• A discipline concerned with determining value and making decisions. The finance function allocates resources, which includes acquiring, investing, and managing resources.
• The art and science of managing money.
| ||Referenced Terms|
| ||Banker's acceptance: Are money market instruments which are used to Finance import or export transactions. These instruments are essentially checks and represents a bank's promise and ability to pay the face or principal amount on the stipulated maturity date. Maturities are generally less than 3months. Bankers Acceptances are viewed as money market instruments.A money market instrument created to facilitate international trade transactions. This instrument is highly liquid and safe because the risk of the trade transaction is transferred to the bank that "accepts" the obligation to pay the investor.BA|
A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill. When the merchant presents a letter of credit to their bank, the bank discounts it and stamps ACCEPTED on it. Hence, a letter of credit then becomes a banker's acceptance. The banker's acceptances can be sold in the secondary market to money market mutual funds.Short-term, low-risk marketable securities arising from bank guarantees of business transactions; are sold by banks at a discount from their maturity value and provide yields slightly below those on negotiable CDs and commercial paper, but higher than those on Government of Canada treasury bills.A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions.
| ||Call money rate: Also called the broker loan rate, the interest rate that banks charge brokers to Finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.|
| ||Cash basis: Recognizes revenues and expenses only with respect to actual inflows and outflows of cash. The cash basis is the main focus of the Finance discipline.|
| ||Commercial paper: The short-term unsecured debt of corporations or companies.Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.Abbreviated CP. Bank holding companies issue commercial paper. This is a short-term uncollateralized borrowing by the parent firm.An unsecured promissory note with a fixed maturity of no more than 270 days. Commercial paper is normally sold at a discount from face value. Interest rates are higher than CDs since CP is not insured. Interest rate is computed as follows: |
Price = 100 - Actual discount
Actual discount = (Quoted discount) * M / 360 Where M is days to maturity.
Annualized interest rate = (100 / Price) ^(365/M)A short-term, unsecured promissory note issued by a corporation that has a very high credit standing, having a yield above that paid on Government of Canada treasury bills and comparable to that available on negotiable CDs with similar maturities. A money market financial instrument. Sometimes referred to as corporate paper.Is an unsecured, short-term instrument. It has a maximum maturity of 270 days. It is issued by companies which have high credit ratings. This instrument is a cash management tool to Finance short-term financial needs. It should be noted that corporate downgrades or bankruptcies can severely damage the value of these instruments.
| ||Conditional sales contracts: Similar to equipment trust certificates except that the lender is either the equipment manufacturer or a bank or Finance company to whom the manufacturer has sold the conditional sales contract.|
| ||Related Terms|
| ||Commercial finance companies|
Finance company paper
International finance subsidiary
Offshore finance subsidiary