Loan-to-Value Ratio

Loan-to-Value Ratio

Loan-to-Value Ratio

In many instances, the home loan borrowers need to fulfill many requirements defined by the lenders, primarily in relation to their yearly income, the minimum payment for which a creditor must be eligible for a residential mortgage, an excellent credit score, etc. One of the significant conditions for home loans, however, is the maximum loan-to-value ratio (LTV). The Loan-to-Value ratio is often used ratio in mortgage lending to determine the lending risk that financial institutions and other lenders examine before approving it. Lenders assess the LTV ratio to determine the level of exposure to risk they take when underwriting a mortgage. (more…)
Chinese Wall

Chinese Wall

Chinese Wall

The term Chinese wall is very popular in the business community which can be described as a non-existing wall that prevents the transfer of information from one department to another. In the United States, corporations, investment firms, brokerage firms, and retail firms have used the Chinese wall to keep confidentiality and to prevent conflict of interest. The wall is not physical but ethical, aimed at prohibiting the exchange of information that may lead to ethical or legal infringements. (more…)
Theories of Term Structure

Theories of Term Structure

Theories of Term Structure

Interest Rates are a barometer of the Economy and an instrument for its control. The term structure of interest rates (the Yield Curve) represents the interest rates at different maturities of similar quality bonds. It shows the yield that an investor is expecting to earn if he lends his money for a given amount of time. It is an effective economic analytical tool. (more…)
Exchange-Traded Funds (ETF)

Exchange-Traded Funds (ETF)

Exchange-Traded Funds (ETF)

Much like stocks, Exchange-Traded Funds (ETF) get traded on an exchange. ETFs are inclusive of stocks, commodities, with an arbitrage mechanism. It is nothing but a basket of stocks that reflects the composition of indices. ETFs are welcoming the new panorama of investment opportunities to retail as well as institutional investors enabling exposure real-time basis at a low cost of investing. (more…)
Spot Rate and Forward Rate

Spot Rate and Forward Rate

SPOT RATE: The spot rate is the price quoted on a commodity, security, or currency for immediate settlement. Also called the "spot price" it is an asset's current market value at the time of quotation. In essence, this value is based on how much buyers are willing to pay and how much sellers are willing to accept,  which is typically based on a combination of factors like current market value and anticipated future market value. It reflects the supply and demand for an asset in the market. As a result, spot rates change frequently, and can sometimes swing dramatically, especially if there are significant events or relevant headline news. (more…)
fixed income arbitrage

Fixed Income Arbitrage

Fixed Income Arbitrage

What is Arbitrage? Arbitrage happens when an investor buys and sells an asset at the same time but in different markets or different forms with the aim to gain profit from an existing price difference on similar securities. The arbitrage techniques enable investors to self- regulate the market and aid in smoothing out fair price differences to ensure that securities continue to trade at fair market value. Arbitrage is a result of market inefficiencies and will not exist if all the market will be perfectly inefficient. (more…)
What is Stack & Roll Hedge?

What is Stack & Roll Hedge?

What is Stack & Roll Hedge?

Hedging is a risk management technique used to reduce investment risks by taking the opposite position in the associated asset. When people plan to hedge, they are insured against the adverse effects of an incident on their finances. That doesn't preclude all bad things from occurring, but there's something going on and you're adequately covered, the effect of the incident is minimized. (more…)
What is Treynor's Ratio? What are its uses?

What is Treynor’s Ratio? What are its uses?

What is Treynor's Ratio? What are its uses?

Definition: Treynor Ratio is also called reward-to-volatility ratio measures and adjusts for systematic risk to understand the efficiency with which the manager allocates fund’s assets to compensate the investor taking a given level of Risk. Quite straight-forward, it is merely the excess of returns earned more than the Risk-free return at a given level of market risk. Highlighting the Risk-adjusted profits generated by mutual funds and portfolio schemes, this ratio was conceptualized by Jack Treynor (who also gave birth to the idea of Capital Asset Pricing Model) expanding upon the contributions made by William Sharpe (the person behind the Sharpe Ratio) and towards Modern Portfolio Theory. (more…)
HEDGE FUND STRATEGIES

Hedge Fund Strategies

HEDGE FUND STRATEGIES

INTRODUCTION Hedge Fund form an important subset of alternative investments. Investment in hedge funds would result in ample additional benefits for alpha and portfolio diversification to warrant a high level of fees.
  • Pros - HF managers huge talent - the broader universe - ability to generate alpha even in down markets.
  • Cons-higher fees, complex documentation, lack of transparency, lack of liquidity, higher cost of maintenance.
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Stock Split and Stock Consolidation

Stock Split and Stock Consolidation

Stock Split and Stock Consolidation

What is a Stock Split? A stock split is a process of dividing the stock into multiple shares to boost the liquidity of the shares in the market. In this process though the number of shares increases, the value of the share remains the same as before the splitting. The most common ratios in which stocks are divided are 2:1 or 3:1 meaning two shares for every one share or three shares for every one share hold earlier. Stock split can also be expressed in percentage terms. Thus, a 2 for 1 (2:1) split can also be termed a stock split of 100% and 3 for 2 splits (3:2) split can also be termed a stock split of 100%. (more…)