What is Net Exposure? Net exposure underlines the difference between a hedge fund’s long positions and its short positions. Once calculated, the net exposure of a fund is presented in a percentage. It will display the fund’s risk with regard to market fluctuations. Generally, the lower the net exposure, the less risk the hedge fund…
What is an Exchange Rate Mechanism (ERM)? An exchange rate mechanism (ERM) is a device used by countries to manage the strength of their currency. The ERM is a critical pillar in any economy’s monetary policy and is frequently utilized by the central banks. It is important to place strong controls over domestic currency to…
What is the Federal Discount Rate? The federal discount rate is the rate that central banks charge banks and deposit-taking institutions to borrow money from the central bank to deal with very short-term shortages of liquidity in meeting reserve requirements on a collateralized basis via a lending channel called the discount window. In the U.S….
What is a Financial Risk Manager (FRM®)? A Financial Risk Manager (FRM®) is an accreditation offered by the Global Association of Risk Professionals (GARP) that certifies the understanding of risk management concepts that are validated by international professional standards. Broadly speaking, financial risk management is the active process by which the economic value of a…
What is Excess of Loss Reinsurance? Excess of loss reinsurance is a specific type of reinsurance where the ceding company is compensated for losses that exceed a specified limit. The purpose of an excess of loss reinsurance is to assist insurance companies with managing risk. It is a form of non-proportional reinsurance that is centrally…
What is the Hedonic Regression Method? The hedonic regression method is a regression technique used to determine the value of a good, service, or asset by fractionating the product into constituent parts or characteristics. It is done to determine the contributory value of each characteristic separately through regression analysis. The regression model should be able…
What is the Flat Yield Curve? A flat yield curve is a type of yield curve that occurs when anticipated interest rates are steady, or short-term volatility outweighs long term volatility. It signifies that the difference between yields on short-term and long-term bonds minimize, in effect giving no incentives for investors and lenders to lend…
Who is Joseph Schumpeter? Political economist Joseph Schumpeter was born on February 8, 1883 in Moravia, the Czech Republic. Schumpeter was one of the most influential and renowned 20th-century economists and promoted the phrase “creative destruction,” an economic concept. Joseph Schumpeter’s Early Life Joseph Schumpeter was born in Triesch, Czech Republic. His parents were German…
Who is Joseph Stiglitz? Joseph Eugene Stiglitz is a renowned American economist. In 2001, Stiglitz was awarded the Nobel Prize for Economics for his foundational theory of markets with asymmetric information. He received the award together with fellow American economists Michael Spence and George Akerlof. Joseph Stiglitz’s Life and Career Joseph Stiglitz was born in…
What is the Joseph Effect? The Joseph Effect, which derives its name from a Biblical reference, is a phrase created by Benoit Mandelbrot, a Polish-born French-American mathematician. The phrase asserts that variations over time are normal and often part of wider trends and patterns, instead of being random. In essence, the Joseph Effect indicates whether…
