SU 7: Raising Capital, Corp Restructuring Flashcards
Money Markets
Trade debt securities with maturities of less than 1 year
Financial Intermediary
Specialized firm that obtains funds from savers, issues it’s own securities, and uses the money to purchase a business’s securities
Capital Markets
Trade long-term debt and equity securities (Ex. The New York Stock Exchange)
Auction Markets (Secondary Market)
Conduct trading at particular physical sites (Ex. New York Stock Exchange, the American Stock Exchange and regional exchanges)
Dealer Market (Over-the-Counter market)
Consists of numerous brokers and dealers who are linked by telecommunications equipment that enables them to trade throughout the country
Efficient Markets Hypothesis (EMH)
States that current stock prices immediately and fully reflect all relevant information
Date of Declaration
Date the directors meet and formally vote to declare a dividend
Date of Record
Date as of which the corporation determines the shareholders who will receive the declared dividend
Date of Distribution
Date on which the dividend is actually paid
Mergers
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
Horizontal Merger
Occurs when two firms in the same line of business combine
Vertical Merger
Combines a firm with one of its suppliers or customers
Congeneric Merger
A combination of firms with related products or services
Conglomerate Merger
Involves two unrelated firms in different industries
Acquisitions
The purchase of all of another firm’s assets or a controlling interest in its stock.
Equity Carve-Out
Involves the sale of a portion of the firm through an equity offering of shares in the new entity to outsiders
Spin off
Creates a new, separate entity. Accomplished by distributing a property dividend in the form of stock of another corporation to shareholders
Leveraged Buyout
A financing technique through which a company is purchased using very little equity capital. Then the assets are used as collateral for the loan
Proxy Contest
An attempt by dissident shareholders to gain control of the corporation, or at least gain influence
Greenmail
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
Poison Pill
Typically a right to purchase shares, at a reduced price, in the merged firm resulting from a takeover
Fixed Exchange Rate System
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
Freely Floating Exchange Rate System
The government steps aside and allows exchange rates to be determined entirely by the market forces of supply and demand
Managed Float Exchange Rate System
The government allows market forces to determine exchange rates until they move too far in one direction or another
Pegged Exchange Rate System
A government fixes the rate of exchange for its currency with respect to another country’s currency
Spot Rate
The number of units of a foreign currency that can be received today in exchange for a single unit of the domestic currency
Forward Rate
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
Forward Premium or Discount
Forward rate - Spot rate/Spot rate x Days in Year/Days in forward period
Cross Rate
Domestic currency per U.S. Dollar/Foreign currency per U.S. Dollar
Balance of Payments
The excess of imports, private capital outflows, grants, and remittances over exports and private capital inflows
Long-term Exchange Rates
Are dictated by the purchasing-power theorem
Medium-term Exchange Rates
Are dictated by the economic activity in a country
Short-term Exchange Rates
Are dictated by interest rates
Trade-Related Factors affecting exchange rates
Relative inflation rates, relative income levels, government intervention
Financial Factors affecting exchange rates
Relative interest rates and Ease of capital flow
Cross-border Factoring
A factor purchases receivables and assumes the risk of collection
Letters of Credit
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.
Forfaiting
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.
Balance of Trade
Difference between imports and exports of goods alone over a given period
Q ratio
Market value of the firm’s securities/Replacement cost of it’s assets
