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Financial Markets Development
August 1988
>> This Is USAID >> USAID Policy Papers >> Financial Markets Development Asset - Anything that is owned by an individual or business that has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others. The principal asset categories are: current assets, the sum of cash and short term investments, accounts receivable (trade and other), merchandise inventories, advances on merchandise, and listed securities not in excess of market value; fixed assets, permanent assets required for the normal conduct of a business (furniture, land, buildings) and generally referred to as illiquid or capital assets: and deferred assets, assets that are not, in the ordinary course of business, readily convertible into cash, subject to current settlement. ANNEX: Glossary of Financial Markets Terms
Assets may also be classified as tangible and intangible. Tangible assets include physical or material assets, e.g., real estate, buildings, machinery, and cash, as distinguishable from intangible assets that represent rights or economic benefits that are not physical in nature, e.g., goodwill, patents, franchises, and copyrights.
Bankers' acceptance - A bill of exchange drawn on or accepted by a bank to pay specific bills for one of its customers when the bill becomes due.
Collateral - Security given by a borrower to a lender as a pledge for payment of a loan. Principal kinds of collateral are real estate, bonds, stocks, and chattels. Although any kind of property that has a ready and stable market may be employed as collateral, the collateral value of different kinds of property is subject to wide fluctuation depending upon the readiness and steadiness of the market and the ease of title transfer.
Commercial paper - All classes of short-term negotiable instruments (notes, bills, drafts, checks, deposit certificates, and acceptances)that arise out of a commercial transaction.
Common Stock - Securities that represent an ownership interest in a corporation. That part of the capital stock of a corporation that represents the last claim upon assets and dividends.
Convertibles - Securities (generally bonds or preferred stocks) that are exchangeable at the option of the holder into other securities of the issuing firm.
Credit controls - Quantitative and qualitative control exercised by the monetary authorities over the volume and nature of credit and over interest rates. These controls can affect the quantity and cost of credit available to domestic and foreign borrowers in the country's capital markets, and can strongly influence the direction of the national economy.
Debenture - A classification for all forms of unsecured, long-term debt whether for corporate or civil obligations, although it is usually applied to a certificate of debt issued by a corporation.
Equity - The net worth of a business, consisting of capital stock (preferred and common), additional paid-in capital, retained earnings, and, occasionally, certain net worth reserves, and/or adjustments. When used in a financial sense, equity means the value of property beyond the amount of all claims and liens against it.
Financial markets - The money and capital markets of the economy. Money markets buy and sell short-term credit instruments generally for working capital to enterprises that require funds to manage their current affairs. Capital markets buy and sell long-term credit and equity instruments generally for fixed or permanent capital formation that enables businesses to be established or to expand their operations.
Foreign exchange rate - The price of one currency in relation to that of another, or the number of units of one currency needed to purchase one unit or another.
Intermediation - The investment process in which savers and investors place funds in financial institutions in the form of savings accounts and the financial institutions in turn use the funds to make loans or other investments.
International financial markets - An all-encompassing term that refers to all international or multinational markets for short-, medium-, and long-term securities and loans, forward and swap contracts, financial futures, and foreign currencies.
Letter of credit - Instrument by which a bank substitutes its own credit for than of an individual, firm, or corporation, to the end that domestic and foreign trade may be more safely, economically, and expeditiously conducted.
Loan - A business transaction between two legal entities whereby the lender agrees to "rent" funds to the borrower, to be repaid with or without interest.
Net worth - The owner's equity in a given business, represented by the excess of the total assets over the total amounts owing to outside creditors at a given moment of time.
Preferred stock - Corporate stock whose owners have some preference as to assets, earnings, etc., not granted to the owners of common stock of the corporation.
Primary markets - The "market" in which financial assets (i.e., stocks) are originally issued.
Risk - The possibility of loss; specifically, the chance of nonrepayment of debt.
Secondary market - The "market" in which primary market instruments (e.g., stocks) are traded after they have been issued by corporations in the primary market.
Securitization - The broad process whereby capital financing occurs through securities issuance rather than bank financing.
Subordination - Acknowledgement by a creditor, in writing, that the debt due him from a specified debtor shall have a status inferior or subordinate to the debt which the debtor owes another creditor.
Term loan - A loan provided for an extended period of time, generally with a maturity greater than one year and for such purposes as an increase in working capital or the purchase of equipment or other fixed assets.
Trade credit - Credit on goods purchased by a company from its supplier (also called supplier credit or accounts receivable credit). The use of trade credit brings different types of companies, including many nonfinancial companies, into the credit system and may, in fact, increase a firm's sophistication in the uses of credit.
Trade finance - The financing, usually characterized as short-term, of import-export trade transactions.
Venture capital - Capital to provide funds for start-up situations ("seed capital") or for existing high-risk small businesses suffering from capital deficiencies but having high profit potential as emerging growth companies.
Yield - The rate of return from one's investment in a specific security or specific piece of property.
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Last Updated on: July 11, 2001 |
