Corporate BondsCorporate 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…)
LiquidityLiquidity Coverage Ratio (LCR)
HOW DOES ASSET-BACKED CREDIT-LINKED NOTES (CLN) WORKSINTRODUCTION
- 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.
Debt Securities vs Equity SecuritiesDebt 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…)
HEDGE FUND STRATEGIESINTRODUCTION 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.
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.(more…)
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…)