FINANCIAL INSTRUMENT

1. commercial paper

is short term, discounted and unsecured corporate debt of large American banks and companies issued, usually for one to three months only, as a way of borrowing money

2. zero-coupon bonds

– pay no interest, but are sold at a large discount and ultimately redeemed at face value. The consequently yield capital gains, often taxed at a lower rate than interest, which is considered as income

3. detachable warrants

are sometimes issued with bonds and give the buyer the right to buy the same firm’s equities within a certain period, unlike convertible bonds, the bond itself is not converted into shares

4. securitization

4. securitization – is the process of selling packages of bank debts to third party investors as bonds. It shifts the risk of default from the bank to the new owners, and releases capital with which the bank can make new loans.

5. junk bonds

5. junk bonds – are high-yielding bond issued by less secure companies and companies seeking to finance leveraged buy – outs, obligacje wysokiego ryzyka

futures contract

7. an importer who will need foreign exchange in three or six months time can buy it in advance by way of futures contract

currency swap

12. two borrowers, each with a better credit rating in their own country, but also needing foreign currency, can arrange a currency swap

11. participation certificates

11. issuing participation certificates which grant their holder part of ownership of a company, but without voting rights – rather than shares, diminishes the risk of takeovers

forward contract. futures market

10. non- standardized deals can be negotiated in an over-the-counter forward contract. futures market deal in contracts for standardized quantities of commodities, currencies for specific time periods

9. off balance sheet transactions –

9. off balance sheet transactions – debt swaps, letters of credit, options are all forms of financial business that need not be registered as loans on balance sheet

certificates of deposit

8. Bank can convert large deposits that cannot be withdrawn on demand into certificates of deposit short term, interest-bearing securities that can be traded like a share or bond

interest rate swap

6. a borrower with a lot of floating loans can spread the risk via and interest rate swap with a borrower of fixed rate loans