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Liquidity theory of the term structure |
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Definition of Liquidity theory of the term structureLiquidity theory of the term structureA biased expectations theory that asserts that the implied forward
Related Terms:Expectations hypothesis theoriesTheories of the term structure of interest rates which include the pure Accounting liquidityThe ease and quickness with which assets can be converted to cash. Agency theoryThe analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of Arbitrage Pricing Theory (APT)An alternative model to the capital asset pricing model developed by Bubble theorySecurity prices sometimes move wildly above their true values. Capital structureThe makeup of the liabilities and stockholders' equity side of the balance sheet, especially Capital StructureThe combination of debt, preferred stock, and common stock used ![]() capital structureFirm’s mix of long-term financing. Capital StructureThe mix of the various types of debt and equity capital maintained by a firm. The more debt capital a firm has in its capital structure, the more highly leveraged the firm is considered to be. capital structure, or capitalizationterms that refer to the combination of Coefficient of determinationA measure of the goodness of fit of the relationship between the dependent and coefficient of determinationa measure of dispersion that cost structurethe relative composition of an organization’s Credit TermsConditions under which credit is extended by a lender to a borrower. Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash DisintermediationWithdrawal of funds from a financial institution in order to invest them directly. ![]() Euro-medium term note (Euro-MTN)A non-underwritten Euronote issued directly to the market. Euro- expectations theory of exchange ratestheory that expected spot exchange rate equals the forward rate. Financial intermediariesInstitutions that provide the market function of matching borrowers and lenders or financial intermediaryFirm that raises money from many small investors and provides financing to businesses or other Financial IntermediaryAny institution, such as a bank, that takes deposits from savers and loans them to borrowers. Financial IntermediationThe process whereby financial intermediaries channel funds from lender/savers to borrower/spenders. Flexible TermOptional periods of time which the conditions of a contract will be carried out. InfrastructureBasic facilities, such as transportation, communication, and legal systems, on which economic activity depends. Intermarket sectorspread The spread between the interest rate offered in two sectors of the bond market for Intermarket spread swapsAn exchange of one bond for another based on the manager's projection of a IntermediaryAn independent third party that may act as a mediator during negotiations. ![]() Intermediate GoodA good used in producing another good. Intermediate-termTypically 1-10 years. IntermediationInvestment through a financial institution. Related: disintermediation. LiquidityA market is liquid when it has a high level of trading activity, allowing buying and selling with LiquidityA measure of the ability of a business to pay its debts as they fall due – see also working capital. LiquidityA term that means nearness to cash; the closer an asset is to becoming cash or a liability is to using cash, the more liquid that asset or liability is. LiquidityThe ease with which assets or securities can be sold for cash on liquidityAbility of an asset to be converted to cash quickly at low cost. LiquidityEase with which an asset can be sold on short notice at a fair price. LiquidityThe degree to which an asset can be cheaply and quickly turned into money. Liquidity CrisisSituation in which a firm is unable to meet due bills; a period of "technical insolvency". Liquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long Liquidity preference hypothesisThe argument that greater liquidity is valuable, all else equal. Also, the Liquidity premiumForward rate minus expected future short-term interest rate. Liquidity ratiosRatios that measure a firm's ability to meet its short-term financial obligations on time. Liquidity ratiosRatios that measure a firm's ability to meet its short-term financial obligations on time. Liquidity riskThe risk that arises from the difficulty of selling an asset. It can be thought of as the difference Local expectations theoryA form of the pure expectations theory which suggests that the returns on bonds Long-termIn accounting information, one year or greater. Long-term assetsValue of property, equipment and other capital assets minus the depreciation. This is an Long-term debtAn obligation having a maturity of more than one year from the date it was issued. Also Long-term debtA debt for which payments will be required for a period of more than Long Term DebtLiability due in a year or more. Long-term debt/capitalizationIndicator of financial leverage. Shows long-term debt as a proportion of the Long-term debt ratioThe ratio of long-term debt to total capitalization. Long-term debt to equity ratioA capitalization ratio comparing long-term debt to shareholders' equity. Long-term financial planFinancial plan covering two or more years of future operations. Long-term liabilitiesAmount owed for leases, bond repayment and other items due after 1 year. LONG-TERM LIABILITIESBills that are payable in more than one year, such as a mortgage or bonds. Long-term liabilitiesAmounts owing after more than one year. Longer-Term Fixed AssetsAssets 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. Market segmentation theory or preferred habitat theoryA biased expectations theory that asserts that the matrix structurean organizational structure in which functional Medium-term noteA corporate debt instrument that is continuously offered to investors over a period of Modern portfolio theoryPrinciples underlying the analysis and evaluation of rational portfolio choices Normal backwardation theoryHolds that the futures price will be bid down to a level below the expected organizational structurethe manner in which authority and Other long term liabilitiesValue of leases, future employee benefits, deferred taxes and other obligations pecking order theoryFirms prefer to issue debt rather than equity if internal finance is insufficient. Pecking-order view (of capital structure)The argument that external financing transaction costs, especially Perfect market view (of capital structure)Analysis of a firm's capital structure decision, which shows the Personal tax view (of capital structure)The argument that the difference in personal tax rates between Pie model of capital structureA model of the debt/equity ratio of the firms, graphically depicted in slices of predetermined overhead ratean estimated constant charge per unit of activity used to assign overhead cost to production or services of the period; it is calculated by dividing total budgeted annual overhead at a selected level of volume or activity by that selected measure of volume or activity; it is also the standard overhead application rate Preferred habitat theoryA biased expectations theory that believes the term structure reflects the Pro forma capital structure analysisA method of analyzing the impact of alternative capital structure Pure expectations theoryA theory that asserts that the forward rates exclusively represent the expected Quantity Theory of Moneytheory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ. random walk theorySecurity prices change randomly, with no predictable trends or patterns. Real Business Cycle TheoryBelief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy. Repayment TermsThe length of time given a borrower by a lender to repay a debt and the frequency of principal payments which the borrower has to meet. Restricted LiquidityInability of an individual/company to convert an asset into cash or cash equivalent without significant cost. Short-term financial planA financial plan that covers the coming fiscal year. Short-term investment servicesServices that assist firms in making short-term investments. Short-term solvency ratiosRatios used to judge the adequacy of liquid assets for meeting short-term Short-term tax exemptsShort-term securities issued by states, municipalities, local housing agencies, and Static theory of capital structuretheory that the firm's capital structure is determined by a trade-off of the Structured arbitrage transactionA self-funding, self-hedged series of transactions that usually utilize Structured debtDebt that has been customized for the buyer, often by incorporating unusual options. Structured portfolio strategyA strategy in which a portfolio is designed to achieve the performance of some Structured settlementAn agreement in settlement of a lawsuit involving specific payments made over a Structured SettlementHistorically, damages paid out during settlement of personal physical injury cases were distributed in the form of a lump-sum cash payment to the plaintiff. This windfall was intended to provide for a lifetime of medical and income needs. The claimant or his/her family was then forced into the position of becoming the manager of a large sum of money. TermSee term to maturity. TermThis is usually the duration of a loan. termThe period of time during which a financial contract – such as a GIC or a loan – is in force. TermThe time period during which a policy is in force, or the time it takes for a policy to reach maturity. Term bondsOften referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is Term DepositAn interest-earning bank deposit that cannot be withdrawn without penalty until a specific time. Term Fed FundsFed Funds sold for a period of time longer than overnight. Term insuranceProvides a death benefit only, no build-up of cash value. Term LifeA product that provides life coverage for a specified duration typically not beyond the age of 75. Term life insuranceA contract that provides a death benefit but no cash build-up or investment component. 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