Chapter 8 Flashcards
Direct finance
a borrower deals directly with the lender.
Who engages in direct finance?
Businesses and governments who “sell bonds” to consumers, businesses, and governments
Maturity
the date the payment will be made
Face Value
value paid at maturity
Zero coupon bond
no
Coupon rate
yes
Indirect finance
when individuals and businesses use middlemen, such as banks, for borrowing and lending
Usury Law
puts a price ceiling on interest rates
Indirect crowding out
when an increase in government spending is financed through borrowing, private spending decreases due to rising interest rates
Direct crowding out
when government spends, private markets spend less because their ability to spend is taxed away
Leveraged buyout
financial transaction where a firm borrows in order to purchase another firm, then immediately sells the firm in whole or in parts
Insolvent
a firm whose value is negative- it owes more than it owns
Illiquid
a firm cannot pay its immediate obligations
