Questions:
- What is Yield
- Current Understanding | Yield is the total return on an investment after everything, like the yield of a crop, the yield of an investment is what you get after any increase in value of the asset/security plus the amount of interest payments or dividend payments. That total is divided by the original cost of the security to be represented as a percentage.
- Answer | ‘”Yield” refers to the earnings generated and realized on an investment over a particular period of time. It’s expressed as a percentage based on the invested amount, current market value, or face value of the security. Yield includes the interest earned or dividends received from holding a particular security. Depending on the valuation (fixed vs. fluctuating) of the security, yields may be classified as known or anticipated.’ (Source)
- Renewed Understanding | Close enough. Still don’t get why it’s called the ‘Yield Curve’
- what is a Debt Obligation
- Current Understanding | Just as it says, an obligation to pay a debt. An IOU, or as you put it yesterday, an elitist, jargoned IOU.
- Answer | A security representing debt of the issuer. (Source)
- Renewed Understanding | Any form of Debt Security. A security is an instrument that represents financial value. A shared ledger expressing a debt. A note declaring a debt, it’s amount, it’s terms.
- what is a money market
- Current Understanding | I think it’s a broad term encompassing any market for borrowing. I think it’s strictly a market for forms of debt securities, not equity securities. I think it also has something to do with short term, or overnight, loans between banks. And I think one component of it is ‘commercial paper’ which I’m pretty sure is the overnight loans. Don’t know what ‘overnight’ entails or how that affects business.
- Answer | They provide a means for lenders and borrowers to satisfy their short-term financial needs. Money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds. The term money market is an umbrella that covers several types of secured transactions, which vary according to the needs of the lenders and borrowers. […] The assets that are bought and sold are short term—with maturities ranging from a day to a year—and normally are easily convertible into cash. Money markets include markets for such instruments as bank accounts, including term certificates of deposit; interbank loans (loans between banks); money market mutual funds; commercial paper; Treasury bills; and securities lending and repurchase agreements (repos). These markets comprise a large share of the financial system—in the United States, accounting for about one-third of all credit, according to the Federal Reserve Board’s Flow of Funds Survey. (Source)
- Renewed Understanding | So a market for loans, for making & getting loans. For what purpose though? What purpose do such short term loans serve? Maybe it has to do with company pay rolls, or other reasons companies might need quick cash, when they haven’t procured the cash yet from their operations. Everything functions on credit & assumptions that money is going to flow; the promise of the future. On an individual level, seems like this type of behavior is demonized: if you don’t have the cash upfront that means you cant afford, but is it the case that businesses just operate on credit, future promises & assumptions & projections? Is this what was so devastating, or can be so devastating about recessions. The flow of credit tightens and then all of a sudden the promises businesses made for the hard cash they were assuming they’d be able to easily procure (from a money market) is now either unavailable, or too expensive? and so they have to default on their prior agreements to pay for things, & cut their overhead—lay people off.
- What function does a money market serve?
- Current Understanding | Facilitates quick, easy access to capital
- Answer | Money markets serve five functions—to finance trade, finance industry, invest profitably, enhance commercial banks’ self-sufficiency, and lubricate central bank policies. (Source)
- Renewed Understanding | What the hell does that mean ‘lubricate central bank policies’. If central bank ups rates, money markets make it easier for those rate changes to be reflected on the market? Money markets serve to ‘finance trade’ which means provide the capital up front to facilitate trading to take place across markets before goods are created or delivered?
Working capital requirements is the technical term for what I was intuiting above concerning short term needs businesses have for money to pay employee or make other transactions that need to take place before they see the cash flow from their businesses. Everything really does run on credit & the expectations of the futures. That seems to be the entire purpose of the ‘Capital Markets’ which I’m now for the first time beginning to conceptualize & understand for what it truly is, even though the definition is right in the name: the capital markets being the market for capital, being the place you go to get capital, the place you go to buy money. When you need money you can buy money, just like you can buy other ingredients for things you need at a regular ‘market’ or at the ‘super market’. Capital is a necessary ‘ingredient’ to ‘bake’ a business, and the price you pay for that money (capital) is either selling a piece of yourself, or committing to paying an interest rate on a loan; this is the difference between equity securities and debt securities respectively.
When you buy a stock you’re selling a company your money. Well, effectively this isn’t quite right—when you buy a stock you’re buying it from someone else who owned it. I think the company’s initially sold their stock to a bank which then has turned around and sold it to a consumer. but the bank sold their money to the company, with the intent to turn around and make more money off the product they got (the company’s stock) for selling their money. I think this is what ‘Underwriting’ an ipo means. The bank decides how much stock it’s going to sell it’s money for; how much money it’s going to pay for a set amount of the company. It will then turn around and sell that stock of the company to the public for & turn a profit. Why don’t companies just go straight to the public? To have the money quickly available all at once? - New Questions |
- What does ‘Finance trade’ mean
- What does ‘Finance Industry’ mean
- What does ‘Enhance commercial banks’ self-sufficiency mean’
- what does ‘Lubricate Central Bank Policies’ mean
- What is commercial Paper
- Current Understanding | Commercial Paper is short term (less than a year) loans businesses use to meet ‘working capital requirements’, meaning any immediate needs for hard cash, when the yields of their business have not yet come to fruition. Farming as analogy seems befitting. A farmer must execute a myriad of functions up front before he can produce any yield from his crops, functions that necessitate capital. He must buy the seeds, buy the land, buy the equipment & labor to work the land, and all of this before there is any yield. A farmer would get a loan, or ‘buy’ commercial paper. He will then have the upfront money he needs to bake his business.
- Answer | short-term unsecured promissory notes issued by companies. (Dictionary Definition) Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days. (Source)
- Renewed Understanding | Almost had it right seems like, except its the farmer that sells a commercial paper to then receive the funds. then the buyer of the ‘paper’ now has a contract essentially that outlines the terms of the repayment of the funds and any stipulations such as interest & timeline outlined within it. Would be nice if I could ‘issue’ some commercial paper to finance my life for the next 5 years and really master all this bullshit.
- What is a money market fund
- What is a Treasury
- Current understanding | A treasury is a debt security issued by the US Government. It’s a way for the government to sell a promissory note to raise capital, & for a buyer of a treasury to make money off the interest; selling their money to the US government with terms to get that money back and then some after a set period of time.
- Answer | U.S. Treasury securities are debt instruments. The U.S. Department of the Treasury issues securities to raise the money needed to operate the federal government. (Source)
- Renewed understanding | Treasuries are maybe not unique to US? Just any government that issues debt, is called a security?
- What are the different types of securities
- What is a stock
- What is a Bond
- What is an Option
- What is a hybrid security
- What is the difference between a debt obligation & a security
- Current understanding | A security is a broad term for financial instrument, and can be a debt or an equity (or option, or hybrid). Debt obligation is within the category of debt.
- What is a Money Market Security
- What are Interest Rates
- What are Fund Rates
- What is the difference between Interest Rates & Fund Rates
- Does Fund Rate Affect Credit Card Interest
- How do Fed rates affect consumer credit
- How do Fed Rates affect Mortgages
- What are Corporate Bonds
- What are Junk Bonds
- Can any company issue bonds
- What is a security
Initial understanding
- Yield | Yield is the total return on an investment after everything, like the yield of a crop, the yield of an investment is what you get after any increase in value of the asset/security plus the amount of interest payments or dividend payments. That total is divided by the original cost of the security to be represented as a percentage.
- Debt Obligation | Just as it says, an obligation to pay a debt. An IOU, or as you put it yesterday, an elitist, jargoned IOU.
- Money Market | Just as it says? A market for money.
Answers
Personalized Answers