What is Exercise Price? The exercise price within an option is the price at which the holder is capable of purchasing the underlying asset. If the market price of the asset is above the exercise price, the holder is capable of purchasing the asset at a discount relative to what the market is offering; thereby,…
What is a Horizontal Line? A horizontal line is a line drawn touching the support or resistance level on a price chart in technical analysis. Horizontal lines are commonly used to identify price breakouts and are deemed essential when analyzing trades. In geometry analysis, a horizontal line is a straight line with a zero slope…
What is Financial Exposure? Financial exposure is a term used to describe investment risk. It is a calculation of the amount of money that an investor might potentially lose from an investment. An investor’s financial exposure may be expressed as an absolute monetary amount – e.g., $10,000 – or as a percentage of the amount…
What is Financial Engineering? Financial engineering encompasses a broad, multidisciplinary field of study and practice that essentially applies an engineering approach and methodology to the world of finance. It integrates and utilizes information obtained from different fields, such as economics, mathematics, computer science, and financial theory. Much of financial engineering consists of converting financial theories…
What is Financial Distress? Financial distress is a term commonly used in corporate finance that describes any situation where an individual’s or company’s financial condition leaves them struggling to pay their bills, especially loan payments due to creditors. Severe, prolonged financial distress may eventually lead to bankruptcy. When a condition of financial distress occurs, it…
What is a Financial Crisis? A financial crisis is defined as any situation where one or more significant financial assets – such as stocks, real estate, or oil – suddenly (and usually unexpectedly) loses a substantial amount of their nominal value. Common examples of a financial crisis include financial market crashes – either widespread or…
What is a Solvency Ratio? A solvency ratio is a performance metric that helps us examine a company’s financial health. In particular, it enables us to determine whether the company can meet its financial obligations in the long term. The metric is very useful to lenders, potential investors, suppliers, and any other entity that would…
What is the Sortino Ratio? The Sortino ratio is a risk-adjustment metric used to determine the additional return for each unit of downside risk. It is computed by first finding the difference between an investment’s average return rate and the risk-free rate. The result is then divided by the standard deviation of negative returns. Ideally,…
What is Socially Responsible Investment (SRI)? Socially responsible investment, or SRI, is a strategy that considers not only the financial returns from an investment but also its impact on environmental, ethical or social change. Identifying which ventures to put their hard-earned money into can be difficult for potential investors. It is why such investors consider…
What is a Social Welfare System? A social welfare system is a network of programs created to assist a country’s citizens at various stages of their lives. The system usually arises from the efforts of a government or organizations to provide social welfare. It’s an ongoing process meant to care for the specific needs of…
