Project 3 – GBG 333 – Fall 2004
This project is due November 15 for the Monday-Wednesday class, and November 16 for the Tuesday-Thursday class. Please complete all work for this project in no more than 4 pages of typed text.
(1) To answer this question, please refer to the text on pages 222 to 224 to assist you. This question in large part refers to asset-backed securities and the“securitization” of assets, such as accounts receivable as a means of securing short term capital for business.
Obtain a copy of the article by James August et al “Survey of Finance Companies, 1996 in the July 1997 edition of the Federal Reserve Bulletin. You can obtain a copy by going to the PNC website, click on library and the Inspire data base, and download to a printer. Use search words “Federal Reserve Bulletin” and restrict your search to July 1997. Note that it may be easier to do this on campus.
(a) How large is the business receivables
business handled by finance companies in the
(b) What factors slowed the growth of business receivables as a source of financing especially for small business during the early 1990s?
(c) The major change in the motor vehicle finance market from 1990 to 1996 was the “securitization” of wholesale receivables. What does this mean, and why is it an advantage to the finance company?
(d) The revision to the federal tax code provided a boost to the motor vehicle finance companies. How did this work?
(2) To answer this question, the discussion in the text about commercial paper on pages 217 to 219 will provide background. But the article you will read will take the commercial paper story one step further to discuss the “medium term note market”.
Obtain a copy of the article by Leland E. Crabbe et al “Anatomy of the Medium-Term Note Market” in the August 1993 edition of the Federal Reserve Bulletin. You can obtain a copy by going to the PNC website, click on library and the Inspire data base, and download to a printer. Use search words “Federal Reserve Bulletin” and restrict your search to August 1993. Note that it may be easier to do this on campus.
(a) What are medium term notes, what is their origin, and what advantages do they have over commercial paper notes and corporate bonds? Please be as complete and thorough as you can.
(b) Why do the maturities of medium term notes issued by finance companies fall within the one to five year category, and those of non-finance companies in the longer than 10 year category?
(c) Refer back to the August article in Question (1). What role have medium term notes played in the capital structure of finance companies?
(3) The text discussion on pages 220 to 222 on accounts receivable financing will be of help to you in answering this question.
Obtain a
copy of the articles by James Weisel et al “The Cash
Factor” in the September 2003 edition of the Strategic Finance, and Lewis Faber, “Factors
Can Help Your Bank Help Small Business Clients” in
(a) Summarize the advantages of factoring described in the Weisel article. Can you think of any disadvantages of factoring?
(b) What are the advantages Weisel cites in terms of implications for the balance sheet, current and quick ratios for factoring over asset-based loans or cash flow based loans?
(c) In the Faber article, what is the major point that he makes, in the sense that factoring can help small businesses more than conventional loans from a bank?
(4) The discussion in the text on the prime rate and LIBOR on pages 211 to 213 will help you to answer these questions.
Obtain a copy of the article by Joe Blalock “LIBOR: More Than Just a Mortgage Benchmark” in the December 2001 edition of the Community Banker. You can obtain a copy by going to the PNC website, click on library and the Inspire data base, and download to a printer. Use search words “Community Banker” and restrict your search to December 2001. Note that it may be easier to do this on campus.
(a) What is the LIBOR, when was it established, and why?
(b) Why is there a shift towards the use of
LIBOR rather than the