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Hypothecation

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Definition of Hypothecation

Hypothecation Image 1

Hypothecation

The pledge of property and assets to secure a loan. hypothecation does not transfer title, but it does provide the right to sell the hypothecated property in the event of default.



Related Terms:

Absolute Right of Return

Goods may be returned to the seller by the purchaser without restrictions.


Acquisition of assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.


Adjusted Cash Flow Provided by Continuing Operations

Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.


Appraisal rights

A right of shareholders in a merger to demand the payment of a fair price for their shares, as
determined independently.


Assets

A firm's productive resources.



ASSETS

Anything of value that a company owns.


Assets

Things that the business owns.


Hypothecation Image 1

Assets

Items owned by the company or expenses that have been paid for but have not been used up.


Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.


Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.


benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing
areas


Bin transfer

A transaction to move inventory from one storage bin to another.


Bridge Loan

A short term loan to cover the immediate cash requirements until permanent financing is received.


Broker loan rate

Related: Call money rate.


Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).


Bullet loan

A bank term loan that calls for no amortization.


Hypothecation Image 2

Buy/Sell Agreement

This is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.


Cash Flow Provided by Operating Activities

With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
expenses.



Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.


Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.


Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.


Conditional Seller

One of two parties to a conditional sale agreement, the other being the conditional buyer.


Conversion Right

Term life insurance products are offered as non-convertible or convertible to a certain time in the future. The coversion right has a time limit, usually to the policy holder's age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability. There is a slightly higher cost for a term policy with the conversion priviledge but it is a valuable feature should a policy holder's health change for the worst and continued insurance coverage becomes a necessity.
Most often this right is also granted to individuals covered under employee group benefit policies where individuals leaving the employee group have a limited amount of time, usually anywhere from 30 to 90 days, to convert to a specific permanent individual policy without evidence of insurability.


Cross default

A provision under which default on one debt obligation triggers default on another debt
obligation.


Cum rights

With rights.


Current assets

Value of cash, accounts receivable, inventories, marketable securities and other assets that
could be converted to cash in less than 1 year.


Current assets

Cash, things that will be converted into cash within a year (such as accounts receivable), and inventory.


Hypothecation Image 3

Current assets

Amounts receivable by the business within a period of 12 months, including bank, debtors, inventory and prepayments.



current assets

Current refers to cash and those assets that will be turned
into cash in the short run. Five types of assets are classified as current:
cash, short-term marketable investments, accounts receivable, inventories,
and prepaid expenses—and they are generally listed in this order in
the balance sheet.


Current Assets

Cash and other company assets that can be readily turned into cash within one year.


Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.


Default

Failure to make timely payment of interest or principal on a debt security or to otherwise comply
with the provisions of a bond indenture.


Default

The failure by a debtor to make a principal or interest payment in a timely
manner.


Default

Failure of a debtor to make timely payments of principal and interest as they become due.


Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.


default premium

Difference in promised yields between a default-free bond and a riskier bond.


Default risk

Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
issuer of a bond may be unable to make timely principal and interest payments.


Demand Loan

A loan which must be repaid in full on demand.


Depository transfer check (DTC)

Check made out directly by a local bank to a particular firm or person.


Dividend rights

A shareholders' rights to receive per-share dividends identical to those other shareholders receive.


EFT (electronic funds transfer)

Funds which are electronically credited to your account (e.g. direct deposit), or electronically debited from your account on an ongoing basis (e.g. a pre-authorized monthly bill payment, or a monthly loan or mortgage payment). A wire transfer is a form of EFT.


Electronic depository transfers

The transfer of funds between bank accounts through the Automated
Clearing House (ACH) system.


Entitlement Program

A program, such as social security, under which everyone meeting the eligibility requirements is entitled to receive benefits from the program, so that costs are not known in advance.


Equivalent loan

Given the after-tax stream associated with a lease, the maximum amount of conventional
debt that the same period-by-period after-tax debt service stream is capable of supporting.


Event risk

The risk that the ability of an issuer to make interest and principal payments will change because
of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural
or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.


Event study

A statistical study that examines how the release of information affects prices at a particular time.


Events of default

Contractually specified events that allow lenders to demand immediate repayment of a debt.


Ex-rights

In connection with a rights offering, shares of stock that are trading without the rights attached.


Ex-rights date

The date on which a share of common stock begins trading ex-rights.


Exchange of assets

Acquisition of another company by purchase of its assets in exchange for cash or stock.


Farm Improvement and Marketing Cooperatives Loans Act

See here


Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home loan Banks play a role analogous to that played by the Federal Reserve Banks vis-à-vis
member commercial banks.


Financial assets

Claims on real assets.


financial assets

Claims to the income generated by real assets. Also called securities.


Fixed assets

Things that the business owns and are part of the business infrastructure – fixed assets may be
tangible or intangible.


fixed assets

An informal term that refers to the variety of long-term operating
resources used by a business in its operations—including real
estate, machinery, equipment, tools, vehicles, office furniture, computers,
and so on. In balance sheets, these assets are typically labeled property,
plant, and equipment. The term fixed assets captures the idea that the
assets are relatively fixed in place and are not held for sale in the normal
course of business. The cost of fixed assets, except land, is depreciated,
which means the cost is allocated over the estimated useful lives of the
assets.


Fixed Assets

Land, buildings, plant, equipment, and other assets acquired for carrying on the business of a company with a life exceeding one year. Normally expressed in financial accounts at cost, less accumulated depreciation.


Fixed Assets Turnover Ratio

A measure of the utilization of a company's fixed assets to
generate sales. It is calculated by dividing the sales for the period
by the book value of the net fixed assets.


Fixed-rate loan

A loan on which the rate paid by the borrower is fixed for the life of the loan.


Fixed Rate Loan

loan for a fixed period of time with a fixed interest rate for the life of the loan.


Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.


Intangible assets

assets owned by the company that do not possess physical substance; they usually take the form of rights and privileges such as patents, copyrights, and franchises.


Intangible fixed assets

Non-physical assets, e.g. customer goodwill or intellectual property (patents and trademarks).


Intercompany loan

loan made by one unit of a corporation to another unit of the same corporation.


Interplant transfer

The movement of inventory from one company location to
another, usually requiring a transfer transaction.


Inventory loan

A secured short-term loan to purchase inventory. The three basic forms are a blanket
inventory lien, a trust receipt, and field warehousing financing.


Jumbo loan

loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for purchase or
securitization by the federal agencies.


Liquidation rights

The rights of a firm's securityholders in the event the firm liquidates.


Loan amortization schedule

The schedule for repaying the interest and principal on a loan.


Loan Capital

Borrowed funds having a fixed interest rate.


Loan Covenants

Express stipulations included in loan agreements that are designed to monitor
corporate performance and restrict corporate acts, affording added protection to the lender.


Loan syndication

Group of banks sharing a loan. See: syndicate.


Loan value

The amount a policyholder may borrow against a whole life insurance policy at the interest rate
specified in the policy.


Loans payable

Amounts that have been loaned to the company and that it still owes.


Long-term assets

Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.


Longer-Term Fixed Assets

assets having a useful life greater than one year but the duration of the 'long term' will vary with the context in which the term is applied.


Multicurrency loans

Give the borrower the possibility of drawing a loan in different currencies.


Multifamily loans

loans usually represented by conventional mortgages on multi-family rental apartments.


Negative Loan Covenants

loan covenants designed to limit a corporate borrower's behavior
in favor of the lender.


Negative pledge clause

A bond covenant that requires the borrower to grant lenders a lien equivalent to any
liens that may be granted in the future to any other currently unsecured lenders.


negotiated transfer price

an intracompany charge for goods
or services set through a process of negotiation between
the selling and purchasing unit managers


Net assets

The difference between total assets on the one hand and current liabilities and noncapitalized longterm
liabilities on the other hand.


Non-reproducible assets

A tangible asset with unique physical properties, like a parcel of land, a mine, or a
work of art.


Official unrequited transfers

Include a variety of subsidies, military aid, voluntary cancellation of debt,
contributions to international organizations, indemnities imposed under peace treaties, technical assistance,
taxes, fines, etc.


Operating Loan

A loan advanced under an operating line of credit.


Optimum selling price

The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.


Option seller

Also called the option writer , the party who grants a right to trade a security at a given price in
the future.


Other assets

A cluster of accounts that are listed after fixed assets on the balance sheet,
and which contain minor assets that cannot be reasonably fit into any of the other
main asset categories.


Other current assets

Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.


Outright rate

Actual forward rate expressed in dollars per currency unit, or vice versa.
Outsourcing
he practice of purchasing a significant percentage of intermediate components from outside suppliers.


Parallel loan

A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.


Personal Assets

assets, the title of which are held personally rather than in the name of some other legal entity.


personal loan

A lump sum that you borrow from a financial institution for a specified period of time. To repay the loan, you pay interest on the entire lump sum, and make payments on a scheduled basis.


Positive Loan Covenants

loan covenants expressing minimum and maximum financial measures
that must be met by a borrower.


Preemptive right

Common stockholder's right to anything of value distributed by the company.


Preferred Stock Stock that has a claim on assets and dividends of a corporation that are prior

to that of common stock. Preferred stock typically does not carry the right to vote.


prevention cost

a cost incurred to improve quality by preventing
defects from occurring


Private unrequited transfers

Refers to resident immigrant workers' remittances to their country of origin as
well as gifts, dowries, inheritances, prizes, charitable contributions, etc.


Project loan certificate (PLC)

A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
multifamily, hospital, and nursing home loans.



 

 

 

 

 

 

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