SU 7: Raising Capital, Corp Restructuring

Question 0

Money Markets

Answer 0

Trade debt securities with maturities of less than 1 year

Question 1

Financial Intermediary

Answer 1

Specialized firm that obtains funds from savers, issues it’s own securities, and uses the money to purchase a business’s securities

Question 2

Capital Markets

Answer 2

Trade long-term debt and equity securities (Ex. The New York Stock Exchange)

Question 3

Auction Markets (Secondary Market)

Answer 3

Conduct trading at particular physical sites (Ex. New York Stock Exchange, the American Stock Exchange and regional exchanges)

Question 4

Dealer Market (Over-the-Counter market)

Answer 4

Consists of numerous brokers and dealers who are linked by telecommunications equipment that enables them to trade throughout the country

Question 5

Efficient Markets Hypothesis (EMH)

Answer 5

States that current stock prices immediately and fully reflect all relevant information

Question 6

Date of Declaration

Answer 6

Date the directors meet and formally vote to declare a dividend

Question 7

Date of Record

Answer 7

Date as of which the corporation determines the shareholders who will receive the declared dividend

Question 8

Date of Distribution

Answer 8

Date on which the dividend is actually paid

Question 9

Mergers

Answer 9

A business transaction in which an acquiring firm absorbs a second firm, and the acquiring firm remains in business as a combination of the two merged firms

Question 10

Horizontal Merger

Answer 10

Occurs when two firms in the same line of business combine

Question 11

Vertical Merger

Answer 11

Combines a firm with one of its suppliers or customers

Question 12

Congeneric Merger

Answer 12

A combination of firms with related products or services

Question 13

Conglomerate Merger

Answer 13

Involves two unrelated firms in different industries

Question 14

Acquisitions

Answer 14

The purchase of all of another firm’s assets or a controlling interest in its stock.

Question 15

Equity Carve-Out

Answer 15

Involves the sale of a portion of the firm through an equity offering of shares in the new entity to outsiders

Question 16

Spin off

Answer 16

Creates a new, separate entity. Accomplished by distributing a property dividend in the form of stock of another corporation to shareholders

Question 18

Leveraged Buyout

Answer 18

A financing technique through which a company is purchased using very little equity capital. Then the assets are used as collateral for the loan

Question 19

Proxy Contest

Answer 19

An attempt by dissident shareholders to gain control of the corporation, or at least gain influence

Question 20

Greenmail

Answer 20

A targeted repurchase is a defensive tactic used to protect against takeover after a bidder buys a large number of shares on the open market and then makes a tender offer

Question 21

Poison Pill

Answer 21

Typically a right to purchase shares, at a reduced price, in the merged firm resulting from a takeover

Question 22

Fixed Exchange Rate System

Answer 22

The value of a country’s currency in relation to another country’s currency is either fixed or allowed to fluctuate only within a very narrow range

Question 23

Freely Floating Exchange Rate System

Answer 23

The government steps aside and allows exchange rates to be determined entirely by the market forces of supply and demand

Question 24

Managed Float Exchange Rate System

Answer 24

The government allows market forces to determine exchange rates until they move too far in one direction or another

Question 25

Pegged Exchange Rate System

Answer 25

A government fixes the rate of exchange for its currency with respect to another country’s currency

Question 26

Spot Rate

Answer 26

The number of units of a foreign currency that can be received today in exchange for a single unit of the domestic currency

Question 27

Forward Rate

Answer 27

The number of units of a foreign currency that can be received in exchange for a single unit of the domestic currency at some definite date in the future

Question 28

Forward Premium or Discount

Answer 28

Forward rate - Spot rate/Spot rate x Days in Year/Days in forward period

Question 29

Cross Rate

Answer 29

Domestic currency per U.S. Dollar/Foreign currency per U.S. Dollar

Question 30

Balance of Payments

Answer 30

The excess of imports, private capital outflows, grants, and remittances over exports and private capital inflows

Question 31

Long-term Exchange Rates

Answer 31

Are dictated by the purchasing-power theorem

Question 32

Medium-term Exchange Rates

Answer 32

Are dictated by the economic activity in a country

Question 33

Short-term Exchange Rates

Answer 33

Are dictated by interest rates

Question 34

Trade-Related Factors affecting exchange rates

Answer 34

Relative inflation rates, relative income levels, government intervention

Question 35

Financial Factors affecting exchange rates

Answer 35

Relative interest rates and Ease of capital flow

Question 36

Cross-border Factoring

Answer 36

A factor purchases receivables and assumes the risk of collection

Question 37

Letters of Credit

Answer 37

An issuer (usually a bank) undertakes with the account party (an importer-buyer that obtains the letter of credit) to verify that the beneficiary (seller-exporter) has performed under the contract, e.g., by shipping goods.

Question 38

Forfaiting

Answer 38

A form of factoring that involves the sale by exporters of large, medium- to long-term receivables to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.

Question 39

Balance of Trade

Answer 39

Difference between imports and exports of goods alone over a given period

Question 40

Q ratio

Answer 40

Market value of the firm’s securities/Replacement cost of it’s assets