8.A Company uses a financial instrument for bridge financing. The instrument here is short term,low risk,unsecured
and highly liquid. It needed to buy machinery for which it issued Equity. This turned out to be expensive as the
issue involved floatation cost. The Company is large and credit worthy and this method has come up as a great
help to it.
a.Identify the financial instrument highlighted in the above case.
b.The instrument highlighted above in {a} is of which market?
c.Name any 2 types of floatation costs which are generally involved?
d.State the purpose for which the instrument can be used?
e.Name 2 instruments of that market which is for the short term funds, which are used at discount and redeemed
at par.
Answers
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Answer:
Duration. No physical location. Deals in short-term funds.
Major participants. RBI, Non-Banking financial companies, Large credit companies, Commercial banks, etc.
Instruments. Treasury bills, Commercial Bills, Commercial Papers, Call money and Certificates of Deposit.
Investment outlay. Transactions involve huge amounts of money.
Liquidity & safety. Between prestigious big financial institutions therefore easy liquidity and absolutely safe.
Expected Return .Very low as it helps in meeting temporary shortages of funds
Answered by
2
Answer:
a. A Company uses a financial instrument for bridge financing. The instrument here is short term,low risk,unsecured.
b. and highly liquid. It needed to buy machinery for which it issued Equity. This turned out to be expensive.
c. issue involved floatation cost. The Company is large and credit worthy and this method has come up as a greathelp to it.
d. The instrument here is short term,low risk,unsecured.
e. The Company is large and credit worthy and this method has come up as a greathelp to it.
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