11. Australian Financial Markets Flashcards by Summer Smyth

What is the financial system?

Consists of individuals, companies, markets and governments that are involved in the process of exchanging financial assets

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What is financial intermediary?

An institution that acts as a principal in accepting funds from depositors and lending them to borrowers

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What is the market?

An arrangement whereby participants buy and sell.
4 types of financial markets in Australia are
Short term debt market
Long term debt market
Share market
Futures market
Foreign exchange market

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What is the primary and secondary markets?

Primary is where securities are traded for the first time.

Secondary is where subsequent trading occurs

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What are ordinary shares?

The risk capital of a company, as such shares have residual and ownership rights

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What are Bonds?

Loans made to a government body

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What are debentures and unsecured notes?

Loans made to companies for a fixed period at a fixed rate of interest

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What are unlisted market trading?

This trading is confined to bargaining by individual buyers and sellers and around $3 billion is invested in the unlisted equity market

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What are trading banks?

These account for about 56 percent of the total assets of the finance sector in Australia

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What is wholesale banking?

Involves transactions with companies of businesses

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What are merchant banks?

They have little direct involvement in the retail banking sector, they are concerned with wholesale banking.

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What are merchant banks responsible for?

Development of cash management trusts, rebatable preference shares, the commercial bills market, the currency hedge market, the promissory note market and the unofficial deposit market

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What are finance companies?

These control about 2% of the total assets of the finance sector of Australia

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What is ASX?

The Australian Securities Exchange. The central market place for companies to raise funds

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What are short-term financial decisions?

These decisions typically involve cash inflows and outflows that occur within a year or less

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What are some methods a company can secure short-term finance?

Overdrafts
Short-term loans
Bills of exchange 
Promissory notes/commercial paper
Inventory loans
Letters of credit
Short term euro currency advances
Factoring 
Mortgage securitisation

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What are bills of exchange?

A negotiable instrument that involves a drawer, acceptor and payee

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What is promissory notes?

An unconditional promise in writing made by one person to another

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What are inventory loans?

Short terms loans to purchase inventory.
Three basic forms are 
Blanket inventory lien
Trust receipt 
Field warehouse financing

What are the 4 types of shares?

Ordinary shares
Preference shares
Contributing shares
Rights and options

What are types of long term debt?

Debentures
Secured loans
Unsecured notes
Convertible notes
Fixed deposits
Mortgages
Eurobonds
Eurocurrency floating rate notes
Leasing 
Leveraged leasing
Cross border leasing
Project finance
Transferable loan certificates

What is a debenture trust deed?

Written agreement between the corporation and the lender detailing the terms of the debt issue

What is a registered form?

The register of company records ownership of each note; payment is made directly to the owner of record

What is bearer security?

A security whose ownership is not registered by the issuer and possession of the physical document is primary evidence of ownership

What is a sinking fund?

Account managed by the debenture trustee for early debenture redemption

What is a call premium?

Amount by which the call price exceeds the paid-up value of the debenture

What is a deferred call?

Call provision prohibiting the company from redeeming the debt prior to a certain date

What is a protective covenant?

Part of the trust deed limiting certain transactions that can be taken during the term of the loan, usually to protect the lender's interest

What is a zero coupon debenture?

A debenture that makes no coupon payments, thus initially priced at a deep discount

What is debenture refunding?

The process of replacing all or part of an issue of outstanding debentures

What are preference shares?

Shares with dividend priority over ordinary shares, normally with a fixed dividend rate, sometimes without voting rights

What are ordinary shares?

Equity without priority for dividends or in bankruptcy

What are retained earnings?

Corporate earnings not paid out as dividends

What is book value?

Accounting per share value of firm's equity. Also net worth

What are three factors of ordinary shares?

Residual risk and return in a corporation Voting rights Limited liability if the corporation elects to default on its debt and must transfer some or all of the assets to the creditors

What is a prospectus?

The document required by law to be issued with share offers to the public

What is private placement?

Sale of securities to large institutional investors or selected clients of a share broker

What is a tombstone?

An advertisement announcing completion of a public offering

What are underwriters?

Investment firms that act as intermediaries between a company selling securities and the investing public

What are sub-underwriters?

A group of underwriters formed to reduce the risk and help to sell an issue

What are ex-rights?

Period when shares are selling without a recently declared right, normally beginning four business days before the holder-of-record date

What is the holder-of-record date?

The date on which existing shareholders on company records are designated as the recipients of share rights. Also the date of record

What is dividend reinvestment schemes?

These offer shareholders the opportunity to apply all or part of their cash dividends to the purchase of newly issued shares, allowing the shareholder to reinvest the dividend without incurring any transaction costs

What is dilution?

Loss in existing shareholders' value, in terms of either ownership, market value, book value or EPS

What are term loans?

Direct business loans of typically one to five years

What are private placements?

Loans, usually long-term in nature, provided directly by a limited number of investors