What is a Reserve Fund? A reserve fund refers to a savings account or highly liquid assets set aside to meet unexpected costs or financial obligations. Businesses, individuals, and condominium homeowners’ associations are common users of reserve funds. Understanding Reserve Funds Reserve funds are established to meet unexpected future costs or financial obligations that may…
What is the Reserve Ratio? The reserve ratio – also known as bank reserve ratio, bank reserve requirement, or cash reserve ratio – is the percentage of deposits a financial institution must hold in reserve as cash. The central bank is the institution that determines the required amount of reserve ratio. A bank’s reserve usually…
What is a Credit Memorandum? A credit memorandum – often shortened to credit memo – is given to a customer by a seller that provides goods and/or services. The memo is issued as a way to reduce the amount owed by the customer. The deduction is taken from an invoice that was previously issued, which…
What are Credit Analysis Ratios? Credit analysis ratios are tools that assist the credit analysis process. These ratios help analysts and investors determine whether individuals or corporations are capable of fulfilling financial obligations. Credit analysis involves both qualitative and quantitative aspects. Ratios cover the quantitative part of the analysis. Key ratios can be roughly separated…
What is Credit Analysis? Credit analysis is a process undertaken by lenders to understand the creditworthiness of a prospective borrower, meaning how capable (and how likely) they are of repaying principal and interest obligations. The borrower, also known as the debtor, could be an individual or a business entity; the former is referred to as…
What are Flash Crashes? Flash crashes refer to a scenario where the price of bonds, stocks, or commodities suddenly plunges but then quickly recovers. It is called a flash, as the market will crash suddenly but then prices will almost immediately rebound. At the end of the day, the net result appears almost as though…
What is a Direct Listing? A direct listing is a process by which a company can go public by selling existing shares instead of offering new ones. Companies that choose to go public using the direct listing method usually have different goals than those that use an initial public offering (IPO). Direct Listing vs. Initial…
What are Poor Credit Warning Signs? Individuals, specifically those who are are struggling with their personal finances, need to watch out for poor credit warning signs. If you have missed out on your financial obligations for a month or more, the events will be reflected in your credit report. Most people are afraid to check…
What is Expected Default Frequency (EDF)? Expected Default Frequency (EDF) is a credit measure that was developed by Moody’s Analytics as part of the KMV model. EDF measures the probability that a company will default on payments within a given period by failing to honor the interest and principal payments, usually within a period of…
