What is an Interest Rate? An interest rate refers to the amount charged by a lender to a borrower for any form of debt given, generally expressed as a percentage of the principal. The asset borrowed can be in the form of cash, large assets such as a vehicle or a building, or just consumer goods. In the…
What is the Secondary Market? The secondary market is where investors buy and sell securities from other investors (think of stock exchanges). For example, if you want to buy Apple stock, you would purchase the stock from investors who already own the stock rather than from Apple. Apple would not be involved in the transaction….
What is Clawback? What happens when a person promises to perform and then fails to deliver on their promises? Or what happens when it is found that a performance report is flawed? In some situations like that, clawback provisions, as stated in a signed contract, come into play. Clawback is a provision under which money…
What is Insolvency? Insolvency refers to the situation in which a firm or individual is unable to meet financial obligations to creditors as debts become due. Before beginning legal insolvency proceedings, the firm or individual may get involved in making an informal arrangement with their creditors, such as crafting alternative payment options. An insolvent firm may decide…
What is a Haircut (in Finance)? In finance, a haircut refers to the reduction applied to the value of an asset for the purpose of calculating the capital requirement, margin, and collateral level. In other words, it is the difference between the amount of a loan given and the market value of the asset to…
What is Variable Cost-Plus Pricing? Variable cost-plus pricing is a type of pricing method wherein the selling price of a given product is determined by adding a markup over the total variable cost of production of that product. The markup is expected to meet all or a given percentage of the fixed cost of production…
What are Basis Points (BPS)? In finance, Basis Points (BPS) are a unit of measurement equal to 1/100th of 1 percent. BPS are used for measuring interest rates, the yield of a fixed-income security, and other percentages or rates used in finance. This metric is commonly used for loans and bonds to signify percentage changes or…
What is Basel III? The Basel III accord is a set of financial reforms that was developed by the Basel Committee on Banking Supervision (BCBS), with the aim of strengthening regulation, supervision, and risk management within the banking industry. Due to the impact of the 2008 Global Financial Crisis on banks, Basel III was introduced…
What is the Quick Ratio? The Quick Ratio, also known as the Acid-test or Liquidity ratio, measures the ability of a business to pay its short-term liabilities by having assets that are readily convertible into cash. These assets are, namely, cash, marketable securities, and accounts receivable. These assets are known as “quick” assets since they can…
What is the Market Risk Premium? The market risk premium is the additional return an investor will receive (or expects to receive) from holding a risky market portfolio instead of risk-free assets. The market risk premium is part of the Capital Asset Pricing Model (CAPM) which analysts and investors use to calculate the acceptable rate…
