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Financial context of business – I

Financial products

3.1 Main considerations

 Yield/cost E.g. yield on CD lower than that on equities.

 Risk (main driver of yield/cost) E.g. equities riskier than CDs

 The amounts involved/divisibility E.g. Minimum for CD is £50k

 Time periods E.g. treasury bills 91 days

 Liquidity E.g. shares in an unquoted company

 Transaction costs E.g. arrangement fees for mortgages

3.2 Capital and money markets

 Capital markets – maturities > 1 E.g. equities, bonds and mortgages.
year

 Money markets – maturities < 1 E.g. CDs and bills of exchange
year

3.3 Equity (Ordinary shares)

Return  Potentially very high (Includes dividends and ∆ share price)

Risk  Potentially very high (e.g. Last in line in the event of a liquidation)

Timescales  Long term

Liquidity  Good for quoted companies, poor for unquoted

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