealth. |
| A project has a conventional cash flow pattern if | it has cash outflows (costs) in one or more consecutive periods at the beginning of its life followed by a series of cash inflows during its life. |
| advantage of MIRR | MIRR assumes that cash flows are reinvested at the required rate of return, whereas the traditional IRR measure assumes that cash flows are reinvested at the project's own IRR |
| when MIRR and NPV have conflicts | when projects differ in size |
| Unlike the traditional payback computation, the discounted payback computation | considers the time value of money |
| WACC | average rate of return |
| Overseas Private Investment Corporation (OPIC) | insurance against economic losses from expropriation |
| if npv is positive, the firm should | invest in the project |
| the prices of long term bonds decline sharply when | interest rates rise |
| Everything else equal, maturity risk premiums (blank)on long-term bonds relative to those on short-term bonds. | raise interest rates |
| Interest rates would be high in a particular segment compared to other segments when there was a (blank) of funds in that segment relative to demand, and vice versa. | low supply |
| when the interest rates in the financial markets increase, the prices (values) of financial assets | decrease. |
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