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.
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 »
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 »
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 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 »
Payment-in-kind or PIK bonds are a special type of bond that does not make coupon payments in cash. PIK bonds make deferred coupon payments or make them in the form of bonds, preferred stocks, or notes. These bonds are commonly issued by companies in financial distress. These are unsecured loans and offer higher coupon payments
Payment in Kind Bonds (PIK): What Are They and How PIK Works? Read More »
An inverse floater is a type of bond that comes with an inverse relation to a benchmark interest rate. Unlike a floater, an inverse floater’s coupon rate goes in the opposite direction to the benchmark interest rate. An inverse floater is a variable interest rate security that follows the benchmark interest rate in the opposite
Inverse Floaters: What Is It and How It Works? Read More »
Leverage is the use of debt financing in the capital structure of a company. It means the use of borrowed money instead of using equity for funding the company projects. It is also commonly referred to as the ratio of debt to equity. Leveraged finance lowers the cost of capital. It also increases the internal
Leveraged Finance: What Is It and How Does It Work? Read More »
Futures contracts or simply Futures are derivatives as they derive their prices from an underlying asset. Futures are traded in standardized forms and are regulated by the Commodity Futures Trading Commission (CFTC). Futures can be used for hedging and speculation. Once agreed, Futures become an obligation to exercise the contract on the expiration date. However,
Futures Contracts: Definition and How It Works Read More »
Extendable reset bonds come with an option of resetting the coupon rate and extending the maturity date. Both the bond issuer and the bondholder may hold the right to extend the bond’s maturity date. Extendable bonds come with an embedded option to extend the maturity date; hence these bonds sell at higher prices. It also
Extendable Reset Bonds: Definition and How It Works Read More »
A bond issued in one currency and paying coupon payments in another is termed a dual currency bond. Investors and issuers can agree on the terms and conditions, including fixing the conversion rate, maturity, and interest rate at the time of issuing the bond. Dual currency bonds are lucrative fixed-income instruments for foreign investors. However,
Dual Currency Bonds: Definition, How It Works and More Read More »
