Short-term Debt (Money Markets)
Deposits | Cheque/operating account, savings account, overdraft |
Trade Credit | Credit account from supplier (i.e. pay for services later) |
Interbank Settlements | Borrowing and lending between banks through RBA cash rate |
Bills of exchange | Written commit by one party to pay another drafted by the lender |
Promissory Notes | Written declaration by one party to pay another |
Negotiable Certificates of Deposit | Bank deposit which is tradeable, issued at discount to face value (paid back at face value) |
Commercial lending | Term deposit – loan advanced for a fixed term |
Long-term Debt Markets
Loans | |
Interest-only loan | Interest paid throughout term and principal at end |
Amortised Loan | Interest and principal paid over term |
Deferred Repayment | Instalments of interest and/or principal commence after a period |
Mortgage | Security provided by mortgagor (borrower) to mortgagee (lender/bank). If mortgagor defaults, mortgagee can foreclose. |
Interest Rates | |
Factors affecting loan rates | Credit risk – Risk of default Term of loan – Longer-term loan is more risky Repayment frequency – Higher frequency is less risky |
Fixed/Variable | Fixed for specified time period or varying in line with benchmark |
Loan Covenants | |
Positive Covenant | Obligation to take an action e.g. achieve certain financial ratios |
Negative Covenant | Obligation to refrain from an action e.g. change of corporate structure |
Securitisation and the GFC
Non-liquid assets
Asset-back securities
Cash flow from asset
Special Purpose Vehicle
Leases
Borrowing of an asset in return for regular lease payments. Generally they are property or equipment leases.
Equipment Leases
Operating Lease | Short-term lease, asset ownership is retained by Lessor |
Finance Lease | |
Long-term lease, on payment of final lease instalment, ownership passes to Lessee Direct Finance Lease: Lessor purchases asset with own funds/ owns asset outright Leveraged Finance Lease: Lessor finances asset purchase |