Flashcards in Topic 10 -1 Deck (19)
____________ are identified as the risk capital of a company as they represent the ownership rights or equity capital. The purchaser of ordinary shares becomes a shareholder in the assets of the company and is entitled to receive a share of the profits in the form of dividends. A share is a unit of the capital of the company, and share no longer have a par or face value. Shares are now issued at a price determined by the directors of the company.
Voting rights attach to ordinary share. They rank behind debentures and preference shares for interest or dividend payments. In the case of winding-up, where the company ceases to exist by an arrangement with shareholderes and creditors, they rank as unsecured creditors.
__________ are shares that are issuded and have only been partly paid. When a company issues new shares it may not require the full payments for the shares immediately so it will issue the shares on a contributing or partly paid basis. The company will make a call in the future for part or all of the remaining amount. Share paid in full are known as fully paid shares.
While technically a form of equity, preference shares have many of the attributes of debt. Preference shares usually have a fixed dividend rate, expressed as a percentage of the paid-up value. Holders of preference shares have prior claim over ordinary shareholders to dividend payments and to the assets of a company if it is wound up.
_______ entitle the owner to take up an offer of additional shares in a company in proportion to their holdings. Companies make rights issue to raise money. The price of the rights, which is referred to as the application or subscription money, must be less than the market price of the existing shares- otherwise there would be no incentive for shareholders to accept the offer. Rights are often underwritten. The shareholder is not obliged to take up a rights issue but rights issue are often renounceable, which means the shareholder can sell or transfer his or her right to the shares. Rights may also be non-renounceable
A company option is an option for existing sharholders to subscribe for capital, at some future date, to a new share, b paying the company a fixed price. There is no obligation on the shareholders to exercise the option, and if it is not exercised by the expiry date, it lapses and is worthless. Company options may be sold to anotherinvestor before they are exercised.
In the legal and commercial sense, a trust is money or property vested with an independent third party ( the trustee) to administer on behalf of other (the beneficiaries of the trust). A property trust pools money from savers and invests it in property; for example, office blocks or shopping centres. An equity trust invests in company securities.
Property and equity trusts
Loans to a grovernment body are called bonds as the borrower guarantees the principal will be repaid on a specific date and a fixed rate of interest (the coupon rate) will be paid for the period of the loan.
__________ are securities issued by the Commondwealth Government that contain both a capital component (the principal) and a coupon (interest rate) stream. Maturities range generally from three years to 10 years. Bonds are issued by tender. On 24 June 2009 tender number 286 was for $700 million. Proceeds of the tenders mainly go towards financing the government's budget deficit and meeting redemptions of maturing bonds
Some loans to companies in the form of _______________ may be traded on the share market. These loans are usually for a fixed period and at a fixed rate of interest. Debentures are usually issued with a floating charge over the assets of the issuer to make them more secure than notes. Convention is that loans to government bodies are called "bonds" whereas secured loans to compnaies are called 'debentures' and unsecured loans simply 'unsecured notes' or 'notes'. However, there haven efforts to adopt American terminology in calling secured company debt 'bonds'
debentures or unsecured notes
______________ are contracts that give the holder the right (but not the obligation) to buy or sell a commodity or security during a given period. The price at which the option contract can be exercised is called the strike or exercise price, and is determined at the time of issue.
A __________ is an option which is long-dated. Warrants are normally issued by financial istitutions. They are issued over a variety of securitites, including shares in a company, a commondity, a currency or even an index. Like options they have a limited life, but unlike options they must be owned before they can be sold. They are discussed in more detail in chapter 20
Some securities are not listed on the share market., for example, shares in non-listed public companies, some semi-government bonds, some property and equity trust units, some preference shares and some mortgage securities. Transactions in these securities are broadly confined to bargaining by individual buyers and sellers. Managers of unlisted trusts usually quote " buy and sell price " to trade trust units. The unlisted markets can be quite large; for example, it is estimated that around $30 billion is invested in the unlisted property trust market. Another unlisted market that is growing rapidly, particularly due to increased portfolio exposure by superannuation funds, is infrastructure investment (such as toll roads, ports, water supply, sewers, power grids and telecommunications)
_______________ or merchant banks have been a significant force in Australia's financial market since the development of the official money market in the 1950s. Merchant banks have little direct involvement in the retail banking sector as they are primarily concerned with wholeshale banking. They have been responsible for the development of cash managerment trusts, rebatable preference shares, the commercial bills market, the currency hedge market., the promissory note market and the unofficial deposit market.
Money market corporations
_____________: these decisions typically involve cash inflows and outflows that occur within a year or less
Short-term financial decisions
Overdraft lending by trading banks has been a common source of short-term finance in Australia. Overdraft where the bank ________ the customer to draw mor money from the bank account than has been put in it.
____________: Unlike the overdraft, which may be recalled on demand, term loan is for a fixed period and a specific purpose
_____________ : (365 x face value) / (365 +(yield x Days to maturity /100))
Short-term financing _________: Overdrafts, short-term loans, bills of exchange, promissory notes/ commercial paper, inventory loans, letters of credit, short-term eurocurrency advances, factoring, mortgage securitisation.