25300 Lecture Notes - Lecture 3: Market Price, Foreign Exchange Risk, Floating Charge
Document Summary
Debt and valuation: main differences between debt and equity. Debt is contractual (must sign a contract) no voting power (equity has) Can be secured (loan is secured against assets) or unsecured. Repayment pattern: interest only (principle remains the same) P & i (amortizing loan) capitalised interest (interest accumulates) Interest rate risk (leads to changes in prices of debt) Currency risk (exchange rates: various types of debt securities. Secured debt: borrowing where the loss in the event of a default is reduced through a floating charge. Loan agreements: to maintain minimum ratios (leverage ratios) Covenant: e. g. will maintain debt-equity ratio at a certain level. St debt: purchaser is lender & issuer is borrower (use simple interest) No explicit interest paid (interest is fv purchase price) Commercial bills (discount instruments issued at less than face value) Negotiable instrument (can be transferred & is safe substitute for cash) Bills are an unconditional order and have a determinable future.
