Sources of Finance 2

Question 1

Marketable securities

Answer 1

short-term, highly liquid investments readily convertible into cash

Question 2

Treasury bills

Answer 2

issued by BoE
min investment 50k
run 3 months
highly secure, liquid, low returns

Question 3

Certificates of deposits

Answer 3

deposit of >50k for a fixed term

Question 4

Gilts

Answer 4

long term government debt
range of maturities
capital gain tax advs

Question 5

Bonds

Answer 5

debentures and loan of companies on the stock exchange, good liquidity

Question 6

Commercial paper

Answer 6

IOUs issued by large companies

Question 7

Inter-bank market

Answer 7

very short-term borrowing, often overnight, between banks

interest rate = LIBOR

Question 8

Capital market

Answer 8

national and international market where business obtain finance for its short and long term plans

Question 9

Sources of equity finance

Answer 9

~ retained earnings
~ rights issue
~ new issue of shares

Question 10

Loan stocks and debentures

Answer 10

fixed interest rate borrowings with a set repayment date, most are secured on an asset

Question 11

Debt factoring

Answer 11

loan finance and insurance so that if a customer does not pay, biz doesn’t need to repay loan
~ non-recourse factoring

Question 12

Term Loan

Answer 12

repayment date is set at time of borrowing and so is not repayable on demand

Question 13

Finance lease

Answer 13

purchasing an asset

Question 14

Operating lease

Answer 14

renting an asset

Question 15

Venture capital

Answer 15

provision of risk-bearing capital to companies with high growth potential

Question 16

Venture capitalist can exit via…

Answer 16

~ trade sale
~ flotation
~ buyback of shares on refinancing

Question 17

Alternative Investment Market (AIM)

Answer 17

~ less stringent reg than LSE
~ need to have value >1m
~ lower entry costs
~ annual cost of listing = 25k

Question 18

Bills of exchange

Answer 18

drawn up by seller and sent to buyer’s bank who accepts the obligation to pay the bill by signing it

Question 19

Letters of credit

Answer 19

~ arrangement must be made before the sale occurs
~ exporter receives immediate payment
~ buyer receives period of credit

Question 20

Export credit insurance

Answer 20

insurance against the risk of non-payment by foreign customers