What is an Indexed Annuity? An indexed annuity is a financial product that pays out a return based on the performance of a linked index. The contract is backed by an insurance company and is popular among retirees because it provides a relatively steady stream of income with downside risk protection. However, it also severely…
What is the Key Rate? In Canada, the key rate is the interest rate set by the Bank of Canada to regulate short-term borrowing between financial institutions. The key rate has been labeled under different titles over time, including the bank rate, policy interest rate, and target for the overnight rate. The equivalent of the…
What is a Currency Option? A currency option refers to a derivative contract that gives the buyer the right but not the obligation to sell or buy currencies at a specified exchange rate within a specified time frame. They are useful for investors to hedge against unfavorable movements in exchange rates. Currency Options Terminology and…
What is Cross Currency Swap? Cross currency swap refers to an agreement between two parties to trade currencies. Over the duration of the swap, the interest payments are exchanged periodically, with the equal value principal exchanged at the origin and maturity. How Does Cross Currency Swap Work? Cross currency swap is based on comparative advantages…
What is the Circular Flow Model? The circular flow model is an economic model that presents how money, goods, and services move between sectors in an economic system. The flows of money between the sectors are also tracked to measure a country’s national income or GDP, so the model is also known as the circular…
What is Physical Capital? Physical capital refers to the human-created tangible assets or inputs that are used to support the production of goods and services. It is one of the main factors of production in classical and neoclassical economics. Examples of physical capital include machinery, buildings, vehicles, equipment, etc. Understanding Physical Capital In economics, capital…
