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FIN 3201 - Short Notes
FIN 3201 - Short Notes
on
“Short Notes on Key Terminologies”
Course Title: Investment Banking and Lease Financing
Course Code: FIN-3201
Prepared for
Md. Shahidullah Kayser
Assistant Professor
Department of Finance
Jagannath University, Dhaka- 1100
Prepared by
Zahid Ahammed Sharif
ID-B170203019
12th Batch, 4th Year, 1st Semester
Department of Finance
Jagannath University, Dhaka-1100
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Chapter 01
An Overview of Leasing
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Chapter 02
Types of Leasing
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funds used to purchase the equipment.
Key Word Definition/Explanation
Types of lessors are,
1. Corporate Lessor
Types of 2. Banks and banking holding company
Lessors 3. Independent leasing company
4. Specialized leasing company
5. Captive Leasing
Corporate Lessors may be generally categorized as commercial banks or
their subsidiaries, independent leasing companies, captive leasing
Corporate
subsidiary companies of non-finance companies, finance companies or
Lessors
their subsidiaries, investment banking firms, and subsidiaries of life or
casualty insurance companies.
Brokerage For their services as an intermediary, the lease broker and financial
Commission advisers receives brokerage commission.
A standard lease provides 100% long term financing with level
Standard Lease
payments over the term of the lease.
A custom lease contains special provisions designed to meet particular
Custom Lease needs of a lease. It may, for example, schedule lease payments to fit cash
flow. Such a lease can be particularly helpful to a seasonal business.
A master lease works like a line of credit. It is an arrangement that
Master Lease allows the lessee to acquire, during a fixed period of time, equipment as
needed without having to renegotiate a new lease contract for each item.
Vendor Lease The equipment manufacturers use vendor lease program that permit
Program them to offer financing in the form of true or conditional sale leases.
An offshore lease is an agreement to lease equipment to be used outside
Offshore Lease
in any particular country.
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Chapter 03
Sale and Lease Back
Key Word Definition/Explanation
Sale and Lease In a sale and leaseback arrangement, lessors acquire leased assets by
Back purchasing assets already owned by the lessee and leasing them back.
Opportunities of Sale and Leaseback,
Safeguard the availability of capital stock
Opportunities Preserve the availability of bank credit facilities
of Sale and Make funds available for a new project
Leaseback Restructure the debts
Cash in a latent asset appreciation
Realize, in certain conditions, a company tax saving
Chapter 04
Sale and Lease Back
Key Word Definition/Explanation
Investment Investment Bank is a financial intermediary and a specific division of
Bank banking related to the creation of capital for other companies.
In 1933, in the wake of the 1929 stock market crash and during a
nationwide commercial bank failure in U.S. and the Great Depression,
two members of U.S. Congress put their names on what is known today
as the Glass-Steagall Act (GSA).
The Glass- This act separated investment banking and commercial banking
Steagall Act activities.
At the time, "improper banking activity," or what was
considered overzealous commercial bank involvement in stock
market investment, was deemed the main culprit of the financial
crash.
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Key Word Definition/Explanation
A regulation that Congress passed on November 12, 1999, which
attempts to update and modernize the financial industry which is known
Gramm-Leach- as Gramm-Leach-Bliley Act.
Bliley Act of As a result, the Glass-Steagall Act (GSA) was repealed with the
1999 establishment of the Gramm-Leach-Bliley Act, which eliminated the
GSA restrictions against affiliations between commercial and
investment banks.
A federal regulation that prohibits banks from conducting certain
investment activities with their own accounts, and limits their ownership
of and relationship with hedge funds and private equity funds, also
called covered funds.
• The Volcker Rule’s purpose is to prevent banks from making
certain types of speculative investments that contributed to the
Volcker Rule
2008 financial crisis.
2010
• The Volcker Rule disallows short-term proprietary trading of
securities, derivatives, commodity futures and options on these
instruments for banks’ own accounts under the premise that
these activities do not benefit banks’ customers. In other words,
banks cannot use their own funds to make these types of
investments to increase their profits.
Characteristics of Investment Banking,
Underwrite Securities
Characteristics Preparing prospectus
of Investment Investment banks handle the sales of large blocks of previously
Banking issued securities, including sales to institutional investors
Don’t provide retail banking facilities
Provide strategic advice to the companies
Functions/ Functions/Scope of Investment Banking,
Scope of Public Offerings of Debt and Equity Securities
Investment Private Placements of Debt and Equity Securities
Banking Mergers and Acquisitions (M&A)
Financial Advisory / Sponsor Group Finance
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Risk Management
Merchant Banking
Public Trading of Debt and Equity Securities
Investment Research and Security Analysis.
Wealth Management
Alternative Investments
Public / Government Finance
Front office workers make the money for the investment bank. Front
Front office office workers will earn the highest bonuses and they does not have to
be client-facing e.g., traders usually do not see clients.
Middle office workers are an integral part of making money. They
Middle office directly support a deal but their actions have to be instigated by a front-
office worker. Middle office includes: Legal, Compliance, Research
Back office includes any process-orientated roles. An efficient back
office is vital because if clients don't get statements and confirmations
Back office on time, they will hate your bank and could, on that basis, exclude your
bank from deals. Back office includes: Confirmation teams,
Presentations teams, Print & Production teams.
The term bulge bracket used to describe the company or companies that
issued the largest number of securities on a new issue in an underwriting
Bulge Bracket
syndicate, or that are the largest underwriting company or companies in
the industry.
Full-service They are the kind of investment bank that provide full range of
shops investment banking services is known as full-service shop.
They are the kind of investment bank that provide specialized services
Boutiques for their clients is known as boutiques. They are also known as specialty
shops.
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Chapter 05
Corporate Finance: Underwriting and Syndication
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Key Word Definition/Explanation
A standby underwriting is employed when the issuer offers the securities
A Standby to existing shareholders through a right offering and uses the
Underwriting underwriters only as a backup for any securities not taken through the
rights offering.
A Primary seasoned offering which is the offering of an offering of a
new issue of securities by a firm that has already done by an IPO. The
purpose of primary seasoned offering is to raise new capital for the firm.
Chapter 06
Secondary Market Making: Dealer /Broker Activity
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The source of revenue for the broker is commission for their
services.
Broker also known as Agent
Dealer’s trade (i.e., simultaneously buy and sell) securities for
their own account and becomes principles in the transaction.
They maintain an inventory and offers to buy at the bid price.
Later offers to sell at the asked price.
Dealers As dealer makes their own transaction, they bear the price risk of
individual securities.
The source of revenue for the broker is bid-ask spread for their
activity.
Dealer also known as Principal or Market-maker
A market order to buy or sell a stock means to execute the transaction at
the best possible price currently available in the market.
For example: Stock Z currently selling for $55 per share. If an investor
Market Orders places a market order to purchase (or sell) the stock, the transaction will
be executed at the prevailing price at the time of the transaction takes
place. Suppose the price may have risen to $55.25 per shares or decline
to $54.75 by the time of the transaction occurs.
A limit order differs from a market order in that a limit is placed on the
price at which a stock can be purchased or sold.
For example: the investor could place a limit order to purchase the stock
Limit Order Z only at a price of $54.50 or less. The limit order can be placed for the
day only or for a longer period. Other investor who wishes to sell stock Z
may place limit order to sell the stock only if it can be sold for $ 55.25 or
more.
A stop-loss order is a particular type of limit order. The investor specifies
a selling price that is below the current market price of the stock. When
the stock price drops to specified level, the stop-loss order becomes a
Stop-loss order
market order. Id the stock does not reach the specified minimum, the
stop-loss order will not be executed. The investors generally place stop-
loss orders to either protect gains or limit losses.
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Key Word Definition/Explanation
Bucket Shops are securities firm that take customers’ orders but do not
immediately execute that. Instead, they wait to see if the price moves
Bucket Shops
away from the price stipulated in the customer’s order and only if it does
do they fill the order.
Boiler Rooms operations are firms that use high pressure sales tactics to
Boiler Rooms
sell securities often too naive investors.
Churning refers to excessive trading of a customer’s account when the
Churning primary motivation for the trading is to earn commission or bid-ask
spread for the broker or dealer.
Securities that are appropriate for a particular customer are known as
Suitability Suitable. Sometimes the broker doesn’t give the best or suitable
recommendation to the investor.
Front Running refers to transactions made by a securities firm for its
Front Running own trading account in anticipation of trades that are to be made by a
client.
In some instances, or examples, floor broker working in consult with
Poor Fills floor traders, have deliberately transacted on behalf of customers at
disadvantageous price.
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Chapter 07
Trading: Speculation and Arbitrage
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Key Word Definition/Explanation
Fundamental analysis examines all information that bears on the
underlying economic relationships- supply and demand- that ultimately
Fundamental determine all prices. They gather information on domestic and foreign
analysis production, read govt. reports, and central bank policies, estimate input
cost and usage rate, monitor technological development, analyze
demographic data and so on.
Technical analysis takes a very different approach to forecasting future
prices. The technical analyst or technician focuses on one specific
category of information called transaction data. The transaction data are
Technical
any information associated with the record of past transaction.
analysis
Transaction data consists of such things as transactional prices, trading
volume, open interest, short interest, specialists’ position, odd-lot
transaction and so on.
Arbitrage is a trade that profits by exploiting price differences of
Arbitrage identical or similar financial instruments, on different markets or in
different forms.
Spatial arbitrage is the simplest form of arbitrage. In spatial arbitrage,
Spatial
also known as geographic arbitrage, the arbitrager looks for pricing
arbitrage
discrepancies across geographically separated markets.
Temporal Arbitrage is arbitrage across time. It involves buying an asset
Temporal for immediate delivery and selling it for later delivery in order to exploit
Arbitrage a price discrepancy between the cash price and the forward price. The
forward transaction is most often accomplished with a future contract.
Risk Arbitrage is arbitrage across time. It involves buying the stock of a
Risk Arbitrage
target firm in a takeover and to sell the stock of the acquiring firm.
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Chapter 08
Corporate Restructuring: Mergers, Acquisitions, and LBOs
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Key Word Definition/Explanation
The term merchant bank refers to a financial institution that conducts
underwriting, loan services, financial advising, and fundraising services
Merchant
for large corporations and high-net-worth individuals. Unlike retail or
Banking
commercial banks, merchant banks do not provide financial services to
the general public.
…………….The End…………….
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