Corporate Bonds

Corporate Bonds

Corporate Bonds

Corporate bonds refer to the debt securities that are issued by private and public entities. They are issued to raise funds for a variety of purposes, such as continuing operations, Mergers, and acquisitions, or to grow their business. These debt instruments often have a maturity of at least 1 year. Debt is a better alternative since it will not directly impact the company's shareholders, so most organizations tend to issue debt instruments to raise funds for their operations. (more…)
Liquidity Coverage Ratio

Liquidity Coverage Ratio (LCR)

LiquidityLiquidity Coverage Ratio (LCR)

After the global financial crisis, the prudential supervision of banks has changed drastically. Although the Basel III reforms on the quantity and quality of bank capital have been the most popular, a variety of other policy measures have also been undertaken with the goal of making banks secure and preventing potential crises.
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HOW ASSET-BACKED CREDIT-LINKED NOTES WORKS

HOW ASSET-BACKED CREDIT-LINKED NOTES WORKS

HOW DOES ASSET-BACKED CREDIT-LINKED NOTES (CLN) WORKS

INTRODUCTION 
  • Credit derivatives are categorized into funded and unfunded.
  • In an unfunded credit derivative, typified by a credit default swap, the protection vendor will not make an advance charge to the protection buyer and the vendor will only reimburse if the loss incident occurs.
  • In a funded credit derivative, typified by a credit-linked note (CLN), the investor in the note is the credit protection seller and makes an initial charge to the protection buyer while purchasing a note. So the buyer of security is the issuer of the note.
  • CLN is a note/bond with a CDS attached where the protection seller has prepaid the damage in the form of a note/bond to the protection buyer.
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DEBT SECURITIES VS EQUITY SECURITIES

Debt Securities vs Equity Securities

Debt Securities vs Equity Securities

Debt securities are financial assets that define the terms of a loan between an issuer (the borrower) and an investor (the lender). Equity securities are financial assets that appear to be the shares of a corporation. (more…)
What is LIBOR and how it is calculated?

What is LIBOR and how it is calculated?

What is LIBOR? The London Interbank Offered Rate (LIBOR) is an interest rate at which banks lend to each other in the international interbank market for short-term loans. LIBOR is the lowest rate at which the banks lend to each other. It is considered as a globally accepted reference rate for short term borrowings. (more…)
What is Liquidity Premium Theory

What is Liquidity Premium Theory

Liquidity Premium Theory Liquidity premium theory is a concept widely used in bonds. To put it simply, it signifies the existence of risk-reward in investment. Investors can earn higher returns by taking additional risks. You might have heard ‘the greater the risk, the greater the reward’. Investors take different types of risks and accordingly they stand chances to make incremental returns. (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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What is Liquidity Risk?

What is Liquidity Risk

What is Liquidity Risk?

In respect to finance, liquidity means that how comfortably the assets (bonds, shares, plant, property, equipment, etc.) can be converted into cash. Thus, by the term ‘liquidity risk’ we can comprehend that a risk that a company or a bank may have to face when it is not able to meet its short-term financial liabilities.  Most of the time it happens when the company or a bank is unable to convert a security or a hard asset (property, machinery, equipment, etc.) into cash without the loss of capital or income in the process. There are three kinds of liquidity risks: Funding Liquidity Risk, Trading Liquidity Risk, and Operational Liquidity Risk.

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Foreign Exchange Risk

Foreign Exchange Risk – Full Details

What is Foreign Exchange Risk?

Foreign exchange risk refers to the risk that an investment value will change due to change in two different currencies. It is also known as currency risk or exchange rate risk. Exposure to foreign exchange risk is the natural result of the globalization of financial institutions. This risk arises when foreign exchange currency trading and/or foreign asset-liability positions are mismatched in individual currencies. Unexpected volatility could result in significant losses for the firm, which could threaten profitability or even solvency. (more…)