BASIC TERMINOLOGIES

Commercial Paper (CP): Commercial papers are unsecured promissory notes of relatively low risk and
short maturity of 3 to 6 months, issued by highly rated large corporations who usually maintain backup
credit lines with their banks to ensure payment at maturity i.e notes, bills, and acceptances arising out of
commercial, industrial or agricultural transactions of short - term maturity, self-liquidating and used as
trade financing instruments for non-speculative purposes.

Bankers’ acceptances: A bankers' acceptance involves the acceptance by a financial corporation of a draft
or bill of exchange and the unconditional promise to pay a specific amount at a specified date i.e., held
for maturity. These are treated as actual financial assets even though no funds may have been
exchanged.

Working Capital Financing: Short-term financing by the banks other than trade finance made to support
the current operations of a business enterprise mainly for the procurement of raw material and stock in
trade etc. The working capital facility is provided for short periods, generally from six months to one year,
depending upon the cash flow projections of the borrower.

Fixed Investment – LMM: Advances provided by the banks for the purchase of locally manufactured
machinery for the projects on concessionary rates. Such facility is extended usually for long periods of
time. The repayment is staggered over a number of years depending upon the cash generation and
repayment capacity of the project

Fixed investment: Advances (small & heavy loans) provided by the banks for the purchase of land,
building, and foreign manufactured machinery etc. for the projects. Such facility is extended usually for
long periods of time. The repayment is staggered over a number of years depending upon the cash
generation and repayment capacity of the project.

DEBENTURES: Long-term securities that give the holders the unconditional right to one or both of: (a) a
fixed or contractually determined variable money income in the form of coupon payments, i.e. payment
of interest is not dependent on earnings of the debtors, (b) a stated fixed sum as a repayment of principal
on a specified date or dates when the security is redeemed.

BONDS: Bond is a negotiable debt investment certificate that ensures fixed income for a defined period of
time generally issued by a company or government agency.

A bond investor offers money to the issuer and in return, the issuer promises to repay the amount equal
to bond value at a fixed interest rate (at a specified maturity date) over the life of the bond. However, the
interest on bonds is usually paid (semi-annually) every six months.

Bonds are generally used by companies and foreign governments to fund multiple projects as well as
activities.

TYPES OF BONDS

Bonds can be classified in the following categories:

Fixed rate: Fixed rate is an interest rate that remains fixed either for the entire term of the bond or part of
the term. This category includes bonds with fixed coupons.

Floating rate: Floating rate is an interest rate that is allowed to rise up and down in sync with the market
or together with an index. Also regarded as variable interest rate.

In the financial market of Pakistan, bonds are either issued by the Government or Corporate entities.
Government Bonds: Government bond is a debt security loaned by a government to assist government
spending, most often issued in the country’s local interest.

The various types of Government bonds issued by the Govt. of Pakistan are as follows:

 Pakistan Investment Bonds

 US Special Dollar Bonds
 WAPDA Bonds
 National Saving Bonds
 Sukuk

Corporate Bonds: Corporate Bond is a debt security which is issued by company and sold to investors to
meet its financial requirements. In Pakistan this is commonly known as Term Finance Certificate (TFC).
Corporate Bonds are normally issued for a specified time period with an assurance to return the principal
amount of the bond money including interest to the bondholder.

When someone buys a bond, he/she is lending money to the company that issued it. The company
ensures to return the money, on a specified maturity date. Till that time, it also pays a stated rate of
return, which usually occurs semi-annually. The interest payments collected from corporate bonds are
taxable. Unlike shares, bonds do not provide an ownership interest in the issuing company.

REIT: Real Estate Investment Trust is a mutual fund that focuses on investment in properties and real
estate and derives income from such investments for its unit holders.

A REIT Management Company (RMC) identifies a project and raises public money through an Initial public
offering (IPO). The RMC then buys a property (in case of Rental REIT Scheme) and rents it out. The rent is
then distributed to the unit holders (The shareholders of REIT Scheme are known as unit holders).

In case of a developmental or Hybrid REIT Scheme, an RMC identifies the project, raises public money
through IPO, constructs and then either sells the project or rents it out. The money received due to sale
or rent is distributed among the unit holders.

TYPES OF REITS

In Pakistan there are three basic types of REITs

1. Rental REITs

A Rental REIT scheme is established for the object of making investments in commercial or residential
Real Estate with a purpose of generating rental income. In a Rental REIT, a fully constructed property is
first bought by the RMC and then rented out. The revenues derived are distributed among the unit
holders.

2. Developmental REITs

In a Developmental REIT scheme, land is acquired by the REIT for the purpose of development of
commercial, industrial, residential Real Estate through construction or refurbishment and subsequently
sold or rented. The proceeds from sale/rent of the property are then distributed to the unit holders.

3. Hybrid REITs

Hybrid REITs in Pakistan combine the investment strategies of both Rental and developmental REITs by
investing in both properties and mortgages. Although not as heavily favored as compared to pure equity
REITs, they remain stay attractive investment alternative.