Financial Security
A financial security is a tradable Financial Asset.
Economic Agents with excess funds provide capital to agents in need, and in exchange receive a Financial Instrument that represents some form of financial value.
Securities are the traditional way that commercial enterprises raise new capital.
Types
Features range from:
- Fixed claim on cash flows ⇒ Residual claim on cash flows
- Higher priority in bankruptcy ⇒ Lower priority in bankruptcy
- Payments are tax deductible ⇒ Payments are not tax deductible
- Finite maturity ⇒ infinite life
- Gives little say over company operations ⇒ gives significant say over company operations
From left to right we represent these in a table
| Debt Securities | Hybrid Securities | ** Equity** |
|---|---|---|
| Bank Debt | Convertible Debt | Common Stock |
| Leases | Preferred Stock | Warrants |
| Commercial Paper | ||
| Corporate Bonds |