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What Is A Non-Deliverable Forward? A non-deliverable forward (NDF) is a contract to buy or sell a specific currency at a specified price in which the settlement of the contract at expiration doesn't involve the physical delivery of the currency, hence the name. In general, NDFs are used to hedge or speculate in local currencies in emerging markets where the currency has low liquidity, is not freely convertible, or where…
In finance, the term market capitalisation is used to reference the aggregate value of a specific security, sector, exchange, or trading venue. Frequently shortened to "market cap," it may be calculated in a variety of ways and is especially useful when comparing the relative size of tradable securities or marketplaces. Stocks One of the most common applications of market capitalisation is to corporate stock offerings. According to the U.S. Securities…
What Is A Credit Default Swap? A credit default swap (CDS) is a financial derivatives contract that acts as an insurance policy that an investor takes out in order to protect against a bond issuer defaulting on its obligations to pay interest and repay principal. The investor "swaps" their risk with an insurance company, a bank, or a hedge fund. The institution accepts the risk against the bond, defaulting in…
What Is A Central Bank? A central bank manages a nation's currency, money supply and interest rates and acts as a lender of last resort to the country's banks. Many are also responsible for regulating and supervising their country's banks. Many are set up to be independent from their government, although their directors are usually appointed by that country's chief executive or leader of government. Most countries have their own…
What Are The Basel Accords? The Basel Accords are a set of standards created by the Basel Committee to establish uniform banking regulation among the world's financial systems. The Basel Committee was originally called the Committee on Banking Regulations and Supervisory Practices, and it was headquartered at the Bank for International Settlements in Basel, Switzerland. It was created in 1974 by the central bank governors of the Group of Ten…
What Is The Bank For International Settlements? The Bank for International Settlements (BIS), also known as "the bank for central banks," defines its mission as being an "international organisation that serves central banks and other financial authorities across the globe to build a greater collective understanding of the world economy, fosters international cooperation among them and supports them in the pursuit of global monetary and financial stability." Based in Basel,…
A "pump and dump" is an illegal scheme used to artificially boost the price of a stock by making false and misleading claims about a company's business prospects. Then, the shares are sold before the fraud becomes known, at which point the stock price usually plummets and the unsuspecting investors lose their money. Pump and dump scams have been around for a long time but are now more commonly perpetrated…
The quick ratio is an accounting formula that measures a company's short-term liquidity. Also known as the "acid test" ratio, the quick ratio is a more stringent measurement than the current ratio of a company's ability to meet its most short-term obligations, usually those due within 90 days. The formula for calculating the quick ratio is: Quick Ratio = (Cash + Marketable Securities + Receivables)/Current Liabilities Basically, the quick ratio…
The current ratio is a business accounting formula that measures a company's ability to pay its short-term obligations, namely those due within a year. The mathematical formula is expressed as: Current Ratio = Current Assets/Current Liabilities Current assets include cash and cash equivalents, securities that can be sold quickly, short-term investments, accounts receivable, short-term notes receivable, inventories and supplies, and prepayments. Current liabilities, which are obligations that must be paid…
A collar strategy is a defensive equity play in which an investor seeks to limit the downside in a stock in exchange for forgoing some of the upside potential. This strategy is also known as a hedge wrapper. The investor buys a long position in a stock, in which he will benefit if the price goes up, although the strategy can also be accomplished without actually buying the underlying stock.…
Monetary policy is made up of the decisions and actions taken by a central bank to achieve its goals, which are typically to promote economic growth, create jobs and lower interest rates and inflation.
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