CH2_4_Types of Transactions

Questions and Answers

What is the primary obligation associated with Loans?

To repay the borrowed amount (correct)

To provide ownership rights

To exchange financial equity claims

To issue non-financial claims

In what mode do Loans start their lifecycle?

Acquisition Mode

Issuance Mode (correct)

Redemption Mode

Transfer Mode

What often happens when a Loan enters Redemption Mode?

Investors are forced to sell their claims.

The Loan is converted into equity.

The issuer acquires financial claims.

A new Loan is issued of a similar amount. (correct)

What is one purpose for investors to participate in Issuance Mode ?

If there is liquidity for future re-sale Signup and view all the answers

Which statement accurately describes the method of how public bonds are issued?

Public bonds are issued by Government to the Public and Banks in Issuance Mode. Signup and view all the answers

In which scenario is a Loan in Redemption Mode?

When the total repayment is made to the current investor by the Issuer. Signup and view all the answers

Which of the following best captures the flow of transactions in Inter-Bank Loans?

Banks transfer Loans between themselves,managing their Central Bank Accounts. Signup and view all the answers

What motivates an investor to engage in the Issuance Mode of Transactions?

To acquire financial equity that can be traded or resold later. Signup and view all the answers

What types of transactions take place during the Transfer Mode for Loans?

The ownership of Loans is exchanged between Public and Banks. Signup and view all the answers

Study Notes

Transaction Permutations

Participants can exchange ten transaction permutations among four subjects: Money, Loans, Ownership, and Asset, Product or Service (APS).
APS refers to non-financial claims, while Money has been discussed in earlier sections.

Loans

Three main categories: Government Bonds, Bonds & Loans, and Bank Loans to Public.
Loans begin in Issuance Mode where money is exchanged from investors to issuers.
Investors often choose Issuance Mode with the expectation of reselling in Transfer Mode.

Modes of Transaction

Issuance Mode: Initial method where issuers receive funds in exchange for Loans or Ownership.
Transfer Mode: Loans and Ownership can be traded among investors after initial issuance.
Redemption Mode: Occurs when the issuer repays the loan or buys back shares.

Ownership (Equity)

Ownership starts in Issuance Mode and continues in Transfer Mode as shares are exchanged between investors.
Can enter Redemption Mode if the issuer (company) repurchases its own shares for cancellation.

Confidence Drivers

Confidence in the Transactions is influenced by the ability to exchange a subject in Redemption Mode for another subject of recognized value.
Historical example: Enforced Gold Standard provided assurance for Money exchange as holders could convert it to Gold.

Lifetime of Loans and Ownership

Loans and Ownership undergo various transactions based on market dynamics and investor confidence.
Issuers frequently reissue loans instead of repaying the original amount outright.

Bearer vs Ledger Ownership

A comparison of ownership types will be explored further, focusing on the differences and implications in financial transactions.