新南威尔士大学5512金融硕士课程课件

face value
days to maturity
Promissory notes
• Also called P-notes or commercial paper, they are discount securities, issued in the money market with a face value payable at maturity but sold today by the issuer for less than face value
• Matching principle • Short-term assets should be funded with short-term liabilities • Long-term assets should be funded with long-term liabilities
• Short-term debt is a financing arrangement for a period of less than one year with various characteristics to suit borrowers’ particular needs • Timing of repayment, risk, interest rate structures (variable or fixed) and the source of funds • It sits in the current liabilities of the balance sheet
• Accounts receivable financing
• A loan to a business secured against its accounts receivable (debtors) • Mainly supplied by finance companies (some banks) • Lending company takes charge of a company’s accounts receivable;
limit
Commercial Bill • A bill of exchange is a discount security issued with a face value payable at a
future date • A commercial bill is a bill of exchange issued to raise funds for general business
FINANCIAL MARKETS AND INSTITUTIONS Debt Markets
1
Overview of debt financing arrangements
Short term debt • Trade credit • Bank overdrafts • Commercial bills • Promissory notes • Negotiable certificates of deposit • Inventory finance, accounts receivable, financing and factoring
Mid-long term debt • Term loans or fully drawn advances • Mortgage finance • Debentures, unsecured notes and subordinated debt • Leasing
Good management
however, the borrowing company is still responsible for the debtor book and bad debts
Factoring
• Company sells its accounts receivable to a factoring company • Converting a future cash flow (receivables) into a current cash flow
• Calculating price—discount rate known
Price discount rate ]
days in year
100
• Calculating discount rate
Discount rate face value - current price days in year 100
• Typically available to companies with an excellent credit reputation because:
• there is no acceptor or endorser • they are unsecured instruments
• Calculations—use discount securities formulae
Inventory and Account receivable financing
• Inventory finance
• Most common form is ‘floor plan finance’ • Particularly designed for the needs of motor vehicle dealers to finance
Trade credit – opportunity cost
• The opportunity cost of the purchaser forgoing the discount on an invoice (1/7, n/30) is:
Opportunit
y
cost
% discount 100 % discount
Various short term debt financing agreements
Overdraft • Major source of short-term finance • Allows a firm to place its cheque (operating) account into deficit, to an agreed
Yield
(sell
price buy
- buy price
price)
(days in year 100) days to maturity
Calculation: Discount securities
• Used in U.S and Euro markets – note the days is 360d
days
365 difference
between
early and late settlement
1.0 99.0
365 23
0.160298 or 16.03% p.a.
• It is about comparing the opportunity cost vs. after-tax funding rate
Trade Credit
• A supplier provides goods or services to a purchaser with an arrangement for payment at a later date
• Often includes a discount for early payment (e.g. 2/10, n/30, i.e. 2% discount if paid within 10 days, otherwise the full amount is due within 30 days)
purposes • A bank-accepted bill is a bill that is issued by a corporation and incorporates the
name of a bank as acceptor
Flow of funds of commercial bill
• Issue programs • Usually arranged by major commercial banks and money market corporations • Standardised documentation • Revolving facility • Most P-notes are issued for 90 days
Negotiable certificates of deposit
• Short-term discount security issued by banks to manage their liabilities and liquidity
• Maturities range up to 180 days • Issued to institutional investors in the wholesale money market • The short-term money market has an active secondary market in CDs • Calculations—use discount securities formulae
Calculation: Discount securities
• Calculations considered
• Calculating price—yield known • Calculating face value—issue price and yield known • Calculating yield • Calculating price—discount rate known • Calculating discount rate