Barbell Strategy

Barbell Strategy

Barbell Strategy

Options are a conditional derivative instrument that allows the buyer of the contract to buy or sell a security at a chosen price. Option buyers are charged an amount called a “premium” by the sellers. Options are divided into “call” and “put” options. In a “Call” option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price called the exercise price or strike price. In a “Put” option, the buyer acquires the right to sell the underlying asset in the future at a predetermined price. (more…)
Rho in Options Trading

Rho- Options Trading

Rho- Options Trading

“Greeks” is a term used in the options market that describes the different dimensions of risk involved in taking an options position. The reason for these variables to be called Greeks is that they are typically associated with Greek symbols. Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Different Greek values like delta, gamma, theta, rho, and others are used by the traders to manage option portfolios. (more…)
Delinquency rate

Delinquency rate

What is the Delinquency rate?

The delinquency rate is the rate of percentage which defines the number of loans that are made due in any financial institution or bank. Delinquency simply means a delay in the activity. Banks and financial institutions grant loans to various borrowers in the market and from this borrower if one or some of them make a delay in payment of installment by one day also the loan is considered as delinquent but this same activity goes on repeating then banks can consider the same loan as default. This can be calculated by knowing the total amount of loans issued and the number of loans that are outstanding. Usually, banks or financial institutes will not report the loan as a delinquent loan until the borrower misses out on two installments i.e. till 60 days. Banks would wait for 270 days after the borrower has missed out two installments and if he is not able to pay his debt within 270 days then banks will consider this loan as a default and banks earn his payment of installment by sell or auction the borrower property or any other thing he has kept as a mortgage.

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Fixed-Rate Mortgage

Fixed-Rate Mortgage

Fixed-Rate Mortgage 

Fixed mortgage rates refer to a home loan that has a fixed interest rate throughout the term of the loan. This means the mortgage carries a constant interest rate from the beginning to the end. The term can be between 20 to 30 years which are popular for consumers who wish to know how much they will be paying throughout the period. Most fixed-rate mortgages are amortized. Other forms of mortgage loans include Interest-only mortgage, guaranteed payment mortgage, variable rate mortgage, negative amortization mortgage, & balloon payment mortgage. (more…)
Euro Interbank Offer Rate

Euro Interbank Offer Rate

                           Euro Interbank Offer Rate

The Euro Interbank Offer Rate or Euribor is a reference rate based on the average interest rates at which Eurozone banks offer unsecured short-term lending to other banks in the euro wholesale money market or interbank market. Euribor is the shortened form of the Euro Interbank Offered Rate. They are determined on the average interest rates at which a large number of European banks borrow each other's funds.

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Prepayment Risk

Prepayment Risk

Prepayment Risk

Prepayment is the early payment of a loan by a borrower either in part or full. This happens when there is a decline in market interest rates after the loan is originated. Prepayment risks are those risks that are associated with the premature payment of principal amount (portion or full) on fixed income security. This risk occurs as debtors do not have to pay the interest amount on that part of the principal which is prematurely paid by them. This deprives the lender of future interest benefits thus creating a risk to the lender. For a bondholder, prepayment risk refers to the possibility that the issuer will redeem the callable bonds prior to scheduled maturity. Prepayment risk is high for callable bonds and maturity-based securities (MBS). (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…)
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…)
What is Nominal Interest Rate?

What is Nominal Interest Rate?

What does Nominal Interest Rate Mean? What is nominal? Nominal is a finance and economics term that you’ll often find in many places. Depending on the context it can either mean to denote a fee that is lower than ‘real’ fees or can also refer to some kind of rate that is not treated (unadjusted) for inflation. (more…)
The Eurodollar Futures Markets

The Eurodollar Futures Markets

The Eurodollar Futures Markets

After World War II, several countries started to accumulate US dollars. Such countries opted not to trade US dollars through the U.S. financial system, but to fund them overseas, mostly in banks headquartered in London beyond the jurisdiction of the U.S. government. Gradually, the bank lending market expanded around this fund. The lending rate on this market has started to be referred to as the London Central Bank Offer Rate (LIBOR). This lending market came to be known as the Eurodollars' future market. The future contracts for Euro Dollars are based on the underlying 3-month LIBOR rates. (more…)