BFF1001 Lecture Notes - Lecture 6: Corporate Finance, Commercial Bank, Capital Budgeting
Document Summary
Key decisions corporates need to make along with investment decision is the financing decision. The mix of debt and equity is capital structuring of the firm. When corporations take on debts it has an contractual obligation to pay back whatever they may owe (the principal) and also the added on interest. When corporations raises funds through equity issues, it provides ownership to shareholders. For short term purposes it would use money markets by issuing short term debt instruments (suitable for working capital management purposes) For long term (capital budgeting) it would raise funds in capital debt markets and most importantly bond markets, with issues of long term debt instruments. Bond prices are inversely related to market interest rates. Efficient money markets are necessary for countries to achieve greater economic growth. Money markets are a collection of markets each trading a different short-term financial security. The trading is facilitated by dealers who stand ready to offer buy/sell quotes to potential customers.
