Business
Marketable Securities
Marketable securities are financial instruments that can be easily bought or sold in the market, such as stocks, bonds, and money market instruments. They are considered liquid assets and are typically held by businesses as short-term investments to generate returns on excess cash. These securities provide flexibility and potential for capital appreciation while maintaining liquidity.
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3 Key excerpts on "Marketable Securities"
eBook - ePubFinancial Analysis, Planning & Forecasting
Theory and Application
- John C Lee, Cheng F Lee;;;(Authors)
- 2016(Publication Date)
- WSPC(Publisher)
Another reason for using primarily short-maturity investments is that the firm can usually sell the instrument quickly at a price close to its market value, a quality you will recognize as liquidity. Treasury bills (T-bills) are highly liquid — they have a broad market with many participants, low commission costs, and a price determined primarily by market interest rates. Somewhat less-liquid investments include bank-negotiable certificates of deposit (CD) and commercial paper. An example of an illiquid investment is real estate, which typically has a thin market, high transactions costs, and prices determined to a great extent by the relative bargaining position of buyer and seller.Finally in maximizing the use of surplus cash, the cash manager should consider the various yields available on different Marketable Securities relative to the other criteria already mentioned. Since safety of principal is the primary criterion for investment of excess cash, yield should be considered only after the other criteria have been met.20.9.2.Types of Marketable Securities
In classifying financial instruments as Marketable Securities, the distinction typically is based on maturity and, to a lesser extent, on liquidity. Investment instruments with a maturity of 1 year or less and that are traded to some extent in the secondary markets are called money-market securities . Conversely, the market for securities with more than 1 year to maturity, such as stocks, bonds, and mortgage bonds, is called the capital market .U.S . T-bills are the most widely traded and, consequently, the most important money-market instrument. New issues of T-bills are auctioned off by the Federal Reserve every Monday, with maturities of 91 or 182 days. Once a month, T-bills with 365-day maturities are offered as well. Denominations range from $10,000 to $100,000 per bill. Further, all obligations for repayment rests with the U.S. government.Although T-bills are usually the lowest-yielding of all Marketable Securities, they are also the most riskless in terms of liquidity and default. Moreover, the weekly issuance of T-bills, along with their large outstanding quantities, enables the cash manager to choose a highly precise maturity. The price of a T-bill is determined on a discount basis; that is, its price is the face value, say $10,000, less the total value of the interest payments to be received, say $500. Thus, this T-bill would be sold by the Federal Reserve for $9,500, and its yield can be computed by applying the following equation:
eBook - ePub- Jose Cartas, and Qi He(Authors)
- 2015(Publication Date)
- INTERNATIONAL MONETARY FUND(Publisher)
3.4 Bills are debt securities that give the holders the unconditional right to receive stated fixed sums on a specified date. Bills are generally issued with short-term maturities at discounts to face value that depend on the rate of interest and the time to maturity, and are usually traded in organized markets. Examples of such short-term securities are treasury bills, negotiable certificates of deposit, promissory notes, bankers’ acceptances, and commercial paper.Bonds
3.5 Bonds and debentures are long-term debt securities that give the holders the unconditional right to fixed payments or contractually determined variable payments on a specified date or dates, that is, the earning of interest is not dependent on earnings of the debtors. Bonds and debentures also give holders the unconditional right to fixed sums as payments to the creditor on a specified date or dates.Asset-backed Securities
3.6 Asset-backed securities (ABSs) are created through the securitization of various categories of loan. Income payments and repayment of the principal are derived from and collateralized by a specified pool of underlying assets. ABSs are classified as debt securities because the security issuers have an obligation to make payments, while the holders do not have a residual claim on the underlying assets. The process of securitization is explained in Chapter 6 of this Handbook .
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Equity Securities
3.7 Equity securities are commonly called shares. Shares (or “stocks,” the meaning is identical) are claims on the residual value of a corporation after the claims of all creditors have been met. Shares may be listed (F511) or unlisted (F512), and may be ordinary shares or preferred shares.Listed and Unlisted Shares
Listed shares
3.8
eBook - ePubCorporate Finance
Theory and Practice
- Pierre Vernimmen, Pascal Quiry, Yann Le Fur(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
Chapter 21 OTHER DEBT PRODUCTS What a choice! In the previous chapter, we first presented the bond as a debt product and we illustrated the key features of a debt product through this simple security. The reader will now discover that there are actually a very large number of products that follow the same logic as that of a bond: remuneration independent from the financial performance of the firm, a commitment to reimburse, and in the event of insolvency: priority over equity in the reimbursement of the money owed. Whether short, medium or long term, market or bank, these instruments increasingly have an ESG dimension either through the use of proceeds or through an interest rate whose level depends on the achievement of environmental, social or governance objectives, such as the sustainable bonds presented in the previous chapter. These are known as green loans and impact loans. Section 21.1 MARKETABLE DEBT SECURITIES 1/ SHORT-TERM Marketable Securities The term bond (see previous chapter) is used to refer to Marketable Securities with maturity of over one year, but firms can also issue shorter-term instruments. Commercial paper refers to negotiable debt securities issued on the money market by large (and now medium-sized) companies for periods ranging from one day to one year. In practice, the average maturity of commercial paper is very short, between one and three months
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