Syndicate
Short-term Financial Assets
Short term financial assets are another investment option. Typical short-term financial assets are the promissory notes and drafts.
Promissory Notes
A promissory note is a document in which an issuing company needing funds compromises itself to pay the bearer wanting to invest at maturity date. Thus, a promissory note is at the same time a financing tool for the issuing company and an investment for the bearer.
Notes must be issued by public administrations, by credit entities or by companies, and are always for a short-term.
Investors can operate with these notes in 3 different ways:
Subscribing in the primary market in which prices are fixed, the discount and the notes maturity date.
Buy and sell in the notes secondary market already circulating. To this way of operating and the previous one, they call them “to maturity.”
Buy with a re-buying agreement. This way of operating is called “repo” as in re-purchase agreement. It consists of an operation in which the seller that is usually a credit entity agrees to re-buy the asset at a predetermined term. In this way, the investor can allocate its funds at terms that he deems convenient. It is a very common investment for companies or investors that wish to invest without risks.
These promissory notes are traded in auctions and the price is fixed based on the agreed discount and the time remaining to maturity.
With promissory notes, interests are received at discount. This feature makes them be called “pull” , as in discount promissory notes. That is to say, that if the investment reaches the promissory notes amount, from which one subtracts interests and at maturity date one collects the investment amount plus interests.