What is Junior Debt? Junior debt, also referred to as subordinated debt, is debt that is considered to be of a lower priority in the debt and debt repayment hierarchy. It is normally unsecured and can be provided without any collateral, making it risky. Junior debt tends to come at higher interest rates than senior…
What is Net Cash? Net cash refers to the position of a company with regard to its liquidity position. To calculate net cash, a company will need to deduct its current liabilities from its cash balance. Liabilities are a business’ obligations to transfer assets or provide a service that’s already taken place. For example, a…
What is Natural Law? Natural Law is a philosophical theory that states that human beings have certain universally accepted rights, moral values, and responsibilities that are inherent in human nature. Natural Law Theory is based on the idea that these laws are a universal moral code and are not based on any culture or customs….
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…
