|Liquidity theory of the term structure|
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Definition of Liquidity theory of the term structure
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward
Theories of the term structure of interest rates which include the pure
The ease and quickness with which assets can be converted to cash.
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
An alternative model to the capital asset pricing model developed by
Security prices sometimes move wildly above their true values.
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
The combination of debt, preferred stock, and common stock used
Firm’s mix of long-term financing.
The 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.
terms that refer to the combination of
A measure of the goodness of fit of the relationship between the dependent and
a measure of dispersion that
the relative composition of an organization’s
Conditions under which credit is extended by a lender to a borrower.
Liability-matching models that assume that the liability payments and the asset cash
Withdrawal 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 rates
theory that expected spot exchange rate equals the forward rate.
Institutions that provide the market function of matching borrowers and lenders or
Firm that raises money from many small investors and provides financing to businesses or other
Any institution, such as a bank, that takes deposits from savers and loans them to borrowers.
The process whereby financial intermediaries channel funds from lender/savers to borrower/spenders.
Optional periods of time which the conditions of a contract will be carried out.
Basic facilities, such as transportation, communication, and legal systems, on which economic activity depends.
spread The spread between the interest rate offered in two sectors of the bond market for
Intermarket spread swaps
An exchange of one bond for another based on the manager's projection of a
An independent third party that may act as a mediator during negotiations.
A good used in producing another good.
Typically 1-10 years.
Investment through a financial institution. Related: disintermediation.
A market is liquid when it has a high level of trading activity, allowing buying and selling with
A measure of the ability of a business to pay its debts as they fall due – see also working capital.
A 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.
The ease with which assets or securities can be sold for cash on
Ability of an asset to be converted to cash quickly at low cost.
Ease with which an asset can be sold on short notice at a fair price.
The degree to which an asset can be cheaply and quickly turned into money.
Situation in which a firm is unable to meet due bills; a period of "technical insolvency".
Investing in a variety of maturities to reduce the price risk to which holding long
Liquidity preference hypothesis
The argument that greater liquidity is valuable, all else equal. Also, the
Forward rate minus expected future short-term interest rate.
Ratios that measure a firm's ability to meet its short-term financial obligations on time.
Ratios that measure a firm's ability to meet its short-term financial obligations on time.
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds
In accounting information, one year or greater.
Value of property, equipment and other capital assets minus the depreciation. This is an
An obligation having a maturity of more than one year from the date it was issued. Also
A debt for which payments will be required for a period of more than
Long Term Debt
Liability due in a year or more.
Indicator of financial leverage. Shows long-term debt as a proportion of the
Long-term debt ratio
The ratio of long-term debt to total capitalization.
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Long-term financial plan
Financial plan covering two or more years of future operations.
Amount owed for leases, bond repayment and other items due after 1 year.
Bills that are payable in more than one year, such as a mortgage or bonds.
Amounts owing after more than one year.
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.
Market segmentation theory or preferred habitat theory
A biased expectations theory that asserts that the
an organizational structure in which functional
A corporate debt instrument that is continuously offered to investors over a period of
Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices
Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected
the manner in which authority and
Other long term liabilities
Value of leases, future employee benefits, deferred taxes and other obligations
pecking order theory
Firms 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 structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of
predetermined overhead rate
an 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 theory
A biased expectations theory that believes the term structure reflects the
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected
Quantity Theory of Money
theory 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 theory
Security prices change randomly, with no predictable trends or patterns.
Real Business Cycle Theory
Belief 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.
The 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.
Inability of an individual/company to convert an asset into cash or cash equivalent without significant cost.
Short-term financial plan
A financial plan that covers the coming fiscal year.
Short-term investment services
Services that assist firms in making short-term investments.
Short-term solvency ratios
Ratios used to judge the adequacy of liquid assets for meeting short-term
Short-term tax exempts
Short-term securities issued by states, municipalities, local housing agencies, and
Static theory of capital structure
theory that the firm's capital structure is determined by a trade-off of the
Structured arbitrage transaction
A self-funding, self-hedged series of transactions that usually utilize
Debt that has been customized for the buyer, often by incorporating unusual options.
Structured portfolio strategy
A strategy in which a portfolio is designed to achieve the performance of some
An agreement in settlement of a lawsuit involving specific payments made over a
Historically, 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.
See term to maturity.
This is usually the duration of a loan.
The period of time during which a financial contract – such as a GIC or a loan – is in force.
The time period during which a policy is in force, or the time it takes for a policy to reach maturity.
Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
An interest-earning bank deposit that cannot be withdrawn without penalty until a specific time.
Term Fed Funds
Fed Funds sold for a period of time longer than overnight.
Provides a death benefit only, no build-up of cash value.
A product that provides life coverage for a specified duration typically not beyond the age of 75.
Term life insurance
A contract that provides a death benefit but no cash build-up or investment component.
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