Financial Management Environment (6) Flashcards
How may a reverse yield gap occur? (lower yield)
Because shareholders may be willing to accept lower returns on their investment in short-term, in anticipation that they will make capital gains in the future
What is reverse yield gap?
Dividend yield on shares is lwoer than interest yield on low-risk debt
How may a reverse yield gap occur? (raise finance)
It can also arise if firms that are desperate to raise finance offer a yield on their debt in excess of the yield on shares
What does the eurobond market involve?
Borrowing of funds from or depositing funds with a bank outside the country in which funds are denominated for a long-term
What are eurobonds/
Long-term loans raised by international companies or other institutiuons and sold to investors in several countries at same time
A borrower considering a eurobond issue?
Must consider the exchange risk of a long-term foreign currency loan
If the money to be used to purchase assets that will earn revenue in a currency different to that of the bond issue?
Borrower will run the risk of losses from unfavourable exchange rate movements
If the money to be used to purchase assets that will earn revenue in the same currency as the bond issue?
Borrower can match these revenues with payments on the bond, and so remove or reduce the exchange risk
Benefits of blockchain technology?
Allows a secure, low-cost database of transactions that automatically update to record new transactions (e.g. BTC)
What are multi-currency accounts?
Allow business cutomers to collect, store, convert and pay in a wide range of foreign currencies
What are challenger banks?
Use their low cost base to offer competitive products and also offering more flexible banks (e.g Monzo)
What can an app allow?
Currency hedging (e.g. using forward contracts to fix the exchange rate)
How does fintech improve availability of long-term finance?
By creating new financial markets such as crowdfunding, P2P lending and security token offerings
Examples of disintermiedation?
Crowdfunding, P2P lending and security token offerings
What is crowdfunding?
Allows a company to access finance via an online crowdfunding platform, to pitch for finance from a large number of potential investors
What is P2P lending?
Connects established businesses looking to borrow with investors who want to lend
What can P2P lending result in/
Cheaper loan finance compared to a bank loan as lender is not having to support cost of maintaining infrastructure of intermediary
Benefit of P2P lending?
Also quicker to arrange than a bank loan because process can be initiated and processed outside normal bank opening hours
Drawback of P2P lending?
Not normally available to start-up companies as investors require an established trading history
What happens in a security token offering/
Investor receives a token (e.g. a share in exchange for payment made in a cryptocurrency such as Bitcoin)
What makes security token offerings more attractives to companies as a way of raising long-term equity finance?
Fewer regulations compared to share issues
