short term and long term financing

short term and long term financing - Module 7 and 8 Short...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Module 7 and 8 Short Term and Long Term Financing (chapter 9,10 and 11) 19/9/2007
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Learning Objectives By the end of this section you should be able to: understand short-term sources of finance understand long-term sources of finance
Background image of page 2
3 Financial Policy: maturity matching principle Permanent investments (investments more than one year): long term financing Temporary investment (investments less than one year): short term financing
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Short-term Financing Short-term financing is defined as debt due for repayment within a period of 12 months. The major short-term borrowing choices available to Australian companies are: trade credit (account payable) Bank overdraft factoring money market sources Interbank deposit (cash rate)(Overnight loan) issuing short-term marketable debt securities such as promissory notes and bills of exchange
Background image of page 4
5 Borrowing From Banks and Other Financial Institutions Bank Overdraft An overdraft permits a company to run its current (cheque) account into deficit up to an agreed limit. The cost of a bank overdraft includes the interest cost (currently about 9.85% p.a.) and fees. The interest rate charged is usually at a margin above an indicator rate, published regularly by the bank, and only on the amount by which the account is overdrawn.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Money Markets Sources The money market is an active market in which large sums of money may be lent and borrowed for short periods. Because of the large sums involved, nearly all participants are large and well-known entities. Most banks act as dealers in the market. Interest rates in the money market are determined by market forces.
Background image of page 6
7 Money Markets Resources (cont.) Overnight loan Funds lent in the money market on the basis that either party can terminate the loan by giving notice by 11 a.m. on the following day. Also known as 11 a.m. money. Interbank overnight interest rate (cash rate) is a better indicator of conditions in short term money market. 24-hour loans: funds lent in the money market, where the loan may be terminated or renegotiated after 7 days on 24 hours notice.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Money Markets Resources (cont.) Short-Term Marketable Debt Companies can obtain short-term debt funding by issuing (selling) securities such as promissory notes and commercial bills (bills of exchange). The securities are a promise to pay a sum of money on a future date
Background image of page 8
Short-Term Marketable Debt : Promissory Notes A promise to pay a stated sum of money (such as $500000) on a stated future date (such as a date 90 days hence). Issuer of the note----borrower, the only party with an obligation to pay the face value at maturity, so also known as one-name paper or commercial paper . Discounter
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/21/2010 for the course KNOWLEDGE 5654 taught by Professor Mr.david during the Spring '10 term at IESE Business School.

Page1 / 48

short term and long term financing - Module 7 and 8 Short...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online