Outcome 3

Question 1

Where does the money to finance ships come from?

Answer 1

1. The people with money to invest or lend: (The source of funds)
   (a) Companies
   (b) Private investors
   (c) Financial institutions

They can invest the money or lend it. The investor commits funds in return for a share of the profits by selling equity stake (or dividends). Investors take risk for profits, interested in upside. The lender loans money for a period in return for interest payments and repayment of principal. Lender wants to be sure of repayment, interested in downside.

2. These funds are traded on markets:
   (a) Money markets: trade in short-term loans (less than a year). Deal in short-term debt securities such as commercial paper/treasury bills with maturity less than a year. Gives slightly better return than a deposit.
   (b) Bond markets: trade in securities with redemption date of more than a year. Bonds have credit ratings (high-yield BB, low-yield AAA)
   (c) Equity markets: trade in stocks that allows companies to raise capital via public offerings.

Or private placement: place funds directly with companies that need finance. Only really available to shipping companies of investment-grade quality.