Survivorship bias is the tendency to focus on successful examples and ignore failures, leading to overly optimistic conclusions. In finance, this often involves excluding failed companies or funds from analysis, leading to misleading performance figures. Mutual funds are particularly susceptible to survivorship bias, with estimates suggesting that returns are overstated by almost one percentage point. […]
The sell side sells and rates securities for the buy side, including institutional and retail investors. Investment banks often service both sides, selling securities to investors on behalf of clients. Sell-side research analysts produce reports and ratings, but conflicts of interest can arise. Regulations aim to prevent unethical behavior. The sell side represents a segment […]
Business finance software includes accounting, shopping cart, and inventory management software. It helps companies manage financial resources and budgeting, increase revenue, and reduce expenses. The internet has improved functionality, allowing remote monitoring and digital dashboards for easy analysis. Reporting modules generate business metrics, and the software streamlines corporate finance departments to increase profits. Business finance […]
Tangible benefits in finance are measurable in concrete terms, but an overreliance on them can undermine non-monetary returns. They are a good starting point for comparing different plans, but intangible benefits must also be considered, such as the indirect benefits of advertising and marketing campaigns. In financial jargon, tangible benefits are benefits that can be […]
A qualified opinion is an auditor’s written opinion that notes reservations about the accuracy of financial records, triggered by limited scope, missing or erroneous information, or unusual accounting practices. Auditors issue three types of opinions: unqualified, qualified, and adverse. GAAP is a common set of accounting standards and procedures. The auditor’s report is a standard […]
Investment banking provides services such as issuing financial securities or managing mergers. Companies may outsource these activities to investment banks for objectivity in decision analysis. All companies need investment banks to meet legal requirements for issuing securities, but small businesses can use public accounting firms or consultants instead. Investment banking offers companies a variety of […]
Project financing involves non-recourse loans where lenders are paid with project-generated money. When looking for project finance books, consider risk management and choose books with accurate and current information from credible authors. Financial and trade publications are good resources for finding relevant books. Project financing is a way of financing projects with non-recourse loans. In […]
Demurrage is a deliberate decrease in the purchasing power of money over time, discouraging hoarding and promoting economic activity. Negative interest rates have potential benefits, but opponents argue they have not been extensively studied and proven. Funds generated from demurrage fees can be used for operational costs or redistributed equally to currency users. Demurrage, as […]
Project finance is riskier than corporate finance as it relies on future income to pay off debt. Regional preferences and economic development also affect which financing option is chosen. Corporate finance is used for restructuring and adding shareholder value, while project finance is used for large projects with repayment based on future cash flow. There […]
Finance involves providing financial resources to facilitate loans or sales, and is a key industry including banking and accounting. Careers include financial advisor, analyst, bond broker, portfolio manager, investment banker, and stockbroker. Specializations include economics, accounting, and business law, with courses in business management, statistics, economics, and monetary institutions. Finance professionals work together to create […]
Ghosting is an illegal strategy where market makers manipulate the price of a stock to either increase or decrease its value. It is considered unethical and violates fair competition among investors. Penalties for breaking laws against ghosting range from fines to prison terms. Ghosting, in financial circles, is an unethical and generally illegal strategy in […]
Pegging stabilizes markets by fixing values to stable assets, such as currencies or commodities. Regulators must balance intervention to promote economic activity without causing bubbles. Linking can backfire, causing inflation to spiral out of control. Pegging is a practice used to increase market stability by fixing values relative to stable value assets. A classic example […]
Effective duration estimates investment return with potential interest rate changes. It’s commonly used for bonds and investments with variable interest rates, expressed in years. Accurate data is crucial for reliable projections, and investors should recalculate when interest rate changes occur. Effective duration is a type of measurement used to estimate the amount of return on […]
Circuit breakers are measures used by stock markets to prevent panic selling and maintain stability. They involve trading stops with price limits and were developed after the 1987 stock market crash. They are only used when price declines reach certain percentage levels. Circuit breakers are strategies or measures employed by a stock market when there […]
Growth rates measure the increase in value of a factor or variable over time, useful for investors to project returns and assess past growth. Expected rates consider factors such as revenue, profit, and dividends, while final rates analyze historical data and industry benchmarks. A growth rate is the rate at which a specific factor or […]
Leveraged financing is debt financing above the norm. Mezzanine debt and covered debt obligations (CDOs) are two forms of leverage. CDOs can reduce interest rates by using collateral, such as real estate, to reduce lender risk. Mortgage-backed securities (MBS) have been sold to investors in tranches based on perceived risks and expected returns, but leverage […]
An exchange allows investors to execute trades through a broker or dealer other than their usual one, settling the transaction with their current financial custodian. This approach can offer convenience, faster execution, and access to international insights, potentially increasing returns and saving money. An exchange is a strategy that makes it possible to execute a […]
Real return is the actual amount of money an investor earns on their investment, after fees, commissions, and dividends are adjusted. Nominal return is the stated percentage that an investor will make, but it does not take inflation into account. To determine the actual return, subtract external factors from the nominal rate of return. Real […]
Administrative Services are third-party health insurance plans that provide assistance for large employers, allowing them to self-insure and pay only for administrative costs. Third Party Administrators (TPAs) offer services such as claims processing, billing, and benefit payment preparation. These plans save companies money on traditional premium fees and allow for customized coverage, but may come […]
International trade finance involves legal, financial, and political risks. One risk is that an importer may not pay for goods, or an exporter may not deliver them. A letter of credit is a financial document that represents a risk in trade finance, as it transfers payment risk to the exporting nation if the importer becomes […]
