Investment Terms: Recent Episodes
Africa Business Radio
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.
The business size generally matters when it comes to economies of scale. The larger the business, the more the cost savings. Economies of scale can be both internal and external. Internal economies of scale are based on management decisions, while external ones have to do with outside factors. Internal functions include accounting, information technology, and marketing, which are also considered operational efficiencies and synergies.
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An attorney-in-fact, also called an agent, is a person who is authorized to act on behalf of another person, known as the principal, typically to perform business or other official transactions.
The principal usually designates someone as their attorney-in-fact by assigning them power of attorney, although a court may choose to assign it if the person being represented is incapacitated. The rules regulating power of attorney vary from state to state.
An attorney-in-fact is not necessarily a lawyer. Power of attorney may also be granted to more than one person.
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The Bank Bill Swap Rate, or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds.
The BBSW is an independent reference rate that's used for pricing securities. Fixed-income investors use BBSW since it's the benchmark to price floating-rate bonds and other securities.
There is a risk premium added to the BBSW to compensate for the risk of the securities, as compared with the risk-free rate, which is typically based on government bonds.
The BBSW is calculated and published by the Australian Securities Exchange (ASX), which maintains this rate. The bank bill swap rate is Australia's equivalent of the London Interbank Offered Rate (LIBOR) and is used as a reference rate in much the same way on an institutional level.
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The Affordable Care Act (ACA) is the comprehensive healthcare reform signed into law by then-President Barack Obama in March 2010. Formally known as the Patient Protection and Affordable Care Act and commonly referred to as Obamacare, the law includes a list of healthcare policies intended to expand access to health insurance to millions of uninsured Americans.1
The law expanded Medicaid eligibility, created health insurance exchanges, mandated that Americans purchase or otherwise obtain health insurance, and prohibited insurance companies from denying coverage due to preexisting conditions
The ACA was designed to reform the health insurance industry and help reduce the cost of health insurance coverage for individuals who qualify. The law includes premium tax credits and cost-sharing reductions to help lower expenses for lower-income individuals and families.
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Kiting is the fraudulent use of a financial instrument to obtain additional credit that is not authorized. Kiting encompasses two main types of fraud: Issuing or altering a check or bank draft, for which there are insufficient funds and Misrepresenting the value of a financial instrument to extend credit obligations or increase financial leverage.kiting typically involves passing a series of checks at two or more banking institutions, using accounts that have insufficient funds. Relying on the float time required for a check deposited at one bank to clear at another, the kiter typically writes a check at the first bank against an account at the other. Before that check clears, they then withdraw the funds from the second bank account and deposit the funds back into the first. The process may then be repeated in the opposite order, sometimes repeatedly. The net result is a series of fraudulent withdrawals that rely on being a step ahead of the fraudulent check on which they are based having cleared.
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The term joint tenant with the right of survivorship (JTWROS) refers to a legal ownership structure involving two or more parties for any financial account or another asset. When one of the co-owners dies in a joint tenancy with the right of survivorship, then the surviving co-owner automatically owns the asset.
Each tenant has an equal right to the account's assets and is afforded survivorship rights if one of the account holder(s) dies.
A surviving member inherits the total value of the other member's share of property upon the death of that other member.
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A J Curve is an economic theory which states that, under certain assumptions, a country's trade deficit will initially worsen after the depreciation of its currency—mainly because in the near term higher prices on imports will have a greater impact on total nominal imports than the reduced volume of imports.
This results in a characteristic letter J shape when the nominal trade balance is charted as a line graph.
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A null hypothesis is a type of statistical hypothesis that proposes that no statistical significance exists in a set of given observations. Hypothesis testing is used to assess the credibility of a hypothesis by using sample data. Sometimes referred to simply as the "null," it is represented as H0.
The null hypothesis, also known as the conjecture, is used in quantitative analysis to test thA null hypothesis is a type of conjecture in statistics that proposes that there is no difference between certain characteristics of a population or data-generating process.eories about markets, investing strategies, or economies to decide if an idea is true or false.
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Hard skills are technical skills required for a job. They are learned abilities acquired and enhanced through education and experience. Hard skills are important for your resume, as employers look for them when hiring. Hard skills alone don’t translate into success, as employees also need other skills, such as soft skills. Unlike soft skills, hard skills can be quantified. For example, a hard skill might be proficiency in a second language, while a soft skill could be the ability to work well on a team.
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The Gini index, or Gini coefficient, measures income distribution across a population. Developed by Italian statistician Corrado Gini in 1912, it often serves as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population.
The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. Values greater than 1 are theoretically possible due to negative income or wealth
A country in which every resident has the same income would have an income Gini coefficient of 0. Conversely, a country in which one resident earned all the income, while everyone else earned nothing, would have an income Gini coefficient of 1
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A Giffen good is a low-income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. In econometrics, this results in an upward-sloping demand curve, contrary to the fundamental laws of demand which create a downward-sloping demand curve.
The term "Giffen goods" was coined in the late 1800s, named after noted Scottish economist, statistician, and journalist Sir Robert Giffen.
The concept of Giffen goods focuses on low-income, non-luxury products that have very few close substitutes.
Giffen goods can be compared to Veblen goods which similarly defy standard economic and consumer demand theory but focus on luxury goods.
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The Chartered Financial Analyst designation is regarded by most to be the key certification for investment professionals, especially in the areas of research and portfolio management. It is, however, just one of many designations used today. This can cause some confusion, as investors and professionals alike puzzle out what each designation means and which is best.
Professionals with the designation stand out to employers and may receive higher salaries than those without it.
Candidates are required to pass three levels of exams to become chaterholders.
CFA charter holders often work at institutional investment firms, broker-dealers, insurance companies, pension funds, banks, and universities.
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Creative destruction is the dismantling of long-standing practices in order to make way for innovation and is seen as a driving force of capitalism.
Creative destruction is most often used to describe disruptive technologies such as the railroads or, in our own time, the internet.
The term was coined in the early 1940s by economist Joseph Schumpeter, who observed real-life examples of creative destruction, such as Henry Ford’s assembly line.
Creative destruction can be seen across many different industries such as technology, retail, and finance.
Creative destruction often has unintended consequences such as temporary losses of jobs, environmental issues, or inequity.
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Business cycles are a type of fluctuation found in the aggregate economic activity of a nation -- a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions (recessions).
This sequence of changes is recurrent but not periodic.
Business cycles are comprised of concerted cyclical upswings and downswings in the broad measures of economic activity—output, employment, income, and sales.
The alternating phases of the business cycle are expansions and contractions (also called recessions).
Business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity, and the movement among economic variables in each phase of the cycle.
Aggregate economic activity is represented by not only real GDP but also the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates.
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An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies.
The term amalgamation has generally fallen out of popular use in the United States, being replaced with the terms merger or consolidation even when a new entity is formed. But it is still commonly used in countries such as India.
Amalgamation is a way to acquire cash resources, eliminate competition, save on taxes, or influence the economies of large-scale operations. Amalgamation may also increase shareholder value, reduce risk by diversification, improve managerial effectiveness, and help achieve company growth and financial gain.
On the other hand, if too much competition is cut out, amalgamation may lead to a monopoly, which can be troublesome for consumers and the marketplace.
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Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited.
Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party.
Typically, the more knowledgeable party is the seller. Symmetric information is when both parties have equal knowledge.
In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to purchase products like life insurance. In these cases, it is the buyer who actually has more knowledge.
To fight adverse selection, insurance companies reduce exposure to large claims by limiting coverage or raising premiums.
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Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors.
Absolute advantage can be accomplished by creating the good or service at a lower absolute cost per unit using a smaller number of inputs, or by a more efficient process.
Absolute advantage explains why it makes sense for individuals, businesses, and countries to trade with each other. Since each has advantages in producing certain goods and services, both entities can benefit from the exchange.
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Pro rata is a Latin term used to describe a proportionate allocation. It essentially translates to proportion, which means a process where whatever is being allocated will be distributed in equal portions.
If something is given out to people on a pro-rata basis, it means assigning an amount to one person according to their share of the whole.
While a pro-rata calculation can be used to determine the appropriate portions of any given whole, it is often used in business finance.
Pro rata is also used to determine how much of a distribution from a qualified retirement account is taxable when the account contains before and after-tax dollars
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A put option is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security at a predetermined price within a specified time frame.
This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price.
Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes.
A put option can be contrasted with a call option, which gives the holder the right to buy the underlying security at a specified price, either on or before the expiration date of the option contract.
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A prospectus is a formal document required by and filed with the Securities and Exchange Commission that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds.
The prospectus can help investors make more informed investment decisions because it contains a host of relevant information about the investment or security.
In areas other than investing, a prospectus is a printed document that advertises or describes an offering such as a school, commercial enterprise, forthcoming book, etc. All forms of prospectus exist to attract or inform clients, members, buyers, or investors.
Companies that wish to offer bonds or stock for sale to the public must file a prospectus with the Securities and Exchange Commission as part of the registration process.
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Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths.
Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company's long-term profitability. Porter's 5 forces are:
Competition in the industry
Potential of new entrants into the industry
Power of suppliers
Power of customers
Threat of substitute products
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Operating income is an accounting figure that measures the amount of profit realized from a business's operations after deducting operating expenses such as wages, depreciation, and cost of goods sold.
Operating income also called income from operations takes a company's gross income, which is equivalent to total revenue minus COGS, and subtracts all operating expenses. A business's operating expenses are costs incurred from normal operating activities and include items such as office supplies and utilities.
Operating income is a measurement that shows how much of a company's revenue will eventually become profits considering its business operations. It's a measurement of what money a company makes only looking at the strictly operational aspect of its company.
Operating income factors in two major types of expenses: cost of goods sold and operating expenses.
Fringe benefits are additions to compensation that companies give their employees. Some fringe benefits are given universally to all employees of a company while others may be offered only to those at executive levels.
Some benefits are awarded to compensate employees for costs related to their work while others are geared to general job satisfaction.
Employers use fringe benefits to help them recruit, motivate, and keep high-quality people.
Common fringe benefits are basic items often included in hiring packages. These include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and personal use of a company-owned vehicle.
Futures are derivative financial contracts that obligate parties to buy or sell an asset at a predetermined future date and price.
The buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.
Underlying assets include physical commodities and financial instruments. Futures contracts detail the quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Futures can be used for hedging or trade speculation.
Futures—also called futures contracts—allow traders to lock in the price of the underlying asset or commodity. These contracts have expiration dates and set prices that are known upfront. Futures are identified by their expiration month.
Free carrier is a trade term dictating that a seller of goods is responsible for the delivery of those goods to a destination specified by the buyer.
When used in trade, the word free means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
The destination is typically an airport, shipping terminal, warehouse, or other location where the carrier operates. It might even be the seller's business location.
The seller includes transportation costs in its price and assumes the risk of loss until the carrier receives the goods. At this point, the buyer assumes all responsibility.
Escrow is a legal concept describing a financial agreement whereby an asset or money is held by a third party on behalf of two other parties that are in the process of completing a transaction.
Escrow accounts are managed by the escrow agent. The agent releases the assets or funds only upon the fulfilment of predetermined contractual obligations. Money, securities, funds, and other assets can all be held in escrow.
Escrow is a financial process used when two parties take part in a transaction and there is uncertainty about the fulfilment of their obligations. Situations that may use escrow can involve Internet transactions, banking, intellectual property, real estate, mergers and acquisitions, law, and more.
A bill of lading is a legal document issued by a carrier (transportation company) to a shipper that details the type, quantity, and destination of the goods being carried. A bill of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination.
This document must accompany the shipped products, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper, and receiver.
Every business needs to have internal controls in place to prevent theft. One key component of internal control is the segregation of duties, which prevents one employee from having too much control within a business.
The term balanced scorecard refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes.
Used to measure and provide feedback to organizations, balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe.
Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information.
Company personnel can use this information to make better decisions for the future of their organizations
A Bollinger Band is a technical analysis tool defined by a set of trendlines. They are plotted as two standard deviations, both positively and negatively, away from a simple moving average of a security's price and can be adjusted to user preferences.
Bollinger Bands was developed by technical trader John Bollinger and designed to give investors a higher probability of identifying when an asset is oversold or overbought.
The first step in calculating Bollinger Bands is to compute the simple moving average of the security, typically using a 20-day SMA.
A 20-day SMA averages the closing prices for the first 20 days as the first data point.
The term annuity refers to an insurance contract issued and distributed by financial institutions to pay out invested funds in a fixed income stream in the future.
Investors invest in or purchase annuities with monthly premiums or lump-sum payments. The holding institution issues a stream of payments in the future for a specified period or the remainder of the annuitant's life.
Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings.
Annuities are designed to provide a steady cash flow for people during their retirement years and to alleviate the fears of outliving their assets.
Analysis of variance is an analysis tool used in statistics that splits an observed aggregate variability found inside a data set into two parts: systematic factors and random factors.
The systematic factors have a statistical influence on the given data set, while the random factors do not. Analysts use the ANOVA test to determine the influence that independent variables have on the dependent variable in a regression study.
The t- and z-test methods developed in the 20th century were used for statistical analysis until 1918, when Ronald Fisher created the analysis of variance method.
ANOVA is also called the Fisher analysis of variance, and it is the extension of the t- and z-tests.
The term was used in experimental psychology and later expanded to more complex subjects.
The last mile describes the short geographical segment of delivery of communication and media services or the delivery of products to customers located in dense areas.
Last-mile logistics tend to be complex and costly to providers of goods and services who deliver to these areas.
Delivery of telecommunications and media content is instantaneous and very fast for physical products to the perimeter of a densely-populated area. Imagine a trunk line leading to the edge of a city or metropolitan area.
Communications and media providers—inclusive of broadband cable, satellite, and wireless—spend heavily to upgrade old delivery systems and build out new networks to ensure adequate bandwidth for consumers hungry for data and streaming capabilities on their televisions, desktop computers, and mobile devices.
Environmental, social, and governance investing refers to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example.
Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
ESG investors are also increasingly informing the investment choices of large institutional investors such as public pension funds.
An industry report from US SIF Foundation, investors held $17.1 trillion in assets chosen according to ESG principles in 2020, up from $12 trillion just two years earlier.1 ESG-specific mutual funds and ETFs also reached a record $400 billion in AUM in 2021, up 33% from the year before - and are expected to continue to grow rapidly in the coming years
A shelf offering is a Securities and Exchange Commission provision that allows an equity issuer to register a new issue of securities without having to sell the entire issue at once.
The issuer can instead sell portions of the issue over a three-year period without re-registering the security or incurring penalties.
A shelf offering is also known as a shelf registration; it is formally known as SEC Rule 415.1
A shelf offering allows a company to register a new issue with e SEC but allows for a three-year period to sell the offering instead of all at once.
This lets a company adjust the timing of the sales of a new issue to take advantage of more favourable market conditions should they arise in the future.
The company maintains any unissued shares as treasury stock, where they remain "on the shelf" until offered for public sale.
A command economy is a key aspect of a political system in which a central governmental authority dictates the levels of production that are permissible and the prices that may be charged for goods and services. Most industries are publicly owned.
The main alternative to a command economy is a free market system in which demand dictates production and prices.
The command economy is a component of a communist political system, while a free market system exists in capitalist societies.
Cuba, North Korea, and the former Soviet Union all have command economies. China maintained a command economy until 1978 when it began its transition to a mixed economy that blends communist and capitalist elements.1 Its current system has been described as a socialist market economy.
A bull market is the condition of a financial market in which prices are rising or are expected to rise.
The term bull market is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
Because prices of securities rise and fall essentially continuously during trading, the term bull market is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.
It is difficult to predict consistently when the trends in the market might change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets.
Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset.
Open interest keeps track of every open position in a particular contract, rather than tracking the total volume traded in it, which may also include netting or closing positions.
Thus, open interest can provide a more accurate picture of a contract's liquidity and interest, identifying whether money flows into the contract are increasing or decreasing.
Open interest decreases when buyers (or holders) and sellers (or writers) of contracts close out more positions than were opened that day
A U.S. savings bond is a government bond offered to its citizens to help fund federal spending, and it provides savers with a guaranteed, although modest, return. These bonds are issued with zero coupons at a discount with an implied fixed rate of interest over a fixed period of time.
Series EE savings bonds are sold at 50% of their face value, and mature to their full value after 20 years.
When the government sells bonds, it is in effect taking a loan from the public, which it promises to pay back at some predetermined date in the future. As compensation for providing it with capital, the government makes interest payments to its bondholders.
Student loan forgiveness releases borrowers from their obligation to repay part or all of their federal student loan debt. These borrowers have taken out loans to pay for their post-secondary education.
Forgiveness is available for some types of loans, but eligibility is limited to borrowers in certain public service, educational, or military professions.
Loan forgiveness means a debt (or part of a debt) is eliminated or forgiven in finance parlance—relieving the borrower of the obligation to repay it.
Although any student loan can theoretically be forgiven, student loan forgiveness generally applies to U.S. government-issued or government-backed loans.
An IRA rollover is a transfer of funds from a retirement account, such as an employer-sponsored plan, into an individual retirement account. The purpose of a rollover is to maintain the tax-deferred status of those assets.
IRA rollovers are commonly used to hold 401(k), 403(b), or profit-sharing plan assets that are transferred from a former employer’s sponsored retirement account or qualified plan. An IRA rollover can also occur as an IRA-to-IRA transfer.
IRA rollovers can occur from a retirement account, such as a 401(k) into an IRA, or as an IRA-to-IRA transfer. Most rollovers take place when people change jobs and wish to move 401(k) or 403(b) assets into an IRA, but IRA rollovers also happen when retirement savers want to switch to an IRA with better benefits or investment choices.
The are different types of IRA rollovers: direct and indirect. It’s crucial to follow Internal Revenue Service (IRS) rules to avoid paying taxes and penalties
The statutory debt limit often referred to as the debt ceiling, was the limit set by Congress to the amount of debt that the U.S. government can take on. It also includes interest payments on existing debt.
Once the government reaches the statutory debt limit, it cannot take on new obligations.
The statutory debt limit was a legal limit to the total amount that the U.S. Treasury was authorized to borrow on behalf of the taxpayers.
The first statutory debt limit was enacted in 1939, effectively transferring the power to borrow on public credit, from Congress to the Treasury.1
The statutory debt limit places a nominal constraint on the Treasury’s authority to go into debt, though Congress has routinely raised the limit over the years to accommodate growth spending and budget deficits.
Gemini is a privately-owned cryptocurrency exchange that lets you buy, sell, trade, and securely store more than 60 cryptocurrencies. It was launched in 2014 by Cameron and Tyler Winklevoss under the formal name Gemini Trust Co., LLC.1
Gemini has a tiered service with separate interfaces and fee structures for casual investors and hardcore traders. I
t has a mobile app, a payment app, and its own currency, the Gemini dollar. Unlike most cryptocurrencies, the Gemini dollar is a "stablecoin" tied to the U.S. dollar.
ChatGPT, the free chatbot released in November 2022 by artificial intelligence research company OpenAI, has taken the internet by storm. In its first months of existence, The “GPT” in ChatGPT refers to the “Generative Pre-training Transformer,” referring to the way that ChatGPT processes language.
ChatGPT inspired users to imagine a host of use cases for the model, including using ChatGPT to negotiate parking tickets, make workout plans, and even create bedtime stories for children.
Some artificial intelligence experts believe that ChatGPT could revolutionize both the way that humans interact with chatbots and AI more broadly.
ChatGPT is an AI model that engages in conversational dialogue. It is an example of a chatbot, akin to the automated chat services found on some companies’ customer service websites.
It was developed by OpenAI, a tech research company dedicated to ensuring that artificial intelligence benefits all of humanity.
A people poison pill is a defensive strategy designed to deter or prevent unwanted takeovers from happening.
Once an unwelcomed approach is made to assume control of the target company, its management team reacts by signing a pact vowing to all resign if the deal somehow gets completed.
The people pill strategy is a variation of the poison pill defence.
A people poison pill is one of several defensive strategies a company may pursue to prevent an unwanted takeover.
The target company's management team threatens to all resign if a takeover it doesn't want goes ahead. If all the individuals responsible for the target company’s success quit, the acquirer may reconsider pursuing a deal.
An exchange-traded fund is a type of pooled investment security that operates much like a mutual fund.
ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can.
An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies.
The first ETF was the SPDR S&P 500 ETF which tracks the S&P 500 Index, and which remains an actively traded ETF today.
The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market.
A required minimum distribution is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account by owners and qualified retirement plan participants of retirement age.
A required minimum distribution acts as a safeguard against people using a retirement account to avoid paying taxes.
RMDs are determined by dividing the retirement account’s prior year-end fair market value by the applicable distribution period or life expectancy.4
The Internal Revenue Service has a worksheet to help taxpayers calculate the amount they must withdraw.5 Generally, your account custodian or plan administrator will calculate these amounts and report them to the IRS.
In sports betting, a parlay bet is when a bettor makes two or more bets and ties them together into one bet. A parlay bet may contain two individual bets or many more. Depending on the sportsbook or the region, they may also be called accumulators or multis.
The disadvantage of a parlay bet is that if any of the bets in the parlay loses, then the entire parlay is lost.
A parlay bet is a bet made up of a number of smaller bets. A parlay is a way of linking bets together, so they are treated as one big bet.
You must win every smaller bet to win the parlay bet—if you lose just one of the smaller bets, then the entire parlay is lost.
Net interest margin is a measurement comparing the net interest income a financial firm generates from credit products like loans and mortgages, with the outgoing interest it pays holders of savings accounts and certificates of deposit.
Expressed as a percentage, the NIM is a profitability indicator that approximates the likelihood of a bank or investment firm thriving over the long haul.
This metric helps prospective investors determine whether or not to invest in a given financial services firm by providing visibility into the profitability of their interest income versus their interest expenses.
A positive net interest margin suggests that an entity operates profitably, while a negative figure implies investment inefficiency.
Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts, and assets, and for that reason is known as "reorganization" bankruptcy.
Chapter 11 bankruptcy is the most complex of all bankruptcy cases. It is also usually the most expensive form of a bankruptcy proceeding. For these reasons, a company must consider Chapter 11 reorganization only after careful analysis and exploration of all other possible alternatives.
During a Chapter 11 proceeding, the court will help a business restructure its debts and obligations. In most cases, the firm remains open and operating. Many large U.S. companies file for Chapter 11 bankruptcy and stay afloat.
Such businesses include automobile giant General Motors, the airline United Airlines, retail outlet K-mart, and thousands of other corporations of all sizes.
Headline inflation is the raw inflation figure reported through the Consumer Price Index that is released monthly by the Bureau of Labor Statistics.
The CPI calculates the cost to purchase a fixed basket of goods to determine how much inflation is occurring in the broad economy.
The CPI uses a base year and indexes the current year's prices, according to the base year's values.
Headline inflation is often closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.
The headline figure is not adjusted for seasonality or for the often-volatile elements of food and energy prices, which are removed in the core CPI.
Airlines have notoriously been known to have difficulty remaining profitable given their high fixed costs, the desire of passengers to find the cheapest tickets, and seasonality factors.
The load factor is an indicator that measures the percentage of available seating capacity that is filled with passengers. It is released monthly by the International Air Transport Association.
A high load factor indicates that an airline has full planes with most seats occupied by passengers. Airlines have high fixed costs associated with each flight. Every flight must have a full flight crew and support staff, a well-maintained aircraft with enough fuel, and services that entertain and comfort customers.
Loss aversion in behavioral economics refers to a phenomenon where a real or potential loss is perceived by individuals as psychologically or emotionally more severe than an equivalent gain.
The psychological effects of experiencing a loss or even facing the possibility of a loss might even induce risk-taking behavior that could make realized losses even more likely or more severe.
Loss aversion is the observation that human beings experience losses asymmetrically more severely than equivalent gains.
Investors can avoid psychological traps by adopting a strategic asset allocation strategy, thinking rationally, and not letting emotion get the better of them.
Load factor
The Institute of Supply Management Non-Manufacturing Index is an economic index based on surveys of more than 400 non-manufacturing (or services) firms' purchasing and supply executives. The ISM services survey is part of the ISM Report On Business Manufacturing and ServicesThe Purchasing Managers' Index is a barometer on the overall economy by showing the economic trends in both the manufacturing and service sectors. The ISM Report On Business provides guidance to supply management professionals, business leaders, economists, and government officials by monitoring the economic conditions of the nation. The ISM Services PMI (formerly the Non-Manufacturing NMI) is compiled and issued by the Institute of Supply Management (ISM) and contains a diffusion index based on survey data.
A virtual currency is a digital representation of value only available in electronic form. It is stored and transacted through designated software, mobile, or computer applications.
Transactions involving virtual currencies occur through secure, dedicated networks or over the Internet. They are issued by private parties or groups of developers and are mostly unregulated.
The advantages of virtual currencies include faster transaction speeds and ease of use. The disadvantages of virtual currencies are that they can be hacked and do not provide much legal recourse to investors because they are not regulated.
The North American Free Trade Agreement was a pact eliminating most trade barriers between the U.S., Canada, and Mexico that went into effect on Jan. 1, 1994.
Some of its provisions were implemented immediately, while others were staggered over the 15 years that followed.1
U.S. President Donald Trump railed against it during his campaign, promising to renegotiate the deal and tear it up if the United States couldn't get its desired concessions.
A newly negotiated United States-Mexico-Canada Agreement was approved in 2020 to update NAFTA.
A special purpose acquisition company is a company without commercial operations and is formed strictly to raise capital through an initial public offering for the purpose of acquiring or merging with an existing company.
Also known as blank check companies, SPACs have existed for decades, but their popularity has soared in recent years. In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019
SPACs are commonly formed by investors or sponsors with expertise in a particular industry or business sector, and they pursue deals in that area.
SPAC founders may have an acquisition target in mind, but they don’t identify that target to avoid disclosures during the IPO process.
Tax-loss harvesting is the timely selling of securities at a loss in order to offset the amount of capital gains tax due on the sale of other securities at a profit.
This strategy is most often used to limit the amount of taxes due on short-term capital gains, which are generally taxed at a higher rate than long-term capital gains. However, the method may also offset long-term capital gains.
This strategy can help preserve the value of the investor’s portfolio while reducing the cost of capital gains taxes.
A donor-advised fund is a private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, a family, or an individual.
Donor-advised funds have become increasingly popular primarily because they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribution of charitable gifts.
In addition, companies are able to offer this service to clients with fewer transaction costs than if the funds were handled privately.
Donor-advised funds democratize philanthropy by aggregating multiple donors and processing high numbers of charitable transactions.
A hardship withdrawal is an emergency removal of funds from a retirement plan, sought in response to what the IRS terms "an immediate and heavy financial need.
This type of special distribution may be allowed without penalty from such plans as a traditional IRA or a 401k, provided the withdrawal meets certain criteria regarding the need for the funds and their amount.
However, even if penalties are waived (notably, the 10% penalty for withdrawals made before age 59½), the withdrawal will still be subject to standard income tax.
Hardship withdrawals can provide needed funds in an emergency—without a credit check—but they should be used very sparingly and only if all other alternatives have been tried or dismissed.
By exposing funds held in a tax-sheltered account to income tax, a hardship withdrawal is likely to boost your tax bill for the year.
The Dow Jones Industrial Average also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and Nasdaq.
The Dow Jones is named after Charles Dow, who created the index in 1896 along with his business partner Edward Jones.
The DJIA is the second-oldest U.S. market index; the first was the Dow Jones Transportation Average (DJTA).
The DJIA was designed to serve as a proxy for the health of the broader U.S. economy. Often referred to simply as the Dow, the DJIA is one of the most-watched stock market indexes in the world. While the Dow includes a range of companies, all can be described as blue-chip companies with consistently stable earnings.
The Federal National Mortgage Association typically known as Fannie Mae, is a government-sponsored enterprise founded in 1938 by Congress during the Great Depression as part of the New Deal.
It was established to stimulate the housing market by making more mortgages available to moderate- to low-income borrowers.
Fannie Mae does not originate or provide mortgages to borrowers. But it does purchase and guarantee them through the secondary mortgage market. In fact, it's one of two of the largest purchasers of mortgages on the secondary market.
Fannie Mae is a government-sponsored enterprise that makes mortgages available to low- and moderate-income borrowers.
It does not provide loans, but backs or guarantees them in the secondary mortgage market.
Fannie Mae was bailed out by the U.S. government following the financial crisis and was delisted from the NYSE.
A cold wallet is used offline for storing bitcoins or other cryptocurrencies. With a cold wallet, also originally known as cold storage, the digital wallet is stored on a platform not connected to the internet, thereby protecting the wallet from unauthorized access, cyber hacks, and other vulnerabilities that a system connected to the internet is susceptible to.
Cold storage methods are useful for individual investors, but cryptocurrency exchanges and companies involved in the crypto space also make use of this type of wallet.
Cold storage also can refer more broadly to other modes of operation for storing inactive data, such as data for regulatory compliance, video, photographs, and backup information.
Most cryptocurrency wallets are digital, but hackers can sometimes gain access to these storage tools in spite of security measures designed to prevent theft.
Bitcoin Cash is a cryptocurrency that was created and launched to bring decentralization back to cryptocurrency.
It is the result of a 2017 Bitcoin "hard fork," which occurs when an existing blockchain splits into two. Bitcoin Cash allows a greater number of transactions in a single block than Bitcoin, which should lower fees and transaction times.
Bitcoin Cash is the result of a Bitcoin hard fork that happened in August 2017.
Bitcoin Cash was created to allow more transactions in a single block, theoretically decreasing the fees and transaction times.
Despite their philosophical differences, Bitcoin Cash and Bitcoin share several technical similarities: They use the same consensus mechanism and have capped their supply at 21 million coins.
Bitcoin Cash continues to trade—at a fraction of Bitcoin's price—but has yet to achieve widespread consumer acceptance as a form of payment.
Principal trades involve a brokerage's own inventory of securities, while agency trading involves trading with another investor, potentially at another brokerage.
Principal trading occurs when a brokerage buys securities in the secondary market, holds these securities for a period of time, and then sells them.
The purpose behind principal trading is for firms (also referred to as dealers) to create profits for their own portfolios through price appreciation.
So, when an investor buys and sells stock through a brokerage firm that acts as the principal, the firm will use its own inventory on hand to fill the order for the client.
With this method, brokerage firms earn extra income (over and above the commissions charged) by making money from the bid-ask spread as well.
Comparable store sales refer to the revenue generated by a retail location in the most recent accounting period relative to the revenue it generated in a similar period in the past.
Investors and analysts reviewing a retail company’s financial statements rely on comparable store sales to provide a picture of how established stores have performed over time relative to the performance of new stores.
Comparable store sales is a measure of sales growth and revenue from a company’s store operations.
Comparable store sales are most commonly used to compare the most recent year's holiday shopping season to the previous year's.
The price-to-rent ratio is the ratio of home prices to annualized rent in a given location. This ratio is used as a benchmark for estimating whether it's cheaper to rent or own property.
The price-to-rent ratio is used as an indicator for whether housing markets are fairly valued, or in a bubble.
The price-to-rent ratio is used as an indicator of whether housing markets are fairly valued, or in a bubble. The dramatic increase in the ratio leading up to the 2008-2009 housing market crash was, with hindsight, a red flag for the housing bubble.
The Value Line Composite Index is a stock index containing approximately 1,700 companies from the NYSE, American Stock Exchange, Nasdaq, Toronto, and over-the-counter markets.
The Value Line Composite Index has two forms: The Value Line Geometric Composite Index (the original equally weighted index) and the Value Line Arithmetic Composite Index (an index that mirrors changes if a portfolio held equal amounts of stock.)
These indexes are typically published in the Value Line Investment Survey, created by Arnold Bernhard, the founder, and CEO of Value Line Inc.
The Value Line where the index receives its namesake refers to a multiple of cash flow that Bernhard would superimpose over a price chart to normalize the value of different companies. Value Line is one of the most respected investment research firms. Its performance record has been extremely strong. In fact, the firm's model portfolios have generally beat the market over the long run.
The Value Line Composite Index is composed of the same companies as The Value Line Investment Survey, excluding closed-end funds
Decentralized applications (dApps) are digital applications or programs that exist and run on a blockchain or peer-to-peer network of computers instead of a single computer.
DApps are outside the purview and control of a single authority. DApps—which are often built on the Ethereum platform—can be developed for a variety of purposes including gaming, finance, and social media.
A standard web app, such as Uber or Twitter, runs on a computer system that is owned and operated by an organization, giving it full authority over the app and its workings. There may be multiple users on one side, but the backend is controlled by a single organization.
The Internal Revenue Service offers tax credits to owners and manufacturers of certain plug-in electric drive motor vehicles, including passenger vehicles, light trucks, and two-wheeled vehicles.
Taxpayers who own vehicles that qualify may file Form 8936 with their income taxes to claim the tax credit.
Form 8936 is an IRS form for claiming the Qualified Plug-in Electric Drive Motor Vehicle Credit on an individual’s tax return.
Taxpayers may use Form 8936, provided the new plug-in electric vehicle that they purchase meets certain eligibility requirements.
Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases.
One credit permits the emission of one ton of carbon dioxide or the equivalent of other greenhouse gases.
Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically.
Meanwhile, the company may sell any unneeded credits to another company that needs them.
Proponents of the carbon credit system say that it leads to measurable, verifiable emission reductions from certified climate action projects and that these projects reduce, remove or avoid greenhouse gas emissions.
Series 63 is a securities exam and license entitling the holder to solicit orders for any type of security in a particular state. To obtain a Series 63 license, the applicant must pass an exam and possess knowledge of ethical practices and fiduciary obligations.
Applicants to the Series 63 license must pass an exam and possess knowledge of ethical practices and fiduciary obligations.
Most U.S. states require all potential registered representatives to pass the exam, which covers the principles of state securities regulations and rules prohibiting dishonest or unethical practices.
Colorado, Florida, Louisiana, Maryland, Ohio, the District of Columbia, and Puerto Rico do not require Series 63.
A thrift savings plan is a type of retirement investment program open only to federal employees and members of the uniformed services, including the Ready Reserve.
It is a defined-contribution plan that offers federal employees many of the same benefits that are available to workers in the private sector.
TSP benefits can include automatic payroll contributions and agency-matching contributions. Participants can choose to make tax-deferred contributions into a traditional TSP, which means the money that flows into the account will not be taxed until it is withdrawn.
Employees new to federal employment can roll over 401(k) and individual retirement account assets into a TSP and vice versa if they move to the private sector.
Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime.
The life insurance application must accurately disclose the insured’s past and current health conditions and high-risk activities to enforce the contract.
Life insurance is a legally binding contract that pays a death benefit to the policy owner when the insured dies.
For a life insurance policy to remain in force, the policyholder must pay a single premium upfront or pay regular premiums over time.
When the insured dies, the policy’s named beneficiaries will receive the policy’s face value, or death benefit.
Term life insurance policies expire after a certain number of years. Permanent life insurance policies remain active until the insured dies, stops paying premiums, or surrenders the policy.
WorldCom was not just the biggest accounting scandal in the history of the United States—it was also one of the biggest bankruptcies of all time.
The revelation that telecommunications giant WorldCom had cooked its books came on the heels of the Enron and Tyco frauds, which had rocked the financial markets.
WorldCom has become a byword for accounting fraud and a warning to investors that when things seem too good to be true, they just might be.
Its CEO, Bernie Ebbers—a larger-than-life figure whose trademark was cowboy boots and a ten-gallon hat—had built the company into one of America’s leading long-distance phone companies by acquiring other telecom companies.
Zero-rated goods, in countries that use value-added tax (VAT), are products that are exempt from that value taxation.
Zero-rated goods are products that are exempt from value-added taxation (VAT).
Countries designate products as zero-rated because they are leading contributors to other manufactured goods and a significant component of a broader supply chain.
Often, goods and services that are zero-rated are those that are considered necessary, such as food items, sanitary products, and animal feeds.
Examples of zero-rated goods include certain foods and beverages, exported goods, equipment for the disabled, prescription medications, water, and sewage services.
The term securities-based lending refers to the practice of making loans using securities as collateral.
Securities-based lending provides ready access to capital that can be used for almost any purpose such as buying real estate, purchasing property like jewelry or a sports car, or investing in a business.
The only restrictions to this kind of lending are other securities-based transactions like buying shares or repaying a margin loan.
Generally offered through large financial institutions and private banks, securities-based lending is mostly available to people who have a significant degree of wealth and capital.
People tend to seek out securities-based loans if they want to make a large business acquisition or if they want to execute large transactions like real estate purchases.
Such loans may also be used to cover tax payments, vacations, or luxury goods.
An exchange rate is a rate at which one currency will be exchanged for another currency and affects trade and the movement of money between countries.
Exchange rates are impacted by both the domestic currency value and the foreign currency value.
The exchange rate between two currencies is commonly determined by the economic activity, market interest rates, gross domestic product, and unemployment rate in each of the countries.
Commonly called market exchange rates, they are set in the global financial marketplace, where banks and other financial institutions trade currencies around the clock based on these factors.
Changes in rates can occur hourly or daily with small changes or in large incremental shifts.
At its core, Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known for its native cryptocurrency, ether.
Ethereum can be used by anyone to create any secured digital technology. It has a token designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted.
Ethereum is designed to be scalable, programmable, secure, and decentralized. It is the blockchain of choice for developers and enterprises creating technology based upon it to change how many industries operate and how we go about our daily lives.
It natively supports smart contracts, an essential tool behind decentralized applications.
Inventory turnover is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold in a given period.
A company can then divide the days in the period, typically a fiscal year, by the inventory turnover ratio to calculate how many days it takes to sell its inventory, on average.
The inventory turnover ratio can help businesses make better decisions on pricing, manufacturing, marketing, and purchasing. It is one of the efficiency ratios measuring how effectively a company uses its assets.
Inventory turnover measures how efficiently a company uses its inventory by dividing the cost of goods sold by the average inventory value during the period.
Inventory turnover ratios are only useful for comparing similar companies and are particularly important for retailers.
The kiddie tax is a special tax law created in 1986 to address investment and unearned income tax for individuals 18 years of age or under or dependent full-time students under age 24.
The kiddie tax is imposed on individuals under a certain age 18 years old or under and full-time students age 19-24 years old whose investment and unearned income is higher than an annually determined threshold.
This rule is designed to prevent parents from exploiting a tax loophole where their children are given large gifts of stock. In this case, the child would then realize any gains from the investments and would be taxed at a far lower rate compared to the rate the guardians face for their realized stock gains.
Under the kiddie tax law, all unearned income over the threshold is taxed at the parent's marginal income tax rate rather than the child's tax rate. In 2021, unearned income under $1,100 qualifies for the standard deduction.
Bear market rally refers to a sharp, short-term rebound in share prices amid a longer-term bear market decline. Bear market rallies are treacherous for investors who mistakenly come to believe they mark the end of an extended downturn.
As the primary bearish trend reasserts itself, the disappointment of those who bought during a bear market rally helps to drive prices to new lows.
Bear market rallies are also known as dead cat bounces or sucker rallies.
A bear market is commonly defined as a stock market decline of 20% or more. At some point during the downturn, an orderly retreat typically turns into high-volume panic selling. Bargain hunters grow convinced capitulation is at hand, signifying at least a short-term market bottom.
Every bear market between 1901 and 2015, spawned at least one 5% rally. Rallies of 10% or more interrupted two-thirds of the 21 bear markets over that span.
Government bonds in the U.K., India and several other Commonwealth countries are known as gilts. Gilts are the equivalent of U.S. Treasury securities in their respective countries. The term gilt is often used informally to describe any bond that has a very low risk of default and a correspondingly low rate of return.
They are called gilts because the original certificates issued by the British government had gilded edges.
Gilts are government bonds, so they are particularly sensitive to interest rate changes. They also provide diversification benefits because of their low or negative correlation with stock markets. Gilts often respond strongly to political events, such as Brexit.
Gilts may be conventional gilts issued in nominal terms or index-linked gilts, which are indexed to inflation. Governments issue conventional gilts in the national currency, and they do not make adjustments for inflation. Index-linked gilts make payments for inflation, so they are quite similar to U.S. Treasury Inflation-Protected Securities.
The Reserve Bank of Australia is the central bank of Australia. The bank sets the country's monetary policy and issues and manages the Australian dollar. The RBA is involved in banking and registry services for federal agencies and some international central banks.
The bank, entirely owned by the Australian government, was established in 1960. Philip Lowe currently serves as Governor. He succeeded Glenn Stevens in 2016.
The Reserve Bank of Australia manages the Australian dollar by setting the interest rate in overnight money markets. This interest rate filters through the rest of the financial system, affecting the rates at which banks will lend to businesses and consumers. The goal of the Reserve Bank of Australia is to set the interest rate low enough to promote maximum Australian employment and economic growth, but not so low that it sparks inflation above 2% to 3% per year.
A dot plot, also known as a strip plot or dot chart, is a simple form of data visualization that consists of data points plotted as dots on a graph with an x- and y-axis.
These types of charts are used to graphically depict certain data trends or groupings. The most famous dot plot is perhaps the Federal Reserve’s projections for interest rates that are published each quarter.
A dot plot is similar to a histogram in that it displays the number of data points that fall into each category or value on the axis, thus showing the distribution of a set of data.
Black Friday was a stock market catastrophe that took place on Sept. 24, 1869.
On that day, after a period of rampant speculation, the price of gold plummeted, and the markets crashed. It can also refer to a shopping holiday in the U.S. following Thanksgiving.
This stock market crash was the origin of referring to stock market crashes as black days. Other examples include Black Tuesday, Oct. 29, 1929, when the market fell precipitously, signaling the start of the Great Depression, and Black Monday, Oct. 19, 1987, when the Dow Jones Industrial Average plummeted more than 22%, the largest one-day drop in stock market history.
Payment for order flow is a form of compensation, usually in terms of fractions of a penny per share, that a brokerage firm receives for directing orders for trade execution to a particular market maker or exchange.
Payment for order flow is common in options markets and is increasingly found in equity transactions.
Equity and options trading has become increasingly complex with the proliferation of exchanges and electronic communication networks.
Although the notorious Bernard Madoff was an early practitioner of payments for order flow, the practice is perfectly legal provided both parties to a PFOF transaction fulfill their duty of best execution for the customer initiating the trade.
According to the U.S. Securities and Exchange Commission, payment for order flow is a method of transferring some of the trading profits from market-making to the brokers that route customer orders to specialists for execution.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating.
They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals.
The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale.
The basic concept behind everyday value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality.
Cryptocurrency custody solutions are independent storage and security systems used to hold large quantities of tokens.
Custody solutions are one of the latest innovations to come out of the cryptocurrency ecosystem and have been expected to herald the entry of institutional capital into the industry.
The main utility of cryptocurrency custody solutions lies in the safeguarding of cryptocurrency assets. Private keys, which are used to conduct transactions or access crypto holdings, are a complex combination of alphanumerics.
They are extremely difficult to remember and can be stolen or hacked. Online wallets are a potential solution but they have also proven susceptible to hacks. The same is true of cryptocurrency exchanges.
Other solutions include storing private keys offline, on paper, or on a hard disk (or other electronic equipment) that is not connected to the Internet. But losing physical custody (or either the paper or electronic equipment) is a real possibility, and in those cases, recovery of the cryptocurrency holdings can be impossible.
Conflict theory, first developed by Karl Marx, is a theory that society is in a state of perpetual conflict because of competition for limited resources.
Conflict theory holds that social order is maintained by domination and power, rather than by consensus and conformity.
According to conflict theory, those with wealth and power try to hold on to it by any means possible, chiefly by suppressing the poor and powerless.
A basic premise of conflict theory is that individuals and groups within society will work to try to maximize their own wealth and power.
Capitalism is an economic system in which private individuals or businesses own capital goods. At the same time, business owners (capitalists) employ workers (labor) who only receive wages; labor does not own the means of production but only uses them on behalf of the owners of capital.
The production of goods and services under capitalism is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy.
The purest form of capitalism is free market or laissez-faire capitalism. Here, private individuals are unrestrained. They may determine where to invest, what to produce or sell, and at which prices to exchange goods and services. The laissez-faire marketplace operates without checks or controls.
Cryptocurrency difficulty is a measure of how difficult it is to mine a block in a blockchain for a particular cryptocurrency. A high cryptocurrency difficulty means it takes additional computing power to verify transactions entered on a blockchain—a process called mining.
Cryptocurrency difficulty is a parameter that bitcoin and other cryptocurrencies use to keep the average time between blocks steady as the network's hash power changes. Cryptocurrency difficulty is important since a high difficulty can help secure the blockchain network against malicious attacks.
The term price controls refer to the legal minimum or maximum prices set for specified goods. Price controls are normally mandated by the government in the free market.
They are usually implemented as a means of direct economic intervention to manage the affordability of certain goods and services, including rent, gasoline, and food. Although it may make certain goods and services more affordable, price controls can often lead to disruptions in the market, losses for producers, and a noticeable change in quality.
Minimums are called price floors while maximums are called price ceilings.
These controls are only effective on an extremely short-term basis.1
Over the long term, price controls can lead to problems such as shortages, rationing, inferior product quality, and illegal markets.2
The term forbearance refers to the temporary postponement of loan payments, typically for a mortgage or student loan.
Lenders and other creditors grant forbearance as an alternative to forcing a property into foreclosure or leaving the borrower to default on the loan.
The companies that hold loans and their insurers are often willing to negotiate forbearance agreements because the losses caused by foreclosures or defaults typically fall on them.
Although it is primarily used for student loans and mortgages, forbearance is an option for any loan.
It gives the debtor extra time to repay what they owe. This helps struggling borrowers and benefits the lender, who frequently loses money on foreclosures and defaults after paying the fees.
Loan servicers may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk.
A generation-skipping trust is a type of legally binding trust agreement in which the contributed assets are passed down to the grantor's grandchildren, thus skipping the next generation, the grantor's children.
By passing over the grantor's children, the assets avoid the estate taxes on an individual's property upon his or her death that would apply if the children directly inherited them.
Generation-skipping trusts are effective wealth-preservation tools for individuals with significant assets and savings.
Because a generation-skipping trust effectively transfers assets from the grantor's estate to grandchildren, the grantor's children never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets came into the possession of the next generation first.
In accounting, impairment is a permanent reduction in the value of a company asset. It may be a fixed asset or an intangible asset.
When testing an asset for impairment, the total profit, cash flow, or other benefit that can be generated by the asset is periodically compared with its current book value.
If the book value of the asset exceeds the future cash flow or other benefit of the asset, the difference between the two is written off, and the value of the asset declines on the company's balance sheet.
Impairment is most commonly used to describe a drastic reduction in the recoverable value of a fixed asset.
An asset's carrying value, also known as its book value, is the value of the asset net of accumulated depreciation that is recorded on a company's balance sheet.
The Breadth Thrust Indicator is a technical indicator used to ascertain market momentum.
It is computed by calculating the number of advancing issues on an exchange, such as the New York Stock Exchange divided by the total number of issues (advancing + declining) on it, and generating a 10-day moving average of this percentage.
The indicator signals the start of a potential new bull market when it moves from a level of below 40% which indicates an oversold market to a level above 61.5% within any 10-day period.
This is a rarely occurring sentiment, which carries tremendous import with market watchers.
The indicator is all about how quickly the NYSE's advancing and declining numbers go from poor to great in a compressed time period.
A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market.
Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake.
A buyback allows companies to invest in themselves. Reducing the number of shares outstanding on the market increases the proportion of shares owned by investors.
A company may feel its shares are undervalued and do a buyback to provide investors with a return. And because the company is bullish on its current operations, a buyback also boosts the proportion of earnings that a share is allocated.
The Inflation Reduction Act of 2022, H.R. 5376, is designed to reduce the deficit and lower inflation while investing in domestic energy production and lowering healthcare drug costs.
It passed the Senate on Aug. 7, 2022, and is awaiting approval by the House of Representatives, which would set it up to be signed into law by President Biden. In essence, the legislation is a scaled-down version of the Build Back Better Act proposed by the Biden administration in 2021.1
The proposed legislation would raise $725 billion, require total investments of $433 billion, and result in a deficit reduction of more than $292 billion.
The bill allows Medicare to negotiate lower prescription drug prices and extends the expanded Affordable Care Act program for three years, through 2025.
Additionally, the agreement establishes policies designed to promote and support domestic energy and transmission projects.
The goal is to lower costs for consumers and help the U.S. meet long-term emissions goals.
The Social Security Act established benefits for old-age retirees and the jobless, as well as aid for dependent mothers and children, victims of work-related accidents, people who are blind, and those who have physical disabilities.
It was signed into law in 1935 during the administration of President Franklin D. Roosevelt.
Previously, such benefits were not provided at all by the federal government, aside from pensions for veterans.
Under the act, the U.S. government started collecting the Social Security tax from workers in 1937 and began making payments in 1940. It laid the groundwork for many aspects of U.S. labor law.
Social Security tax is collected in the form of a payroll tax mandated by the Federal Insurance Contributions Act or a self-employment tax mandated by the Self-Employed Contributions Act.
The tax is levied on both employers and employees.
A trustee is a person or firm that holds and administers property or assets for the benefit of a third party.
A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions.
Trustees are trusted to make decisions in the beneficiary's best interests and often have a fiduciary responsibility, meaning they act in the best interests of the trust beneficiaries to manage their assets.
A trustee is any type of person or organization that holds the legal title of an asset or group of assets for another person, referred to as the beneficiary.
A Treasury note is a marketable U.S. government debt security with a fixed interest rate and a maturity between two and 10 years. Treasury notes are available from the government with either a competitive or noncompetitive bid. With a competitive bid, investors specify the yield they want, at the risk that their bid may not be approved; with a noncompetitive bid, investors accept whatever yield is determined at auction.
A Treasury note is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.
Treasury notes are available either via competitive bids, in which an investor specifies the yield, or non-competitive bids, in which the investor accepts whatever yield is determined.
A credit card balance is the total amount of money currently owed by a cardholder to their credit card company.
Balances change based on when and how they are used—they increase when purchases are made and decrease when cardholders make payments. Any remaining balance at the end of the billing cycle is carried over to the next month’s bill and incurs an interest charge. Credit card balances are important factors in calculating a person’s credit score.
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.
Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unravel.
Buy the dips means purchasing an asset after it has dropped in price. The belief here is that the new lower price represents a bargain as the descent is only a short-term blip and the asset, with time, is likely to bounce back and increase in value.
In a repeated fashion, buying the dips refers to going long an asset or security after its price has experienced a short-term decline.
A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter "K."
A financial_advisor is often responsible for more than just executing trades in the market on behalf of their clients.
Advisors use their knowledge and expertise to construct personalized financial plans that aim to achieve the financial goals of clients.
These plans include not only investments but also savings, budget, insurance, and tax strategies.
Advisors further check in with their clients on a regular basis to re-evaluate their current situation and future goals and plan accordingly.
You do not need to be wealthy to benefit from the services of a financial advisor.
The term probate refers to a legal process in which the validity and authenticity of a will are determined.
Probate also refers to the general administration of a deceased person's will or the estate of a deceased person without a will. After an asset-holder dies, the court appoints an executor named in the will or an administrator (if there is no will) to administer the process of probate.
This involves collecting the deceased's assets to pay any liabilities that remain on their estate and to distribute the assets to beneficiaries.
Earnings season refers to the months of the year during which most quarterly corporate earnings are released to the public.
Earnings season generally occurs in the month immediately following the end of each fiscal quarter. This means that earnings seasons typically fall in January, April, July, and October, because firms need time after each quarterly accounting period ends to put together their earnings reports.
Although most companies are on a standard calendar year, some major public companies have fiscal years that do not correspond with a calendar year.
Parity price refers to a price level that sets two assets or securities equal in value to one another. It is a concept that is used in several markets, including fixed income, equities, commodities, and convertible bonds.
For convertible bonds, the parity price concept is used to determine when it is financially beneficial to convert a bond into shares of common stock.
Investors often have to make decisions about the relative value of two different investments.
In addition to using parity price for convertible security, investors can use it to make investment decisions about commodities and currencies.
Parity price can help determine the value of stock options because parity is defined as the price at which an option is trading at its intrinsic value. In addition, the concept of parity is also used to compare the value of two currencies.
A specific performance clause is a specialized type of contractual equitable relief that may require the defendant to complete the terms of a contract when the court believes no other remedy such as money will adequately compensate the injured party.
Parties to an agreement may insert a specific performance clause into the contract to protect their interests in the event of a breach of contract by either party, especially when the awarding of a monetary award may be deemed insufficient.
A contract for the sale of a specific piece of property, for example, in which the owner pulls out, may result in a specific performance order requiring the seller to complete the sale to put the buyer in the position he or she would have enjoyed if the contract had been honored in the first place.
A Ninja loan is a slang term for a loan extended to a borrower with little or no attempt by the lender to verify the applicant's ability to repay. It stands for no income, no job, and no assets.
Whereas most lenders require loan applicants to provide evidence of a stable stream of income or sufficient collateral, a ninja loan ignores that verification process.
Ninja loans were more common prior to the 2008 financial crisis. In the aftermath of the crisis, the U.S. government issued new regulations to improve standard lending practices across the credit market, which included tightening the requirements for granting loans. At this point, ninja loans are rare, if not extinct.
An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms.
A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms.
There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others.
An offset involves assuming an opposite position in relation to an original opening position in the securities markets. An offsetting position can also be generated through hedging instruments, such as futures or options.
In the derivatives markets, to offset a futures position a trader enters an equivalent but an opposite transaction that eliminates the delivery obligation of the physical underlying.
The goal of offsetting is to reduce an investor's net position in investment to zero so that no further gains or losses are experienced from that position.
An offset can refer to the case where losses generated by one business unit are made up for by gains in another. Similarly, firms may also use the term in reference to enterprise risk management where risks exposed in one business unit are offset by opposite risks in another.
Key performance indicators (KPIs) measure a company's success versus a set of targets, objectives, or industry peers.
KPIs can be financial, including net profit (or the bottom line, gross profit margin), revenues minus certain expenses, or the current ratio (liquidity and cash availability).
Customer-focused KPIs generally centre on per-customer efficiency, customer satisfaction, and customer retention.
Process-focused KPIs aim to measure and monitor operational performance across the organization.
A hurdle rate is the minimum rate of return on a project or investment required by a manager or investor. It allows companies to make important decisions on whether or not to pursue a specific project.
The hurdle rate describes the appropriate compensation for the level of risk present—riskier projects generally have higher hurdle rates than those with less risk.
In order to determine the rate, the following are some of the areas that must be taken into consideration: associated risks, cost of capital, and the returns of other possible investments or projects.
After-hours trading starts at 4 p.m. U.S. Eastern Time after the major U.S. stock exchanges close. The after-hours trading session can run as late as 8 p.m., though volume typically thins out much earlier in the session. Trading in the after-hours is conducted through electronic communication networks.
After-hours trading is something traders or investors can use if news breaks after the close of the stock exchange. In some cases, the news, such as an earnings release, may prompt an investor to either buy or sell a stock.
The volume for a stock may spike on the initial release of the news but most of the time thins out as the session progresses. The amount of volume generally slows significantly by 6 p.m. There is a substantial risk when trading in illiquid stocks after-hours.
Not only does volume sometimes come at a premium in the after-hours trading sessions but so does the price. It is not unusual for the spreads to be wide in the after-hours. The spread is the difference between the bid and the ask prices.
Free on Board is a shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.
FOB shipping point or FOB origin means the buyer is at risk once the seller ships the product. The purchaser pays the shipping cost from the factory and is responsible if the goods are damaged while in transit.
FOB destination means the seller retains the risk of loss until the goods reach the buyer.
FOB was used only to refer to goods transported by ship—in the U.S., the term has since been expanded to include all types of transportation.
The most common international trade terms are Incoterms, which the International Chamber of Commerce publishes, but firms that ship goods within the U.S. must also adhere to the Uniform Commercial Code.
An endowment is a donation of money or property to a nonprofit organization, which uses the resulting investment income for a specific purpose.
An endowment can also refer to the total of a nonprofit institution’s investable assets, also known as its principal or corpus, which is used for operations that are consistent with the wishes of the donor.
Most endowments are designed to keep the principal amount intact while using the investment income for charitable efforts.
Many endowments are administered by educational institutions, such as colleges and universities.
Others are overseen by cultural institutions, such as art museums, libraries, religious organizations, private secondary schools, and service-oriented organizations, such as retirement homes or hospitals.
A certain per cent of an endowment’s assets is allowed to be used each year so the amount withdrawn from the endowment could be a combination of interest income and principal.5
The ratio of principal to income would change year to year based on prevailing market rates.
Break-even analysis shows how many sales it takes to pay for the cost of doing business. Analyzing different price levels relating to various levels of demand, the break-even analysis determines what level of sales is necessary to cover the company's total fixed costs.
Break-even analysis is useful in determining the level of production or a targeted desired sales mix. The study is for a company's management’s use only, as the metrics and calculations are not used by external parties, such as investors, regulators, or financial institutions.
The break-even point is calculated by dividing the total fixed costs of production by the price per individual unit less the variable costs of production. Fixed costs are costs that remain the same regardless of how many units are sold.
An inheritance tax is a tax imposed by some states on the recipients of inherited assets. In contrast to an estate tax, an inheritance tax is paid by the recipient of a bequest rather than the estate of the deceased.
The tax is not common in the U.S., and whether or not it applies in one of six states with an inheritance tax as of 2022 depends on the state in which the deceased lived or owned property, the value of the inheritance, and the beneficiary's relationship to the decedent
Inheritance taxes are collected by six U.S. states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Whether your inheritance will be taxed, and at what rate, depends on its value, your relationship to the person who passed away, and the prevailing rules where you live.
Inheritance tax may be assessed by the state or states where the decedent lived or owned property.
A negative interest rate refers to interest paid to borrowers rather than to lenders. Central banks typically charge commercial banks on their reserves as a form of non-traditional expansionary monetary policy, rather than crediting them.
This is a very unusual scenario that generally occurs during a deep economic recession when monetary efforts and market forces have already pushed interest rates to their nominal zero bound.
It is meant to encourage lending, spending, and investment rather than hoarding cash, which will lose value to negative deposit rates.
Negative rates are normally set by central banks and other regulatory bodies. They do so during deflationary periods when consumers hold too much money instead of spending as they wait for a turnaround in the economy. Consumers may expect their money to be worth more tomorrow than today during these periods.
When this happens, the economy can experience a sharp decline in demand, causing prices to plummet even lower.
The eurozone, officially known as the euro area, is a geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency.
As of 2022, the eurozone consists of 19 countries in the European Union (EU): Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.1 Approximately 340 million people live in the eurozone area.
In 1992, the Maastricht Treaty created the EU and paved the way for the formation of a common economic and monetary union consisting of a central banking system, a common currency, and a common economic region, the eurozone.
Not all European Union nations participate in the eurozone; some opt to use their own currency and maintain their financial independence.
European Union nations that decide to participate in the eurozone must meet requirements regarding price stability, sound public finances, the durability of convergence, and exchange rate stability.
The eurozone is one of the largest economic regions in the world and its currency, the euro, is considered one of the most liquid when compared to others.
It is often used as an example when studying trilemmas, an economic theory that postulates that nations have three options when making decisions regarding their international monetary policies.
The York Antwerp Rules are a set of maritime regulations concerning protocols surrounding jettisoned cargo.
The York Antwerp Rules are a set of maritime rules that were established in 1890. Amended several times since their inception, this set of maritime rules outlines the rights and obligations of both ship and cargo owners in the case that cargo must be jettisoned in order to save a ship.
The York Antwerp Rules state three clear principles, all of which must be met in order for the rule to be applied. The first stipulation is that danger to the ship must be imminent. Second, there must be a voluntary jettison of a portion of the ship’s cargo in order to save the whole. Third, the attempt to avoid the danger must be successful. If a situation meets all the stipulations, all parties involved in the maritime adventure must share proportionately in the financial burden of the losses incurred to the owner or owners of any of the cargo that was jettisoned in order to save the vessel.
Upside refers to the potential increase in value, measured in monetary or percentage terms, of an investment.
Analysts use either technical analysis or fundamental analysis techniques to predict the future price of an investment, particularly stock prices.
A higher upside means that the stock has more value than is currently reflected in the stock price.
The upside is the potential for an investment to increase in value, as measured in terms of money or percentage.
Upside refers to the predicted appreciation in the value of an investment and is the opposite of the downside.
Investors with a high tolerance for risk will choose investments with huge upside, while those that are risk-averse will opt for investments that have limited upside but will be more apt to preserve their initial investment value.
White-collar crime is a nonviolent crime committed for financial gain. According to the FBI, a key agency that investigates these offences.
These crimes are characterized by deceit, concealment, or violation of trust.
The motivation for these crimes is to obtain or avoid losing money, property, or services or to secure a personal or business advantage.
Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering.
Some definitions of white-collar crime consider only offences undertaken by an individual to benefit themselves. But the FBI, for one, defines these crimes as including large-scale fraud perpetrated by many throughout a corporate or government institution.
Tight monetary policy is a course of action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth, constrict spending in an economy that is seen to be accelerating too quickly, or to curb inflation when it is rising too fast.
The central bank tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate and federal funds rate.
Boosting interest rates increases the cost of borrowing and effectively reduces its attractiveness. Tight monetary policy can also be implemented via selling assets on the central bank's balance sheet to the market through open market operations.
Central banks around the world use monetary policy to regulate specific factors within the economy. Central banks most often use the federal funds rate as a leading tool for regulating market factors.
A public limited company is a public company in the United Kingdom.
PLC is the equivalent of a U.S. publicly-traded company that carries the Inc. or corporation designation.
The use of the PLC abbreviation after the name of a company is mandatory and communicates to investors and to anyone dealing with the company that it is a publicly-traded corporation.
A PLC designates a company that has offered shares of stock to the general public. The buyers of those shares have limited liability therefore they cannot be held responsible for any business losses in excess of the amount they paid for the shares.
U.K. company law says that a PLC must have the PLC designation after the company name and minimum share capital of £50,000.
As a publicly-traded company in the U.S., PLCs offer various types of shares, such as ordinary and cumulative preference shares.
Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term.
Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.
These policies have no value other than the guaranteed death benefit and feature no savings component as found in a whole life insurance product.
Term life premiums are based on a person’s age, health, and life expectancy.
Depending on the insurance company, it may be possible to turn term life into whole life insurance.
A tariff is a tax imposed by one country on the goods and services imported from another country.
Tariffs are used to restrict imports. tariff imposed affects the exporting country indirectly as the domestic consumer might shy away from their product due to the increase in price.
If the domestic consumer still chooses the imported product, then the tariff has essentially raised the cost for the domestic consumer.
Governments may impose tariffs to raise revenue or to protect domestic industries especially nascent ones from foreign competition.
Governments that use tariffs to benefit particular industries often do so to protect companies and jobs.
Tariffs can also be used as an extension of foreign policy as their imposition on a trading partner's main exports may be used to exert economic leverage.
The term quadruple witching refers to the date when four different types of futures and options expire on the same day.
This happens with four different types of contracts, including stock index futures, stock index options, stock options, and single stock futures.
Quadruple witching dates occur four times a year on the third Friday of March, June, September, and December.
Market activity on these days is typically highest during the last trading hour as traders try to move on these contracts.
Quadruple witching days replaced triple witching days when single stock futures started trading in November 2002.
The terms triple and quadruple witching are often used interchangeably even though there's a disparity in the number of expiring markets.
A unilateral contract is a contract agreement in which an offeror promises to pay after the occurrence of a specified act. In general, unilateral contracts are most often used when an offeror has an open request in which they are willing to pay for a specified act.
An example of a unilateral contract is an insurance policy contract, which is usually partially unilateral. In a unilateral contract, the offeror is the only party with a contractual obligation.
In a unilateral contract, the offeror promises to pay for specified acts that can be open requests, random, or optional for other parties involved.
Unilateral contracts are considered enforceable by contract law. However, legal issues typically do not arise until the offeree claims to be eligible for remuneration tied to acts or occurrences.
The velocity of money is a measurement of the rate at which money is exchanged in an economy. It also refers to the rate at which consumers and businesses in an economy collectively spend money.
The velocity of money is usually measured as a ratio of gross domestic product to a country's M1 or M2 money supply.
The velocity of money is important for measuring the rate at which money in circulation is being used for purchasing goods and services. It is used to help economists and investors gauge the health and vitality of an economy.
High money velocity is usually associated with a healthy, expanding economy. Low money velocity is usually associated with recessions and contractions.
Economists use the velocity of money to measure the rate at which money is used for goods and services in an economy.
A zero-coupon swap is an exchange of cash flows in which the stream of floating interest-rate payments is made periodically.
A zero-coupon swap is a derivative contract entered into by two parties. One party makes floating payments which change according to the future publication of the interest rate index upon which the rate is benchmarked.
The other party makes payments to the other based on an agreed fixed interest rate.
The fixed interest rate is tied to a zero-coupon bond or a bond that pays no interest for the life of the bond but is expected to make one single payment at maturity.
The London Metal Exchange is a commodities exchange that deals in metals futures and options. It is the largest exchange for options and futures contracts for base metals, which include aluminium, zinc, lead, copper, and nickel.
The exchange also facilitates the trading of precious metals like gold and silver.
The LME is located in London, England, but has been owned by Hong Kong Exchanges and Clearing since 2012.
The prices on the LME are considered the standard global prices for base metals.
The LME also lists futures contracts on its London Metal Exchange Index which is an index that tracks the prices of the metals that trade on the exchange.
Earnings before interest, taxes, depreciation, and amortisation measure a company’s overall financial performance and are used as an alternative to the net income in some circumstances.
EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plants, and equipment.
This metric also excludes expenses associated with debt by adding back interest expenses and taxes to earnings however it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions.
The U.S. generally accepted accounting principles because there is no legal requirement for companies to disclose their EBITDA however it can be worked out and reported using the information found in a company’s financial statements.
A war bond is a debt security issued by a government to finance military operations during times of war or conflict.
War bonds offered a rate of return below the market rate therefore investment is achieved by making emotional appeals to patriotic citizens to lend the government money.
A war bond is a debt instrument issued by a government as a means of borrowing money to finance its defense initiatives and military efforts during times of war.
Besides the United States government, other countries including Canada, Germany, the United Kingdom, and Austria-Hungary also issued war bonds
An individual retirement account is a savings account with tax advantages that individuals can open to save and invest in the long term.
An IRA is designed to encourage people to save for retirement. Anyone who has earned income can open an IRA and enjoy the tax benefits these accounts offer.
You can open an IRA through a bank, an investment company, an online brokerage, or a personal broker. IRAs are retirement savings accounts with tax advantages.
Money held in an IRA usually can't be withdrawn before age 59½ without incurring a hefty tax penalty of 10% of the amount withdrawn.
There are annual income limitations for deducting contributions to traditional IRAs and for contributing to Roth IRAs.
A waiver of subrogation is a contractual provision whereby an insured waives the right of their insurance carrier to seek redress or seek compensation for losses from a negligent third party.
Insurers charge an additional fee for a waiver of subrogation endorsement. Many construction contracts and leases include a waiver of the subrogation clause.
Such provisions prevent one party’s insurance carrier from pursuing a claim against the other contractual party in an attempt to recover money paid by the insurance company to the insured or to a third party to resolve a covered claim.
A right of subrogation allows an insurer to stand in proxy for its insured after satisfying a claim paid to the insured per the company’s duties under the insurance policy.
An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares.
An investment fund provides a broader selection of investment opportunities, greater management expertise, and lower investment fees than investors might be able to obtain on their own.
Types of investment funds include mutual funds, exchange-traded funds, money market funds, and hedge funds.
Individual investors do not make decisions about how a fund's assets should be invested but they simply choose a fund based on its goals, risk, fees and other factors.
An investment fund can be broad-based, such as an index fund that tracks the S&P 500, or it can be tightly focused, such as an ETF that invests only in small technology stocks.
Equity referred to as shareholders' equity or owners' equity for privately held companies represents the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation.
Shareholder equity can represent the book value of a company. Equity can sometimes be offered as payment-in-kind. It also represents the pro-rata ownership of a company's shares.
Equity is used as capital raised by a company, which is then used to purchase assets, invest in projects, and fund operations.
Investors usually seek out equity investments as it provides a greater opportunity to share in the profits and growth of a firm.
Economic growth is an increase in the production of economic goods and services, compared from one period of time to another. It can be measured in nominal or real terms.
Aggregate economic growth is measured in terms of gross national product or gross domestic product although alternative metrics are sometimes used.
Aggregate gains in production correlate with increased average marginal productivity which leads to an increase in incomes, inspiring consumers to open up their wallets and buy more, which means a higher material quality of life or standard of living.
In economics, growth is commonly modelled as a function of physical capital, human capital, labour force, and technology.
Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another.
opportunity costs are unseen by definition, they can be easily overlooked. Understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision-making.
Opportunity cost is the forgone benefit that would have been derived from an option not chosen.
To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.
Considering the value of opportunity costs can guide individuals and organizations to more profitable decision-making.
A hard landing refers to a marked Economic_slowdown or downturn following a period of rapid growth.
The term hard landing comes from aviation, where it refers to the kind of high-speed landing that—while not an actual crash—is a source of stress as well as potential damage and injury.
The metaphor is used for high-flying economies that run into a sudden, sharp check on their growth, such as a monetary policy intervention meant to curb inflation. Economies that experience a hard landing often slip into a stagnant period or even recession.
This results in a hard landing where slowing down or stopping expansionary macroeconomic policy can precipitate a stock market crash, financial crisis, or a collapse of investor confidence.
These events can spiral into a general recession too quickly for policy makers to mount an effective defence due to recognition, response, and implementation lags in macroeconomic policy.
The term hard landing has often been applied to China, which has enjoyed decades of preternaturally high gross domestic product growth rates that have set it up for a hard landing.
A soft landing, in economics, is a cyclical downturn that avoids recession.
It describes attempts by the central banks to raise interest rates just enough to stop an economy from overheating and experiencing high inflation, without causing a significant increase in unemployment, or a hard landing.
It may also refer to a sector of the economy that is expected to slow down without crashing.
Governments and central banks often attempt soft landings by fine-tuning fiscal or monetary policy.
The concept was conceived by Alan Greenspan, former chair of the Federal Reserve, who engineered the only true soft landing in U.S. history from 1994 to 1995 when the Fed raised interest rates enough to slow the economy, but not enough to cause an economic contraction.
Soft-landings are met with skepticism but some economists say it amounts to little more than economic mumbo-jumbo.
Vega is the measurement of an option's price sensitivity to changes in the volatility of the underlying asset. Vega represents the amount that an option contract's price changes in reaction to a 1% change in the implied volatility of the underlying asset.
Volatility measures the amount and speed at which price moves up and down, and can be based on recent changes in price, historical price changes, and expected price moves in a trading instrument. Future-dated options have positive Vega while options that are expiring immediately have negative Vega.
Option holders tend to assign greater premiums for options expiring in the future than to those which expire immediately.
The term personal consumption expenditures refer to a measure of imputed household expenditures defined for a period of time.
Personal income and the PCE Price Index reading are released monthly in the Bureau of Economic Analysis, Personal Income and Outlays report. Personal consumption expenditures support the reporting of the PCE Price Index, which measures price changes in consumer goods and services exchanged in the U.S. economy.
The PCE Price Index became the primary inflation index in 2012 used by the U.S. Federal Reserve when making monetary policy decisions.1 It is comparable to the Consumer Price Index which also focuses on consumer prices.
Other measures of inflation also tracked by economists can include the Producer Price Index and the Gross Domestic Product Price Index.
The global strategic petroleum reserves are stockpiles of crude oil maintained by nations and by private industries as a hedge against potential future energy crises.
The U.S. government has tapped its own Strategic petroleum reserve after a number of disasters that threatened to disrupt the flow of oil to industry and consumers.
Global strategic petroleum reserves are maintained as a defense against any event that severely decreases or disrupts future oil production.
These can include any physical or economic actions that disrupt any part of the production process, from exploration and development to refining.
In the U.S, the No Surprises Act provides patients with protection from surprise medical bills under certain circumstances.
It also mandates transparency regarding healthcare costs and holds patients liable for in-network cost-sharing amounts only.
The U.S legislation allows healthcare providers and insurers to negotiate reimbursement separately while insulating the patient from that process.
It also includes a provision for an independent dispute resolution process if necessary. The Departments of Health and Human Services, Treasury, and Labor are tasked with issuing regulations and guidance to implement the No Surprises Act, most of which is set to go into effect on Jan. 1, 2022
Short selling is an investment or trading strategy that speculates on the decline in a stock or other security's price. It is an advanced strategy that should only be undertaken by experienced traders and investors.
Traders may use short selling as speculation, and investors or portfolio managers may use it as a hedge against the downside risk of a long position in the same security or a related one.
Speculation carries the possibility of substantial risk and is an advanced trading method. Hedging is a more common transaction involving placing an offsetting position to reduce risk exposure.
In the trading world, Limit up is the maximum amount a price is permitted to increase during one trading day. The term is often used in relation to the commodities futures markets, where regulators seek to prevent volatility from reaching extreme levels.
Limit down, by contrast, refers to the maximum permitted decline in one trading day.
Both limit up and limit down prices are examples of circuit breakers—interventions employed by exchanges to help maintain orderly trading conditions.
A dividend aristocrat is a company in the S&P 500 index that not only consistently pays a dividend to shareholders but annually increases the size of its payout.
A company will be considered a dividend aristocrat if it raises its dividends consistently for at least the past 25 years. Some aficionados of dividend aristocrats rank them according to additional factors such as company size and liquidity, for instance having a market capitalization in excess of $3 billion.
A blue-chip stock is a huge company with an excellent reputation.
These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors.
A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name.
For all of these reasons, blue-chip stocks are among the most popular to buy among investors.
FTX Exchange is a leading centralized cryptocurrency exchange specializing in derivatives and leveraged products.
It was founded in 2018 by MIT graduate and former Jane Street Capital international exchange-traded funds trader Sam Bankman-Fried.
FTX offers a range of trading products, including derivatives, options, volatility products, and leveraged tokens. It also provides spot markets in over 100 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, XRP/USDT, and its native token FTT/USDT.
There is the Bahamas-based FTX and its FTX US affiliate which have overlapping management teams but separate capital structures.
U.S. residents can only trade through FTX US.
Software-as-a-Service (SaaS) is a software licensing model in which access to the software is provided on a subscription basis, with the software being located on external servers rather than on servers located in-house.
Software-as-a-Service is typically accessed through a web browser, with users logging into the system using a username and password.
The user is able to access the program via the internet instead of each user having to install the software on their computer.
A bellwether is a leading indicator of an economic trend. To investors, a bellwether is usually a company that is worth watching closely because its earnings logically suggest a larger economic trend. A company's stock may also be a bellwether if it is viewed as pointing towards an upward or downward trend in a sector.
FedEx is an example of a bellwether company. If FedEx announces a substantial increase in deliveries in a quarter, it follows that consumer spending is increasing.
More goods are being manufactured to fill more wholesale orders, more wholesale orders are being sent to retailers, and retailers are buying more to meet consumer demand.
In the U.S, Estimated tax is a quarterly payment of taxes for the year based on the filer’s reported income for the period. Most of those required to pay taxes quarterly are small business owners, freelancers, and independent contractors.
They do not have taxes automatically withheld from their paychecks, as regular employees do.
Estimated taxes may be made for any type of taxable income that is not subject to withholding. This includes earned income, dividend income, rental income, interest income, and capital gains.
The Beige Book is a report produced and published by the U.S. Federal Reserve. The report, referred to formally as the Summary of Commentary on Current Economic Conditions, is a qualitative review of economic conditions.
The Beige Book is published eight times each year before meetings held by the Federal Open Market Committee and is considered one of the most valuable tools at the committee’s disposal for making key decisions about the economy.
Although the term racial wealth gap technically refers to the difference in assets owned by different racial or ethnic groups, this gap results from a range of economic factors that affect the overall economic well-being of these different groups. The term reflects disparities in access to opportunities, means of support, and resources.
Federal surveys reveal that a large disparity exists among these racial and ethnic groups in the United States. Data from the 2019 Survey of Consumer Finances examining assets such as savings, investments, retirement and pensions, and especially homeownership, reveal that White families had eight times the wealth of Black families and five times the wealth of Hispanic families. Data on "other families"—a diverse category that includes Asians, indigenous peoples, Native Hawaiians, and those who report more than one racial identification, among others—showed that they had less wealth than White families but more than Hispanic and Black families.2
The somewhat greater emphasis on the status of Black Americans corresponds to the larger number of studies and more detailed information analyzed and available with respect to it.
A credit bureau, also known in the U.S. as a credit reporting agency, is an organization that collects and researches individual credit information and sells it to creditors for a fee, so they can make decisions about extending credit or granting loans.
Credit bureaus partner with all types of lending institutions and credit issuers to help them make loan decisions. Their primary purpose is to ensure that creditors have the information they need to make lending decisions. Typical clients for a credit bureau include banks, mortgage lenders, credit card issuers, and other personal financial lending companies.
A business valuation is a general process of determining the economic value of a whole business or company unit. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, taxation, and even divorce proceedings.
Owners will often turn to professional business evaluators for an objective estimate of the value of the business.
Business valuation is typically conducted when a company is looking to sell all or a portion of its operations or looking to merge with or acquire another company.
The valuation of a business is the process of determining the current worth of a business, using objective measures, and evaluating all aspects of the business.
Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
Securities dealers and brokers became responsible for fully disclosing material information about the instruments they were selling. Failing to disclose this information to potential investors made dealers and brokers liable for criminal prosecution.
The writers of the act recognized that requiring full disclosure left dealers and brokers vulnerable to unfair prosecution for failing to disclose a material fact they did not possess or could not have known at the time of sale.
A credit default swap is a financial derivative that allows an investor to swap or offset his or her credit risk with that of another investor. For example, if a lender is worried that a borrower is going to default on a loan, the lender could use a CDS to offset or swap that risk.
To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse the lender in the case the borrower defaults. Most CDS contracts are maintained via an ongoing premium payment similar to the regular premiums due on an insurance policy.
Credit default swaps, or CDS, are credit derivative contracts that enable investors to swap credit risk on a company, country, or other entity with another counterparty.
Credit default swaps are the most common type of OTC credit derivatives and are often used to transfer credit exposure on fixed income products in order to hedge risk.
Credit default swaps are customized between the two counterparties involved, which makes them opaque, illiquid, and hard to track for regulators.
The coefficient of variation is a statistical measure of the dispersion of data points in a data series around the mean. The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from one another.
The coefficient of variation shows the extent of variability of data in a sample in relation to the mean of the population. In finance, the coefficient of variation allows investors to determine how much volatility, or risk, is assumed in comparison to the amount of return expected from investments. Ideally, if the coefficient of variation formula should result in a lower ratio of the standard deviation to mean return, then the better the risk-return trade-off. Note that if the expected return in the denominator is negative or zero, the coefficient of variation could be misleading.
The average true range Is a technical analysis indicator, introduced by market technician J. Welles Wilder Jr. in his book New Concepts in Technical Trading Systems, that measures market volatility by decomposing the entire range of an asset price for that period.1
The true range indicator is taken as the greatest of the following: current high less the current low; the absolute value of the current high less the previous close; and the absolute value of the current low less the previous close. The ATR is then a moving average, generally using 14 days, of the true ranges.
The applicable federal rate is the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans. Each month the IRS publishes a set of interest rates that the agency considers the minimum market rate for loans. Any interest rate that is less than the AFR would have tax implications. The IRS publishes these rates in accordance with Section 1274(d) of the Internal Revenue Code.
The AFR is used by the IRS as a point of comparison versus the interest on loans between related parties, such as family members. If you were giving a loan to a family member, you would need to be sure that the interest rate charged is equal to or higher than the minimum applicable federal rate.
The IRS publishes three AFRs: short-term, mid-term, and long-term. Short-term AFR rates are determined from the one-month average of the market yields from marketable obligations, such as U.S. government T-bills with maturities of three years or less. Mid-term AFR rates are from obligations of maturities of more than three and up to nine years. Long-term AFR rates are from bonds with maturities of more than nine years.
Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change in national currency. The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with a new currency.
Removing the legal tender status of a unit of currency is a drastic intervention into an economy because it directly affects the medium of exchange used in all economic transactions. It can help stabilize existing problems, or it can cause chaos in an economy, especially if undertaken suddenly or without warning.
The Klinger Oscillator was developed by Stephen Klinger to determine the long-term trend of money flow while remaining sensitive enough to detect short-term fluctuations. The indicator compares the volume flowing through securities with the security's price movements and then converts the result into an oscillator. The Klinger oscillator shows the difference between two moving averages which are based on more than price. Traders watch for divergence on the indicator to signal potential price reversals. Like other oscillators, a signal line can be added to provide additional trade signals.
Traders will use tools such as trendlines, moving averages, and other indicators to confirm trade signals. In addition, traders may use the oscillator in conjunction with chart patterns, such as price channels or triangles, as a way to confirm a breakout or breakdown. Crossovers occur frequently, as do divergences, so the indicator is best used in conjunction with these other technical trading methods.
The correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of two variables. The values range between -1.0 and 1.0. A calculated number is greater than 1.0 or less than -1.0 means that there was an error in the correlation measurement. A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation. A correlation of 0.0 shows no linear relationship between the movement of the two variables.
Correlation statistics can be used in finance and investing. For example, a correlation coefficient could be calculated to determine the level of correlation between the price of crude oil and the stock price of an oil-producing company, such as Exxon Mobil Corporation. Since oil companies earn greater profits as oil prices rise, the correlation between the two variables is highly positive.
Bitcoin mining is the process by which new bitcoins are entered into circulation; it is also the way that new transactions are confirmed by the network and a critical component of the maintenance and development of the blockchain ledger. Mining is performed using sophisticated hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem is awarded the next block of bitcoins and the process begins again.
Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849.
In probability theory, the central limit theorem states that the distribution of a sample variable approximates a normal distribution as the sample size becomes larger, assuming that all samples are identical in size, and regardless of the population's actual distribution shape.
CLT is a statistical premise that given a sufficiently large sample size from a population with a finite level of variance, the mean of all sampled variables from the same population will be approximately equal to the mean of the whole population. Furthermore, these samples approximate a normal distribution, with their variances being approximately equal to the variance of the population as the sample size gets larger, according to the law of large numbers.
Although this concept was first developed by Abraham de Moivre in 1733, it was not formalized until 1930, when noted Hungarian mathematician George Polya dubbed it the Central Limit Theorem.
The acid-test ratio also commonly known as the quick ratio, measures the liquidity of a company by calculating how well current assets can cover current liabilities. The quick ratio uses only the most liquid current assets that can be converted to cash within 90 days or less.
The acid-test, or quick ratio, involves assessing a company's balance sheet to see whether it has enough funding on hand to cover its current debt.
It is seen as more useful than the often-used current ratio since the acid-test excludes inventory, which can be hard to quickly liquidate.
In the best-case scenario, a company should have a ratio of 1 or more, suggesting the company has enough cash to pay its bills.
Too low a ratio can suggest a company is cash-strapped, but in some cases, it just means a company is dependent on inventory, like retailers.
A product recall is a process of retrieving defective and/or potentially unsafe goods from consumers while providing those consumers with compensation. Recalls often occur as a result of safety concerns over a manufacturing defect in a product that may harm its user.
A product recall may be voluntary or mandated by a regulatory body such as the Consumer Product Safety Commission in the U.S. Product recalls occurring as a result of safety or quality concerns related to a manufacturing or design defect in a product that may harm its users.
Recalls may negatively affect a company's stock as they are expensive and can damage a firm's reputation, leading to declining sales. Recalls may be done voluntarily if the company believes it will be more cost-effective rather than wait for lawsuits or mandated recalls.
A military bank is a financial institution that offers services tailored to members of the armed forces. Military banks are popular among service people because they offer various types of specialized accounts, perks and benefits, and services and options accommodating military lifestyles. Though some banks target a broader audience, military banks primarily focus on and cater to military personnel.
People who serve in the military, along with their families, have unique banking needs that military banking services are designed to meet. Frequent travel and relocation make features like fully refundable out-of-network ATM fees and remote check deposits valuable.
An account that has no foreign transaction fees helps a servicemember deployed abroad.
Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, affluence, and business success. They are often preppy in appearance and like to show off their success by their style and possessions.
The term yuppie originated in the 1980s and is used to refer to young urban professionals who are successful in business and considerably affluent.
Some credit writer Joseph Epstein with using the term while others point to journalist Dan Rottenberg's Chicago magazine article.
It is difficult to identify modern yuppies because modern society has doled out wealth to various groups of people rather than a specific set of people with similar characteristics.
Yuppies tend to be educated with high-paying jobs, and they live in or near large cities. Some typical industries associated with yuppies include finance, tech, academia, and many areas in the arts, especially those associated with liberal thinking and style.
Unicorn is a term used in the venture capital industry to describe a privately held startup company with a value of over $1 billion. The term was first popularized by venture capitalist Aileen Lee, founder of Cowboy Ventures, a seed-stage venture capital fund based in Palo Alto, California.
Unicorns can also refer to a recruitment phenomenon within the human resources (HR) sector.
HR managers may have high expectations to fill a position, leading them to look for candidates with qualifications that are higher than required for a specific job. In essence, these managers are looking for a unicorn, which leads to a disconnect between their ideal candidate versus who they can hire from the pool of people available.
A yacht, it’s fair to say, is a luxury item and so particularly in need of protection. Yacht insurance is an insurance policy that provides indemnity liability coverage for a sailing vessel. It includes liability coverage for bodily injury or damage to the property of others and damage to personal property on the vessel. Depending on the insurance provider, this insurance could also include gas delivery, towing, and assistance if your yacht gets stranded.
Yacht insurance provides indemnity liability coverage for a sailing vessel.
It has two principal parts: hull insurance and protection and indemnity (P&I) insurance. While there is no legal agreed upon length that separates a yacht from a pleasure boat, generally it is considered to be somewhere between 27 and 30 feet.
ZCash is a cryptocurrency with a decentralized blockchain that seeks to provide anonymity for its users and their transactions. As a digital currency, ZCash is similar to Bitcoin. Like Bitcoin, ZCash also has an including its open-source code, but its major differences lie in the level of privacy and fungibility that each provides.
ZCash is a cryptocurrency with a decentralized blockchain that seeks to provide anonymity for its users and their transactions.
ZCash increases user privacy by using zero-knowledge proofs (zk-SNARKs) to validate transactions without revealing information that could compromise a user's privacy. ZCash is built on the Bitcoin framework, and, in many respects, is identical to Bitcoin.
Alpha is a term used in investing to describe an investment strategy's ability to beat the market or its edge. Alpha is thus also often referred to as excess return or abnormal rate of return, which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole.
Alpha is often used in conjunction with beta which measures the broad market's overall volatility or risk, known as systematic market risk.
Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. Alpha may be positive or negative and is the result of active investing. Beta, on the other hand, can be earned through passive index investing.
The just-in-time inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.
The just-in-time inventory system minimizes inventory and increases efficiency. JIT production systems cut inventory costs because manufacturers receive materials and parts as needed for production and do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is cancelled or not fulfilled
Heteroskedasticity happens when the standard deviations of a predicted variable, monitored over different values of an independent variable or as related to prior time periods, are non-constant. With heteroskedasticity, the tell-tale sign upon visual inspection of the residual errors is that they will tend to fan out over time, as depicted in the image below.
Heteroskedasticity often arises in two forms: conditional and unconditional. Conditional heteroskedasticity identifies nonconstant volatility related to the prior period's volatility. Unconditional heteroskedasticity refers to general structural changes in volatility that are not related to prior period volatility. Unconditional heteroskedasticity is used when future periods of high and low volatility can be identified.
The term indemnity insurance refers to an insurance policy that compensates an insured party for certain unexpected damages or losses up to a certain limit—usually the amount of the loss itself. Insurance companies provide coverage in exchange for premiums paid by the insured parties. These policies are commonly designed to protect professionals and business owners when they are found to be at fault for a specific event such as misjudgment or malpractice. They generally take the form of a letter of indemnity.
An indemnity is a comprehensive form of insurance compensation for damages or loss. In a legal sense, it may also refer to an exemption from liability for damages. The insurer promises to make the insured party whole again for any covered loss in exchange for premiums the policyholder pays.
A stablecoin is a class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity's price such as gold.
Stablecoins achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.
An angel investor is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur's family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
Angel investors are individuals who seek to invest at the early stages of startups. These types of investments are risky and usually do not represent more than 10% of the angel investor's portfolio. Most angel investors have excess funds available and are looking for a higher rate of return than those provided by traditional investment opportunities.
Angel investors provide more favourable terms compared to other lenders since they usually invest in the entrepreneur starting the business rather than the viability of the business. Angel investors are focused on helping startups take their first steps, rather than the possible profit they may get from the business. Essentially, angel investors are the opposite of venture capitalists.
Government security applies to a range of investment products offered by a governmental body. For most readers, the most common types of government securities are those items issued by the U.S. Treasury in the form of Treasury bonds, bills, and notes. However, the governments of many nations will issue these debt instruments to fund necessary ongoing operations.
Government securities come with a promise of the full repayment of invested principal at maturity of the security. Some government securities may also pay periodic coupon or interest payments. These securities are considered conservative investments with low risk since they have the backing of the government that issued them.
Government securities are debt instruments of a sovereign government. They sell these products to finance day-to-day governmental operations and provide funding for special infrastructure and military projects. These investments work in much the same way as a corporate debt issue. Corporations issue bonds as a way to gain capital for buying equipment, funding expansion, and paying off other debt. By issuing debt, governments can avoid hiking taxes or cutting other areas of spending in the budget each time they need additional funds for a project.
Capacity utilization rate measures the percentage of an organization's potential output that is actually being realized. The capacity utilization rate of a company or a national economy may be measured in order to provide insight into how well it is reaching its potential.
The formula for finding the rate is: (Actual Output / Potential Output ) x 100 = Capacity Utilization Rate
A number under 100% indicates that the organization is producing at less than its full potential.
Capacity utilization rate is a key metric for a business or a national economy. It indicates the slack in the organization at a given point in time.
A company that has a utilization rate of less than 100% can, at least theoretically, increase its production without incurring the additional expensive overhead costs that are associated with purchasing new equipment or property.
A national economy with a ratio of under 100% can pinpoint areas in which its production levels can be increased without significant costs or disruption. The concept of capacity utilization is best applied to the production of physical goods, which are simpler to quantify.
A Bollinger Band is a technical analysis tool defined by a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average of a security's price, but which can be adjusted to user preferences.
Bollinger Bands were developed and copyrighted by famous technical trader John Bollinger, designed to discover opportunities that give investors a higher probability of properly identifying when an asset is oversold or overbought.1
The first step in calculating Bollinger Bands is to compute the simple moving average of the security in question, typically using a 20-day SMA.
A 20-day moving average would average out the closing prices for the first 20 days as the first data point. The next data point would drop the earliest price, add the price on day 21 and take the average, and so on. Next, the standard deviation of the security's price will be obtained. Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting and finance.
The term American depositary receipt refers to a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares of a foreign company's stock.
The ADR trades on U.S. stock markets as any domestic shares would. ADRs offer U.S. investors a way to purchase stock in overseas companies that would not otherwise be available. Foreign firms also benefit, as ADRs enable them to attract American investors and capital without the hassle and expense of listing on U.S. stock exchanges.
American depositary receipts are denominated in U.S. dollars. The underlying security is held by a U.S. financial institution, often by an overseas branch. ADR holders do not have to transact the trade in the foreign currency or worry about exchanging currency on the forex market. These securities are priced and traded in dollars and cleared through U.S. settlement systems.
In order to begin offering ADRs, a U.S. bank must purchase shares on a foreign exchange. The bank holds the stock as inventory and issues an ADR for domestic trading. ADRs list on either the New York Stock Exchange or the Nasdaq, but they are also sold over-the-counter.
U.S. banks require that foreign companies provide them with detailed financial information. This requirement makes it easier for American investors to assess a company's financial health.
An automated teller machine is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs.
ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between accounts. Fees are commonly charged for cash withdrawals by the bank where the account is located, by the operator of ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank that holds the account.
There are two primary types of ATMs. Basic units only allow customers to withdraw cash and receive updated account balances. The more complex machines accept deposits, facilitate line-of-credit payments and transfers, and access account information.
To access the advanced features of the complex units, a user often must be an account holder at the bank that operates the machine.
Analysts anticipate ATMs will become even more popular and forecast an increase in the number of ATM withdrawals. ATMs of the future are likely to be full-service terminals instead of or in addition to traditional bank tellers.
The Bank Panic of 1907 was a short-lived banking and financial crisis in the U.S. that occurred at the beginning of the twentieth century.
It resulted from the collapse of highly-leveraged speculative investments propagated by easy money policies pursued by the U.S. Treasury in the preceding years. This led to runs on New York banks and trust companies that had been financing these risky investments and to shrinking stock market liquidity as smaller regional banks, in turn, drew down their deposits from the New York banks.
Without a central bank to fall back on, leading financiers (most notably J.P. Morgan) stepped in and put their own money on the line to bail out the surviving Wall Street banks and other financial institutions. This event became the impetus for the establishment of the Aldrich Commission and the infamous meeting at Jekyll Island, Georgia, where the foundations for the Federal Reserve System would be laid.
The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
The Phillips curve was a concept used to guide macroeconomic policy in the 20th century but was called into question by the stagflation of the 1970s.
Understanding the Phillips curve in light of consumer and worker expectations shows that the relationship between inflation and unemployment may not hold in the long run, or even potentially in the short run.
Share of wallet is the dollar amount an average customer regularly devotes to a particular brand rather than to competing brands in the same product category. Companies try to maximize an existing customer's share of wallet by introducing multiple products and services to generate as much revenue as possible from each customer. A marketing campaign, for example, may have a stated goal of increasing the brand's wallet share for specific customers at the expense of its competitors.
Share of wallet is the amount an existing customer spends regularly on a particular brand rather than buying from competing brands.
Companies grow wallet share by introducing multiple products and services to generate as much revenue as possible from each customer.
A marketing campaign might focus on boosting spending by existing customers rather than increasing the product's overall market share.
Benefits from increasing a client's share of wallet include added revenue, improved client retention, customer satisfaction, and brand loyalty.
Stress testing is a computer simulation technique used to test the resilience of institutions and investment portfolios against possible future financial situations. Such testing is customarily used by the financial industry to help gauge investment risk and the adequacy of assets and help evaluate internal processes and controls. In recent years, regulators have also required financial institutions to carry out stress tests to ensure their capital holdings and other assets are adequate.
Stress testing is a computer-simulated technique to analyze how banks and investment portfolios fare in drastic economic scenarios.
Stress testing helps gauge investment risk and the adequacy of assets, as well as to help evaluate internal processes and controls.
Stress tests can use historical, hypothetical, or simulated scenarios.
Regulations require banks to carry out various stress-test scenarios and report on their internal procedures for managing capital and risk.
The Federal Reserve requires banks with $100 billion in assets or more to perform a stress test.
Companies that manage assets and investments commonly use stress testing to determine portfolio risk, then set in place any hedging strategies necessary to mitigate against possible losses. Specifically, their portfolio managers use internal proprietary stress-testing programs to evaluate how well the assets they manage might weather certain market occurrences and external events.
Asset and liability matching stress tests are widely used, too, by companies that want to ensure they have the proper internal controls and procedures in place. Retirement and insurance portfolios are also frequently stress-tested to ensure that cash flow, payout levels, and other measures are well aligned.
A sunk cost refers to money that has already been spent and cannot be recovered. In business, the axiom that one has to spend money to make money is reflected in the phenomenon of the sunk cost. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing.
Sunk costs are excluded from future business decisions because the cost will remain the same regardless of the outcome of a decision.
When making business decisions, organizations should only consider relevant costs, which include the future costs that still needed to be incurred. The relevant costs are contrasted with the potential revenue of one choice compared to another.
A business only considers the costs and revenue that will change as a result of the decision at hand. Because sunk costs do not change, they should not be considered.
An inverse floater is a bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. An inverse floater is also known as an inverse floating rate note or a reverse floater.
Governments and corporations are the typical issuers of these bonds, which they sell to investors in order to raise funds. Governments might use these funds to build roads and bridges, while corporations might use the funds from a bond sale to build a new factory or buy equipment.
Investors of an inverse floater will receive cash payments in the form of periodic interest payments, which will adjust in the opposite direction of the prevailing interest rate.
An inverse floater is a bond or other type of debt instrument that has a coupon rate that varies inversely with a benchmark interest rate.
Investors who purchase inverse floaters will receive interest payments that are adjusted according to changes in the current interest rates.
For an inverse floater, the interest rates the investor receives will adjust in the opposite direction of the prevailing rates; thus, when interest rates fall, the rate of the bond's payments increases.
Investors of inverse floaters face interest rate risk, which is the potential for investment losses due to changes in interest rates.
A wasting asset is an item that has a limited life span and irreversibly declines in value over time. Examples include depreciating fixed assets such as vehicles and machinery and securities with time decay such as options, which continually lose time value after purchase.
Any asset that decreases in value over time is a wasting asset. For example, a truck used for business purposes will decrease in value over time. Accountants attempt to quantify the decrease by assigning a depreciation schedule to recognize the falling value each year.
While most vehicles and machines are wasting assets, there are a few exceptions. A rare car, for instance, may actually become more valuable over time. The value often declines initially, yet over a long period of time, the car becomes more valuable again if it is well maintained. Generally, though, vehicles are wasting assets with their value gradually declining until they are only worth scrap metal/parts.
A writer sometimes referred to as a grantor is the seller of an option who opens a position to collect a premium payment from the buyer. Writers can sell call or put options that are covered or uncovered. An uncovered position is also referred to as a naked option. For example, the owner of 100 shares of stock can sell a call option on those shares to collect a premium from the buyer of the option; the position is covered because the writer owns the stock that underlies the option and has agreed to sell those shares at the strike price of the contract.
A covered put option would involve being short of the shares and writing a put on them. If an option is not covered the option writer theoretically faces the risk of very large losses if the underlying moves against them.
Option writers collect a premium in exchange for giving the buyer the right to buy or sell the underlying at an agreed price within an agreed period of time.
A put or call can be covered or uncovered, with uncovered positions carrying much greater risk.
A Bowie bond was a unique type of asset-backed security which used as collateral for the royalty streams from current (at the time) and future album sales and live performances by musician David Bowie.
Bowie bonds are also sometimes known as Pullman bonds after David Pullman, the banker who created and sold the first Bowie bonds.
Bowie bonds were first issued in 1997 when David Bowie partnered with Prudential Insurance Company and raised $55 million by promising investors income generated by his back catalogue of 25 albums.
Bowie bonds were a type of bond backed by recording artist David Bowie's royalty streams and marked the first such security backed by a performer's cash flow potential.
Bowie used the $55 million raised from the issuance to buy rights to his music from his former manager, which would then, in turn, generate more royalties to bondholders.
The banker credited with making this happen, David Pullman, has since issued similar securities from other performing artists.
A suicide pill is an aggressive defensive strategy utilized by a target company to prevent attempts at a hostile takeover. The prey, as a last resort, engages in self-destructive measures to put off its suitor, favoring potential bankruptcy over the prospect of a merger occurring.
A suicide pill can also be referred to as the "Jonestown Defense," in reference to the cult that committed mass suicide by poisoning in Guyana in 1978.
The suicide pill defense tactic is considered an extreme version of the poison pill: an anti-takeover strategy that consists of allowing existing shareholders the right to purchase additional shares at a discount to dilute the ownership interest of any new, hostile party.
Suicide pills differ from situation to situation and may result in the breakup or dissolution of the company. Such a defense is most often implemented in circumstances when a competitor attempts a hostile takeover, and the target's management or current ownership, viewing the takeover as a foregone conclusion, would prefer the company cease to exist than see it fall into outside hands.
A smurf is a colloquial term for a money launderer who seeks to evade scrutiny from government agencies by breaking up large transactions into a set of smaller transactions that are each below the reporting threshold. Smurfing is an illegal activity that can have serious consequences.
Current bank regulations require banks or other financial institutions to report cash transactions exceeding $10,000—or any others they deem suspicious.
Smurfing is a money-laundering technique involving the structuring of large amounts of cash into multiple small transactions.
Smurfs often spread these small transactions over many different accounts, to keep them under regulatory reporting limits and avoid detection.
Smurfing is a form of structuring, in which criminals use small, cumulative transactions to remain below financial reporting requirements.
The Patriot Act gave law enforcement agencies broader powers to curb money laundering by putting in place reporting requirements for any deposits, withdrawals, or currency exchanges exceeding $10,000.
The term smurf appears to be borrowed from illegal drug manufacturers, who use multiple accomplices to evade the legal purchasing limits of drug components.
A helicopter drop refers to a term first coined by Milton Friedman as a rhetorical device intended to abstract away the effects of any monetary policy transmission mechanisms in a thought experiment regarding the addition of cash to the bank accounts of all citizens—as if dropped from a helicopter overnight.
This term has come to refer to a figurative application of Friedman's metaphor, as a type of monetary stimulus strategy that increases the quantity of the money supply and directly distributes cash to the public in order to spur inflation—or rising prices—and economic growth. Helicopter drop policies have become a common feature of the response from policymakers to large-scale economic shocks since 2000.
A helicopter drop is an expansionary fiscal or monetary policy that is financed by an increase in an economy's money supply. It could be an increase in spending or a tax cut, but it involves printing large sums of money and distributing it to the public in order to stimulate the economy.
The term helicopter drop is largely a metaphor for unconventional measures to jump-start the economy during deflationary periods, which consist of falling prices.
Voodoo economics is a derogatory phrase used by George H.W. Bush in reference to President Ronald Reagan's economic policies, which came to be known as "Reaganomics."
Voodoo economics is a derogatory phrase used by George H.W. Bush in reference to President Ronald Reagan's economic policies, known as "Reaganomics."
In 1980, before being appointed as Reagan's vice president, Bush Sr. argued that the president’s supply-side reforms would not be enough to rejuvenate the economy and would greatly increase the national debt.
Bush Sr. was criticized for attacking his then-political rival, although over the years his characterization of Reaganomics as voodoo economics has been validated. Voodoo economics has since become a popular, widely-used phrase to dismiss ambitious economic pledges made by politicians.
Before George H.W. Bush, also known as Bush Sr., became Reagan's vice president, he viewed his eventual running mate's economic policies less than favourably.
Reagan, the 40th U.S. president, took power during a prolonged period of economic stagflation that began under President Gerald Ford in 1976. In response, he called for widespread tax cuts, the deregulation of domestic markets, lower government spending, and a tightening of the money supply to combat inflation.
President Reagan was a proponent of supply-side economics, favouring reduced income and capital gains tax rates. He believed that the savings generated by companies from corporate tax cuts would trickle down to the rest of the economy, spurring growth.
He also assumed that companies would eventually pay more taxes anyway, boosting the government's coffers, as a healthier economy would encourage them to increase volumes.
UTXO refers to the amount of digital currency someone has left remaining after executing a cryptocurrency transaction such as bitcoin. The letters stand for unspent transaction output. Each bitcoin transaction begins with coins used to balance the ledger.
UTXOs are processed continuously and are responsible for beginning and ending each transaction. Although confirmation of transaction results in the removal of spent coins from the UTXO database, a record of the spent coins still exists on the ledger.
UTXO or unspent transaction outputs are used in cryptocurrency transactions. These are the transactions that are left unspent after someone completes a transaction, similar to the change someone receives after conducting a cash transaction at the store.
A UTXO database is used to store change from cryptocurrency transactions. This database or ledger is initially set to empty or zero. As transactions multiply, the database becomes populated with change records from various transactions.
Underwriting income is the profit generated by an insurer's underwriting activity over a period of time. Underwriting income is the difference between premiums collected on insurance policies by the insurer and expenses incurred and claims paid out. Huge claims and disproportionate expenses may result in an underwriting loss, rather than income, for the insurer.
The level of underwriting income is an accurate measure of the efficiency of an insurer's underwriting activities.
When an insurance company writes an insurance policy for a new client or renews a policy for an existing client, they receive an insurance premium as payment. This is their revenue. The costs associated with an insurance company are the ordinary business costs as well as money paid out to clients when they file an insurance claim for an accident or other such event.
The difference between revenue and costs, like any business, is the income, in this case, the underwriting income.
An insurer's underwriting income may fluctuate from quarter to quarter, with natural and other disasters such as earthquakes, hurricanes, and fires leading to huge underwriting losses.
A strangle is an options strategy in which the investor holds a position in both a call and a put option with different strike prices, but with the same expiration date and underlying asset. A strangle is a good strategy if you think the underlying security will experience a large price movement in the near future but are unsure of the direction. However, it is profitable mainly if the asset does swing sharply in price.
A strangle is similar to a straddle but uses options at different strike prices, while a straddle uses a call and put it at the same strike price.
In a long strangle—the more common strategy—the investor simultaneously buys an out-of-the-money call and an out-of-the-money put option. The call option's strike price is higher than the underlying asset's current market price, while the put has a strike price that is lower than the asset's market price. This strategy has a large profit potential since the call option has theoretically unlimited upside if the underlying asset rises in price, while the put option can profit if the underlying asset falls. The risk on the trade is limited to the premium paid for the two options.
An investor doing a short strangle simultaneously sells an out-of-the-money put and an out-of-the-money call. This approach is a neutral strategy with limited profit potential. A short strangle profits when the price of the underlying stock trades in a narrow range between the breakeven points. The maximum profit is equivalent to the net premium received for writing the two options, with less trading costs.
A straddle is a neutral options strategy that involves simultaneously buying both a put option and a call option for the underlying security with the same strike price and the same expiration date.
A trader will profit from a long straddle when the price of the security rises or falls from the strike price by an amount more than the total cost of the premium paid. The profit potential is virtually unlimited, so long as the underlying security price moves very sharply.
More broadly, straddle strategies in finance refer to two separate transactions which both involve the same underlying security, with the two-component transactions offsetting one another.
Investors tend to employ a straddle when they anticipate a significant move in a stock's price but are unsure about whether the price will move up or down.
A shadow banking system is a group of financial intermediaries facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions. Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives, and other unlisted instruments, while examples of unregulated activities by regulated institutions include credit default swaps.
The shadow banking system has escaped regulation primarily because unlike traditional banks and credit unions, these institutions do not accept traditional deposits. Shadow banking institutions arose as innovators in financial markets who were able to finance lending for real estate and other purposes but who did not face the normal regulatory oversight and rules regarding capital reserves and liquidity that are required of traditional lenders in order to help prevent bank failures, runs on banks, and financial crises.
A mad hatter is a chief executive officer whose ability to lead a company is highly suspect. Mad Hatter CEOs are often characterized by misconduct or impulsive and puzzling decisions that employees, board members, and shareholders may question. They often act spontaneously with little regard for viable alternatives or consequences.
The term Mad Hatter refers to a leader or CEO of a company who is ill-equipped for the role. They might have assumed power because they were founders of the company, through nepotism, or due to a poorly planned succession protocol.
Once in power, Mad Hatter CEOs tend to exhibit poor decision-making skills by acting out of self-interest, haste, ego, or gut feelings. As a result of incompetent, incapable, or misguided leadership at the top, the morale of managers and employees suffers.
Typically, Mad Hatter CEOs are either removed or stay in power until their companies are run into the ground.
A wage assignment is an act of taking money directly from an employee's paycheck in order to pay back a debt obligation. Wage assignments may be either voluntary or involuntary, depending on the situation.
Such an automatic withholding plan may be used to pay back a variety of debt obligations, including back taxes, defaulted student loan debt, and both child and spousal support payments.
A wage assignment is typically a last resort of a lender to receive repayment from a borrower who has previously failed to pay a debt obligation. A wage assignment, when involuntary, may also be referred to as wage garnishment and requires a court order.1
Wage assignments are typically incurred for debts that have gone unpaid for a prolonged period of time. Wage assignments can be divided into two categories: voluntary and involuntary. Employees may sometimes opt for a voluntarily wage assignment to pay for things like union dues or to contribute to a retirement fund.
An X-mark signature is made by a person in lieu of an actual signature. Due to illiteracy or disability, a person may be unable to append a full signature in name to a document as an attestation that its content has been reviewed and approved. In order to be legally valid, the X-mark signature must be witnessed.
X-mark signatures are so named because historically the person signing the document simply makes a cross-hatched mark resembling a letter "X" rather than their full, customary signature. The actual form of the X-mark may not actually be a letter "X" and might take some other form of illegible mark meant to authenticate that the person understands and agrees to the stated terms.
Due to the obvious potential for fraud, doubts may arise about the validity and enforceability of documents signed with X-mark signatures. In some states, the presiding law can require courts to invalidate wills signed with an X unless the testator was physically or mentally incapable of signing their own full name.
An individual might use an X-mark signature if they have been injured in an accident and need to approve a legal document but cannot physically form a full signature. For example, the testator may need to grant power of attorney to a responsible party while they are being treated in a hospital.
The term shark watcher refers to a professional or firm that specializes in the early detection of hostile takeovers. Shark watchers are hired by firms that are concerned about the possibility of being targeted by larger corporations. They monitor aspects of a firm's trading activity on the market that could indicate a possible takeover, such as who is accumulating shares and the number of shares acquired.
Large corporations often look at smaller companies and startups as easy takeover targets. The target firm may have a product or service worth acquiring, the acquirer may want to tap into a new market, its business operations may align with the acquirer, or the target may be competing with the larger company.
When a company doesn't want to be taken over, the potential acquirer may decide to pursue a hostile takeover. This occurs when the company behind the takeover tries to buy enough shares of the target on the open market or by purchasing shares from existing shareholders. Acquirers may also try to take control of the company and replace its management team to approve the takeover.
Companies may have experience problems with their share prices as a result of issues with management, finances, or its business. Potential targets have to be vigilant to prevent themselves from being taken over. One way to do so is by hiring what the financial industry calls a shark watcher.
The term is analogous to a large shark swimming around a body of water in search of smaller fish to swallow up.
A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Pegging a currency stabilizes the exchange rate between countries. Doing so provides long-term predictability of exchange rates for business planning. However, a currency peg can be challenging to maintain and distort markets if it is too far removed from the natural market price.
The primary motivation for currency pegs is to encourage trade between countries by reducing foreign exchange risk. Profit margins for many businesses are low, so a small shift in exchange rates can eliminate profits and force firms to find new suppliers. That is particularly true in the highly competitive retail industry.
Countries commonly establish a currency peg with a stronger or more developed economy so that domestic companies can access broader markets with less risk.
The U.S. dollar, the euro, and gold have historically been popular choices. Currency pegs create stability between trading partners and can remain in place for decades. For example, the Hong Kong dollar has been pegged to the U.S. dollar since 1983.
The term Chinese wall, as it is used in the business world, describes a virtual barrier intended to block the exchange of information between departments if it might result in business activities that are ethically or legally questionable. In the United States, corporations, brokerage firms, investment banks, and retail banks have used Chinese walls to describe situations where there is a need to maintain confidentiality in order to prevent conflicts of interest.
Over the years, large financial institutions have used Chinese wall policies as a means to self-regulate their business dealings by creating ethical boundaries between departments. However, these efforts have not always been effective. Thus, the Securities and Exchange Commission (SEC) has enacted regulations governing how financial institutions share information.
The SEC has implemented fines, penalties, and legal consequences for companies that break these regulations.
The need for a Chinese wall in the financial industry became more critical after the enactment of the Gramm-Leach-Bliley Act of 1999. The law repealed federal regulations prohibiting companies from providing any combination of banking, investing, and insurance services.
The GLBA reversed restrictions on such combinations that had been in place since the Great Depression. The GLBA also enabled the creation of today's financial giants such as Citigroup and JPMorgan Chase.
A candlestick is a type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period. It originated from Japanese rice merchants and traders to track market prices and daily momentum for hundreds of years before becoming popularized in the United States. The wide part of the candlestick is called the real body and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher).
The candlestick's shadows show the day's high and low and how they compare to the open and close. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices.
Candlesticks reflect the impact of investor sentiment on security prices and are used by technical analysts to determine when to enter and exit trades. Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice.
Candlesticks are a suitable technique for trading any liquid financial asset such as stocks, foreign exchange and futures.
Lame-duck is an out-of-use British term used with reference to a trader who had defaulted on their obligations or gone bankrupt due to an inability to cover trading losses.
Lame-duck was a British term used to describe members of the London Stock Exchange who were unable to meet their claims on settlement day.
The phrase lame duck can be traced to the London Stock Exchange. A member who was unable to meet their claims on settlement day was described as a "lame duck" and would lose their membership on the exchange.
The image of a financially injured trader waddling away from the exchange helps to illustrate how this colourful phrase came into usage. The terms bull and bear date from the same period.
The term lame ducks often appeared in newspaper accounts from the time, particularly when the market suffered losses. For example, this account was recorded on July 19, 1787.
A Lady Macbeth strategy is a corporate takeover scheme in which a third party poses as a white knight to gain trust, only to then turn around and join forces with the unfriendly party in a hostile takeover bid. Behind the scenes, the hostile bidder and supposed white knight to the target company will collude to achieve their aim of acquiring a company that is trying to resist the attempt.
This particular strategy is named after Lady Macbeth, one of Shakespeare's most frightful and ambitious characters, who devises a cunning plan for her husband, the Scottish general, to kill Duncan, the King of Scotland.
One of the biggest fears facing many companies is the prospect of getting taken over against their wishes by a 1980s-style corporate raider and then broken up and sold off in pieces. Sometimes, rebuffing the advances of these opportunistic investors is not enough. Refuse to negotiate and they could find a way to conquer anyway, such as by initiating a tender offer directly to shareholders, employing a proxy fight, or attempting to buy the necessary company stock in the open market.
If the hostile party succeeds in drumming up enough support and digging its claws in, the management’s only alternative might be to hope and pray that a white knight gallops onto the scene at the last minute to save the day.
In exchange for some incentives, such as paying a smaller premium to take control of the company than otherwise would be required under competitive bid conditions, a friendly white knight might be willing to play the role of saviour and rescue the target from the clutches of another prospective buyer with intentions to bleed it dry to make a quick profit.
The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service (IRS) uses 183 days as a threshold in the substantial presence test, which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation.
The 183rd day of the year marks a majority of the days in a year, and for this reason countries around the world use the 183-day threshold to broadly determine whether to tax someone as a resident. These include Canada, Australia, and the United Kingdom, for example. Generally, this means that if you spent 183 days or more in the country during a given year, you are considered a tax resident for that year.
Each nation subject to the 183-day rule has its own criteria for considering someone a tax resident. For example, some use the calendar year for its accounting period, whereas some use a fiscal year. Some include the day the person arrives in their country in their count, while some do not.
Some countries have even lower thresholds for residency. For example, Switzerland considers you a tax resident if you have spent more than 90 days there.
The 2,000 Investor Limit is a stipulation required by the Securities & Exchange Commission that mandates a company that exceeds 2,000 individual investors. With more than $10 million in combined assets, it must file its financials with the commission.1 According to SEC rules, a company that meets these criteria has 120 days to file following its fiscal year's end.
The 2,000 investor limit or rule is a key threshold for private businesses that do not wish to disclose financial information for public consumption. Congress raised the limit from 500 individual investors in 2016 as part of the Jumpstart Our Business Startups Act and Title LXXXV of the Fixing America’s Surface Transportation Act.
The revised rules also specify a limit of 500 persons who have not accredited investors before public filing is required.2
The prior threshold had been 500 holders of record without regard to accredited investor status. Congress began debating an increase in the limit in the wake of the 2008 recession and an explosion in online businesses.
The receivables turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its accounts receivable, or the money owed by customers or clients. This ratio measures how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. A firm that is efficient at collecting on its payments due will have a higher accounts receivable turnover ratio.
It is useful to compare a firm's ratio with that of its peers in the same industry to gauge whether it is on par with its competitors.
Companies that maintain accounts receivables are indirectly extending interest-free loans to their clients since accounts receivable is money owed without interest. If a company generates a sale to a client, it could extend terms of 30 or 60 days, meaning the client has 30 to 60 days to pay for the product.
The receivables turnover ratio measures the efficiency with which a company collects on its receivables or the credit it extends to customers. The ratio also measures how many times a company's receivables are converted to cash in a period. The receivables turnover ratio is calculated on an annual, quarterly, or monthly basis.
Unappropriated retained earnings consist of any portion of a company's retained earnings that are not classified as appropriated retained earnings. Appropriated retained earnings are set aside by the board and are assigned to a specific purpose, such as factory construction, hiring new labour, buying new equipment, or marketing. They will not be distributed to shareholders as dividend payments. Unappropriated retained earnings can be passed on to shareholders in the form of dividend payments.
Unappropriated retained earnings help to determine the number of dividends that will be paid to shareholders. They are not directed towards a specific purpose by the board so are available to be paid out as dividends. The greater the unappropriated retained earnings, the higher the dividend that can possibly be paid. Unappropriated retained earnings are divided among all of the outstanding shares of the company and paid as dividends according to a predetermined dividend payment schedule.
Zombies are companies that earn just enough money to continue operating and service debt but are unable to pay off their debt. Such companies, given that they just scrape by meeting overheads (wages, rent, interest payments on debt, for example), have no excess capital to invest to spur growth. Zombie companies are typically subject to higher borrowing costs and maybe one just event away from insolvency or a bailout. Zombies are especially dependent on banks for financing, which is fundamentally their life support. Zombie companies are also known as the living dead or zombie stocks.
Zombies often fail, falling victim to the high costs associated with debt or certain operations, such as research and development. They may lack the resources for capital investment, which would create growth. If a zombie company employed so many people that its failure would become a political issue, it may be deemed too big to fail, as was the case with many financial institutions during the 2008 financial crisis.
Given that many analysts expect that zombies will eventually be unable to meet their financial obligations, such companies are considered riskier investments and will, therefore, see their share prices suppressed.
White-collar crime is a nonviolent crime committed for financial gain. According to the FBI, a key agency that investigates these offenses, these crimes are characterized by deceit, concealment, or violation of trust.
The motivation for these crimes is "to obtain or avoid losing money, property, or services or to secure a personal or business advantage.
Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering. In addition to the FBI, entities that investigate white-collar crime include the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and state authorities.
White-collar crime has been associated with the educated and affluent ever since the term was first coined in 1949 by sociologist Edwin Sutherland, who defined it as a crime committed by a person of respectability and high social status in the course of his occupation.
White-collar workers historically have been the shirt and tie set, defined by office jobs and management, and not getting their hands dirty.
This class of workers stands in contrast to blue-collar workers, who traditionally wore blue shirts and worked in plants, mills, and factories.
Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December.
Quadruple witching is similar to the triple witching dates, when three out of the four markets expire at the same time, or double witching when two markets out of the four markets expire at the same time.
Quadruple witching refers to a date on which derivatives of stock index futures, stock index options, stock options, and single stock futures expire simultaneously.
While it may result in increased volume and arbitrage opportunities, quadruple witching does not necessarily translate to increased volatility in the markets.
Quadruple witching days witness heavy trading volume, in part, due to the offsetting of existing futures and options contracts that are profitable.
A 51% attack refers to an attack on a blockchain—most commonly bitcoins, for which such an attack is still hypothetical—by a group of miners controlling more than 50% of the network's mining hash rate or computing power.
The attackers would be able to prevent new transactions from gaining confirmations, allowing them to halt payments between some or all users. They would also be able to reverse transactions that were completed while they were in control of the network, meaning they could double-spend coins.
They would almost certainly not be able to create new coins or alter old blocks. A 51% attack would probably not destroy bitcoin or another blockchain-based currency outright, even if it proved highly damaging.
Zakat is an Islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes.
Zakat is a mandatory process for Muslims and is regarded as a form of worship. Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
Zakat is one of the Five Pillars of Islam, the others being a declaration of faith, prayer, fasting during Ramadan, and the Hajj pilgrimage. It is a compulsory procedure for Muslims earning above a certain threshold and should not be confused with Sadaqah, the act of voluntarily giving charitable gifts out of kindness or generosity.
Religious texts offer comprehensive descriptions of the minimum amount of zakat that should be distributed to those less fortunate. It generally varies, depending on whether wealth came from the farm produce, cattle, business activities, paper currency, or precious metals, such as gold and silver.
Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5% or 1/40 of a Muslim's total savings and wealth.
A zero-day attack also referred to as Day Zero is an attack that exploits a potentially serious software security weakness that the vendor or developer may be unaware of.
The software developer must rush to resolve the weakness as soon as it is discovered in order to limit the threat to software users. The solution is called a software patch. Zero-day attacks can also be used to attack the internet of things.
A zero-day attack gets its name from the number of days the software developer has known about the problem.
A zero-day attack can involve malware, adware, spyware, or unauthorized access to user information. Users can protect themselves against zero-day attacks by setting their software—including operating systems, antivirus software, and internet browsers—to update automatically and by promptly installing any recommended updates outside of regularly scheduled updates.
That being said, having updated antivirus software will not necessarily protect a user from a zero-day attack, because until the software vulnerability is publicly known, the antivirus software may not have a way to detect it.
Host intrusion prevention systems also help to protect against zero-day attacks by preventing and defending against intrusions and protecting data.
A zero basis risk swap (ZEBRA) is an interest rate swap agreement between a municipality and a financial intermediary. A swap is an agreement with two counterparties, where one party pays the other party a fixed interest rate and receives a floating rate.
This particular swap is considered zero-risk because the municipality receives a floating rate that is equal to the floating rate on its debt obligations, meaning that there is no basis risk with the trade. The ZEBRA is also known as a "perfect swap" or "actual rate swap."
A zero basis risk swap is an interest rate swap entered into between a municipality and a financial intermediary.
A swap is an over-the-counter derivative where one party pays the other party a fixed interest rate and receives a floating rate.
A ZEBRA entails the municipality paying a fixed rate of interest on a specified principal amount to the financial intermediary.
ZEBRAs entail the municipality paying a fixed rate of interest on a specified principal amount to the financial intermediary. In return, they receive a floating rate of interest from the financial intermediary. The floating rate received is equal to the floating rate on the municipality's outstanding debt to the public.
Basis risk is the financial risk that offsetting investments in a hedging strategy will not experience price changes in opposite directions from each other.
This imperfect correlation between the two investments creates the potential for excess gains or losses in a hedging strategy, thus adding risk to the position. A ZEBRA is free from such risk.
The Zig Zag indicator lowers the impact of random price fluctuations and is used to help identify price trends and changes in price trends.The Zig Zag indicator lowers the impact of random price fluctuations and is used to identify price trends and changes in price trends. The indicator lowers noise levels, highlighting underlying trends higher and lower. The Zig Zag indicator works best in strongly trending markets.The Zig Zag indicator plots points on a chart whenever prices reverse by a percentage greater than a pre-chosen variable. Straight lines are then drawn, connecting these points.The indicator is used to help identify price trends. It eliminates random price fluctuations and attempts to show trend changes. Zig Zag lines only appear when there is a price movement between a swing high and a swing low that is greater than a specified percentage—often 5%. By filtering minor price movements, the indicator makes trends easier to spot in all time frames.
A Godfather offer is an irrefutable takeover bid made to a target company by an acquirer. Typically, the offer is priced at an extremely generous premium compared with the target's prevailing share price, making it difficult for management to reject the bid without angering shareholders and being accused of breaching their fiduciary duty.A Godfather offer is named after the Francis Ford Coppola movie of the same title. More specifically, the name refers to the film's famous line, "I'm gonna make him an offer he can't refuse." This line has gone on to become one of the most celebrated quotations in cinema. In essence, the idea of a Godfather offer isn't so much an offer as a sly, yet heavy-handed demand: do as I say, or else.Of course, the acquiring company isn't insinuating it will kill somebody if it doesn't get its way, like Marlon Brando's character Don Corleone did in the movie. However, it is being aggressive and putting a targeted company that doesn't want to be purchased in an awkward, vulnerable position.When a tender offer is made publicly inviting shareholders to sell their shares at a very favorable price, the target's board of directors might have trouble voicing its resistance. Put it this way: If management doesn't want to sell and snubs the bid, shareholders may initiate lawsuits or other forms of revolt against the target company for not performing its fiduciary duty of looking out for shareholders' interests.
In business, a bear hug is an offer made by one company to buy the shares of another for a much higher per-share price than what that company is worth in the market. It's an acquisition strategy that companies sometimes use when there's doubt that the target company's management or shareholders are willing to sell.The bear hug offer, though usually financially favorable, is generally unsolicited by the target company.The name bear hug reflects the persuasiveness of the offering company's overly generous offer to the target company. By offering a price far in excess of the target company's current value, the offering party can usually obtain an acquisition agreement. The target company's management is essentially forced to accept such a generous offer because it's legally obligated to look out for the best interests of its shareholders.To qualify as a bear hug, the acquiring company must make an offer well above market value for a large number of a company’s shares.A business may attempt a bear hug in an effort to avoid a more confrontational form of takeover attempt or one that would require significantly more time to complete. The acquiring company may use a bear hug to limit competition or acquire goods or services that complement its current offerings.
Big uglies is a slang term for large, old companies operating in hard, so-called dirty, industries such as manufacturing, oil, steel, and mining. These types of stocks tend to be unpopular with investors, with their generally dogged, steady returns and resistance to volatility often being overlooked in favor of more exciting, higher growth companies on the cutting edge of an industry.Over the years, the criteria of what constitutes a big ugly have broadened. Nowadays, the term commonly refers to all kinds of out-of-favor investments. Big uglies are generally household names with a stable market share in established industries.Big uglies traditionally denoted stocks in the manufacturing and infrastructure industries. As technology has advanced, the term has gradually loosened and is now more all-encompassing of any company in any unfashionable sector.Being unpopular means big uglies typically trade at low price-to-earnings and price-to-book ratios, putting them firmly in the value category of investing. However, many investors prefer to chase the higher returns potentially provided by the racier, more saturated parts of the stock market. Investors who want to make lots of money or have short-term goals may not be interested in big uglies because they simply don't experience enough quarterly growth.
Ankle biter is a slang term for a stock with low market capitalization.Ankle biter is also used to describe very young children or possibly a small, aggressive dog. The idea is that both small children and dogs are so small that they can only reach one's ankles. This slang term emerged around the 1950s.As an investment, ankle-biters tend to be quite volatile and are often thinly traded. On the plus side, ankle-biters often have greater growth potential than larger stocks and encompass many emerging technologies.Generally, an ankle biter is a stock that has a market capitalization of less than $500 million. Such stocks are also referred to as micro-cap or small-cap stocks. They are also sometimes described more generally as secondary stocks. Although there is no etched-in-stone definition, typically, a stock is considered to be a small-cap, if it has a market capitalization of $300 million to $2 billion, while a micro-cap stock is an issue with a market cap of less than $300 million.
Cookie jar reserves are savings from previous quarters that a company records as earnings in subsequent quarters to make it appear that its earnings were higher than they really were. When a company fails to meet its earnings target, a company accountant can dip into the cookie jar to inflate the numbers.Needless to say, the practice of cookie jar accounting is frowned on by government regulators as it misleads investors on the company's performance.Wall Street values companies that consistently meet or beat their earnings targets quarter after quarter. Analysts rate them highly and investors pay a premium for their stock shares.They tend to be valued more highly than companies that have the potential to earn spectacular amounts of money in some quarters but fail in others.Cookie jar accounting can be used to smooth out volatility in financial results and give a false impression of stability.
A big bath is an accounting term that is defined by a company's management team knowingly manipulating its income statement to make poor results look even worse in order to make future results appear better. It is often implemented in a relatively bad year so that a company can enhance the next year's earnings in an artificial manner.A big bath is so named because it is like wiping the slate clean. A big bath accounting manoeuvre can result in a big rise in apparent future earnings, which might result in a larger bonus for executives, giving them the incentive to pursue a big bath accounting manoeuvre. New CEOs sometimes use the big bath so that they can blame the company's poor performance on the previous CEO and take credit for the next year's improvements.Because stocks trade on earnings, an adverse earnings report may cause significant depreciation in a stock. When earnings are positively affected by the big bath in the future, the stock price can recover and trade even higher than it otherwise would have without the accounting manipulation. A big bath is not necessarily illegal because it can be done effectively within the boundaries of current accounting rules; however, it is seen as unethical.
A grey wave describes an investment or company thought to be profitable in the long term or extended long term. Speculators of grey waves will buy an investment vehicle that they believe will show a return in the very long term, and not before. The term grey wave can be explained by the understanding that when buying into a grey wave company, the investor should not plan for an immediate or even short-term positive return but, instead, only when they are much older and have grey hair.Grey wave describes investment in the company that will likely not yield a positive return until a long time has passed. Grey wave investments are not suitable for all investor types. Often, portfolio managers buy stocks that are expected to yield a particular return within a particular time frame, typically three to five years.
Killer bees are companies or individuals—such as investment bankers, accountants, attorneys, and tax specialists—that help target firms avoid being taken over by an unwanted suitor. Their job is to devise and implement anti-takeover defence strategies, which generally consist of making the target less attractive or more difficult or costly to acquire.When a company targets another one for acquisition, it will usually first approach its board of directors. If rebuffed, the acquirer could then return with a better bid, walk away, or seek to bypass management by initiating a tender offer directly to shareholders.Should takeover advances turn unfriendly or hostile, killer bees may be brought on board. Their job is to come up with feasible ways to make life uncomfortable for the prospective buyer, similar to how their namesake stings its victims when provoked until they back off and go away.Killer bees rose to prominence during the 1980s hostile takeover craze. Back then, a category of investors with deep pockets, known as raiders, began buying undervalued companies and then controversially dismembering them to bag a quick profit. Corporate America wasn't used to this type of behaviour and enlisted the help of specialists to defend against these attacks.Killer bees would present a series of options to the target's board based on its individual circumstances and the characteristics of the company seeking to buy it. To foil a hostile takeover attempt, they generally aim to make the prey either too expensive to acquire or so unattractive that the predator loses interest.
The cockroach theory refers to a market theory that states when a company reveals bad news to the public, many more related, negative events may be revealed in the future. Bad news may come in the form of an earnings miss, a lawsuit, or some other unexpected, negative event. The term cockroach theory comes from the common belief that seeing one cockroach is usually evidence there are many more.The cockroach theory is a nonscientific theory that is predicated on the idea that a company's fortunes are dependent on both external and internal forces, and may not just be affected by one piece of bad news. Put simply, when you see one cockroach, there may be many more you can't see right away. After all, one cockroach usually means there are more lying around in the dark. So when a company is negatively affected by external forces, it is unlikely that its industry peers are immune to those same forces. Therefore, when one company's misfortunes are revealed to the public, it is likely that similar misfortunes will befall other similarly affected companies.Earnings surprises or misses are indicators of industry trends, particularly if they occur for more than one company in an industry. If one isolated company in a sector shows an earnings surprise, it could be ignored. However, if more than one company announces an earning surprise or miss, it could be a strong indicator that other companies in the industry will have similar earnings results.
The colloquial term sushi bond is used to describe a bond issued by a Japanese company in a market outside of Japan and denominated in a currency other than the yen. The most common issuing currency is the U.S. dollar.A sushi bond is essentially a type of Eurobond. That is, it is an international bond issued in a currency that is not native to its issuer. In this case, the issuer is Japanese and the currency is usually the U.S. dollar.Sushi bonds bear a fixed rate of interest and can be short-term or long-term. They are primarily issued by Japanese corporations for Japanese investors. They become more popular investments when the value of the yen is weak. By contrast, a bond issued by a Japanese company outside of Japan but denominated in Japanese yen is known as a Euroyen bond.Japanese institutional investors find them attractive because they exist outside of the jurisdiction of the Bank of Japan and therefore do not count toward regulations limiting ownership of foreign securities. Japanese institutions, corporations, and insurance companies that wish to add some currency diversification to their bond portfolios are logical buyers.Japanese companies may issue such bonds to capitalize on investment opportunities, to access low-cost financing, or to refinance foreign currency liabilities. The attractiveness of the sushi bond with both buyers and sellers rises and falls with currency exchange rates.One unusual characteristic of the sushi bond is that both the buyers and the sellers are usually Japanese, even though they are foreign currency bonds. The bonds can be bought directly or through the secondary bond markets.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale.The basic concept behind everyday value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality.Stocks work in a similar manner, meaning the company’s stock price can change even when the company’s value or valuation has remained the same. Stocks, like TVs, go through periods of higher and lower demand leading to price fluctuations but that doesn't change what you’re getting for your money.
Capital investment is the procurement of money by a company in order to further its business goals and objectives. The term can also refer to a company's acquisition of long-term assets such as real estate, manufacturing plants and machinery.In either case, the money for capital investment must come from somewhere. A new company might seek capital investment from any number of sources, including venture capital firms, angel investors and traditional financial institutions. The company uses the capital to further develop and market its products. When a new company goes public, it is acquiring capital investment on a large scale from many investors.An established company might make a capital investment using its own cash reserves, or seek a loan from a bank. If it is a public company, it might issue a bond in order to finance capital investment.There is no minimum or maximum capital investment. It can range from less than $100,000 in seed financing for a start-up, to hundreds of millions of dollars for massive projects undertaken by companies in capital-intensive sectors such as mining, utilities and infrastructure.
The barbell is an investment strategy applicable primarily to a fixed income portfolio. Following a barbell method, half the portfolio contains long-term bonds and the other half holds short-term bonds. The barbell gets its name because the investment strategy looks like a barbell with bonds heavily weighted at both ends of the maturity timeline. The graph will show a large number of short-term holdings and long-term maturities, but little or nothing in intermediate holdings.The barbell strategy will have a portfolio consisting of short-term bonds and long-term bonds, with no intermediate bonds. Short-term bonds are considered bonds with maturities of five years or less while long-term bonds have maturities of 10 years or more. Long-term bonds usually pay higher yields—interest rates—to compensate the investor for the risk of the long holding period.However, all fixed-rate bonds carry interest rate risk, which occurs when market interest rates are rising in comparison to the fixed-rate security being held. As a result, a bondholder might earn a lower yield compared to the market in a rising-rate environment. Long-term bonds carry higher interest rate risk than short-term bonds. Since short-term maturity investments allow the investor to reinvest more frequently, comparably rated securities carry a lower yield with the shorter holding requirements.
The risk-free rate of return is the theoretical rate of return of an investment with zero risks. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time. The real risk-free rate can be calculated by subtracting the current inflation rate from the yield of the Treasury bond matching your investment duration.In theory, the risk-free rate is the minimum return an investor expects for any investment because he will not accept additional risk unless the potential rate of return is greater than the risk-free rate.In practice, however, a truly risk-free rate does not exist because even the safest investments carry a very small amount of risk. Thus, the interest rate on a three-month U.S. Treasury bill is often used as the risk-free rate for U.S.-based investors.Determination of a proxy for the risk-free rate of return for a given situation must consider the investor's home market, while negative interest rates can complicate the issue.
Preferred stocks are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders. Most preference shares have a fixed dividend, while common stocks generally do not. Preferred stock shareholders also typically do not hold any voting rights, but common shareholders usually do.Preference shares fall under four categories: cumulative preferred stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock.Cumulative preferred stock includes a provision that requires the company to pay shareholders all dividends, including those that were omitted in the past, before the common shareholders are able to receive their dividend payments. These dividend payments are guaranteed but not always paid out when they are due. Unpaid dividends are assigned the moniker dividends in arrears and must legally go to the current owner of the stock at the time of payment. At times additional compensation is awarded to the holder of this type of preferred stock.
The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence). Approval from the custodian is mandatory for the account to conduct transactions, such as buying or selling securities.A custodial account can mean any account maintained by a fiduciarily responsible party on behalf of a beneficiary, such as an employer-based retirement account handled for eligible employees by a plan administrator. A fiduciary is bound ethically and legally to act on the best behalf of another's interests.Each state has specific regulations governing the age of the majority and the naming of custodians and alternate custodians.
Common stock is a security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies. This form of equity ownership typically yields higher rates of return long term. However, in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders, and other debt holders are paid in full. Common stock is reported in the stockholder's equity section of a company's balance sheet.With common stock, if a company goes bankrupt, the common stockholders do not receive their money until the creditors, bondholders, and preferred shareholders have received their respective share. This makes common stock riskier than debt or preferred shares. The upside to common shares is they usually outperform bonds and preferred shares in the long run. Many companies issue all three types of securities. For example, Wells Fargo & Company has several bonds available on the secondary market. The first-ever common stock was established in 1602 by the Dutch East India Company and introduced on the Amsterdam Stock Exchange. Larger US-based stocks are traded on a public exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. As of 2019, the former has 2800 stocks listed on its bourses, while the latter has 3300 stocks listed. NYSE had a market capitalization of $28.5 trillion in June 2018, making it the biggest stock exchange in the world by market cap.
A non-fungible token is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable. NFTs can represent digital files such as art, audio, videos, items in video games, and other forms of creative work. While the digital files themselves are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of ownership.[1] Blockchains such as Ethereum, and Flow each have their own token standards to define their use of NFTs.NFTs can be used for commodity digital creations, such as digital art, video game items, and music files. Access to any copy of the original file, however, is not restricted to the owner of the token. The first NFTs were Ethereum-based and appeared around 2015. Increased interest in the market for NFTs has resulted in increased speculation, as the same investors who had previously speculated on cryptocurrencies began trading NFTs at greatly increasing volumes.NFTs mostly run on a proof-of-work blockchain, which is less energy efficient than a proof-of-stake blockchain. This has resulted in some criticism of the carbon footprint for NFT transactions.
The 52-week high/low is the highest and lowest price at which a security, such as a stock, has traded during the time period that equates to one year.A 52-week high/low is a technical indicator used by some traders and investors who view these figures as an important factor in the analysis of a stock's current value and as a predictor of its future price movement. An investor may show increased interest in a particular stock as its price nears either the high or the low end of its 52-week price range.The 52-week high/low is based on the daily closing price for the security. Often, a stock may actually breach a 52-week high intraday, but end up closing below the previous 52-week high, thereby going unrecognized. The same applies when a stock makes a new 52-week low during a trading session but fails to close at a new 52-week low. In these cases, the failure to register as having made a new closing 52-week high/low can be very significant.
The term redemption has different uses in the finance and business world, depending on the context. In finance, redemption describes the repayment of any money market fixed-income security at or before the asset's maturity date. Investors can make redemptions by selling part or all of their investments such as shares, bonds, or mutual funds. In business and marketing, however, consumers often redeem coupons and gift cards for products and services.People who invest in fixed-income securities receive regular interest payments at a fixed value. These instruments can be redeemed before or on the maturity date. If redeemed at the time of maturity, an investor receives the par value or the face value of the security.Corporations that issue bonds or other securities may pay investors a redemption value when they buy back their securities on or before the maturity date. Interest payments generally stop before they do this. The redemption value is typically higher than a bond's par value. The redemption of these bonds, referred to as called bonds, is at a premium price above par.For a mutual fund investor to make a redemption, the investor must inform their fund manager of their request. The manager must process the request within a certain amount of time and distribute the funds to the investor. The amount owed to the investor is normally the current market value of their shares less any fees and other charges.
The Sharpe ratio was developed by Nobel laureate William F. Sharpe and is used to help investors understand the return of an investment compared to its risk.1 2 The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio.Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. The risk-free rate of return is the return on investment with zero risk, meaning it's the return investors could expect for taking no risk. The yield for a U.S. Treasury bond, for example, could be used as the risk-free rate.Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.The Sharpe ratio has become the most widely used method for calculating the risk-adjusted return. Modern Portfolio Theory states that adding assets to a diversified portfolio that has low correlations can decrease portfolio risk without sacrificing return.Adding diversification should increase the Sharpe ratio compared to similar portfolios with a lower level of diversification. For this to be true, investors must also accept the assumption that risk is equal to volatility, which is not unreasonable but may be too narrow to be applied to all investments.The Sharpe ratio can be used to evaluate a portfolio’s past performance where actual returns are used in the formula. Alternatively, an investor could use expected portfolio performance and the expected risk-free rate to calculate an estimated Sharpe ratio.
A blue-chip index is an index that tracks shares of the well-known and financially stable publicly traded companies known as blue chips. Blue-chip stocks represent companies that provide investors with consistent returns, making them desirable investments. Blue-chip companies are considered a gauge of the relative strength of an industry or economy. A blue-chip index is a bellwether, meaning news reports and analysts tend to emphasize the performance of major blue-chip stock indexes, such as the S&P 500 and Dow Jones Industrial Average each day.The blue-chip index seeks to gain exposure to a variety of stable stocks by purchasing shares of an exchange-traded fund or index fund, rather than selecting individual stocks. Besides the DIJA and S&P 500, other examples of blue-chip indexes include the New Europe Blue Chip Index which tracks 30 of the top stocks traded in central, eastern and southeastern Europe, and the DAX Index, which tracks the top 30 companies on the Frankfurt Stock Exchange.The term blue chip originates from the game of poker, where the highest denominated chip is coloured blue. While there is no universal definition of what makes up a blue-chip company, there are several qualities each company shares.
A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity such as U.S. Treasuries. Money market funds are intended to offer investors high liquidity with a very low level of risk. Money market funds are also called money market mutual funds.While they sound similar in name, a money market fund is not the same as a money market account . A money market fund is an investment that is sponsored by an investment fund company. Therefore, it carries no guarantee of principal. A money market account is a type of interest-earning savings account. Money market accounts are offered by financial institutions. They are insured by the Federal Deposit Insurance Corporation and they typically have limited transaction privileges.
Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated.There are several types of profit margin. In everyday use, however, it usually refers to net profit margin, a company’s bottom line after all other expenses, including taxes and one-off oddities, have been taken out of revenue.
A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. Because securities exchanges only accept orders from individuals or firms who are members of that exchange, individual traders and investors need the services of exchange members. Brokers provide that service and are compensated in various ways, either through commissions, fees or through being paid by the exchange itself.brokers may provide investors with research, investment plans and market intelligence. They may also cross-sell other financial products and services their brokerage firm offers, such as access to a private client offering that provides tailored solutions to high net worth clients. In the past, only the wealthy could afford a broker and access the stock market. Online broking triggered an explosion of discount brokers, which allow investors to trade at a lower cost, but without personalized advice.
An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes. The asset allocation of the fund can be fixed or variable among a mix of asset classes, meaning that it may be held to fixed percentages of asset classes or allowed to go overweight on some depending on market conditions.Popular asset categories for asset allocation funds include stocks, bonds, and cash equivalents that may also be spread out geographically for additional diversification. Asset allocation funds were developed from modern portfolio theory. Modern portfolio theory shows that investors can achieve optimal returns by investing in a diversified portfolio of investments included in an efficient frontier.The standard applications of modern portfolio theory investing include an efficient frontier of stocks, bonds, and cash equivalents. Furthermore, modern portfolio theory outlines how a portfolio can vary its asset mix to tailor to the risk tolerance of the investor.
The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time.Analysts and investors review a company's P/E ratio when they determine if the share price accurately represents the projected earnings per share. The formula and calculation used for this process follow.A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends. When a company has no earnings or is posting losses, in both cases P/E will be expressed as N/A. Though it is possible to calculate a negative P/E, this is not the common convention.
A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds. The document can help investors make more informed investment decisions because it contains a host of relevant information about the investment security.Companies that wish to offer bond or stock for sale to the public must file a prospectus with the Securities and Exchange Commission as part of the registration process. Companies must file a preliminary and final prospectus, and the SEC has specific guidelines as to what's listed in the prospectus for various securities.The preliminary prospectus is the first offering document provided by a security issuer and includes most of the details of the business and transaction. However, the preliminary prospectus doesn't contain the number of shares to be issued or price information. Typically, the preliminary prospectus is used to gauge interest in the market for the security being proposed.
One way to make money on stocks for which the price is falling is called short selling. Short selling is a fairly simple concept when an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender.Short sellers are betting that the stock they sell will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and returns it to the lender. The difference between the sell price and the buy price is the profit.Short selling involves amplified risk. When an investor buys a stock they stand to lose only the money that they have invested. Thus, if the investor bought one TSLA share at $625, the maximum they could lose is $625 because the stock cannot drop to less than $0. In other words, the maximum value that any stock can fall to is $0.Short selling can be used for speculation or hedging. Speculators use short selling to capitalize on a potential decline in a specific security or across the market as a whole. Hedgers use the strategy to protect gains or mitigate losses in a security or portfolio.Notably, institutional investors and savvy individuals frequently engage in short-selling strategies simultaneously for both speculation and hedging. Hedge funds are among the most active short-sellers and often use short positions in select stocks or sectors to hedge their long positions in other stocks.
An investment property is a real estate property purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both. The property may be held by an individual investor, a group of investors, or a corporation.An investment property can be a long-term endeavor or a short-term investment. With the latter, investors will often engage in flipping, where real estate is bought, remodeled or renovated, and sold at a profit within a short time frame.The term investment property may also be used to describe other assets an investor purchases for the sake of future appreciation such as art, securities, land, or other collectibles.Investment properties are those that are not used as a primary residence. They generate some form of income—dividends, interest, rents, or even royalties—that fall outside the scope of the property owner's regular line of business. And the way in which an investment property is used has a significant impact on its value.
An automatic investment plan is an investment program that allows investors to contribute money to an investment account at regular intervals to be invested in a pre-set strategy or portfolio. Funds can be automatically deducted from an individual's paycheck or paid out from a personal account.An automatic investment plan is one of the best ways to save money. Numerous market mechanisms have been devised to help facilitate automatic investment plans. Investors can contribute through their employer by scheduling automatic deductions from their paycheck for investment in employer-sponsored investment accounts. Individuals can also choose to set up automatic withdrawals from a personal account.Employers offer various options for automatic investing through their benefits programs. Investment options help to support both short-term and long-term investment goals for employees. The most common investment vehicle for employer-sponsored automatic investing is a 401k. Employees can choose to automatically invest a percentage of their paycheck in an employer-sponsored 401k. Many employers will often match a percentage of their employees' automatic investment as part of their benefits program.Companies may also offer additional options for automatic investing, such as company stock or Z-shares at a mutual fund company. These automatic investing options help to promote loyalty and long-term tenure.
A one-night stand investment is purchased security that was intended for long-term investment but is instead sold very quickly, many times as soon as the next day. One night stand investments are often sold urgently on the trading day after purchase because the investor regrets buying the shares to such a degree that fear and panic begin setting in. This can even lead to immediate, short-term losses. A one-night stand investment is typical of an indecisive investor and is related to the field of behavioral finance.An investor who researches an investment and buys one day, feeling that the company and its future are strong, maybe panic-stricken and ready to sell the next day when unexpected news threatens his or her perceptions of the security of his or her long-term investment. The incidents instigating the sudden sale can include many things, such as the company's profits missing their target, industry shifts, acquisitions, and regulatory changes.A one-night stand investment might also be the result of the stock not living up to expectations, outside events that may impact the stock, such as a competing company, or a natural disaster that ruins a factory where the company is run.
An open-ended investment company is a type of investment fund domiciled in the United Kingdom that is structured to invest in stocks and other securities. The company's shares list on the London Stock Exchange and the price of the shares are based largely on the underlying assets of the fund. These funds can mix different types of investment strategies such as income and growth, and small cap and large cap, and can constantly adjust their investment criteria and fund size.OEICs are called open-ended because they can create new shares to meet investor demand. Also, the fund will cancel shares of investors who exit the fund.An open-ended investment company pools investors’ money and spreads it across a wide range of investments, such as equities or fixed-interest securities. This diversification helps reduce the risk of losing an investor’s principal. OEIC funds offer the potential for growth or income. They usually function as a medium to long-term investment, held for five to 10 years or longer.
A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.The term sheet should cover the significant aspects of a deal without detailing every minor contingency covered by a binding contract. The term sheet essentially lays the groundwork for ensuring that the parties involved in a business transaction agree on most major aspects. The term sheet reduces the likelihood of a misunderstanding or unnecessary dispute. Additionally, the term sheet ensures that expensive legal charges involved in drawing up a binding agreement or contract are not incurred prematurely.All term sheets contain information on the assets, initial purchase price including any contingencies that may affect the price, a timeframe for a response, and other salient information.Term sheets are most often associated with startups. Entrepreneurs find this document crucial for investors, often venture capitalists (VC), who may offer capital to fund startups.
A structured investment vehicle is a pool of investment assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as asset-backed securities.A structured investment vehicle is a type of special-purpose fund that borrows for the short-term by issuing commercial paper, in order to invest in long-term assets with credit ratings between AAA and BBB. Long-term assets frequently include structured finance products such as Mortgage-Backed Securities, Asset-Backed Securities, and the less risky tranches of Collateralized Debt Obligations.Funding for SIVs comes from the issuance of commercial paper that is continuously renewed or rolled over; the proceeds are then invested in longer maturity assets that have less liquidity but pay higher yields. The SIV earns profits on the spread between incoming cash flows (principal and interest payments on ABS) and the high-rated commercial paper that it issues.
Refunded bonds, which are a subset of the municipal and corporate bond classes, are bonds that have their principal cash amount already held aside by the original issuer of the debt. This is often accomplished through the use of a sinking fund, an account a firm uses to set aside money earmarked to pay off the debt from a bond or other debt issue. The sinking fund gives bond investors an added element of security.A refunded bond should not be confused with a pre-refunding bond, which is a debt security that is issued in order to fund a callable bond. With a pre-refunding bond, the issuer decides to exercise its right to buy its bonds back before the scheduled maturity date.Refunded bonds are low-risk investments because the principal amount is already accounted for. The funds required to pay off refunded bonds are held in escrow until the maturity date, usually by purchasing Treasury or agency paper. Refunded bonds can also be referred to as pre-refunded bonds or prior issues.
Medium-term is an asset holding period or investment horizon that is intermediate in nature. The exact period of time that is considered medium term depends on the investor's personal preferences, as well as on the asset class under consideration. In the fixed-income market, bonds that have a maturity period of five to 10 years are considered to be medium-term bonds. A day trader who seldom holds open positions overnight may consider a stock that is held for a couple of weeks as a medium-term position, whereas a long-term investor may define the medium term as a holding period of one to three years. Similarly, homeowners may regard anything less than 10 years as a medium-term horizon when it comes to real estate.Determining an investments horizon, or term is often based on the intention behind the investment more than the investment itself, such as when the funds will be used for other goals, or whether a lump sum or an income stream is the desired result. The most common terms are generally considered short, medium, and long.
Short-term investments, also known as marketable securities or temporary investments, are those which can easily be converted to cash, typically within 5 years. Many short-term investments are sold or converted to cash after a period of only 3-12 months.Some common examples of short-term investments include CDs, money market accounts, high-yield savings accounts, government bonds, and Treasury bills. Usually, these investments are high-quality and highly liquid assets or investment vehicles.Short-term investments may also refer specifically to financial assets—of a similar kind, but with a few additional requirements—that are owned by a company. Recorded in a separate account,and listed in the current assets section of the corporate balance sheet, these are investments that a company has made that are expected to be converted into cash within one year.
A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate, and cash. Long-term investments are assets that a company intends to hold for more than a year.The long-term investment account differs largely from the short-term investment account in that short-term investments will most likely be sold, whereas the long-term investments will not be sold for years and, in some cases, may never be sold.Being a long-term investment means that you are willing to accept a certain amount of risk in pursuit of potentially higher rewards and that you can afford to be patient for a longer period of time. It also suggests that you have enough capital available to afford to tie up a set amount for a long period of time.
Fixed-term describes an investment vehicle, usually some kind of debt instrument, that has a fixed time period of investment. With a fixed-term investment, the investor parts with his or her money for a specified period of time and is repaid his or her principal investment only at the end of the investment period. In some cases, even though a fixed term is stated on the investment, the investor or issuer may not have to commit to it.A common example of a fixed-term investment is a term deposit in which the investor deposits his or her funds with a financial institution for a specified period of time and cannot withdraw the funds until the end of the time period, or at least not without facing an early withdrawal penalty. The investor, for the most part, is committed to the fixed term of this financial instrument.Once a term deposit reaches or approaches maturity, the investor must notify his or her financial institution to either reinvest the money into another fixed-term investment or deposit the cash proceeds into his or her account.
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM formula accounts for the time value of money. The other components of the CAPM formula account for the investor taking on additional risk.The beta of a potential investment is a measure of how much risk the investment will add to a portfolio that looks like the market. If a stock is riskier than the market, it will have a beta greater than one. If a stock has a beta of less than one, the formula assumes it will reduce the risk of a portfolio.
Quantitative easing is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. QE usually involves the central bank purchasing longer-term government bonds as well as other types of assets such as mortgage-backed securities.Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also greatly expands the central bank's balance sheet.If quantitative easing itself loses effectiveness, fiscal policy, or government spending, may be used to further expand the money supply. In effect, quantitative easing can even blur the line between monetary and fiscal policy, if the assets purchased consist of long term government bonds that are being issued to finance counter-cyclical deficit spending.Quantitative easing can devalue the domestic currency. For manufacturers, this may help stimulate growth because exported goods would be cheaper in the global market. However, a falling currency value makes imports more expensive, which can increase the cost of production and consumer price levels.
The Dow Jones Industrial AverageThe Dow Jones Industrial Average is an index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange and the NASDAQ. The Dow Jones is named after Charles Dow, who created the index back in 1896, along with his business partner Edward Jones.The Dow is one of the oldest, single most-watched indices in the world. To investors, the Dow Jones is defined as a collection of blue-chip companies with consistently stable earnings. The Dow Jones Industrial Average is the second oldest U.S. market index after the Dow Jones Transportation Average, which contains 20 transport stocks such as railroad and trucking companies. The Dow Jones Industrial Average was designed to serve as a proxy for the broader U.S. economy.The performance of industrial companies is typically tied to the growth rate in the economy. As a result, the relationship between the Dow's performance and that of the U.S. economy was cemented. Even today, to many investors, a strong Dow, means a strong economy while a weak-performing Dow means a slowing economy.The key point about the DJIA is that it is not a weighted arithmetic average, nor does it represent its component companies' market capitalization as does the S&P 500. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Thus, a one-point move in any of the component stocks will move the index by an identical number of points.The most recent large scale change to the Dow took place in 1997 when four of the index's components were replaced. Two years later, in 1999, four more components of the Dow were changed. The most recent change took place on June 26, 2018, when Walgreens Boots Alliance, Inc. replaced General Electric Company.On March 15, 1933, the Dow experienced its largest one-day percentage gain which happened during the 1930s bear market, totaling 15.34 percent. The Dow gained 8.26 points and closed at 62.10.While in March 2020, the Dow Jones crashes with back-to-back record down days amid the global coronavirus pandemic. It broke below 20,000 points and fell 3,000 points in a single day.