...org/books/auer87-1 Publication Date: 1987 Chapter Title: The Growth of the "Junk" Bond Market and Its Role in Financing Takeovers Chapter Author: Robert A. Taggart, Jr. Chapter URL: http://www.nber.org/chapters/c5819 Chapter pages in book: (p. 5 - 24) 1 The Growth of the “Junk” Bond Market and Its Role in Financing Takeovers Robert A. Taggart, Jr. 1.1 Introduction “Junk” bonds, as they are popularly called, or “high-yield’’ bonds, as they are termed by those wishing to avoid pejorative connotations, are simply bonds that are either rated below investment grade or unrated altogether.’ Fueled by the introduction of newly issued junk bonds in 1977, this segment of the bond market has grown rapidly in recent years and now accounts for more than 15 percent of public corporate bonds outstanding. However, the growth of junk bond financing, particularly in hostile takeover situations, has been bitterly denounced. For example, Martin Lipton, a merger specialist with the firm of Wachtell, Lipton, Rosen, and Katz, has argued that junk bond financing threatens “the destruction of the fabric of American industry” (Williams 1984). In a similar vein, twelve U.S. senators signed a letter in support of Federal Reserve restrictions on junk bond-financed takeovers, that stated, “By substituting debt for equity on the balance sheets of the nation’s corporations, junk bond financing drains financial resources from productive uses such as economic developmknt and job creation” (Wynter 1985)...
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...A MUST READ on FED RESERVE by AYO-IGE.M A monetary control institution of a Nation is often refer to as the central bank or Nation bank. The Bank of England serve as the central bank of the England, Central bank of Nigeria serve as the monetary control of our great nation Nigeria while the Federal Reserve serve as the central bank of United States of America popularly known as the FED RESERVE . Supervision of money supply, adjustment of interest rate, printing and distribution of currency notes and coins which serve as the nation legal tender, lender of last resort, monitoring commercial banks and other financial institutions activities are monopoly power given to central banks. In most advance countries, central banks are design to operate independently in order to protect the institution from political interference, knavery and irascibility . A nation seeking for a prosperous economy growth must have in mind putting inflation under control, low interest rate is requisite and indispensable. A vibrant monetary policies and other policies related to each bureaucracy is the key to economy growth. The monetary institutions primarily control the amount of money in circulation in order to regulate inflation, failure to bring high interest rate under control tend to reduce consumer spending and this will lead to fall in aggregate demand, reduction in aggregate demand (AD) is the root cause of low economic growth and high unemployment In order to carry every loving citizen reading...
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...flow of savings and investment throughout the economy in ways that facilitate the increase of capital and the production of goods and services. The worth of credit and returns on investment provide helpful signs to producers and consumers. These signs help direct funds from savers and businesses to the consumers, businesses, governments, and other type of investor. Also, the existence of healthy financial markets and institutions also accelerates the international flow of funds between countries, helping the local economy. In addition, efficient financial markets and institutions tend to lower search and transactions costs in the economy, with potential savings of millions per year. By providing a large range of financial products, with fluctuating risk and pricing structures as well as maturity a well-built financial system offers products to participants that provide borrowers and lenders with a close match for their needs. Businesses, individuals, and governments in need of capital can easily discover which financial institutions or which financial markets may offer a particular funding and what the cost will be for the borrower. This allows investors to compare the cost of financing to their anticipated return on investment, so they can make the correct investment choice that best suits their needs. * Explain the role of the U.S. Federal Reserve, the Federal Reserve Chairman, and Board, indicating its effectiveness in today’s economic environment. Provide support...
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...indirect methods of monetary policy (that is, short-term interest rates as opposed to direct methods such as credit ceilings). This paper argues that this neo-liberal approach to central banking is highly idiosyncratic in that, as a package, it is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world, but, notably, in the now developed countries themselves. Throughout the early and recent history of central banking in the US, England, Europe, and elsewhere, financing governments, managing exchange rates, and supporting economic sectors by using ‘direct methods’ of intervention have been among the most important tasks of central banking and, indeed, in many cases, were among the reasons for their existence. The neo-liberal central bank policy package, then, is drastically out of step with the history and dominant practice of central banking throughout most of its history. Keywords: financing, institutions, central banks, history, development JEL classification: E5, N2, O2 Copyright © UNU-WIDER 2006 * Professor of Economics and Co-Director, Political Economy Research Institute (PERI), University of Massachusetts, Amherst, Amherst, MA, USA. gepstein@econs.umass.edu This study has been prepared within the UNU-WIDER project on Institutions for Economic Development: Theory, History and Contemporary Experiences, directed by Ha-Joon Chang. UNU-WIDER acknowledges the...
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...Printer Version - Board of Governors of the Federal Reserve System http://www.federalreserve.gov/newsevents/speech/bernanke2008041... 1 of 6 4/26/2008 8:02 PM Speech Chairman Ben S. Bernanke At the World Affairs Council of Greater Richmond's Virginia Global Ambassador Award Luncheon, Richmond, Virginia April 10, 2008 Addressing Weaknesses in the Global Financial Markets: The Report of the President's Working Group on Financial Markets In recent months, the Federal Reserve has been intensely focused on the continuing strains in financial markets. Healthy, well-functioning financial markets are essential to sustainable growth. In particular, much experience shows that economies cannot perform at their full potential when financial conditions are such as to restrict the supply of credit to sound borrowers. We are addressing these financial strains and their potential economic consequences with a number of tools, including the provision of extra liquidity to the system and reductions in our target for the federal funds rate. Even as we have worked to resolve the current crisis, however, the Federal Reserve has also been part of a national and international effort to draw at least some preliminary conclusions about the sources of the current turmoil as well as the implications for public policy. In my remarks today I will discuss some of these conclusions and, in the process, identify some measures that should be taken to strengthen the global financial system in...
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...financial system is very difficult. So much so that it impacts at least several influences climate as well as federal regulations and the economy. All these factors have the same problem on the economy, and business people alike. The Federal Reserve Chairman, and Board, also plays a direct role into the running of today’s economic climate. The complications that impact the U.S.A also have a direct influence on the world’s financial economy environment. A lot of these big issues include the exchange rate as well as the interest rate, the highs and lows. The U.S.A financial place has a huge impact on people, businesses, and climate. Thanks to financial places which help colorfully in pack the flow of investments and savings in the economy in ways that can control the increase of management and capital of goods and services. Returns on investments and credit is worth the provide signs to consumers and producers alike. Signs like these help guide money from businesses and savers to the investors and, businesses, governments, and consumers. Funds can advance when financial academy and markets remain successful on a big level between countries. In addition, successful financial academy and markets tend to lower transactions and search costs in the economy. By making a large scale of financial products know to the people, which maintain a constant change with pricing structures and risk as well as capability. A sound financial system offers good useful products that give people like...
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...equal number of DSUs and SSUs in a period. 12. Every financial claim appears on two balance sheets. 13. Without a financial sector, real investment must be financed internally by the DSU. 14. Depository intermediaries issue claims that are for the most part highly liquid. 15. A household is an SSU when income for the period exceeds spending. 16. An SSU must hold a claim until its scheduled maturity. 17. Financial claims or securities are written for the mutual benefit of both SSU and DSU. 18. DSUs and SSUs always have some contact with each other in financial markets. 19. Commercial banks lend to businesses in direct financial markets. 20. “Futures contract” and “forward contract” are interchangeable terms. 21. Mortgages are capital market debt securities. 2 22. Households are the major source of funds to the financial system. 23....
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...Financial Analysis: Billabong International Limited - Australia A paper submitted to Webber International University In partial fulfillment for the Master’s in Business Administration International Business By: Patrick L. Date: July 11, 2012 Course: MBA 6811 Semester: 2012 Instructor: Eberle Table of Contents Introduction 3 Country Factors & Monitoring Central Bank Intervention 4 Foreign Exchange Market & Movements in Currency 5 Currency Futures & Options 7 Arbitrage Opportunities & IFE 8 Monitoring Exchange Rate Trends & Risk 9 Direct Foreign Investment 11 Capital Budgeting 12 Corporate Governance & Country Risk Analysis 14 Capital Structure 15 Long-Term International Financing 17 Financing International Trade 19 Short-Term International Financing & Managing Cash Internationally 20 Current Events 21 Conclusion & SWOT Analysis 22 References 24 Introduction Billabong International Limited (BBL) is an Australia based listed company headquartered at Burleigh Heads in Queensland, Australia. The main business activities of the company are related to marketing, distribution, wholesale and retail of wetsuits, clothing, eye wears, hardboards for board games and accessories concerned with the season of snow fall, surfing and skating. Billabong’s products are being sold through...
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...1. Financial System of Bangladesh: Financial system is a Set of institutional arrangement through which financial surpluses will be mobilized from the surplus units and will be transferred to the deficit units. It is a framework for describing set of markets, organisations, and individuals that engage in the transaction of financial instruments (securities), as well as regulatory institutions. The basic role of Financial System is essentially channelling of funds within the different units of the economy – from surplus units to deficit units for productive purposes. 1.1 COMPONENTS OF FINANCIAL SYSTEM: There are mainly three components of financial system. These are: I. Financial Market II. Financial Intermediaries III. Financial Instrument I. FINANCIAL MARKET Financial markets are a mechanism enabling participants to deal in financial claims. The markets also provide a facility in which their demands and requirements interact to set a price for such claims. Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds. At any point in time in an economy, there are individuals or organizations with excess amounts of funds, and others with a lack of funds they need for example to consume or to invest. Exchange between these two groups of agents is settled in financial markets. The first group is commonly referred to as lenders...
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...duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Eugene F. Brigham UNIVERSITY OF FLORIDA Joel F. Houston UNIVERSITY OF FLORIDA Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Licensed to: iChapters User This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#...
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...from 1970 to 1991. Figure 1 shows commercial paper outstanding, which totaled $528 billion at the end of 1991. This article describes some of the important features of the commercial paper market. The first section reviews the characteristics of commercial paper. The second section describes the major participants in the market, including the issuers, investors, and dealers. The third section discusses the risks faced by investors in the commercial paper market along with the mechanisms that are used to control these risks. The fourth section discusses some recent innovations, including asset-backed commercial paper, the use of swaps in commercial paper financing strategies, and the international commercial paper markets. The author, a consultant with TKH Associates and former assistant economist at the Federal Reserve Bank of Richmond, would like to thank Timothy Cook, Bob LaRoche, Jerome Fons, and Mitchell Post for comments. The views expressed in this article are those of the author and...
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... II. Size, Structure, and Composition of the Industry A. Major Types of Finance Companies III. Balance Sheet and Recent Trends A. Consumer Loans B. Residential and Commercial Mortgages C. Business Loans III. Regulation LECTURE NOTES LO – Compare and contrast finance companies to commercial banks using information throughout the chapter. I. INTRODUCTION LO – Know the definition of finance companies (basically, the contents of the following paragraph). ● The primary function of finance companies is to make loans to both individuals and corporations. Services provided by finance companies include consumer lending, business lending, and mortgage financing. Some of the loans are similar to commercial bank loans, such as consumer and auto loans, but others are more specialized. Finance companies differ from banks in that they do not accept deposits, but instead rely on short- and long-term debt. Additionally, finance companies often lend to customers commercial banks find too risky. II. SIZE, STRUCTURE, AND COMPOSITION OF THE INDUSTRY ● Finance companies were originated during the depression when General Electric Corp. created General Electric Capital Corp. (GECC) as a means of financing appliance sales customers unable to get installment credit from banks. By the late 1950s, banks were more willing to make installment loans so finance companies began looking outside their parent companies for business. ● Finance companies...
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...International Investment Report - British Petroleum in Nigeria Group D June 6, 2015 Table of Contents Introduction 3 Country Evaluation 6 Industry Overview 9 Regulatory structure 9 Competition – Major and minor competitors 12 Local financing options for the expansion 12 Overall attractiveness of the industry 13 Entry Strategy 13 Recommendations 17 References 20 Introduction Nigeria in West Africa is about twice the size of California in the US but is the largest country in Africa. Just over 160 million people live in this country with approximately 800,000 of them living in the capital city of Abuja which is located in the very center of Nigeria. (Nigeria) Nigeria has two distinct reputations. One as a corrupt and violent country that is not highly recommended for tourist type visitations (although it does have incredibly interesting historical sights) and the other for being the country visited mostly for unbelievably lucrative business transactions involving oil and gas. The Nigerian people live mostly in poverty in a country where oil and gas exports total billions in revenue. This is due to the fact that the Nigerian government has total control over their property rights. In addition corruption within that government runs rampant. According to an article by Michael Burleigh 70% of Nigerians live below poverty level struggling to survive. (Burleigh) What is even more interesting in a country rich in oil and gas is that the poverty...
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...of the dot.com bubble, capital began to flow increasingly toward the real estate sectors in the United States The U.S. banking sector found mortgage lending highly profitable and saw it as a rapidly expanding market As a result, investment and speculation in the real estate sector increased rapidly As prices rose and speculation continued, a growing number of the borrowers were of lower and lower credit quality These borrowers, and their associated mortgage agreements (sub-prime debt), now carried higher debt service obligations with lower and lower income and cash flow capabilities New market openness and competitiveness allowed many borrowers to qualify for mortgages that they would not have qualified for previously Structurally, some mortgages re-set a high interest rates after a few years or had substantial step-ups in payments after an initial period of interest-only payments Housing bubble The bursting of the U.S. (United States) housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for (lending) borrowers, overvaluation of bundled sub-prime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term...
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...LEHMAN BROTHERS: TOO BIG TO FAIL? WILLIAM RYBACK LEHMAN BROTHERS: TOO BIG TO FAIL? Copyright by the Toronto Leadership Centre. This case was prepared exclusively for a class discussion at a Banking, Insurance or Securities session offered by the Toronto Centre. Information has been summarized and should not be regarded as complete or accurate in every detail. The text should be considered as class exercise material and in no way be used to reach conclusions about the nature or behaviour of any of the persons or institutions mentioned.. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form without the permission of the Toronto Leadership Centre for Financial Sector Supervision. Sources: This document is based on information that was in the public domain at the times mentioned or which became public after the resolution of the issues. It does not include information confidential to the financial institution involved. 1 LEHMAN BROTHERS: TOO BIG TO FAIL? WILLIAM RYBACK This case study is written and presented by William Ryback, former special advisor to the Financial Supervisory Service in Seoul, Korea; Deputy Chief Executive of the Hong Kong Monetary Authority; and career bank supervisor in the United States. The material presented is derived from public media sources. INTRODUCTION In this case study an example of a large bank failure and its after effects on the financial markets is presented...
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