treasury midterm

Treasury Management

- act of managing a company's daily cash flows and large scale decision when it comes to finances.

Credit Lines

- is an agreement between a borrower and a lender that allows the borrower to access money up to a certain limit whenever needed

Cash

- accounts receivable (nakukuha) Is the most liquid asset — physical currency or money held in bank accounts. It is essential for day-to-day operations, payroll, debt payments, and emergencies.

Risks

- losses (financial) in finance refer to the possibility that actual outcomes differ from expectations, leading to losses.

Financial Risks

- refers to the possibility of losing money or failing to meet financial obligations due to unexpected events or unfavorable conditions.

Reputational Risk

-is the potential damage to an organization's reputation due to negative public opinion, scandals, fraud, or poor management decisions

Payroll

- refers to the total compensation a company pays its employees, including salaries, wages, bonuses, and benefits

Dividends

- are the portion of a company's profits paid out to shareholders, usually in cash or additional stock

Operational Risks

- day to day operation refers to the possibility of losses resulting from internal failures in a company's day-to-day operations

Asset liability management (ALM)

- covering tools and techniques used by a bank to minimize exposure to market risk, financial technique that can help companies to manage the mismatch or balance liability and/or cash flow risks.

Asset-liability risk

- is a leveraged form of risk

most financial institutions

- is small relative to the firm's assets or liabilities

Techniques for assessing asset-liability risk

- include gap analysis and duration analysis

Monte Carlo simulation

- techniques are more appropriate to address the increasingly complex financial markets.

ALM in banks

- paramount due to the unique nature of a bank's balance sheet, often characterized by short-term liabilities (like customer deposits) and long-term assets

Banks

- an important institution in any economy, and they play a fundamental role in maintaining the stability of the monetary system

Reserves

- One of the key factors that contribute to this stability, funds that banks keep on hand to meet unexpected withdrawals or to cover potential losses.

financial institutions

- aim to grow and expand their business, they rely on a variety of metrics to measure their performance and identify areas for improvement.

loan to Deposit ratio (LDR)

- crucial role in assessing the financial health of banks, credit unions, and other lending institutions, the ratio of loans , key indicator of a financial institution'

bank levy

- legal process used by creditors to collect debts from a debtor's bank account

Why do bank fails

- inherent fragility in banking because some bank assets are illiquid while the key bank liability, demand deposits, can be withdrawn at any time.

bank run

- occurs when a large group of depositors withdraw their money from banks at the same time, Great Depression and the 2008 financial crisis.

Silicon Valley Bank

- March 2023 was a result of a bank run caused by venture capitalists

Lehman Brothers

- a major investment bank, failed and filed for bankruptcy on September 15, 2008

financial institution

- organization that provides financial services to individuals, businesses, and governments. main role is to act as intermediaries between savers and borrowers

Commercial Banks

- accept deposits, provide loans, and offer services like checking/savings accounts.

Investment Banks

- focus on raising capital, mergers & acquisitions, and trading.

Insurance Companies

- provide protection against financial loss.

Pension Funds

- manage retirement savings and pay out pensions.

Credit Unions / Cooperatives

- member-owned institutions providing loans and savings

Central Banks

- regulate the money supply and interest rates

financial instrument

- is a contract or asset that can be traded and has monetary value. Institutions use them to raise capital, invest, or manage risks.

Debt Instruments

- represent borrowing; the issuer must repay with interest

Derivatives

- contracts whose value depends on an underlying asset,  Hedging techniques generally involve the use of financial instruments known as

Foreign Exchange Instruments

- contracts for currency trading

Hybrid Instruments

- combine features of debt and equity.

Stocks / Equity Instruments

- also called shares or equity represent ownership in a company. If you own stock, you are a shareholder, meaning you own part of the company

Dividends

- payments from company profits.

Capital Gains

- profit from selling the stock at a higher price

Bonds

- e debt instruments issued by governments, corporations, or institutions to raise money. When you buy , you are essentially lending money to the issuer.

Fixed Interest (Coupon Payments)

- regular payments made to bondholders.

Principal Repayment

- the issuer pays back the borrowed amount at maturity

Financial Market

- where buyers and sellers engage in the trade of assets, enter into contracts to sell or buy

Money Market

- an integral part of the financial market in which financial instruments with high liquidity and short maturities are traded, are where securities with original maturities ranging from overnight to one year are issued and traded

Bond Market

- also known as the debt, credit, or fixed income securities market.

Mortgage

- market are where mortgage loans are traded.

primary market

- handles new issues

secondary market

- handles trading of existing issues.

Bond Ratings

-are assigned by credit rating agencies such as S&P and Moody's

The Issuers

- sell bonds or other instruments to fund their operations.

Commercial Banks and Saving Institutions

- play a major role in both primary and mortgage markets

Well-Functioning Financial Markets

- fundamental to long-term economic growth and financial stability.

Securities markets

- as the New York Stock Exchange or the American Stock Exchange, for businesses to acquire investment capital, mutual funds, or bonds, consist of primary and secondary markets

Stock markets

- grew out of small meetings of people who wanted to buy and sell their stocks

Futures markets

- help businesses to manage price risks, carry substantial risk and are complicated by complex kinds of trading options

Bull market" & "bear market"

- are terms used to describe the general market trends

bull market

- is a period during which stock prices are generally rising

bear market

- is a period when stock prices are generally falling

exchange & over the counter

- two basic ways to organize financial markets

Exchanges

- physical places where trading took place, best known include the New York Stock Exchange (NYSE)

Over the counter OTC

- markets have never been a "place. "They are less formal

interdealer market segments

- help market participants get a deeper view of the market

architecture of OTC markets

- helps explain why structured securities faced problems during the recent financial crisis

central clearing counterparties

- post- trade clearing of OTC trades is moving to clearinghouses

Financial Market Analysis (FMA)

- covers areas like the pricing of fixed-income securities and equity

Portfolio theory

- concerned with minimizing risk for a given return

real options theory

- concerned with optimizing investments in the face of uncertain future states of the world taking account of managerial flexibility in decision making.

capital asset pricing model (CAPM)

- provides an overarching theory of the pricing of risk in a perfect market under equilibrium

Nobel Laureate Harry Markowitz

- provided basic concepts on portfolio selection process in the field of asset pricing such as ex ante and ex post

Ex-ante & Ex-post

- are Latin terminologies used in predicting the returns of a security

ex-ante

- is the prediction of a particular event in the future, before the event

Ex-post

- is backward-looking, and it looks at results after they have already occurred, after the event

Mean-Variance Analysis

- technique that investors use to make decisions about financial instruments to invest in

Variance measures

- how distant or spread the numbers in a data set are from the mean, or average, may also be zero

EXPECTED RETURN

- estimated return that a security is expected to produce.

Covariance

- is used in portfolio theory to determine what assets to include in the portfolio, used to maximize diversification in a portfolio of assets

CORRELATION

- correlation coefficients between the returns of various assets

Harry Markowitz

- published a paper called "Portfolio Selection, modern portfolio theory (MPT), He won the Nobel Prize

modern portfolio theory

- is the concept of diversification, argues that by holding a well-diversified portfolio

efficient frontier

- highest expected return for a given level of risk

capital market line (CML)

- trade-off between the standard deviation, helps investors determine the optimal (best) allocation between risk-free and risky assets based on their risk preferences

Fixed income markets

- are an integral component (necessary part) to economic growth, providing efficient, long term and cost-effective funding. They are also one of the most heavily regulated areas of the U.S. capital markets, hugely important to funding corporate, green bonds

Global fixed-income markets

- represent the largest subset of financial markets in terms of number of issuances and market capitalization

Fixed-income markets

- include not only publicly traded securities, such as commercial paper, notes, and bonds, but also non-publicly traded loans

Debt financing

- is an important source of funds for households, governments, government-related entities, financial institutions, and non-financial companies

euros or US dollars

- majority of bonds are denominated in either

floating-rate bonds

- often expressed as a reference rate plus a spread

Libor ((London Interbank Offered Rate)

- historically have been the most commonly used reference rates for floating-rate debt and other financial instruments but are being phased out to be replaced by alternative reference rates.

fixed-income indexes

- describe bond markets or sectors and to evaluate performance of investments and investment managers

Primary markets

- are markets in which issuers first sell bonds to investors to raise capital

Secondary markets

- are markets in which existing bonds are subsequently (afterward) traded among investors.

public offering

-member of the public may buy the bonds

private placement

- which only an investor or small group of investors may buy the bonds either directly from the issuer or through an investment bank

investment bank underwrites

- it buys the entire issue and takes the risk of reselling it to investors or dealers

best-efforts offering

- the investment bank serves only as a broker and sells the bond issue only if it is able to do so

Underwritten and best-efforts

- offerings are frequently used in the issuance of corporate bonds

shelf registration

- is a method for issuing securities in which the issuer files a single document with regulators that describes and allows for a range of future issuances

auction

- is a public offering method that involves bidding and is helpful both in providing price discovery and in allocating securities

Sovereign bonds

- issued by national governments primarily for fiscal reasons

Commercial paper

- is a short-term unsecured security that companies use as a source of short-term and bridge financing, collateral backing and contingency provisions.