Financial Management

Portfolio immunization is a strategy that matches the duration of assets and liabilities to mitigate interest rate risks. Investors and businesses can use the immunization technique with different options to safeguard their net assets against interest rate risks. Portfolio immunization works well with fixed-income instruments such as bonds. That’s one reason portfolio managers prefer using […]

For investment instruments, asset backing means a security instrument whose value derives from a pool of assets. These assets are used as collateral or backing for the newly created security. Thus, asset-backed security (ABS) refers to a security that is backed by a pool of financial assets such as different types of loans. Asset-backed securities

Foreign currency convertible bonds (FCCBs) are one type of debt instrument issued in a foreign currency other than the domestic currency of the bond issuer. These bonds are also convertible to equity at maturity or a specified date. FCCBs provide flexible capital financing options for bond issuers in a foreign market. Multi-national companies issue these

Fixed-income instruments like bonds are directly prone to interest rate risks. Bond prices move inversely with interest rate movements. Thus, the investment portfolio of an investor or a company can be affected due to a change in interest rate changes. Duration matching is a strategy to counter interest rate risks. Investors can use the duration

A call provision gives the issuer a right to redeem the issued debt before the maturity date. A call provision can be offered with any fixed-income instrument such as preferred stocks or bonds. The call provision is most commonly used with bonds, termed callable bonds. Issuers embed the call provision with a bond to protect

Warrants and call options are both similar in several ways. These instruments give a holder the right but not the obligation to buy shares of a company at a specified period on or before the maturity date. They function similarly with holders looking to make profits or use these instruments for tax advantages. There are

Time draft and sight draft are both payment instruments used in international trade. Both types of instruments offer certain benefits to both parties in a trade deal. A time draft is a confirmed payment for the exporter but comes with a delay. A sight draft is a quicker payment method but becomes payable upon presentation

A bill of exchange can have different types of draft payment instruments. The most common ones are sight draft and time draft. It becomes payable at sight to the payee. A sight draft is a preferred payment method by the exporters as it protects them from the default risk. An exporter can keep the title

A trade acceptance is a bill of exchange with a promise to pay by the buyer. It is widely used in international trade. An acceptance provides further assurance to the seller of payment. Unlike a common type of bill of exchange, a trade acceptance becomes a legal obligation. It comes with the amount and payment