Caia Level 1
Caia Level 1 Questions
Caia Level 1 Questions
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Flashcards
(1) slope and shape of the term structure are driven by differences in the cost of carry (2) slope and shape of term structure are not related to returns earned on forward contracts
Normal backwardation
Normal contango
beta: gain risk and return exposures of the underlying asset while minimizing costs alpha: look for violations of the law of one price and engage in the appropriate arbitrage transactions
- internal plan to guide the company's directions - to convice venture capitalists to invest in the company
- Market - Product - Intelectual Property rights - Operations - Prior operating history - Management Team - Financial forecasts - Financing schedule - Exit plan
- Covenants regarding fund management - Covenants regaring general partner activities - Covenants regarding allowable investments
commited capital
- clawback provision - escrow agreements - prohibition on the distribution of profit -share fees
(1) Fundraising (2) Sourcing investments (3) Investment commitment (4) Investment management (5) Fund liquidation
- Angel investors - Seed capital - First/early stage capital - Second or late/expansion stage - Mezzanine stage
- Business risk - Liquidity risk - Concentration risk
- require activist investors that become controlling shareholders - rely on a substantial amount of leverage - are not publicly traded
- Management fees - Profit -sharing fees (incentive) - Privatization fees - Break -up fees - Director fees - Divestiture fees
- Efficiency buyouts - Entrepreneuship - Conglomerates - Buy and build strategy - Turnaround strategy
- tax benefits - regulatory requirements and investor communications are reduced - ability to focus on product goals - managers receive direct financial benefits
- Senior debt - Mezzanine debt - Equity
- Sale to a strategic buyer - Sale to a financial buyer - Sale via IPO - New LBO - Refinancing - Hybrid strategy
- CG principles remain in place after the company becomes public again - threat for management of being removed if no CG are incorporated - provide a roadmap for other manager - helps prevent the formation of inefficient conglomerates
+ larger capital pool + investment restrictions + pooled resources - lack of market participants - lack of defined leadership for the business plan
- LBO targets have track record with proven products/services - LBO are able to diversify while venture capital firms are specialized - IPO exit strategy is much more realistic
True
4-4,5
- Management buyout - Leveraged buyout - Growth and/or expansion - Acquisitions - Company recapitalization - Commercial real estate financing - Bridge financing
- Mezzanine funds - Insurance companies - Traditional senior lenders (banks) - Traditional venture capital firms
- Board respresentation - Restrictions on the borrower - Flexibility - Negotiations with senior creditors - Subordination - Acceleration of senior debt - Assign interest to third parties - Takeout provision
- new types of commercial loans - active portfolio management - increased debt levels - increased M&A and LBO activity - growth of covenant -light loans
- active investors seeking control - active investors not seeking control - passive investors
- file for protection under chapter 11 - court freezes all default notices ( - accelerated process with pre -packaged bankruptcy filling) - create and file a plan of reorganization - convince creditors to accept plan - if accepted seek approval by court - if not accepted submit new plan
- allows borrower to continue opperations - DIP loans have first priority
- defult risk - downgrade risk - credit spread risk
single -name instruments
CDS credit default swap
Funded credit instruments involve the transfer of notional principal
- Defensive stage (late 1980s - early 1990s) - Emergence of intermediaries (1991 - late 1990s) - Development of Redulations (late 1990s - 2002) - Liquid Market (2003 - present)
Credit Default Swap CDS
- CDS (credit default swap) - TRS (total return swaps)
-CDS spread - Contract size and maturity - Payment trigger events - Method of settlement - Choice of assets to deliver
- Credit reference - Notional amount - CDS spread - CDS maturity
- contract termination - offsetting postion - novation