Basket Option
A basket option is a type of financial derivative of which the underlying asset is a “basket” of commodities, securities, and currencies. Basket options are normally settled in cash. Basket options know as Multifactor Option, their payoff depends on the performance of underliers. Basket options trade in the OTC market and therefore can be customized based on the buyer and seller's needs. (more…)
Asset Class
An asset class is a group of investment securities that can be classified as physical assets or financial assets. A set of financial instruments have similar characteristics and can react similarly the same in the marketplace based upon the market events. It is important to understand where your money goes and what the asset class is going since each investment belongs to one or more groups of assets. Such asset classification definitely made investment easier to understand for the investors. (more…)
Quick Assets
Current and quick assets are two categories from the balance sheet that analysts use to examine the company’s liquidity. Quick assets refer to those assets which are owned by a company and can be converted into cash easily in a short period of time. It can also be referred to those assets which are already in the cash form. Quick assets, therefore, are considered the most liquid assets. They include cash, marketable securities, and accounts receivable. (more…)
Idiosyncratic Risk
Systematic risk tends to be the inevitable thing that each investor must tolerate at a certain level. It is the risk of a change in price triggered by the particular instances of a specific security, or by a risk that is industry or company-specific. Simply stated, it is a risk that impacts only a specific organization or industry but not the entire market. (more…)
Acid-Test Ratio
A ratio is the proportion of two elements that gives information on a particular detail related to the element consider in the calculation. An Acid Test Ratio is a type of ratio used to know the financial condition of any company, firm, organization, or any small shop or business unit. Under the acid test ratio, liquid current assets, and current liability of the company is considered. This ratio helps to understand how much a company is capable to pay its short-term obligations or liability. Because of this characteristic, this ratio is also known as Quick Ratio or Absolute Cash Ratio and it also comes under the head of the liquidity ratio. (more…)
Securitization Process
The securitization process is mainly used by banks and other financial institutions to grant more loans to the public. Under the securitization process, the banks and financial institution convert their illiquid assets like loans and advances to liquid assets like bonds and various other securities to increase the cash flow in the bank. Every bank and financial institution has a limit to grant loans to the customers. Once the bank crosses this limit, they cannot further provide loans to the customer. Hence, in order to overcome this problem, banks try to mortgage the property that is illiquid assets to various private investors and increase their liquid assets i.e. their cash flow, so that they can grant more loans and earn more profit. Simply put, it is a way of transforming illiquid assets into liquid assets to free up the capital that has been blocked. This process is not as simple as it seems and the following steps are considered under this process. (more…)
Long-Lived Assets
Long-lived assets give the company a potential economic gain beyond the present year or period of operation. It might be beneficial to note that most, but not all, long-lived assets begin as some kind of company purchases. As non-current, or long-lived, assets are expected to last for more than a year, accounting handles long-lived assets differently based on their practical life. (more…)