capital markets Flashcards Preview

Financial institutions and markets > capital markets > Flashcards

Flashcards in capital markets Deck (34)
Loading flashcards...

Matching finance principle

Companies should match the maturity structure of their
assets (that are funded through debt) with maturity
structure of their liabilities


what is the main type of intermediated finance?

Term loans which are issued via banks


What are term loans usually used for and how long do they range?

Banks lend fixed-term loans usually ranging 3 to 15 years and are Typically used to finance long-term capital expenditure


what does SIBOR stand for?

Singapore inter-bank offered rate.
-The average of rates at which banks in the Singapore market will lend to each other


What does LIBOR stand for?

London inter-bank offered rate.
- The average of rates at which banks in the London market will lend to each other for a specified currency


What does EURIBOR stand for?

European inter-bank offered rate


What does USCP stand for?

United States commercial paper; discount securities


what does BBSW stand for?

Bank bill swap rate.
- The average mid-point of banks' bid & offer rates in the bank bill secondary market


what is a debt covenant?

agreements between a company and a creditor usually stating limits or thresholds for certain financial ratios that the company may not breach


Difference between LIBOR and BBSW

LIBOR: London Interbank OFFERED rate, ie it is and offer
BBSW: mid point


what is a positive covenant?

comply with maintaining minimum level of
working capital & providing financial statements


What is a negative covenant?

restrict the business & financial activities of
the borrowing firm


What are some examples of Loan Covenants?

-Maximum debt-to-equity ratio
-Restriction on more debt being issued
-Minimum working-capital ratios
-Minimum interest cover
-Restrictions on mergers and acquisitions
-Constraints on disposal of non-current assets


What are the S&P rating for NZ govt bonds?

domestic currency debt is AA+ & foreign currency debt is AA


Name uses of govt bonds

• Raise money for capital expenditure e.g. roading
• Help implement monetary policy
• Provide investment vehicles for FIs & super funds
• Help balance liquidity & credit available in financial


what are the most common form of govt stock held by the public?

retail kiwibonds


name the features of a local authorities (City) bond

• Normally, secured by recurring rates on rateable property.
• Not risk-free so rate of return higher than ordinary govt. bonds


What does SOE stand for and what are they?

State owned enterprise
- Is a legal entity that is created by a government to partake in commercial activities.


Where are bonds issued?

issued in the bond primary market, usually at face value


What is subordinated debt?

It is a L/T debt issue
- ranks behind all other liabilities, so in the case of a default they are repaid last out of the creditors; but are before equity holders


What is a debenture?

a form of security attache to to a corporate bond.
- a fixed &/or floating rate over the assets of the bond issuer


What 2 ways are corporate bonds be classifies as?

either Debenture or secured note


What is a unsecured note?

a corporate bond issued without any underlying security attached


What is a convertible bond?

• Offer an option at maturity for bond holders to accept
redemption in another form- usually share equity


What is a zero coupon bond?

It is a discount bond that has its interest paid at maturity


what relationship do bonds and interest rates have?

• Inverse relationship
– If interest rates fall(rise), bond price rise (fall)
– Effect is greater, the longer the time to maturity


do international capital markets offer direct or intermidiated fundng or both?



name 2 services offer by international banks

• Buying & selling foreign exchange
• Extension of credit for trade & payments by bills of exchange.
Issuance of Bankers’ Acceptances for trade
– Bank agrees to pay seller of goods when draft expires on
behalf of importer


what is a euro market?

large international market of international banks
(eurobanks) that accept large deposits & provide large loans


what is a dragon bond?

a bond issued by an asian bank except japan (Samurai)