Final answer:
Negative cash flows from financing activities on a company's cash flow statement typically indicate debt repayment, dividend payments, or equity repurchases exceeding new debt or equity being issued. The value of loans in the secondary market fluctuates based on the risk profile of the borrower and market interest rates.
Step-by-step explanation:
A company might report negative cash flows used by financing activities when it repays more debt than it borrows or issues equity, or pays out dividends to shareholders. In the same way, the money listed under assets on a bank balance sheet might not actually be in the bank because banks operate under a fractional reserve system, where only a portion of the bank's deposits are kept in reserve and the rest are used for loans and other investments. This financial practice can lead to a situation where a bank becomes bankrupt if its assets are worth less than its liabilities, often due to a large number of loan defaults or a sudden withdrawal of deposits.
In the secondary market, several factors can influence the value of purchasing existing loans. If a borrower has been late on loan payments, the perceived risk associated with that loan increases, and a buyer would be willing to pay less for it. Conversely, if the borrower is a firm that recently declared high profits, the loan is seen as less risky, and a buyer would be willing to pay more. Changes in the broader economic interest rates also affect loan values in the secondary market; if rates have risen since the loan was made, the old loan's lower rate is less attractive, and a buyer would pay less. However, if rates have fallen, the existing loan's higher rate becomes more desirable and the buyer might pay more.