Sources of Finance 2 Flashcards
Marketable securities
short-term, highly liquid investments readily convertible into cash
Treasury bills
issued by BoE
min investment 50k
run 3 months
highly secure, liquid, low returns
Certificates of deposits
deposit of >50k for a fixed term
Gilts
long term government debt
range of maturities
capital gain tax advs
Bonds
debentures and loan of companies on the stock exchange, good liquidity
Commercial paper
IOUs issued by large companies
Inter-bank market
very short-term borrowing, often overnight, between banks
interest rate = LIBOR
Capital market
national and international market where business obtain finance for its short and long term plans
Sources of equity finance
~ retained earnings
~ rights issue
~ new issue of shares
Loan stocks and debentures
fixed interest rate borrowings with a set repayment date, most are secured on an asset
Debt factoring
loan finance and insurance so that if a customer does not pay, biz doesn’t need to repay loan
~ non-recourse factoring
Term Loan
repayment date is set at time of borrowing and so is not repayable on demand
Finance lease
purchasing an asset
Operating lease
renting an asset
Venture capital
provision of risk-bearing capital to companies with high growth potential
Venture capitalist can exit via…
~ trade sale
~ flotation
~ buyback of shares on refinancing
Alternative Investment Market (AIM)
~ less stringent reg than LSE
~ need to have value >1m
~ lower entry costs
~ annual cost of listing = 25k
Bills of exchange
drawn up by seller and sent to buyer’s bank who accepts the obligation to pay the bill by signing it
Letters of credit
~ arrangement must be made before the sale occurs
~ exporter receives immediate payment
~ buyer receives period of credit
Export credit insurance
insurance against the risk of non-payment by foreign customers
