Examples of trade-off in the following topics:
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- Trade-off considerations are important because they take into account the cost and benefits of raising capital through debt or equity.
- Therefore, a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.
- Another trade-off consideration to take into account is that the while interest payments can be written off, dividends on equity that the firm issues usually cannot.
- Therefore, trade off considerations change from firm to firm as they impact capital structure.
- Describe the balancing act between debt and equity for a company as described by the "trade-off" theory
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- Time preference can be measured by auctioning off a risk free security--like a US Treasury bill.
- The trade-off between money now (holding money) and money later (investing) depends on, among other things, the rate of interest that can be earned by investing.
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- The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies.
- Most bonds and structured products trade "over the counter," or by phoning the bond desk of one's broker-dealer.
- Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities, or derivatives directly between two parties.
- It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges), such as futures exchanges or stock exchanges.
- OTC stocks are not usually listed nor traded on any stock exchanges, although exchange listed stocks can be traded OTC on the third market.
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- These can be broken down into different types based on what is being traded.
- Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities, or derivatives directly between two parties.
- It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges), such as futures exchanges or stock exchanges.
- OTC stocks are not usually listed nor traded on any stock exchanges, although exchange listed stocks can be traded OTC on the third market.
- Municipal bonds are often traded in this way.
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- Derivatives are broadly categorized by the relationship between the underlying asset and the derivative, the type of underlying asset, the market in which they trade, and their pay-off profile.
- To obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives).
- In broad terms, there are two groups of derivative contracts, which are distinguished by the way they are traded in the market.
- Exchange-traded derivative contracts (ETD) are those derivatives instruments that are traded via specialized derivatives exchanges or other exchanges.
- A derivatives exchange is a market where individuals trade standardized contracts that have been defined by the exchange.
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- Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal.
- In other words, the separated coupons and the final principal payment of the bond may be traded separately.
- "STRIPS" stands for Separate Trading of Registered Interest and Principal Securities.
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- Supply for U.S. dollars comes from people holding U.S. dollars, and they trade those dollars for another currency.
- It can trade euros for U.S. dollars, causing the U.S. dollar to appreciate and the euro to depreciate.
- Hence, the Federal Reserve bought U.S. dollars off the currency exchange markets while the European Central Bank injects new U.S. dollars in their place.
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- Investment banks are not confined solely to working with and making money on large, publicly traded companies.
- This is akin to selling off a portion of the ownership of the company.