Liquidation Preference
What is Liquidation Preference? Liquidation preference determines the order in which a bankrupt firm’s liquidated assets are paid out to claimants of the firm. It is determined based on the clauses in outstanding agreements and contracts by a liquidator. Further, the liquidation preference can also influence the value of financial securities as it can alter...
Interest Rate Floor
What is an Interest Rate Floor? An interest rate floor is the lower range of rates that is agreed upon, when a floating rate loan product is purchased from a lending institution. They are also found in many derivative products and are often used when calculating and projecting risk. When traders or borrowers seek to...
Interest Rate Differential (IRD)
What is an Interest Rate Differential (IRD)? An interest rate differential is a charge that applies if a borrower pays off the entirety of the mortgage before its maturity date. Most mortgages that are given at major lending institutions charge either the interest rate differential or three months of payment interest. Generally, a lender will...
Reporting Covenants
What are Reporting Covenants? A covenant is a contractual condition between a lender and a borrower to protect both parties from an unexpected event that could lead to a borrower defaulting on their obligations. Covenants are also legally binding, which means that breaking a covenant could result in a default, financial penalties or forced early...
Banker’s Acceptance
What is a Banker’s Acceptance? A banker’s acceptance refers to a financial instrument that represents a promised future payment from a bank. It states the name of the entity to which the funds need to be transferred, along with the amount and date of payment. Banker’s acceptances are short-term instruments that generally come with a maturity...
