2.Short term Funds

2.Short term Funds - Short term Funds K. R. Sharma Short...

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Short term Funds K. R. Sharma
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Short term funds Funds borrowed for meeting the requirement of up to one year are known as short term. Like long term funds firms also need short term funds to meet day to day requirements of their operations. A part of this requirement, which is of permanent nature is met from long term funds and the rest from short term funds.
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Need of Short term funds Firms need short term funds for – 1. Timely payment to suppliers of goods and services 2. To meet day to day cash expenses 3. To meet liabilities as they arise 4. To benefit from short term profitable opportunities 5. Availing cash discount, if greater than cost of funds
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Sources of Short term Funds in Business Short term market instruments – Corporate paper, Certificate of deposit Trade credit from suppliers and service providers Bill discounting and purchase Factoring and forfeiting Short term deposits – inter corporate and private Bank finance -Term loan, Line of credit,
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Short term Market Instruments Short term instruments used for raising funds from market are corporate paper and certificate of deposit. (a) Corporate Paper - A corporate/commercial paper (CP) is a promissory note with maturity of less than one year (typically 90 days to 180 days) issued by a corporate body. Generally the issue is not underwritten and therefore, companies with high credit
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Short term Market Instruments b. Certificate of Deposit - A Certificate of Deposit (CD) evidences receipt of money by a bank and also carries bank's guarantee for repayment of principal and interest after it matures. It resembles a time deposit with the difference that a CD is negotiable while a time deposit is not. The rate of interest is certain per cent points below/above LIBOR depending
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Service Providers Once a business is established it starts receiving credit from the suppliers and service providers. Terms of credit are settled between the two sides and the payment is made accordingly. Trade credit from suppliers and service
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This note was uploaded on 11/09/2011 for the course ECON 101 taught by Professor X during the Spring '11 term at UNAM MX.

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2.Short term Funds - Short term Funds K. R. Sharma Short...

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