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Financial context of business – I

3.7 Mortgages

Cost  Relatively low

Risk  Secured on property

Timescales  Long term – typically 10-35 years

Liquidity  Traditionally mortgages could be resold by the lender but now
can in the form of CDOs (collateralised debt obligations). The
borrower may repay the loan early, albeit with possible penalties.

3.8 Bills of exchange

 usually issued at a discount by companies to finance trade

 promises to pay a certain sum at a fixed future date to the other party.

Cost  Return = ∆ (full redemption value – discounted issue price)

Risk  Varies – some bills may be guaranteed by banks

Timescales  Short term – 3 and 6 month maturities are the most common.

Liquidity  Can be resold on money markets

Illustrations and further practice

Now try TYUs 1 to 4 from Chapter 3

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