Chapter 3

Question 1

Managing the financial resources and funds

Answer 1

a vast diversity of financial resources and an indicative classification

Question 2

Horizon criteria

Answer 2

• a broad range of maturities
• From overnight maturities to 30 years and up (inc perpetuals)

Question 3

Criteria of geographical origin

Answer 3

• a key distinction between
• Domestic, international and foreign source of funds

Question 4

Technical criteria of legal contractual nature:

Answer 4

• equity vs debt
• shares vs bonds

Question 5

yield curve

Answer 5

• Using the position of each class of financial resources as described above on the yield curve, also called the risk and return curve which puts in a comparative perspective
• shows risk profile of each class of the financial resources and its expecred rate of return on it

Question 6

Yield curve - low to high risk

Answer 6

1. Treasury bill
2. Commercial paper
3. Treasury bond
4. Corporate bond
5. Start up share

Question 7

Methodology for an efficient allocation of the sources the uses of funds

Answer 7

using two principles simultaneously
1. The longest, least callable financing will be allocated to the riskiest assets
2. Once the proper class of financing has been selected for a given type of asset, the financial choice will be based on the WACC