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Flashcards in capital markets Deck (34)
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1

Matching finance principle

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

2

what is the main type of intermediated finance?

Term loans which are issued via banks

3

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

4

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

5

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

6

What does EURIBOR stand for?

European inter-bank offered rate

7

What does USCP stand for?

United States commercial paper; discount securities

8

what does BBSW stand for?

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

9

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

10

Difference between LIBOR and BBSW

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

11

what is a positive covenant?

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

12

What is a negative covenant?

restrict the business & financial activities of
the borrowing firm

13

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

14

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

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

15

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
system

16

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

retail kiwibonds

17

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

18

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.

19

Where are bonds issued?

issued in the bond primary market, usually at face value

20

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

21

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

22

What 2 ways are corporate bonds be classifies as?

either Debenture or secured note

23

What is a unsecured note?

a corporate bond issued without any underlying security attached

24

What is a convertible bond?

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

25

What is a zero coupon bond?

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

26

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

27

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

both

28

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

29

what is a euro market?

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

30

what is a dragon bond?

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