Output/Input Budgeting
What is Output/Input Budgeting? An output/input budget is also known as a performance budget. It is a type of budget that reflects both the funding levels (input) and the expected output from each unit of the organization. The output/input budgeting method is often used by governments to show the relationship between taxpayer funds (input) and…
Interest Rate Parity (IRP)
What is the Interest Rate Parity (IRP)? The interest rate parity (IRP) is a theory regarding the relationship between the spot exchange rate and the expected spot rate or forward exchange rate of two currencies, based on interest rates. The theory holds that the forward exchange rate should be equal to the spot currency exchange…
Bank-Specific Ratios
What are Bank-Specific Ratios? Bank-specific ratios, such as net interest margin (NIM), provision for credit losses (PCL), and efficiency ratio are unique to the banking industry. Similar to companies in other sectors, banks have specific ratios to measure profitability and efficiency that are designed to suit their unique business operations. Also, since financial strength is…
Levelized Cost of Energy (LCOE)
What is the Levelized Cost of Energy (LCOE)? The levelized cost of energy (LCOE), also referred to as the levelized cost of electricity or the levelized energy cost (LEC), is a measurement used to assess and compare alternative methods of energy production. The LCOE of an energy-generating asset can be thought of as the average…
Commodity Swap
What is a Commodity Swap? A commodity swap is a type of derivative contract that allows two parties to exchange (or swap) cash flows that are dependent on the price of an underlying asset. In this case, the underlying asset is a commodity. Commodity swaps are very important in many commodity-based industries, such as oil…
Home Equity Line of Credit (HELOC)
Forward Contract
What is a Forward Contract? A forward contract, often shortened to just forward, is a contract agreement to buy or sell an asset at a specific price on a specified date in the future. Since the forward contract refers to the underlying asset that will be delivered on the specified date, it is considered a…
Non-Performing Asset
What is a Non-Performing Asset? A non-performing asset (NPA) is a classification used by financial institutions for loans and advances on which the principal is past due and on which no interest payments have been made for a period of time. In general, loans become NPAs when they are outstanding for 90 days or more,…
Basel II
What is Basel II? Basel II is the second set of international banking regulations defined by the Basel Committee on Bank Supervision (BCBS). It is an extension of the regulations for minimum capital requirements as defined under Basel I. The Basel II framework operates under three pillars: Capital adequacy requirements Supervisory review Market discipline …
