Sources of Finance Flashcards
Minimum cash to be maintained in the bank
Compensating balance
Loan designed to assist firms to purchase the inventory they need that then forms the security for the loan
Inventory Financing
Spontaneous source of funds which grows as the business expands
Trade credit
Short term debt security issued by companies with very high credit rating standing and is usually trading in the financial market
Commercial papar
Interest level charged to creditworthy customers
Prime rate
An inventory financing arrangement in which collaterized inventory is stored on the premises of debtor but controlled by an independent warehousing firm
Field warehouse financing agreement
Certificate of indebtedness with fixed interest rate and maturity date, issued by large corporation sand i usually traded in the capital market
Term bonds
Outlines the covenants and duties existing between bondholders and the issuing corporation
Bond Indenture
Provision on some bonds allows the issuing corporation to redeem the bonds earlier than maturity but usually for a premium over the par value
call provision
Debt instrument which corporations incur only one cash outflow- the face value of the instrument at maturity
zero coupon bond
Long term loan obtained from a bank and is secured by fixed assets of the debtor firm
Mortgage Bond
True rate of cost of debt financing
effective Interest rate
Arises from the sale of new ordinary shares to current shareholders
External Equity financing
Rights offering made to existing shareholders for the sole purpose of making it more difficult for an outside firm to acquire the company
Internal equity Financing
Type of bond converted to the issuing firm’s ordinary shares
Convertible bonds
