Finance

This category covers all kinds of topics in finance including corporate finance and financial management. The topics on financial institution and stock exchange will also be included.

Effective Annual Yield – Definition, Formula, and Example

Effective annual yield (EAY) or effective annual rate (EAR) considers the compounding effect of return on investment. It provides a realistic annual interest rate of an investment rather than the simple nominal rate. Investors can use the EAY to calculate the actual return on investment. They can also use the EAR to evaluate whether a …

Effective Annual Yield – Definition, Formula, and Example Read More »

What is a Forward Rate Agreement and How Does It Work?

Two parties can agree to predetermine an interest rate obligation for a future payment. The agreement is made on the forward rate, hence the name Forward Rate Agreement (FRA). FRAs are over-the-counter instruments that can be arranged by two parties directly. FRAs can be used in interest rate hedging planning. FRAs are particularly useful in …

What is a Forward Rate Agreement and How Does It Work? Read More »

What is an Interest Rate Collar? How Does an Interest Rate Cap Work?

Interest collars limit the losses due to an adverse movement in interest rate for an underlying asset such as a bond. Collars also restrict the maximum gains due to favorable interest rate movements, though. Interest rate caps are upper limits of an interest rate options contract. In contrast, floors are the minimum interest rate limits …

What is an Interest Rate Collar? How Does an Interest Rate Cap Work? Read More »

What are SWAPs Contracts and Different Types of SWAPS?

A Swap is a financial derivative that allows two parties to exchange liabilities or revenue streams from two underlying assets with opposing characteristics. Usually, Swaps involve a fixed cash flow stream and a variable cash stream. Swaps are over-the-counter derivates that are arranged directly by two parties. These instruments do not trade like other marketable …

What are SWAPs Contracts and Different Types of SWAPS? Read More »

Theoretical Ex-Rights Price – TERP: What Is It and How to Calculate?

Theoretical Ex-Rights Price or TERP is the price of the shares immediately after the rights issue. A rights issue is the offering of shares to existing shareholders. As companies issue new shares, it dilutes the company’s shareholding. Thus, its share prices get affected due to rights issues. Since rights attached to existing shares have value, …

Theoretical Ex-Rights Price – TERP: What Is It and How to Calculate? Read More »

Scroll to Top