Financial Terms Dictionary: Terminology Plain and Simple Explained [1.2 ed.]

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Financial Terms Dictionary Terminology Plain and Simple Explained

Published May 15, 2017 Revision 1.2 © 2014-2017 Evolving Wealth - Thomas Herold - All rights reserved Financial Terms Dictionary

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Legal Disclaimer: This book contains material protected under International and Federal Copyright Laws and Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from the author / publisher. This book is presented solely for educational and entertainment purposes. The author and publisher are not offering it as legal, accounting, or other professional services advice. While best efforts have been used in preparing this book, the author and publisher make no representations or warranties of any kind and assume no liabilities of any kind with respect to the accuracy or completeness of the contents and specifically disclaim any implied warranties of merchantability or fitness of use for a particular purpose. Neither the author nor the publisher shall be held liable or responsible to any person or entity with respect to any loss or incidental or consequential damages caused, or alleged to have been caused, directly or indirectly, by the information or programs contained herein. No warranty may be created or extended by sales representatives or written sales materials. Every company is different and the advice and strategies contained herein may not be suitable for your situation. You should seek the services of a competent and professional financial advisor before beginning any investments.

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Table Of Contents 401(k) Plan .......................................................... 403(b) Plan .......................................................... 408(k) Plan .......................................................... 412(i) Plan .......................................................... 457(b) Plan .......................................................... 501(c) .............................................................. AAA Rating ......................................................... Absorption Rate ...................................................... Accountant .......................................................... Adam Smith ......................................................... Adjustable Rate Mortgage (ARM) .......................................... Affidavit ............................................................ Agency Bonds ........................................................ Alan Greenspan ...................................................... Algorithmic Trading ................................................... American Bankers Association (ABA) ....................................... American Express ..................................................... American Institute of Banking (AIB) ........................................ American International Group (AIG) ....................................... American Stock Exchange (AMEX) ......................................... Amortization ........................................................ Annual Percentage Rate (APR) ............................................ Annuity ............................................................ Appraisal ........................................................... Appraised Value ...................................................... Arbitrage ........................................................... Assessed Value ....................................................... Asset Allocation ...................................................... Asset Backed Security (ABS) ............................................. Asset Classes ......................................................... Assets .............................................................. Assets Under Management (AUM) ......................................... Assumable Loan ...................................................... Austerity ........................................................... Austrian Economics .................................................... Automated Underwriting ................................................ Bad Debt ........................................................... Bailout ............................................................. Balance of Payments ................................................... Balanced Budget ...................................................... Balloon Loan ........................................................ Banco Santander ......................................................

21 23 25 27 29 31 33 35 37 38 40 41 42 43 45 47 49 51 53 55 56 57 58 60 61 63 64 66 68 70 72 73 75 76 78 80 82 83 84 85 87 88

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Bank for International Settlements (BIS) ..................................... 90 Bank Notes .......................................................... 92 Bank of England ...................................................... 94 Bank of Japan ........................................................ 96 Bank Run ........................................................... 98 Bank Stress Tests ..................................................... 99 Bankruptcy ........................................................ 101 Barclays ........................................................... 102 Barings Bank Collapse ................................................. 104 Barristers .......................................................... 106 Barter ............................................................ 108 Bear Market ........................................................ 109 Bear Stearns ........................................................ 110 Ben Bernanke ....................................................... 112 Benjamin Graham .................................................... 114 Berkshire Hathaway .................................................. 116 Bernard Madoff ..................................................... 118 BG Group ......................................................... 120 Big Oil Super Majors .................................................. 121 Binary Options ...................................................... 123 Bipartisan ......................................................... 125 Bitcoin Currency ..................................................... 126 Black Monday ....................................................... 128 Black Thursday ...................................................... 130 Black Wednesday .................................................... 132 Blanket Loans ....................................................... 134 Bloomberg ......................................................... 136 Blue Chip Stocks ..................................................... 138 BNP Paribas ........................................................ 139 Bond Market ....................................................... 141 Bonds ............................................................. 143 Book Value ......................................................... 144 Bookkeeper ........................................................ 145 Boom ............................................................. 146 Bretton Woods Agreement .............................................. 147 Bretton Woods Committee .............................................. 149 Brexit ............................................................. 151 Bridge Loan ........................................................ 153 British Bankers Association (BBA) ........................................ 154 British World Economic Order ........................................... 156 Brokers ........................................................... 158 Bubble ............................................................ 159 Budget Deficit ....................................................... 160 Bull Market ........................................................ 162 Bundesbank ........................................................ 163

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Bureau of Economic Analysis (BEA) ....................................... Bureau of Engraving and Printing (BEP) .................................... Business Cycle ...................................................... Call Option ......................................................... Cap Rate .......................................................... Capital Appreciation .................................................. Capital Expenditures .................................................. Capital Flight ....................................................... Capital Gains ....................................................... Capital Markets ..................................................... Capital Stock ....................................................... Carl Icahn ......................................................... Case Shiller Index .................................................... Cash Flow ......................................................... Cash Flow Quadrant .................................................. Cash Management .................................................... Cash On Cash Return (CCR) ............................................ Cash Reserves ....................................................... Cash Savings Account ................................................. Central Bank ....................................................... Certificate of Occupancy ............................................... Certificate of Title .................................................... Certified Public Accountant (CPA) ........................................ Cession Deed ....................................................... CFA Institute ....................................................... Chain of Title ....................................................... Chapter 7 Bankruptcy ................................................. Charge Off ......................................................... Charles Schwab ..................................................... Citigroup .......................................................... Closed End Funds .................................................... Closeout Sale ....................................................... Closing Costs ....................................................... CME Group ........................................................ CMG Plans ......................................................... Collaboration ....................................................... Collateralized Debt Obligations (CDO) ..................................... Collateralized Mortgage Obligation (CMO) .................................. Collectibles ......................................................... Collective Bargaining .................................................. Collective Investment Fund (CIF) ......................................... Commercial Banks ................................................... Commercial Paper ................................................... Commodities ........................................................ Commodity Broker ...................................................

165 167 169 171 172 174 175 177 179 180 182 183 184 186 187 188 190 191 193 195 196 197 198 199 201 203 205 207 208 210 212 214 216 217 219 220 221 222 223 224 226 228 230 231 233

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Commodity Exchange (COMEX) ......................................... Commodity Futures Modernization Act (CFMA) .............................. Commodity Markets .................................................. Commodity Money ................................................... Common Securitization Platform (CSP) ..................................... Common Stock ...................................................... Commonwealth of Nations .............................................. Compound Interest ................................................... Compounding of Money ................................................ Congressional Budget Office (CBO) ....................................... Constructive Eviction ................................................. Consumer Data Industry Association ....................................... Consumer Debt ...................................................... Consumer Financial Protection Bureau (CFPB) ............................... Consumer Price Index (CPI) ............................................. Contango .......................................................... Contingency ........................................................ Conversion Discount .................................................. Convertible Bond .................................................... Core CPI .......................................................... Corporate Bonds ..................................................... Corporation ........................................................ Cost of Goods Sold (COGS) ............................................. Cost Push Inflation ................................................... Cost Segregation ..................................................... Council of Economic Advisers (CEA) ...................................... Counter Offer ....................................................... Credit Agricole ...................................................... Credit Analysis ...................................................... Credit Bureaus ...................................................... Credit Default Swaps .................................................. Credit Derivatives .................................................... Credit History ....................................................... Credit Ratings Agencies ................................................ Credit Repair Organizations ............................................ Credit Report ....................................................... Credit Risk ......................................................... Credit Suisse ........................................................ Credit Union ........................................................ Creditor ........................................................... Currency .......................................................... Currency Intervention ................................................. Currency Pairs ...................................................... Currency Standards .................................................. Currency Trading ....................................................

235 237 239 241 243 245 246 247 249 250 252 254 256 258 260 261 263 264 265 267 268 269 270 272 273 274 276 277 279 281 283 284 286 287 289 290 291 293 295 297 299 301 303 304 305

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Custodian Bank ..................................................... Customer Base ...................................................... Cyclical Manipulation ................................................. Day Trading ........................................................ Debasement ........................................................ Debasing the Currency ................................................ Debit Card ......................................................... Debt Ceiling ........................................................ Debt Consolidation ................................................... Debt Coverage Ratio (DCR) ............................................. Debt Relief ......................................................... Debt Restructuring ................................................... Debt Service ........................................................ Deduction .......................................................... Deed in Lieu of Foreclosure ............................................. Defeasance Clause .................................................... Deferred Maintenance ................................................. Deficit ............................................................ Deficit Spending ..................................................... Defined Benefit Plan .................................................. Defined Contribution Plans ............................................. Deflation .......................................................... Demand Pull Inflation ................................................. Demutualization ..................................................... Department of Justice ................................................. Department of the Treasury ............................................. Dependency Theory ................................................... Dependent Development ............................................... Depreciation ........................................................ Depression ......................................................... Derivative .......................................................... Deutsche Bank ...................................................... Devaluation ........................................................ Digital Currency ..................................................... Digital Wallet ....................................................... Discount Fee ........................................................ Discount Mortgage Broker .............................................. Discount Points ...................................................... Discount Rate ....................................................... Discover ........................................................... Discretionary Expenses ................................................ Discretionary Income .................................................. Disposable Income .................................................... Distressed Assets ..................................................... Diversifying ........................................................

307 308 310 311 313 314 315 316 318 320 322 324 326 327 329 330 331 332 333 334 336 337 338 340 342 344 346 348 350 352 354 355 357 358 360 362 364 365 366 367 369 371 373 374 375

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Dividend .......................................................... Dividend Reinvestment Plans ............................................ Dividend Yield ...................................................... Dodd-Frank Act ..................................................... Dollar Standard ..................................................... Dotcom Bubble ...................................................... Dow Jones ......................................................... Dow Jones Industrial Average (DJIA) ...................................... Dow Theory ........................................................ Down Payment ...................................................... Dual Index Mortgage .................................................. Due Diligence ....................................................... Due Process ........................................................ Due Process Oversight Committee (DPOC) .................................. Dumping .......................................................... Earned Income ...................................................... Earned Income Tax Credit (EITC) ........................................ Earnings Per Share (EPS) .............................................. Econometrics ....................................................... Economic Commission for Latin America and the Caribbean ...................... Economic Embargo ................................................... Economic Globalization ................................................ Economic Growth .................................................... Economic Indicators .................................................. Economic Output .................................................... Economic Sanctions ................................................... Economic Surplus .................................................... Efficient Market Hypothesis (EMH) ....................................... Egalitarianism ...................................................... Elastic Demand ...................................................... Embargo .......................................................... Embezzlement ...................................................... Emerging Markets ................................................... Employee Stock Option (ESO) ........................................... Employee Stock Ownership Plan (ESOP) .................................... Employees ......................................................... Energy Commodities .................................................. Enron Bankruptcy ................................................... Entrepreneurs ...................................................... Environmental Impact Statement (EIS) ..................................... Environmental Protection Agency (EPA) .................................... Equal Credit Opportunity Act (ECOA) ..................................... Equifax ........................................................... Equities ........................................................... Equity ............................................................

376 377 379 380 382 384 386 388 389 391 392 393 394 396 398 400 401 403 404 406 408 410 412 414 416 418 420 422 424 425 427 429 431 432 434 436 437 439 441 442 444 446 448 450 451

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Equity of Redemption ................................................. Equity Securities ..................................................... ERISA ............................................................ Escrow ............................................................ ESOP ............................................................. EUREX Exchange .................................................... Euro ............................................................. Euro Stoxx 50 Index .................................................. Euro-skeptics ....................................................... European Central Bank (ECB) ........................................... European Debt Crisis ................................................. European Investment Bank (EIB) ......................................... European Monetary System (EMS) ........................................ European Sovereign Debt Crisis .......................................... European Stability Mechanism (ESM) ...................................... European Union ..................................................... Eurozone .......................................................... Eurozone Crisis ...................................................... Eviction ........................................................... Excess Reserves ...................................................... Exchange Rate ...................................................... Exchange Rate Mechanism (ERM) ........................................ Exchange Traded Funds (ETF) ........................................... Expense Ratio ....................................................... Experian .......................................................... Export ............................................................ Export Quotas ...................................................... Extendable Commercial Paper (XCP) ...................................... Face Value ......................................................... Fair Credit Billing Act ................................................. Fair Housing Act ..................................................... Fannie Mae ........................................................ Federal Debt ........................................................ Federal Deposit Insurance Corporation (FDIC) ............................... Federal Housing Finance Agency (FHFA) ................................... Federal Open Market Committee ......................................... Federal Reserve ..................................................... Federal Reserve Act of 1913 ............................................. Federal Reserve Bank ................................................. Federal Reserve Bank Notes ............................................. Federal Reserve System ................................................ Federal Trade Commission (FTC) ......................................... Fedwire ........................................................... Fiat Dollars ........................................................ Fiat Money .........................................................

452 454 455 456 457 459 461 462 464 466 468 470 472 474 476 478 480 482 484 485 487 488 490 491 493 495 496 498 500 502 504 506 508 510 512 514 516 517 518 519 521 523 525 527 528

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Fiduciary .......................................................... Financial Contagion .................................................. Financial Crisis ...................................................... Financial Industry Regulatory Authority (FINRA) ............................. Financial Mentor .................................................... Financial Stability Oversight Council ...................................... Financial Statement ................................................... Financial Times Stock Exchange (FTSE) .................................... Financing Terms ..................................................... Fire Sale ........................................................... Fiscal Policy ........................................................ Fiscal Year ......................................................... Fitch Group ........................................................ Five Year Plans ...................................................... Fixed Income ....................................................... Fixed Rate Mortgage .................................................. Fixer-Upper ........................................................ Flash Crash ........................................................ Floating Exchange Rate ................................................ Forced Liquidation ................................................... Foreclosure ......................................................... Foreign Exchange .................................................... Foreign Exchange Reserves ............................................. FOREX Markets ..................................................... Fortune 500 ........................................................ Fractional Banking System .............................................. Franchise .......................................................... Franchise Model ..................................................... Fraud ............................................................. Freddie Mac ........................................................ Free Enterprise System ................................................ Friedrich Hayek ..................................................... FTSE 250 .......................................................... Fund Manager ...................................................... Fundamental Analysis ................................................. Futures ........................................................... Futures Contracts .................................................... Futures Exchange .................................................... G20 .............................................................. G8 Summit ......................................................... Garnishment ........................................................ General Obligation Bonds .............................................. Generally Accepted Accounting Principles (GAAP) ............................. George Soros ....................................................... Georgist Public Finance Theory ..........................................

529 531 532 534 536 537 539 540 542 543 544 546 547 549 551 553 554 555 557 559 561 562 564 566 567 569 570 572 574 575 577 579 581 583 585 587 588 589 591 593 595 597 599 601 603

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Glass Steagall Act .................................................... Global Debt ........................................................ Gold Reserves ....................................................... Gold Roth IRA ...................................................... Gold Standard ...................................................... Goldman Sachs ...................................................... Good Debt ......................................................... Government Bonds ................................................... Government Debt .................................................... Government National Mortgage Association (GNMA) ........................... Government Sponsored Enterprise (GSE) ................................... Graduated Payment Mortgage (GPM) ...................................... Great Depression .................................................... Great Recession ..................................................... Grexit ............................................................ Gross Domestic Product (GDP) ........................................... Gross Income ....................................................... Halifax ............................................................ Hank Paulson ....................................................... Hard Currency ...................................................... HARP Program ..................................................... Hedge Account ...................................................... Hedge Fund ........................................................ Hedging ........................................................... Helicopter Money .................................................... High Frequency Trading (HFT) .......................................... High Yield Preferred Stocks ............................................. HM Treasury ....................................................... Home Affordable Modification Program (HAMP) ............................. Home Equity Line of Credit (HELOC) ..................................... Home Equity Loan ................................................... HSBC ............................................................ Hyperinflation ...................................................... Import ............................................................ Import Quotas ...................................................... Income Distribution ................................................... Income Tax ........................................................ Index Funds ........................................................ Individual Retirement Account (IRA) ...................................... Inflation ........................................................... ING Group ......................................................... Initial Public Offering (IPO) ............................................. Initiative for Policy Dialogue (IPD) ........................................ Insider Trading ...................................................... Insolvency .........................................................

605 607 609 611 612 613 615 616 617 619 621 623 625 626 627 629 630 631 633 635 637 638 639 640 641 643 645 647 649 651 653 654 656 657 658 660 662 664 665 666 667 669 670 672 674

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Institutional Investor .................................................. Insurable Value ...................................................... Insurance Broker .................................................... Intangible Assets ..................................................... Intellectual Property .................................................. Interbank Market .................................................... Interest Rate ........................................................ Interim Financing .................................................... Internal Rate of Return (IRR) ........................................... Internal Revenue Service (IRS) ........................................... International Accounting Standards Board (IASB) ............................. International Bank Account Number (IBAN) ................................. International Bank for Reconstruction and Development (IBRD) ................... International Financial Institutions (IFI) .................................... International Financial Reporting Standards (IFRS) ............................ International Monetary Fund (IMF) ....................................... International Monetary Unit ............................................ Internet Bubble ...................................................... Intrinsic Value ...................................................... Investment Trusts .................................................... Investment Value .................................................... Investor ........................................................... IRA Custodian ...................................................... iShares ............................................................ Janet Yellen ........................................................ Japanese Bankers Association (JBA) ....................................... Jason Furman ....................................................... John Maynard Keynes ................................................. John Sherman ....................................................... Joint Venture ....................................................... Joseph Stieglitz ...................................................... JP Morgan Chase .................................................... Jumbo Loan ........................................................ Junk Bonds ........................................................ Keating Five ........................................................ Keogh Plan ......................................................... Key Performance Indicator (KPI) ......................................... Keynesian Economics ................................................. Land Law .......................................................... Lease ............................................................. Lease-to-Own Purchase ................................................ Leasehold Estate ..................................................... Legal Tender ....................................................... Lehman Brothers Collapse .............................................. Lender ............................................................

676 678 680 682 684 685 687 688 690 691 693 695 697 699 701 703 705 706 707 708 710 712 713 714 715 717 719 721 723 725 727 729 731 733 735 737 739 741 743 745 746 747 749 751 753

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Leverage .......................................................... Levied Taxes ........................................................ Liabilities .......................................................... Liability Insurance ................................................... Lien .............................................................. Limited Liability Company (LLC) ........................................ Liquidation ......................................................... Liquidity .......................................................... Lloyds Banking Group ................................................. Loan Modification .................................................... Loan Servicing ...................................................... Loan Syndication .................................................... Loan to Cost Ratio ................................................... Loan-to-Value-Ratio (LTV) ............................................. Local Money ........................................................ London Interbank Offered Rate (LIBOR) ................................... Long-Term Capital Management (LTCM) ................................... Loss Mitigation Program ............................................... Loss to Lease ....................................................... Ludwig von Mises .................................................... Maastricht Treaty .................................................... Macroeconomics ..................................................... Madoff Investment Scam ............................................... Margin Trading ..................................................... Marine Salvage ...................................................... Mario Draghi ....................................................... Market Capitalization ................................................. Market Failure ...................................................... Market Sentiment .................................................... Market Trends ...................................................... Market Value ....................................................... Maturity .......................................................... Mercantilism ....................................................... Merrill Lynch ....................................................... MERS ............................................................ Microeconomics ..................................................... Middle Class ........................................................ Milton Friedman ..................................................... Modern Portfolio Theory ............................................... Monetarism ........................................................ Monetary Policy ..................................................... Money Laundering ................................................... Money Market Funds ................................................. Money of Zero Maturity (MZM) .......................................... Money Purchase Plan .................................................

755 756 757 758 760 761 763 765 767 769 770 771 773 775 776 777 779 781 783 784 786 788 789 791 792 794 796 798 800 802 804 806 807 809 811 812 813 815 817 819 820 822 824 826 827

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Money Supply ....................................................... MoneyGram ........................................................ Monopoly .......................................................... Monte dei Paschi di Sienna Bank ......................................... Moody's ........................................................... Morgan Stanley ...................................................... Mortgage .......................................................... Mortgage Backed Obligations (MBO) ...................................... Mortgage Backed Securities (MBS) ........................................ Mortgage Broker .................................................... Mortgage Costs ...................................................... Mortgage Servicing ................................................... Moving Averages .................................................... MSCI EAFE ........................................................ Mt. Gox ........................................................... Municipal Bonds ..................................................... Murray Rothbard .................................................... Mutual Funds ....................................................... Mutual Funds Dividends ............................................... MyRA Account ...................................................... National Association of Securities Dealers (NASDAQ) ........................... National Bank Act .................................................... National Bureau of Economic Research (NBER) ............................... Negative Income Tax .................................................. Negative Interest Rates ................................................ Negotiable Instruments ................................................ Net Asset Value ...................................................... Net Operating Income ................................................. Net Worth ......................................................... New Deal .......................................................... New York Mercantile Exchange (NYMEX) .................................. New York Stock Exchange (NYSE) ........................................ Nielson ............................................................ Nikkei 225 ......................................................... Nonprofit Organizations ............................................... Numismatics ........................................................ OCC ............................................................. Office of Financial Research (OFR) ........................................ Office of Price Administration ........................................... Offshore Account .................................................... Offshore Banking .................................................... Offshore Bonds ...................................................... Oil Sands .......................................................... Oil Shale .......................................................... Oligopoly ..........................................................

829 830 832 834 836 838 840 841 843 845 846 848 850 852 854 856 857 859 860 861 862 863 865 867 869 871 872 874 875 876 878 880 881 883 885 887 889 891 893 895 896 898 900 902 904

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Financial Terms Dictionary - Terminology Plain and Simple Explained

OPEC ............................................................ OPEC Fund for International Development (OFID) ............................ Operating Expenses ................................................... Option Spreads ...................................................... Options ........................................................... Orderly Liquidation Authority ........................................... Origination Fees ..................................................... OTC Bulletin Board (OTCBB) ........................................... Over The Counter (OTC) ............................................... Oversight .......................................................... Paine Webber ....................................................... Panic of 1907 ....................................................... Paper Assets ........................................................ Paper Investments .................................................... Passive Income ...................................................... Paul Volcker ........................................................ PayPal ............................................................ Payroll Tax ......................................................... PCE Index ......................................................... Peer to Peer Lending (P2P) .............................................. Penny Stocks ....................................................... Pension Entitlements .................................................. Pension Funds ....................................................... Personal Assets ...................................................... Philanthropy ........................................................ Philips Curve ....................................................... Pivotal Points ....................................................... Plunge Protection Team (PPT) ........................................... Poison Pill Strategy ................................................... Ponzi Scheme ....................................................... Portfolio ........................................................... Portfolio Income ..................................................... Portfolio Manager .................................................... Power of Attorney .................................................... Precious Metals ...................................................... Preferred Stock ...................................................... Price Controls ....................................................... Price Gouging ....................................................... Prime Brokerage ..................................................... Prime Rate ......................................................... Private Equity Firm ................................................... Private Equity Fund .................................................. Private Mortgage Insurance (PMI) ........................................ Profit Sharing Plan ................................................... Progressive Taxes ....................................................

906 908 910 911 912 914 916 917 919 920 922 924 926 927 928 929 931 933 935 936 937 938 939 941 943 945 947 948 950 952 953 954 956 958 959 961 962 964 966 968 970 972 974 975 977

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Promissory Note ..................................................... 978 Proportional Taxes ................................................... 979 Proprietary Trading .................................................. 981 Prospectus ......................................................... 983 Protective Tariff ..................................................... 984 Prudential Financial .................................................. 986 Public Company Accounting Oversight Board (PCAOB) ......................... 988 Purchasing Power Parity (PPP) .......................................... 990 Put Option ......................................................... 992 Quantitative Easing ................................................... 994 Quantitative Risk Management (QRM) ..................................... 995 Quota Effects ....................................................... 997 Rate of Return ...................................................... 999 Real Estate ....................................................... 1.000 Real Estate Appraisal ............................................... 1.001 Real Estate Bubble ................................................. 1.003 Real Estate Investment Trusts (REIT) .................................... 1.005 Recession ........................................................ 1.007 Refinance ........................................................ 1.009 Refinancing Boom .................................................. 1.010 Regressive Taxes ................................................... 1.012 Regulatory Compliance .............................................. 1.013 Repayment Penalty ................................................. 1.015 Repayment Split ................................................... 1.016 Representative Money ............................................... 1.017 Repurchase Agreements .............................................. 1.019 Required Minimum Distribution (RMD) .................................. 1.021 Reserve Currency .................................................. 1.023 Reserve Requirement ................................................ 1.025 Residual ......................................................... 1.027 Resource Holdings .................................................. 1.028 Retail Banking .................................................... 1.030 Retained Earnings .................................................. 1.032 Return on Equity (ROE) ............................................. 1.033 Return on Investment (ROI) ........................................... 1.034 Revenue ......................................................... 1.035 Revenue Bonds .................................................... 1.037 Reverse Annuity Mortgage ............................................ 1.039 Reverse Mortgages ................................................. 1.041 Reverse Split ...................................................... 1.043 Richard Cordray ................................................... 1.044 Richard Dennis .................................................... 1.046 Right of First Refusal ................................................ 1.048 Risk Arbitrage .................................................... 1.050 Risk Averse ...................................................... 1.052

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Risk Premium ..................................................... Risk-Weighted Assets ............................................... Roaring Twenties .................................................. Robert Kiyosaki ................................................... Roth IRA ........................................................ Royalties ........................................................ Rudolf von Havenstein ............................................... Run on the Bank ................................................... Russell 2000 Index .................................................. S&P Global Market Intelligence ........................................ Sale And Leaseback ................................................. Sales Tax ........................................................ Sarbanes-Oxley Act of 2002 ........................................... SARSEP ......................................................... Savings and Loan Crisis .............................................. SDR Denominated Bonds ............................................. Secondary Market .................................................. Secretary of the Treasury ............................................. Securities ........................................................ Securities and Exchange Commission (SEC) ................................ Securities Exchange Act of 1933 ........................................ Securities Exchange Act of 1934 ........................................ Securities Markets .................................................. Securitization ..................................................... Self Directed IRA .................................................. Seller Financing ................................................... Selling Short ...................................................... SEP IRA ........................................................ Sequestration ..................................................... Seven Sisters Oil Companies ........................................... Share Repurchase .................................................. Shareholders ...................................................... Sherman Clayton Antitrust Acts ........................................ Short Sale ........................................................ Short Squeeze ..................................................... Simple IRA ....................................................... Social Security .................................................... Societe Generale ................................................... Solo 401(k) Plan ................................................... Sovereign Wealth Funds ............................................. Special Drawing Rights (SDR) ......................................... Stagflation ....................................................... Standard and Poor's (S&P) ........................................... Statistical Arbitrage ................................................ Stock Broker .....................................................

1.054 1.056 1.058 1.060 1.062 1.063 1.065 1.067 1.068 1.070 1.072 1.074 1.076 1.078 1.080 1.082 1.083 1.085 1.087 1.089 1.090 1.092 1.094 1.096 1.098 1.100 1.101 1.102 1.104 1.106 1.108 1.110 1.112 1.114 1.115 1.117 1.119 1.121 1.123 1.125 1.127 1.129 1.131 1.133 1.134

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Stock Buybacks .................................................... Stock Market Index ................................................. Stock Split ....................................................... Stocks .......................................................... Straddle ......................................................... Strangle ......................................................... Strategy ......................................................... Structured Finance ................................................. Sub-prime Borrower ................................................ Sub-prime Lender .................................................. Sub-prime Mortgage ................................................ Sub-prime Mortgage Crisis ........................................... Subordinate Financing ............................................... Subsidies ........................................................ SWIFT .......................................................... Swing Trading .................................................... Swiss Banking ..................................................... Swiss Interbank Clearing (SIC) ........................................ Swiss National Bank (SNB) ............................................ Systemic Risk ..................................................... Takeover ........................................................ Tariff Programs ................................................... Tax Abatement .................................................... Tax Accountant .................................................... Tax Bracket ...................................................... Tax Credits ...................................................... Tax Deductions .................................................... Tax Exempt Income ................................................. Tax Exemptions ................................................... Tax Revenue ...................................................... Tax Sheltered Annuities 403(b) ......................................... Tax-Deferred ..................................................... Technical Analysis .................................................. Tenure Annuity .................................................... Term Auction Facility (TAF) .......................................... Term Life Insurance ................................................ Term Loans ...................................................... Thomson Reuters .................................................. Thrift Savings Plan ................................................. Title Deed ........................................................ Total Public Debt .................................................. Toxic Assets ...................................................... Trade Agreement .................................................. Trade Associations ................................................. Trade Balance .....................................................

1.136 1.137 1.139 1.140 1.141 1.143 1.144 1.145 1.147 1.149 1.151 1.152 1.153 1.155 1.157 1.159 1.161 1.163 1.165 1.167 1.169 1.171 1.172 1.174 1.176 1.178 1.180 1.182 1.183 1.185 1.187 1.189 1.191 1.193 1.194 1.196 1.197 1.199 1.201 1.203 1.204 1.205 1.206 1.208 1.210

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Trade Barriers .................................................... Trade Credit ...................................................... Trade Deficit ..................................................... Trade Misinvoicing ................................................. Trade War ....................................................... Trading Blocks .................................................... Traditional IRA ................................................... Tranches ........................................................ Trans Pacific Partnership (TPP) ........................................ Trans Union ...................................................... Transatlantic Trade Investment Partnership (TTIP) .......................... Transfer of Interest ................................................. Treasuries ....................................................... Treasury Bills ..................................................... Treasury Inflation Protected Securities (TIPS) .............................. Troubled Asset Relief Program (TARP) ................................... Trust Fund ....................................................... Trustee Savings Bank (TSB) ........................................... Tulip Mania ...................................................... Turtle Trading System ............................................... Tyco International Scandal ............................................ U.S. Treasury Bonds ................................................ UBS ............................................................ Ultra High Net Worth Individuals ....................................... Underlying Assets .................................................. Underwriting ..................................................... UniCredit ........................................................ UniCredit Bulbank ................................................. Unique Selling Proposition (USP) ....................................... Unit Trust Fund ................................................... Universal Basic Income (UBI) .......................................... Unsecured Debt .................................................... US Trust ........................................................ Use Tax ......................................................... Usury ........................................................... Vacancy Rate ..................................................... Value Investing .................................................... Value-Added Tax (VAT) ............................................. Velocity of Money .................................................. Venture Capital ................................................... Virtual Digital Currency ............................................. Visa ............................................................ Volatility ........................................................ Volcker Rule ...................................................... Voodoo Economics (Reaganomics) ......................................

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Wages .......................................................... Wall Street ....................................................... War Production Board (WPB) ......................................... Warren Buffett .................................................... Washington Mutual Bank ............................................ Wealth .......................................................... Welfare ......................................................... Welfare Economics ................................................. Wells Fargo ...................................................... Wells Fargo Scandal ................................................ Wen Jinbao ...................................................... Western Union .................................................... Wholesale Banking ................................................. Wilshire 5000 Index ................................................. Wire Transfer ..................................................... World Bank ...................................................... World Currency ................................................... World Trade Organization (WTO) ...................................... XAU Precious Metals Index ........................................... Xetra ........................................................... Yield ........................................................... Yield to Maturity (YTM) ............................................. Zero Balance Account (ZBA) .......................................... Zombie Banks ..................................................... Zoning Laws ......................................................

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401(k) Plan 401k retirement plans are specific kinds of accounts that the government established to help individuals to plan and save for retirement. Individuals fund these accounts using pre-taxed dollars from payrolls. People invest money in these accounts into several different types of investments. These include stocks, mutual funds, and bonds. Gains earned in the account include dividends, capital gains, and interest. These gains do not get taxed until the owners withdraw the funds. The name of the 401k comes from the portion of Internal Revenue Service Code which pertains to it. This vehicle for saving for retirement began in 1981 when an act of Congress created it. There are a number of benefits to 401k accounts that recommend them to individuals. Five of these include tax benefits, flexibility of investments, employer matching programs, loan abilities, and portability. The advantageous tax benefits are one of the main reasons that 401k plans are so popular. Money contributed does not become taxable until individuals withdraw it. Similarly gains accrued in the account are also tax-deferred. Over several decades, this makes a significant difference in the amount of money that people can save. Investments that the IRS allows in these 401k retirement plans provide some flexibility. Those who do not want to take on much risk can choose to put more of their funds into shorter term bonds which are lower risk. Others who are more concerned with developing wealth over the long term can put a larger percentage of the money into equities like stocks and mutual funds. Company stock can also be acquired at a discount with many employers. A tremendous edge that these 401k retirement plans provide their owners is the employer match feature. A great number of employers match their employees’ contributions as a company benefit. This is done on a percentage basis. Newer employees may receive a 25% of contributions match, while employees who have been at a company longer may receive 50% or even 100% matches. Matches are only made on a certain maximum percentage of income that an employee contributes. This is the closest thing to free money a person can obtain at work. Loan abilities from 401k retirements are a helpful feature for individuals in times of need. When people find themselves needing money with no other place to turn, the government permits them to obtain 401k loans from the plan. The plan administrator has to approve it as well. Loans from 401k plans are not taxed or penalized so long as they are repaid according to the repayment schedule and terms. There are no restrictions on the uses of such loans. Some employers have minimum amounts that can be borrowed of $1,000 and a maximum number of loans an employee can take at a time. Sometimes employees will have to get their spouse’s written consent before the company will issue the loan. There are limits on the amount of a balance that can be borrowed. This is typically as much as 50% of the vested balance to no more than $50,000. When an employer will not allow an employee to take out a loan

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against the plan, hardship withdrawals can be requested. These are taxed and also penalized at a 10% rate. Portability means the 401k retirement plan can go with the employees as they change jobs. Investors have four different choices for their 401k plan when they move to another company. They can choose to leave the plan with the old employer and pay any administration fees for the account staying there. They might instead do a rollover of their account to the new employer’s 401k retirement plan. A third option is to convert the 401k retirement plan into an Individual Retirement Account. Finally they might decide to close the 401k and receive the proceeds in cash. This would mean all money would be subject to taxes and the 10% penalty fee.

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403(b) Plan 403(b) plans were created for employees of schools, churches, and tax exempt organizations. Individuals who are eligible may establish and maintain their own 403(b) accounts. Their employers can and often do make contributions to the employees’ accounts. Individuals are able to open one of three different types of 403(b)s. The first is an annuity plan that an insurance company establishes. These types of plans are sometimes called TDAs tax deferred annuities or TSAs tax sheltered annuities. A second plan type is an account which a retirement custodian offers and manages. With these 403(b)s, the account holders may only choose from mutual funds and regulated investment companies that the custodian allows. The final type is a retirement income account. These accounts accept a combination of mutual funds or annuities for the investment choices. Employers have some control over these accounts. They are able to decide which financial institution will hold the employees’ 403(b) accounts. This determines the kind of plan that the employees are able to set up and fund. Employers receive several advantages from choosing to offer a 403(b). The benefits which they get to offer their employees are worthwhile. This helps to ensure valuable employees stay with the organization. They also enjoy sharing the funding costs between themselves and their employees. Employers may also choose for the 403(b) to only accept employee contributions if they do not wish to participate financially in the account. Employees also experience several benefits from these types of retirement vehicles. They may contribute tax deferred dollars from their income. They may also contribute taxed dollars to the accounts. In these Roth 403(b)s, all of their earnings accrue tax free for the entire life of the account. Deferred tax payments until retirement typically allow for the employees to pay fewer taxes as they are often in a more advantageous tax bracket at retirement point. Employees may also obtain loans from their 403(b) accounts as they need them. A variety of non profit organizations may choose to establish such a 403(b) plan for their employees. This includes any 501(c)(3) tax exempt organization, co-op hospital service organizations, public school systems, ministers at churches, Native American public school systems, and (USUHS) Uniformed Services for the University of the Health Sciences. Such 403(b) plans can obtain a variety of contribution types. Employees may have elective deferral contributions taken out of each paycheck. These are taken out in a pretax dollars arrangement. Employees also have the ability to contribute taxed dollars to the accounts. They have these deducted from their payrolls as well. Employers may also choose to make contributions which are either discretionary or fixed amounts as they desire. Employees and employers may make contributions to Roth 403(b) accounts. These 403(b) accounts may also receive any combination of the previously mentioned contribution types, which demonstrates their flexibility.

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Employees have generous annual contribution limits with these plans. In 2016, they may contribute up to $18,000 (or $24,000 if they are over 50 years old and catching up on contributions for retirement). For 2016, employers may also deposit as much as $53,000 (up to 100% of the employee compensation) as an annual contribution. Regarding distributions, the rules are comparable to the other types of retirement savings vehicles. Distributions of deferred taxed dollars become taxable like regular income when the employee receives them. If these are taken before the employee turns 59 ½, then the withdrawn dollars are assessed the standard 10% penalty for early withdrawals. There are some exceptions to this penalty for which an employee may qualify. One of these exceptions is if the employee terminates the job even before reaching the age of retirement.

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408(k) Plan The 408(k) Plan is a retirement plan that employers set up to assist their employees in saving money for their post working years. It is named for the section of the IRS code that describes these accounts. Though there are some distinctions, a 408(k) Plan is actually a simpler version of the ever popular 401(k) plan. These 408(k)’s are intended for smaller companies which employ fewer than 25 staff. Self employed individuals are also able to take advantage of these plans. SEP Simplified Employee Pensions are another name for the 408(k)’s. These plans are practical and useful for workers because they are able to contribute dollars that have not yet been taxed. In addition to helping them save for retirement, it lowers their net incomes for the tax year in question. This can reduce the tax bracket into which the employees fall. It leads to lower taxes for the individuals who contribute. The deposits do not become taxable as income until the point where the employees take their money back in the form of distributions. Employers are also able to contribute funds to the account on behalf of the employees and in their names. The employer contributions are similarly tax deductible. Besides providing the employer with a nice benefit to offer their workers, it saves them on their annual company tax bill as well. Though these accounts are set up by employers, they remain in the name of the employees and for their sole benefits. 408(k) plans share many features with their 401(k) cousins. The 408(k)’s are somewhat simpler to understand, set up, and utilize. Both plans have yearly maximum contribution limits. With these plans, the employees also do not pay any taxes for contributions which the employer makes in the account. Both accounts are also tax deferred. Taxes will only become due when the employee takes distributions at the retirement age starting at 59 and a half. Until that point, none of the money they contribute will be treated like income. There are some limitations and restrictions on these kinds of accounts. They can be utilized by self employed individuals and smaller companies. They may not be set up by larger companies which count more than 25 employees. Employees can not contribute more than the maximum annual limit to these accounts. If they do, the surplus dollars will be treated as income, taxed, and also penalized by 10%. Money which an employee takes out early before retirement age is also subject to taxes and 10% penalties. There is an exception to this early withdrawal rule. If an employee feels the financial need, he or she is allowed to take money back without penalties on a loan basis only. 408(k) plans do allow for such loans, provided that they are repaid. The money must be paid back to the account according to a payment schedule set up with the plan administrator. In the even that it is not put back, the loan amount becomes treated as an early withdrawal distribution. In this case, the full tax and 10% penalty amount will apply to the total loan principle. The maximum contribution amounts to the 408(k) Plans vary by year. The IRS increases the limits from time to time to compensate for projected inflation. When employees reach 50, they are allowed to

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increase their contributions per year to an IRS allowed larger dollar amount. This is to help them to catch up on any contributions which they may have missed out on over the years.

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412(i) Plan 412(i) Plans are pension plans that are classified as qualified defined benefit arrangements. They were established by the IRS for small companies and self employed business owners to have a way to save for their retirement and those of their employees. Employers fund these plans with only fixed annuities or both annuities and permanent life insurance. For the 412(i) Plans to be qualified and legal, they must meet the standards for these kinds of plans. This includes non discrimination rules and eligibility requirements. All employees of the firm who are over 20 years old must be included if they have worked there for at least a year. These plans have become more popular with time. This is in part because employers fund them with guaranteed investments. When they contribute fixed annuities, the retirement benefits are figured by utilizing the annuity’s guaranteed purchase rate. If life insurance contracts are contributed, benefits are based on the guaranteed cash accumulation of the policies. One advantage this gives the small business owner is the ability to fund contributions in dollar amounts which are larger than the amounts that competing qualified plans allow. The contributions they make are also tax deductible. This reduces the tax burden for the contribution year. There are several benefits that these plans feature. The monthly benefit for the account holder is guaranteed. They create large income tax deductions for the benefits of the employers. Besides this these plans offer significant death benefits for the account holders. These mean that these 412(i) Plans provide small businesses with an attractive package for obtaining and keeping important talent. They also help the small company’s employees who can count on the guaranteed and fixed benefits at retirement. 412(i) Plans are special because they do not have to live up to complicated rules for funding them adequately. There are also no yearly actuarial requirements to certify that the plan is properly funded. The guaranteed parts of the fixed annuities and life insurance vehicles ensure that these defined benefit plans will be solvent. The only requirement to ensure that this happens is for the employer to continuously pay the annual policy or annuity premiums. The life insurance company provides all of the guarantees that the plan requires. One important feature of these and other defined benefit plans is that they do not always allow account holders to take loans out of the plan. The Pension Protection Act of 2006 set out many of the standards for these plans and also provided an alternative number of 412(e)(3) for them. If annuity policies yield a greater amount of dividends or interest than is guaranteed, this benefits the employer. The plan rules stipulate that the extra payments credit against upcoming premiums. If the life insurance contract offers dividends, these are also applied against premiums in the future. They do not go to the account holder, but always to reduce the premiums of the 412(i) Plans. There are important reasons that employers choose to include a contract of life insurance in such 412(i) Plans. They offer fully tax deductible ways of giving the small business owner and employees death benefits. When the beneficiary receives this benefit, the face value minus the cash value (of the policy’s death benefit) distributes as a tax free income. This life insurance contained within the plan gives the

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account holders valuable estate liquidity that it will likely need after they have passed away. The insurance companies which offer the annuity contract or the insurance policy for the plan do not usually provide administration for the 412(i) Plans. This service is typically supplied by IRS approved third party administrators.

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457(b) Plan A 457(b) plan is a retirement savings vehicle. It derives its name from the Internal Revenue Service code that regulates the plans in its section 457(b). Many times this retirement account name is simply shortened to 457 Plan. There are many similarities between these 457 Plans and tax deferred, employer provided retirement vehicles including 403(b) and 401(k) plans. All of these retirement vehicles are defined contribution plans. People who participate in these 457 Plans set up payroll deductions so that a portion of their income is put into this investment account that is tax free. The government established these 457 Plans in 1978. They were set up to be another defined contribution account that would help two particular kinds of employers. They are intended for both government employers and non government employers which are tax exempt as with hospitals and charities. Despite this fact, a few different rules apply for the government plans as opposed to the non government plans. The principle difference revolves around funding. Government 457 Plans have to be funded by the employer in question. The non government 457 Plans are practically all funded by employees. The vast majority of 457(b) plans that private not for profit companies use they only offer to well paid employees usually in upper level management. With 457 Plans, there must be both a plan administrator and a plan provider. Each plan provides its own limited choices for investment options which are particular to the plan. Rollover rules are different for these 457 Plans as well. The non government versions can not be transferred over to qualified retirement plans which include IRA and 401(k)s. Instead they can only be rolled over to other tax exempt 457 Plans. The rules are different with government sponsored employer plans. These may be transferred into another employer’s 401(k), 403(b), or 457(b) plan as well as to an IRA account. The new plan must permit account holders to make such transfers. Withdrawals are easier for government sponsored plans as well. Individuals may do early withdrawals before they reach the 59 ½ year old age of retirement and not have to suffer the 10% early withdrawal penalty. The full withdrawn amount would be taxed as regular income. Employees who are switching jobs may also keep the money where it is assuming the plan permits this. Rollover rules on 457(b) plans are pretty standard. If funds are dispersed to the account owner, he or she has a maximum of 60 days to finish the rollover process. Beyond this time, the IRS considers this money to have been distributed and to be taxable. Owners are also restricted to doing a single rollover in a calendar year with these retirement vehicles. The date on which the owners receive their 457 Plan distribution is when the one year rule commences. While the money is in the 60 day process of being rolled over, it may not be invested. Direct rollovers avoid the dangers of the 60 day rule. An account holder never obtains a distribution check (as with indirect rollovers) in this type of transfer. Instead, the plan provider will directly transfer all money to the new IRA or retirement plan.

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Investment choices in 457 Plans are more limited than with Self Directed IRAs or Solo 401(k) plans. The plan provider will restrict choices to ones that fit their plan. If they permit them, owners may invest their funds in individual bonds and stocks, fixed or indexed annuities, exchange traded funds, and mutual funds. Gold bullion can not be purchased by these plans. Paper gold investments such as stocks of gold mining firms, mutual funds containing gold mining companies, or gold ETFs like GLD and mining ETFs may be purchased instead.

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501(c) 501(c) designations refer to incorporations of entities which are established as charitable not for profit corporations. These charitable operations are companies which are founded in order to offer the benefits of a community service instead of attempting to make profits for their founders or managers. When such an outfit is incorporated it becomes legal. This gives it responsibility for the actions it carries out within its community. This legal status is critical for the founder. It takes away much of the legal responsibility of the individual who starts up the company. Any people who set up these 501(c) companies do so with the goal of having all legal liability for any damages removed from them. Instead, the responsibilities transfer over to the 501(c) itself so that the founder’s own personal assets are protected from any lawsuits or creditors. Every state has its own particular set of rules for creating a 501(c) company. This is why participants are encouraged to seek out qualified financial and legal advice before they incorporate under this status. The expenses involved in establishing such a corporation are different depending on how large the corporation proves to be. The larger the outfit, the more expensive it is to establish. The 501(c) status refers to the Internal Revenue Service code section that pertains to the charitable company rules. The document itself is a very dense and difficult read. This helps to explain how the not for profits earned such a non creative and cumbersome name associated with this type of company. These 501(c)s do not have to pay any income tax to the federal, state, or local governments. The trade off for such a benefit is that they are not allowed to participate in election campaigns with a goal of helping a single candidate to be chosen versus another one. The companies are also forbidden to provide any material or financial benefits to the owners or officers of the organization itself. Such rules apply to the not for profit for its entire life span. This means that companies can not switch their status back to and from 501(c). Any not for profit organization that is no longer such an outfit must be disbanded. This type of corporate designation proves to be a critical method for individuals who wish to establish organizations to help their overall community. It protects them from personal risks to their assets in the process. It also permits charity outfits to expand to a big enough company that they can affect major changes. These operations can grow far larger than the person who started them and can also outlive him or her. The Internal Revenue Service has a variety of rules that individuals must observe in order to properly organize and operate under the 501(c) designation. Not a penny of the earnings may go into the hands of an individual or shareholder. The outfit must also not endeavor to sway any federal, state, or local legislation as a mainstay of its daily activities. They similarly may not be involved in political campaigns either for or against any candidates in the election. These organizations must be entirely charitable organizations in order to qualify for this tax exempt status. Such operations also may not be created or run to benefit any persons’ private interests. For any not for profit that participates in excess benefit transactions with groups or people who have significant influence in the operation, they may suffer from the government levying an excise tax against the manager or

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individual who agreed to such a transaction in the first place.

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AAA Rating AAA Rating refers to the maximum potential credit rating that a credit ratings bureau can award to an issuing entity’s bonds. Such a credit rating represents a superb level of creditworthiness. It means that the issuing entity is easily capable of meeting its various financial obligations. The three major ratings agencies of Moody’s, Standard & Poor’s, and Fitch Ratings all utilize the AAA as their top credit rating which designates those bonds and issuers which have the highest possible level of credit quality. It is not possible to completely eliminate the potential risk of a credit default from a bond issuer. Yet those entities which possess AAA rated bonds are believed to have the least possible chance of defaulting on their interest payments or principal repayments. Because of this, such bonds provide their investors with the smallest possible yields of any bonds that possess the same dates of maturity. Thanks to the Global Financial Crisis of 2008, many companies and countries lost their coveted AAA rating. In fact, by the middle of 2009, there were only four remaining firms out of the entire list of S&P 500 companies that still held their treasured AAA rated credit. The story was the same with the gold standard credit rated nations of the world as well. Before the Great Recession, a number of nations enjoyed the highly coveted AAA credit rating from all three of the big three ratings agencies. Once the dust had settled, only the following nine nations still held it including Australia, Canada, Denmark, Germany, Luxembourg, Norway, Singapore, Sweden, and Switzerland. Countries that had lost it included Austria, Finland, France, the United Kingdom, and the United States. The U.S. still had the AAA rated credit from Moody’s and Fitch, while the United Kingdom still held it from Standard & Poor’s (who even removed it from negative watch). High credit ratings like the AAA rating provide significant benefits to a company or nation which carries them. It allows the issuer to borrow at a reduced interest rate and ultimate cost. These companies and countries are also able to borrow greater amounts of money when they possess the highest ratings. Lower costs of borrowing allow for nations and corporations to access opportunities through cheap and easy credit. A company might be able to buy out a competitor as it is able to cheaply borrow the money for the transaction costs of the relevant merger and acquisition. Where companies are concerned, it is possible for them to enjoy the highest AAA rating on bonds which they issue as secured while having a lower credit rating on those which are unsecured. This is simply because secured bonds provide a particular asset that has been put up as collateral in case the issuer defaults on the interest or principal payments of the bond in question. The creditor has the right to seize the asset if the issuer ends up defaulting. Such bonds could carry the collateral of real estate, machinery, or other forms of equipment. Conversely, unsecured bonds only carry the backing of the issuer’s capability of repaying the obligation. This is why the credit ratings for unsecured forms of bonds only rely on the income source of the issuer in question. Since the Global Financial Crisis destroyed the highest creditworthiness of many a long-standing AAA rated nation, neither the world’s largest debtor nor creditor nations possess the all-important AAA rating. For example, S&P argues that it will only deliver the AAA rating in the cases where an “extremely strong capacity to meet financial commitments” exists.

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The euro zone was long a shining example of many nations which possessed unanimous AAA rated credit. After the Great Recession and Sovereign Debt Crisis ravaged Europe, only the two nations of Luxembourg and Germany still retain this three ratings agency unanimous AAA status.

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Absorption Rate Absorption rate is a term used in real estate. It represents the speed with which homes available in a real estate market are sold in a certain amount of time. Real estate professionals figure out this absorption rate by taking the number of houses that are available and dividing this by the average number of sales in a month. The result provides a useful number. It is the total number of months it will require before all of the homes on the market are sold. It is important to note that this absorption rate does not consider any supplies of other houses that enter the real estate market. As such it is a snapshot of a fixed moment in time. Higher absorption rates will usually signify that the numbers of available houses will decrease quickly. This means that a homeowner would likely sell his or her house in a shorter time frame. In historical context, when the rates of absorption rose over 20%, this has meant that the market was ideal for sellers. Homes would sell fast. When the absorption rate proved to be lower than 15%, this means that a buyer’s market is in effect. Buyers are being pickier. This slows down the rate at which homes are being sold. The absorption rate is easier to understand by looking at an example. In this scenario, a given city has 2,000 houses that are up for sale. If buyers came into the market and bought up 200 homes each month, then the home supply would be depleted in 10 months. This is simply figured by dividing the 2,000 houses by 200 homes bought each month. When buyers purchase the 200 houses from the 2,000 houses total, it means the rate of absorption equals 10%. This number is derived by taking the 200 houses buyers purchase every month and dividing it by the total 2,000 houses for sale. It would mean that the market is optimal for buyers. Any homeowner who was hoping to sell a house would be aware that the market should half sell out over a period of five months. There are a number of different individuals who work with this important figure. Real estate industry professionals are most interested in the number. Real estate brokers would put this number to use when they price houses. If a market showed signs of lower rates of absorption, the agents might have no choice but to lower the listing price in order to attract a buyer. In the opposite case, the market might exhibit a higher rate. This would allow the realtor to raise the home price without eliminating demand on the property. Home builders also look at these absorption rates when they are thinking about building new properties. A higher rate is often interpreted by the construction industry as an optimal time to begin building new houses. When the conditions on the market show higher absorption, it means demand can likely support them developing additional properties. The opposite is true if there is less absorption. This tells them that demand is lower. Construction may pause in efforts to build new houses. A last group that carefully studies the rates of absorption are the property appraisers. They think about these rates when they are considering the total value of a given property. In 2009, new appraisal rules came into effect. These mandated that every home value appraisal connected with a home loan had to

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take into account the active rate of absorption. The reasoning behind this was that home values should be less in times where lower absorption resulted in fewer and more drawn out sales at lower prices.

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Accountant Accountants are professional financial personnel whose careers are centered on dealing with money and figures. Their responsibilities cover compiling financial records, certifying them, and recording them for businesses, individuals, government organizations, and not for profit organizations. As such, they track a company or individual’s money through the development of reports. Managers of companies and organizations and other individuals read these accounting reports. The managers learn the state and progress of their company from them. Governments utilize these reports to determine the taxes that companies are required to pay. Investors and other businesses look at them to determine if they wish to work with a company. Banks and others investigate these reports in their decisions of lending money to a company. The majority of accountants are specialized. Four main types of accountants practice their trade. Management accountants follow the money that is both earned and spent by their employing companies. Public accountants work at public accounting firms. Here, they perform auditing, accounting, consulting, and tax preparation work. These types of accountants perform numerous tasks for individuals who are clients of the accounting firm. Some public accountants have their own small business. Government auditors and accountants ensure that the accounting records of government agencies are correct. Besides this, they double check the record of those individuals who transact business with the government. This helps to keep governments responsible. Internal auditors are accountants who ensure that the accounting records of their company are correct. In this role, they are investigating to make certain that no person within the firm is stealing. Besides this, they investigate to make certain that no individual in the company is wasting the firm’s capital. Accountants perform their tasks in offices. Those accountants who work for public companies and government groups often travel to perform audits of their own company’s other branches or outside companies. Regarding their hours, accountants typically work for a normal forty hours per week. Some accountants ply their trade for more than fifty hours each week. Especially in tax season that runs from January through April, tax accountants commonly work incredibly long hours. The outlook for accountants is exceptionally strong. Their field of work is anticipated to grow substantially faster than the average occupation through at least 2018. The reasons for this have much to do with the complex nature of both income tax laws and mandatory financial reporting. Because of the nature of these laws and rules, the demand for accountants will always exist. Working as an accountant entails a wide variety of requirements and prerequisites. Some very important positions mandate advanced degrees. Other accountant positions only need an ability and compliance to learn the trade, along with the necessary patience to see the training through.

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Adam Smith Adam Smith wrote the economic and political world shaking book The Wealth of Nations. This book marked the original birth of free market economics. It also spelled the doom of mercantilism, the dominant economic system of the day. March 9, 1776 marked the publication of An Inquiry into the Nature and Causes of the Wealth of Nations that became known by the shorter title The Wealth of Nations around the world. Smith opposed mercantilism that predominated in the world economy of his day. Mercantilism believed that the amount of global wealth was limited and fixed. The only way for countries to increase in prosperity lay in stockpiling gold and protecting markets from competition using tariffs. At the time nations felt they should sell their goods to others but not purchase any of their trade partners’ goods back. This caused international trade to be extremely limited because of the trade wars and tariffs that constantly erupted. The central part of Adam Smith’s premise lay in the “invisible hand.” He argued that mankind acted in his own best interests naturally. This would result in prosperity because the invisible hand of free markets would ensure the optimal economic production levels. Smith wanted all individuals to be allowed to make and exchange the goods they wished in free trade. He believed that all markets around the world would function better if allowed to freely compete. A national government would not need to intervene much except to support the invisible hand and its magic. He promoted the idea that countries could achieve universal prosperity if they had the three elements of enlightened self interest, free market economy with strong currency, and limited government. Smith believed that individuals should labor in their self interest with hard work and thriftiness. He believed in an enlightened form of self interest as the natural trait for most people. His famous example surrounded a butcher who supplied meat. He did not do it out of a good heart. The butcher sold the meat to profit. By selling low quality meat he would lose customers and not make any profits. The butcher’s best interests lay in offering quality meat to his customers at a fair price. Both groups realized a benefit with each transaction. Smith said that long term thinking would stop the majority of businesses from cheating their clientele. The government would enforce laws and penalties for those that failed. This self interest extended to trade. Individuals who saved would invest for better returns and give industry the investment capital it needed to increase numbers of machines and promote innovation in business. This would boost the returns on invested money and cause the general living standards to increase. Free market economy needed a strong currency to work well. Smith wanted a national currency backed up by precious metals so that the country could not depreciate the nation’s money through waste and wars. Starting with this limit on spending, Adam Smith continued with free market government recommendations. They were to maintain low taxes and repeal tariffs so that free trade could flourish over

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international borders. Smith demonstrated that these tariffs were only hurting the lives of ordinary citizens by raising prices and cutting off trade and industry’s efforts overseas. Limited government proved to be the third big idea that Smith promoted in The Wealth of Nations. Governments should be limited to providing universal education to its citizens, national defense, infrastructure works, and the enforcement of law and justice. Governments were to intervene whenever people pursued short term interests or committed crimes. Larger governments only took money from their ordinary citizens’ pockets.

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Adjustable Rate Mortgage (ARM) Adjustable Rate Mortgages, also known by their acronym ARM’s, are those mortgages whose interest rates change from time to time. These changes commonly occur based on an index. As a result of changing interest rates, payments will rise and fall along with them. Adjustable Rate Mortgages involve a number of different elements. These include margins, indexes, discounts, negative amortization, caps on payments and rates, recalculating of your loan, and payment options. When considering an adjustable rate mortgage, you should always understand both the most that your monthly payments might go up, as well as your ability to make these higher payments in the future. Initial payments and rates are important to understand with these ARM’s. They stay in effect for only certain time frames that run from merely a month to as long as five years or longer. With some of these ARM’s, these initial payments and rates will vary tremendously from those that are in effect later in the life of the loan. Your payments and rates can change significantly even when interest rates remain level. A way to determine how much this will vary on a particular ARM loan is to compare the annual percentage rate and the initial rate. Should this APR prove to be much greater than the initial rate, then likely the payments and rates will similarly turn out to be significantly greater when the loan adjusts. It is important to understand that the majority of Adjustable Rate Mortgages’ monthly payments and interest rates will vary by the month, the quarter, the year, the three year period, and the five year time frame. The time between these changes in rate is referred to as the adjustment period. Loans that feature one year periods are called one year ARM’s, as an example. These Adjustable Rate Mortgages’ interest rates are comprised of two portions of index and margin. The index actually follows interest rates themselves. Your payments are impacted by limits on how far the rate can rise or fall. As the index rises, so will your interest rates and payments generally. As the index declines, your monthly payments could similarly fall, assuming that your ARM is one that adjusts down. ARM rates can be based on a number of different indexes, including LIBOR the London Interbank Offered rate, COFI the Cost of Funds Index, and a CMT one year constant maturity Treasury security. Other lenders use their own proprietary model. Margin proves to be the premium to the rate that a lender itself adds. This is commonly a couple of percentage points that are added directly to the index rate amount. These amounts vary from one lender to the next, and are commonly fixed during the loan term. The fully indexed rate is comprised of index plus margin. When the loan’s initial rate turns out to be lower than the fully indexed rate, this is referred to as a discounted index rate. So an index that sat at five percent and had a three percent margin tacked on would be a fully indexed rate of eight percent.

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Affidavit An Affidavit is a declaration in writing which includes a sworn oath or positive confirmation that written contents are factual and true. These declarations and statements could be made related to court cases. They also could be made to support an important document as with mortgage applications or tax returns. Though many people may not be aware of it, a great number of forms prove to be affidavits. This is because they have a line that states the individuals have filled in the form to the best of their knowledge. The line must also mention that deliberately entering information that is incorrect will lead to perjury charges. If a person is found guilty of perjury charges, it can lead to significant time spent in jail. The word affidavit is originally taken from the Latin. The Latin roots signifies that individuals have pledged their faith with complete knowledge of the law. It is interesting that affidavits are always voluntarily undertaken documents. This means that no parties in a court case are able to make a person give such statement under oath. Courts can force individuals to give deposition accounts. Depositions differ from an affidavit. They may both be statements that are written, but depositions will be cross examined in a court. Affidavits must involve knowledge that is personally known by the individual who declares them. This means that persons who do not include information of which they were unaware will not be punished or deemed to be in perjury. Personal knowledge can cover a person’s opinion too. In such cases, the statement must be unequivocally stated to be opinion instead of a known fact. Any individual is allowed to provide an affidavit if he or she maintains the necessary mental ability to comprehend how serious the oath given actually is. This is why guardians of mentally ill patients are able to provide such an affidavit on their behalf. These documents are generally formally witnessed by a qualified official such as a notary public or an account clerk. Notaries are agents who receive a small fee in exchange for witnessing the signing of legal documents for individuals, as with mortgage forms or real estate transactions. This witness signing the document means that the person pledges that the information is accurate and realizes how important this oath is. Documents like these can be utilized in court as evidence. They can also be submitted alongside supporting materials with various kinds of transactions, including for social services. Individuals who sign affidavits should be extremely careful that they read the documents several times, especially if another individual is recording them. This is because the documents are oaths which are legally binding. The statements contained within must be correctly and clearly related. When the signor recognizes errors in the document, as with facts on a mortgage application, these need to be corrected in advance of signing. This is more important than the inconvenience it will cause the officials who have written down the information and who are witnessing the signing and oath that accompanies it.

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Agency Bonds Agency bonds are those bonds that are actually issued by United States’ government sponsored entities. This means that these bonds are not government guaranteed, as they are created by private companies. They are backed up implicitly by the United States government, since these organizations were created to permit some categories of individuals to have the ability to receive lower cost financing, in particular first time home buyers and students. The biggest, best recognized names in Agency Bond issuers prove to be Sallie Mae, Freddie Mac, and Fannie Mae. These three large companies are different from government agencies in that they are not guaranteed by the United States’ government’s promise of full faith and credit. Instead, they are all privately held and run companies that are given government charters as a result of their critical activities that carry out government directed policies. Agency bonds are used to raise money to help these companies offer farm loans, home loans, student loans, and international trade financing. As a result of the government deeming these activities to be significant enough to grant charters, the markets consider that the Federal Government will not permit these chartered firms to go under. This gives their agency bonds the implied government sponsored entity guarantee. As a result of this implicit guarantee, these agency bonds carry ratings and yields that are comparable to government issued debt. As an example, Private Export Funding Corporation bonds prove to be backed up by actual collateral of United States government securities. Federal Farm Credit Banks’ bonds are not, although it is a government sponsored entity. Despite the differences, the yield-to-maturity of the two bonds are 4.753% and 4.760% respectively. These two organizations’ debt obligations are nearly priced the same, demonstrating once again the implicit guarantee in the government sponsored entity securities. The issue of taxation is another important one to consider when you are looking at Agency Bonds. All agency bonds are taxable on Federal levels. Many are not taxed on state levels. This is critical if you are an investor who resides in a state that has its own taxes. The interest payments from the best known of these organizations like Freddie Mac and Fannie Mae can be taxed on a state level. The majority of others agency bonds avoid this taxation, making their rates more attractive for many investors. The vast majority of all agency bonds outstanding, more than ninety percent, are issued by only the four largest government sponsored entities. By largest size, these are Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, and Federal Farm Credit Banks. The Federal Home Loan Banks’ and Federal Farm Credit Banks’ agency bonds are not state income taxable.

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Alan Greenspan Among the various Chairmen of the Board of Governors for the Federal Reserve System over the years, Alan Greenspan stands out as a living legend. He began his nearly two decade term as Federal Reserve Chairman on August 11, 1987 and then served all the way through January 31, 2006. An unprecedented four different sitting presidents appointed Alan Greenspan as chairman of the Fed. During his time in the most important economic office in American, Greenspan made such ideas as “irrational exuberance” household phrases. Alan Greenspan began his famed career working for the non profit outfit the National Industrial Conference Board. Here he analyzed the demand for aluminum, steel, and copper. During the years of 1954 to 1974 and 1977 to 1987, Greenspan served as president and chairman of Townsend-Greenspan & Company at the New York City based economic consulting firm. President Gerald Ford brought Alan Greenspan into government service where he served from 1974 to 1977 as the President’s Council of Economic Advisers chairman. President Ronald Regan utilized his services in several capacities, first as the National Commission on Social Security Reform chairman from 1981 to 1983. Later he worked on the Economic Policy Advisory Board for President Reagan, as well as consultant to the CBO Congressional Budget Office. Once Alan Greenspan took over as Board of Governors chairman for the Fed, he faced a crisis just months after assuming the post. This came in the form of the stock market crash Black Monday of October 1987. He moved rapidly to make certain liquidity continued to exist in the various markets. While head of the Federal Reserve, Greenspan led the nation through two recessions, the 1997 Asian Financial Crisis, and the 9/11/2001 terrorist attacks. During this lengthy tenure in office, Greenspan gained a reputation as being staunchly against inflation and concentrating his efforts and firepower on maintaining stable prices more than on delivering full employment. Numerous economists and historians give Greenspan great credit for overseeing and assisting the lengthiest economic expansion in American history. He earned a deserved reputation for his ability to build up consensus among his various colleagues at the Fed Open Market Committee where policy was concerned. Alan Greenspan has served in numerous roles in both the public and private realms. He worked for several presidents on appointments that included the Commission on Financial Structure and Regulation, the President’s Foreign Intelligence Advisory Board, the Commission on All Volunteer Armed Force, and also the Task Force on Economic Growth. Besides this, Greenspan has worked as a corporate director at a number of corporations. These include The Pittston Company, Mobil Corporation, Morgan Guaranty Trust Company of New York, J.P. Morgan & Co., General Foods, Capital Cities/ABC, Automatic Data Processing, and Alcoa the Aluminum Company of America. After Alan Greenspan resigned from the Federal Reserve Board of Governors, he started up his own Greenspan Associates, LLC consulting firm in Washington D.C. He also published his official memoirs on his time in office in 2007 as The Age of Turbulence.

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Greenspan is remembered for several of his famous quotes on irrational exuberance, money printing, and the gold standard. Regarding the ability of the United States to pay its mounting debts to its many creditors, he claimed, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” This reinforced the truth of a quote he had made decades earlier regarding inflation and the gold standard. “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

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Algorithmic Trading Algorithmic trading has many names. Users also know it as black box trading and algo trading. This system of trading works with complicated and highly advanced mathematical formulas. It takes these models and engages in rapid decisions to execute transactions in various financial markets. This type of trading is only possible with super fast computers and programs. It combines these with the algorithms to come up with trading strategies that deliver the maximum returns. There a variety of trading and investment strategies that can benefit from algorithmic trading. Some of these are inter-market spreads, speculation, market making, and arbitrage. Nowadays this style of trading is able to operate and automate trading and investment strategies by working on electronic platforms. This means that the programs themselves can carryout specific trading instructions. They can be set up to consider special scenarios like volume, price, and timing. Bigger institutional investors who buy enormous amounts of shares are most likely to use algorithmic trading. These programs help them to gain the optimal price in the market without substantially impacting the price of the stock or making their buying costs higher. Among the most popular types of algorithmic trading strategies are trading in advance of index fund rebalancing, scalping, arbitrage, and mean reversion. These are complex strategies that mostly require speed of discovery and instantaneous decision making to be effective. Trading in advance of index fund re-balancing has to do with mutual funds. Pension funds and other retirement accounts are heavily invested in these vehicles. Because the underlying assets held in these funds constantly change, they must purchase or sell index funds to match. This algorithmic trading strategy looks for the points where the mutual funds are ready to re-balance. It then buys or sells first. In reality it makes money for the algorithmic traders at the expense of the mutual fund investors. Scalpers look to make money on the bid versus ask spreads. If they trade the difference quickly enough repeatedly during the day, it can make them significant amounts of money. For it to work, the movement in the price of the stock has to be less than the spread of the security or stock in question. These kinds of movements happen anywhere from seconds to minutes. Only the quick decision making of the algorithm formulas is sufficient to maximize this strategy. Arbitrage refers to finding the differences in pricing of two related entities. Global businesses utilize this effectively all the time. They can buy supplies for less or contract labor cheaper by getting it in different nations. It helps them to lower their expenses and boost their profits. In algorithmic trading, arbitrage strategies work with examples like S&P 500 stocks versus S&P futures. These two markets for the securities or index will often encounter price differences. Stocks on NYSE or NASDAQ could move ahead of or behind the futures market for them. The powerful and fast algorithms are able to both track and trade such differences and profit as a result. Mean reversion refers to coming up with the average for short term low and high prices on a security. The algorithms are able to compile such an average rapidly. When the price moves towards or away from this

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average mean, the programs can rapidly trade them as they move back towards it. There are a few other strategies that algorithms are able to enhance. Some of these pertain to dark pools of capital and reducing their transaction costs. Dark pools are unregulated and off market trades created when institutional investors make their own private exchanges.

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American Bankers Association (ABA) The American Bankers Association, or ABA, is a trade association of the U.S. banks large and small conveniently located in Washington, D.C. This powerful lobbying organization hails back to 1875 when it was established by several bankers. Today, the ABA has grown to represent banks of all stripes and sizes and encompasses more than 95% of all bank assets in the nation. This means that money center banks, regional banks, community thrift banks, mutual savings banks, savings and loans associations, trust companies, and large commercial banks all count the ABA as their voice before the federal government. The typical sized member bank boasts around $250 million in assets. This trade and industry group proves to be the biggest banking trade association by far within the U.S. today. It is also known as the biggest financial trade group anywhere in the United States. The American Bankers Association thrives and prospers because of its impressive range of both services and products it delivers to member institutions. This includes help in such diverse industry segments as insurance, staff training and education, asset management, capital management, consulting, and risk-compliance endeavors. Probably the most famous creation of the American Bankers Association remains the all important nine digit routing numbers which designate all banks everywhere within the U.S. These routing numbers are pictured on every single check and are also necessary identification for wire transfer transactions. The ABA can truthfully boast that it created this system over a hundred years ago, way back in 1910. Today’s American Bankers Association keeps extremely busy lobbying with Congress for its banking members and their common interests. The group has concentrated its efforts in the last several years on banning the so-called unfair tax exempt status enjoyed by credit unions. Credit unions originally catered to selective and tiny targeted memberships, as with a particular company’s own employees. This did not threaten commercial banks and other similar financial institutions. More recently though, to bank’s undying enmity and impotency in the face of this real and rising threat, credit unions found the means to vastly expand their roles of membership and possible pools of customers. It is no exaggeration to state that numerous credit unions can boast over $1 billion in assets nowadays. This makes them as big as some of the larger and even too big to fail banks. The ABA strenuously maintains that such credit unions have morphed into a structure and operations which are so similar to the traditional commercial banks that they no longer deserve this special favor of tax exempt status. It was actually the infamous Panic of 1873 that gave rise to the initial founding of the American Bankers Association. A banker James Howenstein of St. Louis, Missouri, one day discovered that he was up against a proverbial wall in his bank. He only possessed several hundred dollars in cash against his millions of deposits he needed to return back to panicking depositors. By falling back on assistance and knowledge willingly provided by his peers in the banking business via rapid and frequent correspondence, Mr. Howenstein escaped from his business-threatening dilemma to survive. He then knew that he had been saved by this informal network and fraternal organization of

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fellow bankers and wanted to expand on this successful construct. To this effect, Mr. Hownestein convened his first meeting of 17 different bankers on May 24, 1875 in New York City. Together they made plans for an initial American Bankers Association convention that did successfully take place on July 20, 1875 in Saratoga Springs, New York. Fully 349 different bankers who hailed from 31 states as well as the nation’s capital attended. Chief among the first endeavors of the ABA proved to be setting up the American Institute of Banking. They founded this in 1903 in order to offer certificates and examinations as professional banking education in their local branch chapters. This AIB offered interested participants a different way to pursue a banking career than by going to university for a degree in law and finance.

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American Express The American Express Company proves to be the New York City headquartered multinational financial services outfit. It was established in 1850 and today is among the 30 constituents of the Dow Jones Industrial Average. The company is world renowned for its various traveler’s checks, chard card, and credit card businesses. The Amex cards make up around 24 percent of all credit card transaction dollar volume for the United States. Interbrand and Business Week together rank American Express at number 22 for most valuable brands in the globe. They have estimated the Amex brand to be valued at almost $15 billion. Fortune magazine has Amex in its coveted “Top 20 Most Admired Companies in the World.” Their logo is recognized around the globe. This Centurion image dates back to its unveiling in 1958. The logo is found on their credit cards, charge cards, and traveler’s checks. American Express has long served as an engine for American based commerce. Their innovative solutions cover expense management, payment needs, and travel planning for both businesses large and small and consumers. They assist their customers in achieving their goals and dreams with their benefits that lead the industry, insights into building businesses, access to one of a kind experiences, and worldwide customer care services. When ranked by purchase volume, American Express boasts being the biggest card issuer in the world. To this effect, their company processes literally millions of individual transactions every day. They call themselves the leading network for card members who are high spenders. Companies benefit from the many advantages that Amex offers them as well. Small businesses and their owners receive financial control and flexibility along with additional purchasing power and cash flow help. Large corporations obtain commercial payment expertise and tools to help them effectively manage their spending. This saves an aggregate of billions of dollars. Merchants are able to improve their business by utilizing Amex’s information management and marketing insights. Card members enjoy the many benefits that American Express delivers. Their travel network turns out to be among the biggest in the world. They provide a wide range of rewards programs that lead the credit card industry. The company has consistently been regarded and awarded as the industry leading company for innovation. Customers benefit from 24 hours per day, seven days per week customer service that is offered around the globe. American Express did not begin life as a financial services company. The firm’s founders Henry Wells, William Fargo, and John Warren Butterfield merged their companies to create an express mail business found in Buffalo, New York. While sister company at the time Wells Fargo & Co ran operations in California and the West, American Express handled New York state movement and shipment of goods, currencies, and securities. They were so successful in their express shipment business that they enjoyed a New York statewide virtually monopoly of these shipments for many years. Their original entrée into financial services came when they started offering money orders in 1882 to compete with U.S. Post Office money orders. They

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began issuing their famed traveler’s checks in 1891 in denominations including $10, $20, $50, and $100 amounts.

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American Institute of Banking (AIB) The American Institute of Banking (AIB) is a venerable educational and training institution for the United States based banking industry which was established by the American Bankers Association (ABA) back in 1907. This AIB offers continuing training and a full range of banking career education for parties who are interested in the banking field or who are already participants within it. Over 150,000 existing bankers take part in their extensive range of continuing educational programs every year. As such, the AIB is the definitive and universally recognized continuing education curriculum for those within the fields of financial services. American Institute of Banking programs were created to boost, refresh, and improve the job skills and knowledge base of those working in or seeking to work within the financial services industry. Completing some of these degreed programs can provide a path to AIB certificates and even diplomas which are universally recognized within the banking realm. They can also help with obtaining required professional licenses. These programs encompass more than the traditional open enrollment programs provided throughout all of the various states. The AIB of today also offers convenient digital format purchase of its services and products, training provided in-house and Internet-based provision of online classes and coursework, tests, and study teams classes. These are only a few of the many options for its in-depth and extensive industrywide programs. The American Institute of Banking falls under the umbrella of the founder American Bankers Association. This means that all AIB programs and courses are provided through the local area branches of the ABA and its providers. Among its many classes and programs are core courses in such fields as business fundamentals; general banking; consumer, commercial, and mortgage lending; retail banking; asset management; compliance issues; and marketing. In-bank branch training utilizes instructions and resources to offer specifically tailored delivery of the various ABA training regimens within a banker’s own branch. It might also be offered off site in the immediate area, depending on demand. In recent years, the American Institute of Banking has moved aggressively into the digital age with its instructional offerings. Thanks to this decision, they now offer Internet-based online versions of their best selling, traditional instructor-driven AIB courses. They provide extensive information, schedules, and enrollment forms for this mode of education on their website. The American Institute of Banking offers certificate programs which it tailored to help participants boost their knowledge of and performance in banking utilizing course curriculum which has been bank tested for a specific bank focus. These courses run the gamut across a variety of skill sets and content and each complement the other. Certificate-driven courses are shorter in length and typically run from one to three weeks in total duration.

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The American Institute of Banking also provides full-scale banking diplomas. These are awarded for successfully completing both required and elective option courses. Courses which provide at least two hours of credit award traditional grade levels of A, B, C, or D. In order for courses to count towards one of the AIB diplomas, students must receive a C or higher overall average. One course can be utilized towards one or multiple certificates or diplomas. The ABA has recently decided to roll up the separately branded AIB into its own proprietary programs. All American Institute of Banking courses are now provided as a division of ABA Training. These courses, whether offered in person or online, generally meet the requirements mandated by the ICB Institute of Certified Bankers for continuing education credits and appropriate exams. The ABA online training was designed specifically to be cost affordable and flexible. This is why they aim to constantly update the information and learning experienced which is now able to be accessed at any time, from any place.

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American International Group (AIG) American International Group is one of the largest insurance companies in the world. It boasts over 90 million customers living in over 100 countries around the globe. The company has provided risk management and insurance services for customers for almost a hundred years. Today the company is changing to try to meet their clients’ needs better. They are simplifying the corporate structure to be able to work more directly with their customers, to provide value and help quicker and with greater efficiency, and to offer better transparency. They are striving for greater focus, leaner operations, and higher profits. AIG proves to be the largest commercial insurance company for both the United States and Canada. They rank as biggest nonlife insurance operation in the world based on market capitalization. Fully 98% of Fortune 500 companies, 90% of Fortune Global 500 corporations, and 96% of Fortune 1000 Companies carry their insurance products or services. American International Group began life as the brain child and insurance project of American Cornelius Vander Starr in 1919. He established it as the AAU American Asiatic Underwriters general insurance company in Shanghai at this time. This outfit expanded throughout China and then around the world. Each new culture and market they encountered helped them to broaden their concept of risk and the means of helping to manage it for their customers. As World War II was breaking out, the company wisely relocated its headquarters from Shanghai in China to New York City. The company continued to expand successfully throughout Latin America, Asia, Africa, and Europe through 2008. When the financial crisis erupted in the United States in 2008, the U.S. government had to bail out the company to save it from collapse. Edward M. Liddy was appointed as Chairman of AIG in order to navigate it through the chaotic and troubled operating environment and company era. By 2012, AIG had succeeded in restructuring the company. They also repaid all of the aid and loans from the U.S. government with profits that year, re-launched their damaged brand, and restored their reputation. AIG boasts a number of impressive accomplishments in the intervening years since emerging from the financial crisis. They have once again become a market leader for aiding families in safeguarding their financial futures. They are the number one ranked fixed rate deferred annuity providers. AIG is among the biggest sellers of group retirement plans as well. In a number of countries throughout the globe, the outfit is a personal insurance policy leader. Nearly half of the wealthiest Americans (as measured by the Forbes 400 Richest Americans) choose AIG for their nonlife insurance needs. AIG has won and continues to win numerous awards for their performance, service, and products. In 2016 they were honored with the top spot at the Business Insurance Innovation Awards. This is a position that they or one of their companies have successfully held for 7 years in a row. They won three honors at the Travvy Awards in 2016. They also earned a third year in a row place on the Diversity Inc. 25 Noteworthy Companies for Diversity. AIG is also pioneering technology and data science techniques for helping to ensure their clients are

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better informed and safer. They have an unrivaled amount of information and expertise that they utilize to provide insights into a wide variety of sectors around the globe. These enable them to help stop losses and reap better results for the company and its customers. AIG routinely shares the exploration results of this information with governments, researchers, non government organizations, and experts in various fields.

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American Stock Exchange (AMEX) The AMEX is the acronym for the American Stock Exchange. This exchange proves to be the third biggest such stock market in all of the United States when trading volume is considered, after the NYSE and the NASDAQ national exchanges. Located in the American financial center of New York, the AMEX carries around ten percent of every security that is listed within the United States. In the past, it had a much larger market share of traded securities. The origins of the AMEX lie before it was called the American Stock Exchange. In 1953, the New York Curb Exchange became known as the AMEX. This exchange proved to be a mutual organization that the members owned. In decades past, the American Stock Exchange had an important position as a major competitor for the New York Stock Exchange. This role gradually fell to the rising NASDAQ stock exchange. Back on the seventeenth of January in 2008, the NYSE Euronext exchange announced its intentions to buy out the American Stock Exchange in consideration of $260 million in NYSE stock. They completed the transaction on the first of October in 2008. NYSE originally intended to integrate the AMEX exchange into its Alternext European small cap exchange. They first renamed it the NYSE Alternext U.S. By March of 2009, NYSE had scrapped this plan and renamed it the NYSE Amex Equities exchange. The overwhelming majority of AMEX trading these days is done in small cap company stocks, derivatives, and exchange traded funds. These are niches that the AMEX exchange carved out and maintained for itself despite the rising allure of the newer NASDAQ in the 1990’s. The AMEX observes regular trading session hours running from 9:30 in the morning to 4:00 in the afternoon on Monday through Friday. The exchange is closed on Saturdays, Sundays, and all holidays that the exchange announces in advance.

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Amortization The word amortization is one that is commonly utilized by financial officers of corporations and accountants. They utilize it when they are working with time concepts and how they relate to financial statements of accounts. You typically hear this word employed when you are figuring up loan calculations, or when you are determining interest payments. The concept of amortization possesses a lengthy history and it is currently employed in numerous different segments of finance. The word itself descends from Middle English. Here amortisen meant to “alienate” or “kill” something. This derivation itself comes from the Latin admortire that signified “plus death.” It is loosely related to the derivation of the word mortgage, as well. This accounting principle is much like depreciation that diminishes a liability or asset’s value over a given period of time through payments. It covers the practical life span of a tangible asset. With liabilities, it includes a pre-set amount of time over which money is paid back. Like this, a certain amount of money is set aside for the loan repayment over its lifetime. Even though depreciation is similar to amortization, they are not the same concepts. The main difference between them lies in what they cover. While depreciation is most commonly employed to describe physical assets like property, vehicles, or buildings, amortization instead covers intangibles such as product development, copyrights, or patents. Where liabilities are concerned, it relates to income in the future that will be paid out over a given amount of time. Depreciation is instead a lost income over a time period. Several different kinds of amortization are presently in use. This varies with the accounting method that is practiced. Business amortization deals with borrowed funds and loans and the paying of particular amounts in different time frames. When used as amortization analysis, this is the means of cost execution analysis for a given group of operations. Where tax law is concerned, amortization pertains to the interest amount that is paid over a given span of time relevant to payments and tax rates. Amortization can also be employed with regards to zoning rules and regulations, since it conveys a property owner’s time for relocating as a result of zoning guidelines and pre-existing use. Another variation is used as negative amortization. This pertains specifically to increasing loan amounts that result from total interest due not being paid up at the appropriate time. Amortization can also be employed over a widely ranging time frame. It could cover only a year or extend to as many as forty years. This depends on the kind of loan or asset utilized. Some examples include building loans that span over as many as forty years and car loans that commonly span over merely four to five years. Asset examples would be patent right expenses that commonly are spread out over seventeen years.

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Annual Percentage Rate (APR) The annual percentage rate, or APR, is the actual interest rate that a loan charges each year. This single percentage number is truthfully used to represent the literal annual expense of using money over the life span of a given loan. Annual percentage rate not only covers interest charged, but can also be comprised of extra costs or fees that are attached to a given loan transaction. Credit cards and loans commonly offer differing explanations for transaction fees, the structure of their interest rates, and any late fees that are assessed. The annual percentage rate provides an easy to understand formula for expressing to borrowers the real and actual percentage number of fees and interest so that they can measure these up against the rates that other possible lenders will charge them. Annual percentage rate can include many different elements besides interest. With a nominal APR, it simply involves the rate of a given payment period multiplied out to the exact numbers of payment periods existing in a year. The effective APR is often referred to as the mathematically true rate of interest for a given year. Effective APR’s are commonly the fees charged plus the rate of compound interest. On a home mortgage, effective annual percentage rates could factor in Private Mortgage Insurance, discount points, and even processing costs. Some hidden fees do not make their ways into an effective APR number. Because of this, you should always read the fine print surrounding an APR and the costs associated with a mortgage or loan. As an example of how an effective APR can be deceptive with mortgages, the one time fees that are charged in the front of a mortgage are commonly assumed to be divided over a loan’s long repayment period. If you only utilize the loan for a short time frame, then the APR number will be thrown off by this. An effective APR on a mortgage might look lower than it actually is when the loan will be paid off significantly earlier than the term of the loan. The government created the concept of annual percentage rate to stop loan companies and credit cards issuers from deceiving consumers with fancy expressions of interest charges and fees. The law requires that all loan issuers and credit card companies have to demonstrate this annual percentage rate to all customers. This is so the consumers will obtain a fair comprehension of the true rates that are associated with their particular transactions. While credit card companies are in fact permitted to promote their monthly basis of interest rates, they still have to clearly show the actual annual percentage rate to their customers in advance of a contract or agreement being signed by the consumer. Annual percentage rate is sometimes confused with annual percentage yield. This can be vastly different from the APR. Annual percentage yield includes calculations of compounded interest in its numbers.

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Annuity An annuity is an investment contract that an insurance company sells to individuals. This agreement promises that it will make a regular series and dollar amount of payments to the buyer. This can be either for the rest of his or her life or for a set amount of time. The payments out are typically made after the individual retires. Annuities have a long past that began in the Roman Empire. Roman citizens could purchase annual contracts from the Roman Emperor. The empire would then make annual payments to the citizens for the remainder of their lives. European governments revived the sale of annuities in the 1600s. They sold lump sum contracts to investors to help pay for expensive wars. These investors also received a number of prearranged payments back from the governments that sold them. Annuities in America started as a way to support church ministries. 1912 saw the first annuity contract that was offered to the general American public by a Pennsylvania life insurance firm. These contracts continued to evolve and grow throughout the 1950s until they became commonplace in the 1980s. Annuities offer certain tax advantages to their owners. Annuity holders only pay taxes on their contributions when they begin to take withdrawals or distributions from the funds. Every annuity contract is tax deferred. This signifies that investment earnings in such annuity accounts continue to grow tax deferred until the owners withdraw them. This also means that annuity earnings may not be taken out without paying a penalty until the owner reaches the set age of 59 1/2. There are two general types of annuities contracts. Fixed annuities pledge to provide a guaranteed payment amount. Variable annuities do not make this guarantee. They do offer the possibility of earning higher returns in the variable annuity. Experts consider either type of annuity to be a safe but low yielding investment vehicle. Annuities have a specific purpose. Companies developed them in order to insure the owner against the possibility of living longer than his or her retirement income. This is known as superannuation. The idea behind annuities is to help offset this risk of outliving retirement funds. Annuities are popular with conservative investors because they continue to make payments until the holder dies. Even when the payments surpass the amount that remains in the annuity, the payments continue to be made. They are always counted as retirement savings vehicles. The two phases of annuities are the accumulation and the distribution periods. During the accumulation phase, owners do one of two things. They can make a large lump sum payment into the annuity. They may also make regular payments into the contract. If the owner dies in this accumulation period, the heirs are given the amount of money that the owner paid into the annuity contract. Taxes owed would include estate taxes and regular income taxes. When the owner reaches the retirement age, annuitization happens and distribution begins. At this point, the accumulated amounts convert into annuity units. The owner is changing the lump sum amount in the

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contract for the guaranteed series of payments. At this point he or she no longer has access to the large single amount in the account. The guaranteed income for life begins in this distribution phase. Owners can receive their benefits as one of several options. Straight Life contracts pay calculated sums that are only based on the owner’s life expectancy. These payments stop when the owner dies even if a lesser amount than the contract value is distributed. Life with Period Certain option makes payments for a minimum amount of time up to the death of the owner. Joint Life option pays benefits until both owners have died. Joint Life with Period Certain option gives payments for a guaranteed minimum amount of time until both owners have died.

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Appraisal Appraisals are professionally done estimates of a property’s real value. These are conducted by appraisers. Many things can have an appraisal done on them, including smaller items like artwork or jewelry, as well as larger things like businesses, commercial buildings, or homes. Appraisals are commonly required before many different transactions can be performed. In advance of getting a house, piece of jewelry, or an artwork insured, appraisals must be performed. Homes and offices have to be appraised for insurance, loans, and tax purposes. Appraisals ensure that these loans and insurance policies are comparable to the property’s tangible market value. Several different types of appraisals can be performed. Real property appraisal involves properly estimating Real Estate value. Personal property appraisal involves determining the worth of valuable individual objects like expensive china, jewelry, pottery, artwork, heirlooms, and antiques. Mass appraisals merge real property and personal property appraisals into a single appraisal. Business value appraisals consider all of the valuable tangible and intangible assets that a business owns, including logos, services, equipment, property, inventory, other assets and goodwill. Perhaps the most commonly used type of appraisal is a home appraisal. Home appraisals prove to be professionally done surveys of a house to come up with an opinion or estimate of the home’s value on the market. These kinds of appraisals are usually performed for banks that are considering the approval of a loan for a person purchasing a home. Such home appraisals turn out to be detailed reports. These cover many things including the home’s neighborhood, the house’s condition, how rapidly area houses sell, and what comparable houses actually sell for at the time. Such a home appraisal could similarly be done for a replacement value for insurance purposes or as a sales comparison in marketing a home, as well. Cost and replacement appraisals determine what the actual cost to completely replace your home would be if something destroyed the house. This type of appraisal is most often employed for new houses. Sales comparison appraisals more often examine various additional properties within your house’s neighborhood to determine at what price they are presently selling. The appraiser will then determine how such houses compare and contrast against your particular home. Home appraisals commonly cost in the range of from $300 to $500 when people decide to order one done themselves. Such appraisals are not often accepted by banks. They will want to have their own contracted appraiser make the estimate in order to get a more independent number that they trust. Home appraisers are always licensed by the state in which they operate. The highest of ethical standards are demanded of them. Their sole purpose is to act as an independent third party who will give their truthful opinion of a home’s market value. Appraisers are not supposed to be associated with any party that is involved in the selling of a home.

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Appraised Value Appraised Value refers to the property value evaluation from a certain frozen moment in time. Professional appraisers perform these appraisals when the origination process of the mortgage is underway. Lenders themselves typically select specific property appraisers to do them. It is the borrowers who are expected to pay for getting the appraisal. Home appraised value proves to be a critical factor in getting through the process of loan underwriting. It enjoys a special place in deciding the amount of money that buyers can borrow and according to what terms. As a key example, the LTV Loan to Value ratio is determined utilizing the appraised value. When the LTV proves to be higher than 80 percent, the lender will insist that the borrowers purchase PMI private mortgage insurance. Once the LTV declines to 78 percent or lower with an appraisal, the need for expensive PMI payments can be excused. This appraised value should not be confused with market value. The two are both important in residential home transactions, for retail buildings, commercial property, land, and farms. Yet real distinctions between the appraised value and market value of real estate exist. The market values will be driven by consumers and their demand versus available home supply in a given city, county, or even region. The experts make the appraised values. Appraised values of given properties relay the information in the form of a precise number on the value of the home or other property in question. These appraised values come from both the professional opinion of the appraiser as well as the data they gather from similar home sales on the same street, in the neighborhood, and in that section of the city. Market values on the other hand vary more dramatically. Buyers have great influence on the property’s market value. This is because any home is ultimately truly worth as much as a buyer will actually pay for it. Sometimes people also confuse the idea of assessed value and appraised value. Assessed values are those which the city or town assessor’s office will put on a given property. They do this so that they can decide what amount of taxes should be levied and collected for the property tax. Whole towns and cities become assessed in a particular (from four months to twelve months) period. Qualified assistants will actually determine the final values once they interview the owners and examine the properties in question. Municipalities then combine all of the assessed values for all properties within their jurisdiction to determine how much the tax rate should be for the year in question. It is possible for the town or city to revalue its tax rate every year in order to gather the revenues they require to run the municipality. This means that while assessments do not typically change on a yearly basis, tax rates could. It is only in cases where the city or town’s assessed values are deemed to be outdated that they will reassess the properties in the jurisdiction. This happens as dramatic inequities arise between one property and the next. It would require a sufficient reason to spend the money on conducting a new assessment of all properties within the municipality. There are states which have standard regulations that each home must be reassessed on an individual basis whenever it becomes sold or transferred. It is also true that rarely will the assessed values versus the appraised values for a given property be precisely the same dollar amount. This is because while assessed values are not impacted by market activity in a certain time period, the appraised values will inevitably be influenced by them due to actual market activity of homes

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selling in the area.

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Arbitrage Arbitrage refers to the practice of taking advantage of the price imbalances sometimes arising in two or even more markets. People who work in foreign money exchange run their whole businesses on this model. As an example, they look for tourists who require a rapid exchange of their cash for the local currency. Tourists agree to accept this local money for a lower amount than the actual market rate, and the money changer gets to keep the spread created by the higher rate that he charges them for the local currency. This spread that the different rates create becomes his profit. Many different scenarios allow for investors or businessmen to become involved in the arbitrage practice. Sometimes, one market is not aware of the existence of the second market, or it simply can not access it. Arbitrageurs, persons who avail themselves of arbitrage, are also able to benefit from the different liquidities present in various markets. Arbitrage is typically employed to discuss opportunities with investments and money rather than price imbalances for goods. Because of arbitrageurs operating in various markets whenever they spot opportunities, the prices found in the higher market will commonly drop while the prices in the lower market will usually rise so that they meet somewhere around the middle of the price difference. The phrase efficiency of the market then deals with the rate of speed at which these differing prices converge towards each other. There are people who make arbitrage their livelihood. Working in arbitrage offers the possibilities of lucrative gains and profits. It does not come free of risk though. The greatest danger is that the prices may change rapidly between the varying markets. As an example, the spreads could rapidly fluctuate in only the tiny amount of time that is necessary for the two transactions to take place. In instances where these prices are moving quickly, arbitrageurs may not only find that they missed the chance to realize the profit between the differences in the prices, but that in fact they lost money on the deal. Examples of arbitrage in the financial markets abound. Convertible arbitrage is working with convertible bonds to realize arbitrage. The bond can be converted into stock of the issuer of the bond. Sometimes, the amounts of shares that the bond will convert to are worth more than the price of the bond. In this case, an arbitrageur will be able to make a profit by purchasing the bond, converting it into the stock shares, and then selling the stock on the exchange to realize the difference. Relative value arbitrage is using options to acquire the underlying shares of stock. It might be that the option is less expensive relative to the shares of stock that it will purchase. If a stock trades at $200, and the option that permits you to buy a share of the stock for $120 is trading at only $50, then you could buy the option, exercise it for the shares, and sell it for $200. You would only have spent $170 per share on the purchase, and then realize a $30 per share profit.

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Assessed Value Assessed Value refers to the specific dollar value amount which a municipality assigns to a certain property. They do this for the purpose of determining the relevant taxes for the property and owner. These assessed valuations actually create a given residence’s tax purpose value. They do this through considering inspections and any comparable home sales in the area. Once this is all completed, the municipal government will set a value on the home and then assess the due property taxes. The owner then receives the final bill for municipal taxes on the property. The assessment value is also called the ad valorem tax. Most of the time, such Assessed Value proves to be less than the associated fair market value or appraisal value for the property in question. This assessment value is a number with very limited uses. It only applies to the relevant property tax in question. The person who has the role for determining the Assessed Value turns out to be a government assessor. These individuals are typically assigned by particular taxing districts. It is true that every taxing jurisdiction maintains its own rules and procedures for determining the actual assessment value. Despite this, the general standards which they rely on are nearly identical. The assessors are expected to make these valuations on a yearly basis. This is where the property tax bill comes from every year. Most years, the assessment value will not change. The Assessed Value is derived from the fair market value, of which they set a certain percentage. They consider a number of different elements in determining this. Chief among these are comparable property values, condition of the property, features of the house, total square footage and air conditioned square footage, and conditions in the market. A great number of such calculations prove to be derived from the computer models. These come from official real estate databases on regions and neighborhoods. Besides such computer-based real estate data, the government assessors will do physical assessments onsite when necessary. Some states have exacting and specific requirements for the ways in which their government assessors have to visit the various properties which are being assessed in person. There are also rules regarding property owner objections to a set value. They can dispute the value on their given house and can ask for a reassessment visit. This is carried out in practice as a property second evaluation. In the majority of states, the final numbers which the jurisdictions come up with represent a certain percentage of the fair market value for a given property. This assessed value ratio can range significantly from one state to another. It could in theory be as wide a variance as from 10 percent to 100 percent of the fair market value of the property in question. At only ten percent assessed value ratio, Mississippi boasts among the lowest ones in the United States. Coming in at a staggering 100 percent assessed value ratio is Massachusetts in the typically tax-heavy Northeast and New England regions. Most states utilize a set property tax formula when determining their so-called millage rate. Millage rate refers to the actual tax rate compiled for the assessed value. This is the value times millage rate times assessment ratio equals the effective property tax. They are commonly described per $1,000. A single mill equates to $1 of tax for each $1,000.

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The majority of the states also require a personal property tax to be levied. This comes from the assessed value of other forms of property. Personal property that has tax assessed on it includes cars, mobile homes, boats, and motorcycles.

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Asset Allocation Asset allocation involves diversifying an investor portfolio into a variety of different assets based on the appropriate level of risk. This procedure has investors divide up their investments between varying types of assets. Among these might be stocks, real estate, bonds, and cash. The goal is to maximize the reward and risk balance using the investors’ own goals and scenarios. This has become one of the critical ideas behind money management and financial planning today. There are several different types of asset allocation to consider. These are strategic, tactical, and dynamic. In strategic asset allocation, the investor sets out target allocations for the desired different classes of assets. When the percentage balance deviates from the original set levels, it will involve the investor rebalancing the overall portfolio. The allocations will be reset to the original ones as they change significantly because of different returns that each class earns. Strategic asset allocation sets these initial allocations up using a number of different considerations. Among these are the investor objectives, the intended time frame of investing, and the risk tolerance. These allocations can be changed in time as the different variables alter. A good comparison to this form of allocating is a traditional buy and hold investment strategy. This form of strategic allocating of assets and the tactical allocation approach are both derived from modern portfolio theory. They seek diversification so that they can lower risk and boost the returns on portfolios. Tactical asset allocating is more active than strategic forms of the discipline. Investors who follow tactical allocating will re-balance the asset percentages in different categories on a more regular basis. They will do this in an effort to benefit from market sectors that are stronger or poised for gains. They might also rebalance in an effort to capture anomalies in market pricing. Tactical allocating is well suited to professional portfolio managers. They study the markets and look to find extra returns from scenarios that develop. This is still only considered to be a strategy that is moderately active. When the short term gains are attained, these managers go back to the original strategic asset balance of the portfolio. Investors or managers who look for tactical asset allocators often choose ETF exchange traded funds or index funds for this purpose. The goal of these vehicles concentrates on asset classes rather than individual investments. This reduces the costs of rebalancing. The transaction costs of buying and selling index funds is far less than with many individual stocks or even several mutual funds. For an individual investor, they allow them to pick a stock index fund, bond index fund, and money market fund. It is also possible to focus on sub-sectors within the bigger funds. There are foreign stocks, large cap stocks, individual sectors, and small cap stock funds or ETFs from which to choose. When tactical allocating in sectors, investors can pick out those which they believe will perform strongly for either the near term or intermediate time frames. Those that believe health and technology will do well in upcoming months or even a few years might rebalance some of the portfolio into ETFs in those

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industry segments. With dynamic asset allocation, investors are focused on re-balancing the portfolio to keep it near its long term goals of asset mix. This means that positions in assets classes that are outperforming have to be reduced. Those that are under-performing must then be increased with the proceeds from the outperforming assets. This restores the portfolio mix to the desired allocation. The reason investors would do this is to keep the original asset mix so that they can capture appropriate returns that meet or beat the target benchmark.

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Asset Backed Security (ABS) An Asset Backed Security is also known by its acronym ABS. This refers to a type of financial security. These are commonly backed up using either a lease, a loan, or receivables against company assets (which would not include either mortgage backed securities or real estate). With the world of investing, such ABS provide other choices for those who wish to invest in something other than common corporate debt issues. It is interesting to note that these Asset Backed Securities are more or less identical to MBS Mortgage Backed Securities. The primary difference lies in the securities which back the two financial instruments. With the ABS, they can include credit card debt, leases, loans, royalties, and even the receivables of the company issuing the debt. Yet these mortgage based securities may never underlie the ABS. Such an Asset Backed Security delivers to the issuer of the security a means of creating more cash for the business. It allows yield hungry investors the chance to sink their money into a great range of assets which generate income. It is worth noting that most of these underlying assets will not be liquid. This means that they can not be readily sold as stand alone assets. Yet in pooling such assets into a single conglomeration, a financial security may be created. This is done in the process referred to as securitization. This permits the asset owner to employ them in a marketable fashion. Among the assets of such pools could be car loans, home equity loans, student loans, credit card receivables, or other anticipated cash flow items. The capacity of Asset Backed Security issuers to be creative should never be underestimated. There have even been ABS which were established utilizing the cash flow generated by movie release revenues, aircraft leases, creative works and other forms of royalty payments, and even solar energy photovoltaic revenue streams. Practically any scenario where cash is produced can be packaged up via securitization into an ABS. It is often helpful to consider an example of this somewhat complicated Asset Backed Security topic. Consider the case of a fictitious firm Car Loans For Everybody. When individuals wish to borrow funds to purchase a car, Car Loans For Everybody will issue them the cash in a check. The individual will have to pay back the loan along with a specified interest amount at a certain time in monthly installments. It could be that Car Loans is so successful at making automobile loans that they deplete their cash reserves and can no longer issue additional loans. They have the ability to sell off their present book of loans to the fictitious investment firm Imperial Legends. Imperial Legends will then provide them with the cash they need to continue issuing new loans. This is only where the securitization process begins. Imperial Legends investment firm would then arrange the bought out loans into a collection of parcels known in the business as tranches. A tranche effectively is a batch of loans that posses similar features. This would include interest rates, maturity dates, and anticipated rates of delinquency. After this, the Imperial Legends firm would offer new securities with features much like bonds in every tranche they created. Finally, investors will buy such securities. They obtain the underlying cash flow out of the pool of car loans, less the administration fee, which Imperial Legends will keep to cover their costs and towards their profit.

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There are three typical types of tranches in an Asset Backed Security. These are commonly referred to as Class A, Class B, and Class C. Senior most tranches belong to Class A. They are generally the biggest tranche. They will be structured in such a way as to obtain a decent investment rating so that they are easily marketable to investors. With the Class B tranche, the credit quality will necessarily be lower. This inversely means that the yield will be higher than that of the senior tranche. Since the risk is greater, investors need to be compensated for their appropriate risk of defaults. Class C tranche has the lowest credit rating of all. It could be the credit quality is so poor that investors will refuse to consider it altogether. In such cases, the ABS issuer then holds the Class C tranche, collects the incoming revenues every month, and absorbs any losses themselves.

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Asset Classes Asset classes are different groups of securities which demonstrate characteristics in common, are governed by similar regulations and laws, and behave similarly in the markets. There are five principle classes which include equities (stocks), fixed income (bonds), money market instruments (cash equivalent), commodities (like gold and oil), and real estate (including land, houses, and commercial buildings), as well as some other less common alternative classes of assets. Many times these different classes of assets are intermingled by financial advisors and analysts. They like these different types of investment vehicles to diversify portfolios more effectively and efficiently. Every asset class is anticipated to provide differing levels and types of risks versus returns among its investment characteristics. They also are supposed to perform differently in any given investment climate. Those investors who seek out the highest possible returns typically do this by lowering their overall portfolio risk by performing diversification of asset classes. Financial professionals typically focus their clients on the different asset classes as a means of steering them into proper and effective diversification of their investment or retirement portfolios. The various classes of assets possess differing amounts and types of risk as well as varying cash flows. By purchasing into several of the competing asset classes, investors make certain they obtain a proper level of diversification in their investment choices. The importance of diversification can not be overstated. This is because all financial professionals in the know understand that it lowers risk while maximizing the opportunities to earn the highest possible return. There are a variety of different types of investment strategies available to investors today. They might be associated with value, growth, income, or a combination of some or all of these factors. Each of them works to categorize and label the various investment options per a particular grouping of investment criteria. There are many analysts who prefer to tie traditional valuation metrics like price to earnings ratios (PE ratios) or growth in earnings per share (EPS) to the investment selection criteria. Still different analysts feel like performance is less of a priority while asset type and allocation are more critical. They know that investments which are in the identical class of assets will possess similar cash flows, returns, and risks. The most liquid of these various asset classes prove to be equities, fixed income securities, cash- like instruments, and commodities. This also makes them the most frequently quoted, traded, and recommended classes of assets available today. Other asset classes are considered to be more alternative such as real estate, stamps, coins, and artwork, all of which are tradable forms of collectibles. There are also investment choices such as venture capital funds, crowd sourcing, hedge funds, and bitcoin, which are considered to be even more alternative and mostly for sophisticated investors. In general, the rule is that the more alternative the investment turns out to be, the less liquidity it actually possesses. Some of these investments, such as hedge funds, venture capital funds, and crowd sourcing can take years to exit from, if investors are able to withdraw from the investment at all. Lower liquidity does not necessarily correlate to lower return potential though. It only means that it may be a while before holders are able to find a willing buyer to sell the investments to so they can cash out of the investment.

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Many of the most alternative types of investments have boasted among the highest returns over the decades, sometimes significantly better returns than the most popular two asset classes of stocks and bonds. In order to get around this lack of liquidity and often enormous investment capital requirement, many investors choose to utilize REITS. Real Estate Investment Trusts provide greater liquidity while still participating in price appreciation of the real estate asset class.

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Assets Assets are any thing that can be owned by a company or an individual person. These are able to be sold for cash. Commonly, assets produce income or give value to the owner. In the world of financial accounting, assets prove to be economic resources. They can be physical objects or intangible concepts that can be utilized and owned to create value. Assets are deemed to have real and positive value for their owners. Assets must also be convertible into cash, which itself is furthermore considered to be an asset. There are several different types of assets as measured by accountants and accounting processes. These might be current assets, longer term assets, intangible assets, or deferred assets. Current assets include cash and other items that are readily and easily able to be sold to raise cash. Longer term assets are those that are held and useful for great periods of time, including such physical items as factory plants, real estate, and equipment. Intangible assets are non physical rights or concepts, like patents, trademarks, goodwill, and copyrights. Finally, deferred assets are those that involve monies spent now for the costs in the future of things like rent, insurance, or interest. Though tangible, physical assets are not hard to conceptualize, intangible assets are often confusing for people to understand. Even though these are not physical items that may be touched, they still have value that can be controlled and sold to raise cash. Intangible assets include rights and resources which provide a company with a form of marketplace advantage. These can cover many different elements beyond those listed above, such as computer programs, stocks, bonds, and even accounts receivable. On balance sheets, tangible assets are commonly divided into further categories. These include fixed assets and current assets. Fixed assets are objects that are immobile or not easily transported, such as buildings, office locations, and equipment. Current assets are comprised of inventory that a business holds. Balance sheets of companies keep track of a firm’s assets and their value as expressed in monetary terms. These assets are both the cash and other items that the business or person owns. Assets should never be confused with liabilities. Assets create positive cash flow that represents value or money coming into a business, organization, or individual’s accounts. Liabilities are obligations that have to be paid and that create negative cash flow, or take money out of a business, individual, or organization’s accounts. As an example of the difference between the two, assets would be houses that are rented out that bring in more rent every month than the expenses, interest, and upkeep of the houses. Liabilities would be homes that have payments that must be paid every month and do not provide any income stream to effectively offset this.

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Assets Under Management (AUM) Assets under management (AUM) refer to the aggregate market value of all assets which an investment management firm or other financial institution (such as a bank) manages for its investor clients. The exact definition of AUM varies from one company to another. Each of them has their own distinctive proprietary formula for figuring up this all important statistic. There are financial institutions, management companies, hedge funds, and banks that include the client bank deposits, cash, and mutual funds within their calculations. Still others choose to limit this figure to the funds which are under actual discretionary management using the sole choices of the fund manager. In this case, the investor gives over total investment responsibility and control to the management firm and fund manager in question. Assets under management describe the amount of investment money which such an investment management firm actually controls. These investments are kept within a hedge fund or mutual fund. They are usually actively managed by a brokerage company, venture capital firm, or portfolio manager. Assets under management express the amount of cash in the fund. It can also reveal the total amount of assets which they manage for their total client base. Alternatively it can be used to refer to the complete amount of assets the company manages for only one particular client. This would include all of the money which the manager is able to utilize in making transactions. As an example, if investors have placed $50,000 within their investment portfolios, the manager of the fund is allowed to purchase and sell whichever shares he so chooses by applying the funds of the investors without having to obtain their consent in advance. The actual AUM fluctuates daily on every given market trading day. This depends on the investor money flow from one asset fund to another. The performance of assets also changes the Assets under management figure as well. The change in fund value or company investments will therefore alter the total AUM. Every regulatory regime makes its own rules regarding how large a company must be to be closely regulated. Within the United States, after a given investment management firm possesses in excess of $30 million under management, they are required by law to register their company with the supreme oversight agency the SEC Securities and Exchange Commission. A given investor’s AUM total will decide on what level of service they will receive from their brokerage firm or financial advisor. A great number of companies maintain minimum AUM amounts for certain kinds of investments. This has much to do with qualification levels of the investor in question. Some forms of investments also involve minimum purchase agreement requirements. Figuring up the total Assets under management requires one of several calculations. With superior investment performance, the figure will rise in every case. As new customers join a firm or additional assets are obtained, this will also increase the AUM. The figure will drop as performance of the investments diminishes, with clients leaving the firm, redemptions, withdrawals, and fund closures. Because AUM includes all investor capital, it may also be comprised of the executives’ assets with the firm.

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The total currency amount of Assets under management matters immensely to a management company because of the management fees which they derive from these figures. It is true that an investment company garners a certain percentage in management fees based upon these assets. They are also able to employ their AUM numbers as a type of marketing tool to bring in still more investors and assets to the fund. Investors get a true feel for the size of the financial management company and its operations compared to the various competitors within the industry when they consider the figure. This still does not reveal full details about the potential of the investment company and its various investment choices and strategies.

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Assumable Loan An assumable loan is one that permits a home buyer to take over, or assume, a home seller’s contract on their mortgage. This is not permitted by every mortgage lender in the place of a typical home purchase. Loans that do not have Due On Sale clauses, such as the majority of VA and FHA types of mortgages, can usually be assumed and are considered to be assumable loans. Assumable home loans work in the following manner. A current home owner will simply transfer over his or her mortgage contract and obligations to a purchaser who is qualified to take over. In the past decades of the 1970’s and 1980’s, these types of mortgage note assumptions proved to be quite popular. Back then, they could be done without even having to obtain the mortgage lender’s authorization. These days, the only types of mortgages that may be assumable loans without needing a lender’s actual permission are those that are made by the FHA or VA. Assumable loans provide opportunities for both buyers and sellers. It is often the case that a home buyer will not be able to secure a better rate for a new mortgage than that provided by an already existing mortgage. This could result from the negative credit history of the buyer in question or the conditions existing in the market place at the time. As existing interest rates rise, the appeal of non-existent lower rates on mortgages commonly pushes prospective home buyers to look out for assumable loans. Such a home buyer who secures an assumable loan then has the responsibility for the mortgage that the home seller previously carried. The existing rates of the mortgage carry over for the buyer as if the person had made the original contract themselves. This assumable loan process also saves the buyer a number of the settlement costs that are incurred in making a new mortgage. This can be a substantial cost savings benefit. Sellers similarly benefit from assumable loans. It is not uncommon for sellers to wish to be involved in the savings that buyers realize in the process of transferring over an assumable loan. Because of this, the two parties commonly share in the savings. As an example, when the sale price of the home in question is greater than the amount owed on the mortgage itself, then the buyer will often have to put down a significant down payment, which goes straight to the home seller in this case. Otherwise, the buyer might have to get another mortgage to come up with the difference in amounts. A seller’s principal benefit in participating in such an assumable loan transfer lies in having a good chance of getting a better price for the home.

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Austerity Austerity proves to be an unpopular group of government economic policies which a country engages in usually unwillingly in order to reign in public deficits and to reduce government owed debts. These drastic measures turn out to be the response from the government in question to their public debt which becomes so big that the default possibilities on debt service payments become a serious risk. Such default risk can get out of hand rather fast. This happens when a nation, corporation, or even person falls further and further into debt, lenders retaliate by exacting a greater interest rate on subsequent loans, and force the downward vicious spiral to become all the worse as it costs more to raise capital. Austerity became necessary after the global financial crisis and meltdown which erupted in 2007 bankrupted numerous especially western developed governments because they were gathering lower tax revenues. This exposed government spending and debt levels which were ultimately unsustainable. There were a few European countries including Greece, Spain, and the United Kingdom that tried out austerity because they needed to reduce their budget outlays. It became practically forced on them by the economic conditions brought on by the ensuing recession throughout Europe. In this economic contraction, many eurozone members could no longer effectively service their rising debts since they had no control over the euro currency to print more of it and devalue their currency as they needed to do. There are three principal kinds of such austerity measures. The first one focuses on creating higher tax and fee revenues. Many times this is to encourage additional government outlays and spending. The end goal of such a plan is to encourage growth by seizing the rewards of higher taxation and then spending it to lubricate the stalling economy. A second form is often referred to as the Angela Merkel model in honor of the long time chancellor of Germany. This kind concentrates on increasing taxes at the same time as it reduces expenditures on any services deemed to be less essential than others. The final form is a reduced taxation and simultaneous reduced spending effort. This is the means that most free market enthusiasts espouse. The majority of economists can actually agree on one thing, which is that increasing taxes will boost ultimate revenue collection. Many different struggling European nations adopted this form of austerity to solve their budgetary problems. Greece boosted its national value added tax VAT rate to 23 percent back in 2010 as well as adding another 10 percent import duties on vehicles. For those with higher income brackets, the Greek government in Athens increased their income tax rates. Besides this a few new taxes were implemented and assessed on property holdings and values. Besides increasing taxes and boosting revenues, governments can also reduce the amount of spending which they pursue. This is often regarded as the more effective way of lessening the deficit, though it is far more painful for the lower classes of society as well as the poor which lose access to important basic government services such as high quality health care and welfare and rent subsidies as a result. Cutting spending can take a wide range of forms. There are subsidies, grants, redistribution of wealth, government services, entitlement programs, national defense, government employee benefits, and foreign aid given to poor countries. Reducing spending is true, albeit often quite painful, austerity.

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There are a wide variety of historical examples of such austerity measures. The most successful one in the modern era in response to a recession happened within the U.S. in the years of 1920 and 1921. President Warren Harding drastically reduced the federal budget by nearly 50 percent. He simultaneously reduced taxes on all income brackets and cut the debt by over 30 percent. Greece is another much sadder case of this form of spending cuts and tax increases. While they have managed to cut the national deficit and debt through these programs and policies, the country has been in and out of painful and deep recessions for most of the past decade as a direct result.

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Austrian Economics Austrian Economics arose as a challenge to the then-dominant British tradition of economics originally championed by Adam Smith in his influential across the centuries work The Wealth of Nations. It was Carl Menger and his Principles of Economics published in 1871 that presented the first alternative to the Imperial British ideas on the workings of the free market system. Menger founded the Austrian School officially, though other had come before him with ideas upon which he built. Menger was assisted by contemporaries Stanley Jevons and Leon Walras. The trio in their various separate works fleshed out the original ideas of the subjective nature of economic value. It was they who for the first time explained the theories on marginal utility. This was the idea that stated the more units of any good an individual has, the less value he will place on any single unit of them. Menger and company also demonstrated the ways that money begins its life cycle in a free market. The most desirable commodity is wanted not because it can be directly literally consumed, but because it is useful in procuring other goods. Menger’s next influential work was his highly regarded Investigations. This twelve year later published book took on directly the German Historical School that viewed economics as the accruing of data for the benefit of the state. While serving as economics professor at University of Vienna, Menger returned economics back to its roots as the human action based science using deductive logic. He laid the groundwork for the later Austrian Economics’ proponents and had students such as Friederich von Wieser who later impacted the critically important Austrian School economist Friedrich von Hayek. Even today, Menger’s key works are studied as a fantastic beginning to the economics theory and thinking. All Austrian economists since Menger have considered themselves to be disciples of the great economics school and theory founder Menger. The next great mind in the Austrian school was follower and admirer of Menger, Eugen Böhm-Bawerk of the University of Innsbruck, Austria. He expanded upon Menger’s vast work and repackaged it so that he might apply it to a whole different range of economic questions and challenging topics such as price, value, interest, and capital. His influential work History and Critique of Interest Theories was published in 1884 and remains a well-regarded review of the fallacies in the history of philosophy and economics. He first argued that interest rates are an integral component of the market itself. In his later Positive Theory of Capital, Böhm-Bawerk proved that the interest rate is actually the normal rate of profit in business. As a result of these and other works, the Austrian economist battled extensively with the Marxists regarding the ideas of exploitation of capital, refuting the socialist ideas on wages and capital far in advance of the communists arising in Russia. In the final years of Hapsburg Austria, he served three terms as finance minister. This is where he was able to put into place his wise economics theories on sound money and the gold standard, balanced budgets, free trade, and the reversal of monopolies and subsidies for exporters of key goods. His writings, research, and practical application of economics helped to champion the Austrian School all across the Anglo-American and Imperial British world. A last key Austrian Economics’ founding scholar proved to be Ludwig von Mises. He published his perennial The Theory of Money and Credit, once again breaking fresh ground for the Austrian School.

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Here he fleshed out the application of the theory of marginal utility to money. Mises also worked out a full-scale outline of the Austrian School on the business cycle. After the First World War ended, Mises attacked the rising forces of political and economic socialist in his expository series of essays he purloined into the book Socialism. Here he demonstrated effectively how the practical application of socialism to nation states and governments would lead to the complete break down of society and eventually the end of the civilized world. This debate raged on, mostly in favor of the socialists, all the way until the crash of political and economic socialism around the world in 1989. From beyond the grave, von Mises had the last laugh. Mises was such an influential Austrian Economics thinker that his converts and disciples from the socialist side included legendary Hayek, Lionel Robbins, and Wilhelm Röpke. They went on to lay the ground work for the revival of Austrian Economics in the U.S. and Great Britain still ongoing in the present days. Among his last and most influential of students, Rothbard proved to be one of the most adept proponents of Mises’ ideas. He wrote Man, Economy, and State in 1963. The revival this began in the then-struggling Austrian School still continues to this day.

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Automated Underwriting Automated underwriting proves to be one of the biggest changes that has come to the mortgage lending business in the last several years. The process uses computers to handle the process of underwriting mortgage loans. There are numerous benefits to the concept. Among them are lower closing costs, quicker loan approvals, fewer requirements for documentation, and approval for applications which human underwriters denied in the past. Underwriting itself is the means whereby the underwriters approve or deny mortgage loans. They do this by considering the property, the ability to pay back the loan, and the credit worthiness of the individuals applying. For most of mortgage loan history, people exclusively handled these activities. In recent years, programs have demonstrated that computers are able to perform these jobs quicker, with greater accuracy, and generally better. There are now automated underwriting systems that handle much of this work load. Both Freddie Mac and Fannie Mae have created their own such systems to evaluate mortgage loans. They are the two biggest investors in mortgages within the United States. Freddie Mac has a system called Loan Prospector. Fannie Mae developed Desktop Underwriter to perform these same functions. Both computer systems display their abilities via a predictive model. They take the specific mortgage applications and compute a quantitative risk factor for them. Automated underwriting systems are easy to apply through. The lender or mortgage broker queries the applicant for information. He or she enters this data into the underwriting system. The system pulls a credit report to accompany it. The system next creates a Findings Report using the credit report and application information. The Findings Report reveals the determination on the loan application approval. It provides the list of documents that will be required in order to verify the data of the application. Consumers benefit from these systems. The approvals they issue represent binding commitments from either Freddie Mac or Fannie Mae. If the information put in is correct and can be documented, then the consumers can enjoy the confidence of knowing that their loan will be issued. Borrowers no longer have to come up with voluminous amounts of application documents and complete major paperwork thanks to these systems. The new automated underwriting systems commonly only require a single pay stub instead of the two months that human underwriters typically wanted. Approval time spans are significantly shorter now with these computers. The Findings Report appears in only minutes after the lender enters the information into the system. Less documentation also means that the time frames are reduced. Consumers receive the benefit of the savings from these systems. Appraisal fees are typically $100 less. Credit report costs come down by $50 or more. Loan origination fees may be less as well. The greatest single benefit of the new systems is that with automated underwriting, consumers who used to be refused loans are many times approved now. Consumers with excellent credit but fewer down payment resources especially benefit from this system. In the past they would not have been approved,

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but the system model assigns less importance to the full down payment amount that human underwriters did. One helpful characteristic of these automated underwriting systems revolves around property identification. Human underwriters often required the property for which they were applying for a mortgage to be stated on the application. The new systems do not have such a requirement. This benefits consumers who are still shopping for a house. Once they are approved by the system, they gain a powerful tool for negotiating deals with the sellers of properties.

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Bad Debt Bad debts are those accounts receivable that simply can not be collected. Once businesses make the determination that they are not likely to be able to collect on such sums, then they actually write these off as complete losses for the company. A debt is not typically deemed to be un-collectable until every effort within reason has been made to collect on the debt that is owed. This status is not typically reached on a debt until the person or firm owing the debt has filed for bankruptcy. Another reason for a debt to be declared a bad debt would be when the costs of continuing to collect on the debt are greater than is the amount of the debt in question. Such bad debts commonly show up on a company income statement as an expense. This actually reduces the company’s net income. At this point, bad debts have been completely written off via crediting the account of the debtor. This cancels out any remaining balance on the debtor’s account. Such bad debts prove to be money that has been totally lost by a firm. Because of this, these kinds of bad debts are referred to as expenses for a business. Companies attempt to estimate their expenses in the form of bad debts using records from similar past time frames. They look to figure out how many bad debts will show up in the current time frame based on what happened before so that they can attempt to estimate their actual earnings. The majority of corporations come up with an allowance for bad debts, as they understand that a percentage of their debtors will never repay them completely. Banks and credit card companies are especially concerned with bad debt allowances, since much of their entire business model revolves around the issuing of credit and repayment of debts from businesses and individuals. The real difficulty with bad debts lies in determining if and when they are actually dead. When a debtor disappears, the collateral is destroyed, a lawsuit statute of limitations expires, bankruptcy is discharged, or significant pattern of a debtor abandoning debts is present, then a debt is finally determined to be bad debt. These can be subjective measurements in some cases. Income tax laws contain a different definition for bad debts. These debts can be deducted against regular income on a 1040 C Form. These personal debts are also able to be deducted against short term types of capital gains. Debts that are owed for services which have been rendered to a person or business are not considered taxing purpose bad debts. This is because no income is present for such unpaid services that can be taxed. Where individuals are concerned, bad debt can refer to credit card debt or any other form of high interest debt. These kinds of debts take away money from the individual in interest payments every month, creating a negative cash flow. Good debt for an individual would be debt that is used to properly leverage investments. Such leveraged investments that create positive cash flow prove to be the most desirable forms of debt.

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Bailout Bailouts prove to be the action of handing money or other capital to a company, individual, or nation that will likely go down without help. This is done in an effort to keep the entity from financial insolvency, bankruptcy, or total failure. Sometimes bankruptcies are pursued to permit an organization to fail without panic, so that fear and systemic failure does not become endemic, taking down other similar entities along the way. Various different groups might qualify for urgent bailouts. Countries like Greece have been prime examples in the year 2010. Companies such as major banks and insurance outfits have been deemed too big to fail in the several years preceding 2010, during the height of the financial crisis and resulting Great Recession. Other industries have qualified as well, including car manufacturers, airlines, and vital transportation industries. A good example of companies that receive preferential bailout treatment lies in the transportation industry. The Untied States government believes that transportation proves to be the underlying core of the nation’s economic versatility, necessary to support the country’s geopolitical power. Because of this, the Federal Government works to safeguard the largest companies involved in transportation from failing with low interest rate loans and subsidies, which are a form of bailout. Oil companies, airlines, railroads, and trucking companies could all be considered to be a critical part of this industry. Such firms are considered to be too big and important to fail because their services prove to be nationally and constantly necessary to support the country’s economy and thereby its eventual security. Bailouts that are done in an emergency fashion typically prove to be full of controversy. In 2008 in the United States, intense and angry debates erupted regarding the failing banking and car manufacturing businesses. The camp standing against such bailouts looked at them as a means of passing the expensive bill for the failures over to the taxpayers. Leaders of this group savagely denounced any monetary bailouts of the big three car makers and large banks, which they said all needed to be broken up as punishment for mismanagement. They criticized a new moral hazard that was being created by guaranteeing safety nets to other businesses. They similarly did not like the big central bureaucracy that arises from government agencies selecting the size and disposition of the bailouts. Finally, government bailouts of these groups were attacked as a form of corporate welfare that continues the cycle of more corporate irresponsibility. The other camp argued that these bailouts were necessary evils, since the state of the American economy did not prove to be solid enough to suffer the failure of either the major banks or the car makers. With the car makers, fully three million jobs stood on the line. The banking industry had the argument of systemic failure of the financial system backing it up. No one on the side of the bailouts pretended to like having to engage in them, but they were said to be necessary nonetheless. In the end, such bailouts were issued to both major industries totaling in the trillions of dollars.

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Balance of Payments The balance of payments refers to a statement whose purpose is to explain the transactions of an economy with the other countries of the world. Such a statement covers a particular time frame. This is also referred to as the balance of international payments. It covers every transaction that occurs between the inhabitants of the nation with the remainder of the world. This includes income, goods, and services; liabilities and financial claims to the world; and transfers and remittances (like gifts). A balance of payments tabulation will group all types of transactions into two different accounts. These are the current account and the capital account. In the current account are services, goods, present transfers, and income from investments. The capital account is mostly made up of financial instrument transactions. These are combined with a nation’s IIP international investment position to make up its complete international accounts. The phrase balance of payments is somewhat of a misnomer as it does not pertain to any payments which an economy receives or makes. Instead it is only concerned with transactions. A great number of such international transactions do not have money payments involved with them. This explains how the number can be substantially different from the net payments a country affects to foreign countries, companies, and individuals. The balance of payments is seldom an even zero sum figure without adjustments being made. There are typically either current account deficits or surpluses. When a current account deficit exists, this would mean that it had to be counterbalanced by net inflows to the capital and financial account. Current account surpluses would match capital and financial account outflows. Either situation balances out the number. Reality is that this data comes from a number of divergent sources so that there is always some error in measurement. This combined data for balance of payments and international investment positions informs international and domestic economic policies. A country will use various economic policies to attempt to address imbalances in the payments as well as direct foreign investment levels. There are also a range of economic policies that governments utilize to achieve particular objectives that pertain to the balance of payments. Examples of this abound. Countries may be interested in generating a larger amount of direct foreign investment in specific sectors of the economy. They could implement a series of policies that would encourage such investment. Other countries may be more concerned with increasing their exports. To do this, they may try to lower the exchange value of their currency. By maintaining their currency value at lower depressed levels, they can make their exports less expensive to foreign customers. As exports grow, this would help them to increase their currency reserves as a consequence. How successful such policies prove to be and the impacts they have become clear in the BOP information. The balance of payments should never be confused with the balance of trade. Balance of trade is the single biggest component which makes up the nation’s BOP. It only includes the variance between the country in question’s exports and imports over a particular time frame.

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Balanced Budget The phrase balanced budget refers to the scenario within the world of financial planning or a government budgeting in which the aggregate revenues prove to be greater than or at least equal to the total expenses. Government budgets are called balanced after the fact, once a complete year’s expenses and revenues have been tallied up and reconciled. A firm’s operating budget over a coming year might also be referred to as a balanced one assuming that the estimate and forecasts show it will be in practice. Balanced budget is most often utilized to refer to the government’s official budgets. As an example, a government might issue press releases which claim they will have a budget which is balanced in the pending fiscal year. Politicians on the campaign trail might similarly argue they will balance the federal budget if they are elected to office. One should realize that the term balanced budget may either refer to a scenario in which the expenses and revenues balance out or in which the final revenues surpass the ending expenses. This can never be the case if the final expenses are greater than the actual revenues. The phrase balanced surplus is frequently employed alongside a balanced budget. With a budget surplus, the revenues are higher than the aggregate expenses. The difference between revenues minus expenses equals the amount of the surplus. Within the world of business, such surpluses might be reinvested into the corporation itself. They might plow this money into useful R&D research and development, as one example. They could also chose to provide shareholders of the company with extra dividends or take care of their hard working employees by issuing bonus checks. Where the government is concerned, such a budget surplus occasionally happens as a calendar year’s worth of tax revenues are higher than the actual expenditures of the government concerned. With the United States, this concept of a surplus is extremely rare. In all the years since 1970, the country has only managed to post a budget surplus on four occasions. These were within the Clinton presidency years of 1998-2001 consecutively. Budget deficits are the opposite of budget surpluses and stand in marked contrast to balanced budgets. With a deficit, it means that the actual expenses are higher than the associated offsetting revenues. Deficits such as this practically always mean that higher government debts will be accrued. As an example, with the United States debt totaling in at more than $20 trillion as of 2017, this represents the total sum of numerous budget deficits accrued over at least five decades. Those who are in favor of such balanced budgets claim that the deficits the country has run up over past decades are strapping an un-payable mountain of debt to the future American generations who have no say in the matter. One day eventually, there will have to be taxes levied or the money supply inflated away in order service the debt, not just to pay it. This would devalue the currency severely and finally ruin the savings and investments of countless millions of American retirees and workers. There are still other economists who believe that these budget deficits do serve a useful end-result. In the government’s quiver to address recessions, deficit spending is a key arrow. In times of contraction in the national economy, demand plunges and causes the GDP gross domestic product to fall. With unemployment declining in these times of recession, actual revenue from the taxes which the government levies and collects drops.

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This means that they can not balance the budget unless they slash their spending in various areas in order to equal out with the reduced tax base and receipts. Such a move cuts demand further and pressures GDP even more. It could plunge the entire economy into a vicious negative spiral if pursued rigorously, as has happened in Greece with its creditors and their bailout requirements to slash spending year in and year out. Deficit spending then will help to prop up and eventually stimulate flagging demand in the economy by juicing it up with capital that is sorely needed at times like these.

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Balloon Loan A balloon loan is a kind of loan that does not divide its payments up evenly throughout the life of the loan. These kinds of loans are not fully amortized over the loan’s term. As a result of this, one time balloon payments are mandatory at the end of the loan’s time frame in order to pay off the loan’s remaining principal balance. Balloon loans have their advantages. They are often appealing to you if you are a short term borrower. This is because balloon loans commonly come with an interest rate that is lower than the interest rate of a longer term loan. These lower interest rates provide a benefit of extremely low interest payments. This leads to not only lower payments throughout the loan, but also incredibly low outlays of capital in the life span of the loan. Because the majority of the loan repayment is put off until the loan payment period’s conclusion, a borrower gains great flexibility in using the capital that is freed up for the term of the loan. The downsides to these balloon loans only surface when the borrower lacks discipline or falls victim to higher interest rates later on. If a borrower does not possess focused and consistent discipline in getting ready for the large last payment, then the individual may run into trouble at the end of the loan. This is because substantial payments along the way are not being collected. Besides this, if a borrower will be forced to engage in refinancing towards the end, then the borrower may suffer from a higher interest rate on the balloon payment that is rolled forward. Some balloon loans also include a higher interest rate reset feature later in the life of the loan. This further exposes a borrower to the risk of higher interest rates. This is common with five year types of balloon mortgages. When a reset of the interest rate feature is present at the conclusion of the five year period, then the interest rate will be adjusted to the current rates. The amortization schedule will then be recalculated dependent on a final term of the loan. Balloon options that do not include these reset options, and many that do reset, generally encourage the loan holder to sell the property in advance of the conclusion of the original term of the loan. Otherwise, many borrowers will simply choose to refinance the loan before this point arrives. The reasons that you might choose to get a balloon loan are several. A person who does not plan to hold onto a house or property for a long period of time would benefit from such a loan arrangement. This individual would plan to resell the house in advance of the loan expiration. Another reason for taking a balloon loan is in a refinancing. Finally, if a person anticipates a significant cash settlement or lump sum award, then they might take on a balloon loan. Commercial property owners often like balloon loans for the purchase of commercial properties as well. Balloon loans are sometimes called balloon notes or bullet loans.

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Banco Santander Banco Santander is the largest Spanish banking group in the world. This giant financial institution boasts over 121 million customers among its various divisions. Founded in 1856, it maintains a staff of over 193,000 employees. For 2015, the group boasted a nearly six billion euros profit and a market capitalization of over 65.5 billion euros. Banco Santander and the entire Santander Group is successful because it has a geographically diverse range in its top ten national markets. The group commands significant market shares in each of these countries. They are Spain, Germany, Portugal, Poland, Great Britain, Brazil, Mexico, Argentina, Chile, and the United States. The bank also controls important market shares in Puerto Rico and Uruguay. Its consumer finance business gives it a major reach into a number of other countries in Europe. It has exposure to China from both its consume finance and wholesale businesses. Banco Santander operates a number of global divisions for business and consumer banking customers. These include Commercial Banking, Global Wholesale Banking, Santander Asset Management, Santander Private Banking, Santander Insurance, and Santander Cards. These groups all work together to help the Spanish financial services conglomerate satisfy its customer needs throughout the globe. Retail banking and business customers receive financial services and products from Banco Santander’s commercial banking division. They also employ their extensive commercial networks and their online services to locally distribute their wide range of services and products to customers of all kinds. This way the global business divisions are able to reach out to the group’s over 100 million customers. The Global Wholesale Banking division provides the group’s extensive services and products to large corporations, institutions, and customers with particular needs. These groups require value added products and specially personalized service. Santander Asset Management delivers investments and savings products on a global scale. These are distributed effectively via the Banco Santander commercial branch networks. In order to provide for the diverse needs of its customer base, the SAM incorporates a large range of investment products. These include pension plans, investment funds, and portfolio options. Money which is placed into these vehicles the group invests in a wide range of locations and assets types. Banco Santander Private Banking focuses specifically on the customers who are high income throughout the globe. It delivers both asset management and personal financial advice to these individuals. This division runs from locations in Spain, Italy, the United Kingdom, and Latin America. It also supports private domestic banking operations throughout the nations of Latin America and Portugal. This sub group works with locally based commercial banks to jointly manage these special operations. Santander Insurance is a large and impressive division. It delivers insurance protection and savings vehicles in 20 different countries to its more than 17 million customers. The group employs multi channel distribution networks to provide segmented insurance. This model is global in nature but local in its customer appeal and commercial network reach. It focuses on superior service, quality, and efficiency while working with low risk profile customers whenever possible.

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Banco Santander Credit Cards is another global and significant division. The business provides payment processing services to a variety of businesses. It handles both credit and debit cards. As such the credit card division manages fully 110 million different cards throughout 16 nations. This important division comprises 11% of all the gross margin for the group. It utilizes a cutting edge and constantly changing technology and platform to standardize the risk and provide effective training and management for its employees and business customers.

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Bank for International Settlements (BIS) The Bank for International Settlements proves to be the oldest entity in the world for international financial organization. Central banks of the world established this bank on May 17 of 1930. Today 60 different central banks are members of this bank of central banks. Their economies represent 95% of all the combined Gross Domestic Product of the globe. This Bank for International Settlements is also known by its acronym the BIS. It has an elegant mission. The goals of this organization are to help out the member central banks as they seek out financial and monetary stability, to serve as the bank for central banks, and to promote international financial cooperation in achieving stability. World headquarters for the BIS are located in Basel, Switzerland. The group also maintains two other important representative regional offices. These are in Hong Kong the Special Administrative Region of China for Asia-Pacific and in Mexico City for the Americas. The two regional representative offices are hubs for the various BIS activities. They work to encourage cooperation between the region’s central banks, supervisory authorities, and the BIS itself. This is why these offices promote data and information exchange, help to set up seminars and meetings, and provide information on the economic and financial research for the Americas and Asia. Another important role of the Bank for International Settlements lies in its banking services. These two regional offices assist with delivering such services to the Americas and Asia-Pacific regions. Officers routinely visit the member central banks’ reserve managers as part of this mission. In its Asian office it maintains a treasury dealing room for the region that offers daily trading functions for regional central banks. The BIS set up its regional Representative Office of the Americas back in November of 2002 in Mexico City. The goal was to increase the Americas regional activities of the bank in better coordination with the headquarters office in Switzerland. They also established the Consultative Council for the Americas back in May of 2008. This advising committee helps the board of directors for the BIS to better understand the issues in the Americas region. Members of this council include central bank governors from the Americas’ region member central banks. This includes the U.S., Peru, Mexico, Colombia, Chile, Canada, Brazil, and Argentina. The bank founded its increasingly important regional Asian office on July 11 of 1998 in Hong Kong as the Representative Office for Asia and the Pacific. It acts as an area forum for economic and monetary research that is useful for the central banks and provides the regional central banks with the settlement and exchange banking services. Improving cooperation among the various member central banks in the Asian region is another important function. This office also maintains the Asian Consultative Council. The group is comprised of central bank governors from the Asia-Pacific region member central banks. Its members include Thailand, Singapore, the Philippines, New Zealand, Malaysia, Korea, Japan, Indonesia, India, Hong Kong, China, and Australia. The Bank for International Settlements is different from other banks in the world in several important

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aspects. All of its customers are either international organizations or central banks. They do not open accounts for international companies or private individuals. The BIS does not offer any financial or advisory services to any investors or corporations. It also does not take in deposits from or make loans to parties that are not central banks or international organizations. The bank does make some of its research available at no cost to companies and members of the public.

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Bank Notes A bank note refers to a promissory note that can be negotiated by the bank which issues it. The holders of such bank notes will be paid on demand. The face of the note in question states the amount which is payable. As with coins, bank notes represent legal tender. They make up the modern forms of money along with coins. These bank notes are also called simply notes, or bills. In past times throughout Europe, Great Britain, and the United States, bank notes could be redeemed for such precious metals as silver (Great Britain and the U.S.) and gold (Europe, Great Britain, and the U.S.). They have also been exchangeable into financial assets like bank-issued bonds. Since the United States abandoned the gold standard under then-President Richard Nixon in 1971, bills are no longer redeemable for gold. These bank notes only have legal tender transaction value at all today because the government backs them by the good faith and trust in the United States government and Treasury. Despite the facts that such notes are essentially worthless and only have value because people choose to believe in them, these bills are utilized every day around the world in literally billions of financial transactions. This means that for better or worse, bank notes are both money and currency, at least for as long as consumers continue to believe in the fiat money system (that states money can be created out of thin air by central banks). Before bank notes arose as a form of payment, individuals and businesses throughout all of human history paid for their services and goods using other stores of tangible value, mostly in the form of precious metals like gold and silver. Banks were the earliest organizations which came up with the idea of issuing bills to represent the precious metals in a more convenient and safe to transport format. Governments later followed suit and began to provide such notes as a means to exchange them in transactions or to redeem them at bank windows for silver or gold. The paper had no value whatsoever, but it stood as a symbol of value. The certificates which were sometimes known as silver certificates of gold certificates proved to be far more practical to carry around in bulk since they were considerably smaller and lighter. Around that time, governments shrewdly learned that they could debase their currencies by minting coins with base metals in place of the old silver and gold pieces like Spanish silver, $20 gold pieces, and British gold and silver sovereigns. Individuals began to carry around a combination of money in the form of both paper bills and base metals coins from the mid 20th century. Once the United States abandoned the gold standard, the other countries of the world followed suit. The notes may no longer be exchanged for silver and gold as they could for hundreds of years. They may still be converted into other kinds of assets which are financially valuable. Economists call this financial convertibility. Money that is not convertible physically still has value in theory. This is true while the central banks and commercial banks have the assets to support them and keep the system going. In the U.S., it is the Federal Reserve Bank that carries the responsibility of regulating the quantity of currency both created and distributed. The Bureau of Printing and Engraving creates this form of money literally today. Once upon a time in the United States, commercial banks had the ability to issue

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banknotes alongside the U.S. Treasury. Today only the Federal Reserve Bank is permitted to create such notes in the United States. National central banks issue the bank notes which come from different countries. Each bank note clearly denotes its value. The bills include a number of tough security features which help to decrease the chances of forgery. Despite this, there are still countless examples of bank note forgery on every continent and most countries around the world.

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Bank of England The Bank of England is the prestigious and incredibly old central bank for the United Kingdom. The country founded this model central bank in 1694 to promote the good of the individuals in the U.K. through maintaining both monetary as well as financial stability. The bank is often affectionately referred to as the “Old Lady” of Threadneedle Street. The bank of England carries out the first part of its mission of maintaining monetary stability quite literally. Not only does it bear responsibility for keeping up the public’s confidence in the national bank notes. It also literally designs, makes, and issues into circulation these quality and durable bank notes with state of the art security features. These help insure the pound sterling notes are resistant against counterfeiting efforts and are simple to check. This role extends to safeguarding the value of the notes through time. It enables businesses and consumers to save, plan, invest, and spend their pound notes confidently. The Bank carries out this crucial role of keeping up the confidence in the notes via its monetary stability goal. They do this by ensuring stable, low prices throughout the broad spectrum of goods and services sold around the United Kingdom. The government has defined stable prices as those which include an inflation rate of two percent year on year as demonstrated by the Consumer Prices Index. The decisions to meet this objective of inflation targeting are made in the Bank of England’s Monetary Policy Committee, the MPC. The financial crisis of 2008 demonstrated that price stability by itself will not guarantee all-around economic stability. The second mandate of the bank is to ensure financial stability. This means public confidence and belief in the important financial markets, institutions, infrastructures, and total system. Since the financial crisis, the Bank gained a few critical additional responsibilities to help it provide financial stability to the U.K. The first of these new powers is the Bank of England’s PRA Prudential Regulation Authority. This allows it to encourage financial soundness and safety of the many crucial financial firms in this global banking center. The PRA supervises and now regulates around 1,700 different banks, credit unions, building societies, insurance companies, and major investment companies. The second new authority is the Bank of England FPC Financial Policy Committee. This is intended to enhance and safeguard the stability of the British financial system in total. They strive to ameliorate or remove altogether the risks to the overall system. This task centers on stopping financial crises in the future, or at the least lessening their severity and frequencies. Besides these important roles, the Bank of England has a few other tasks to foster financial stability. They provide the services of market maker and lender of last resort when there is financial stress in the system. They monitor and regulate the important clearing, payment, and settlement systems in Britain. They also labor to calmly wind down any financial institutions which are failing. Some might feel that the many responsibilities of the bank are too vast and wide ranging. The Bank of

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England is confident in the advantages of doing them all under the roof of one institution. The various responsibilities and tasks need a common set of analyses, information, and skills to complete. Many of the competing objectives have common interconnections between them. These need rapid, capable, and efficient management and decision making regarding any of the conflicting trade-offs. This makes it the ultimate task of the bank to carry out each of these roles by laboring with capable coordination. It helps the Bank of England to maximize the effectiveness of its various policies to carry out their single mission of promoting the good of the people of the U.K.

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Bank of Japan The Bank of Japan is the name of the central bank in Japan. The Bank of Japan Act established this entity. Unlike a number of central banks, Japan’s central bank is neither a private corporation nor a government agency. The bank has several key objectives. These are to create and issue the country’s banknotes, to handle monetary and currency control, and to guarantee the normal settlement of funds between banks and financial institutions. They do this to help maintain the financial system’s stability in Japan. The Bank of Japan Act gives the central bank its mandate for monetary and currency control. It is intended to help them achieve stability of prices so that the economy is able to develop normally. In January 2013, the bank began to interpret this price stability to be an inflation target of two percent. This means that they are looking for a change in the year over year consumer price index by a plus two percent increase. While they are committed to reaching this level of inflation as soon as they can, the bank has not yet succeeded. Price stability is important to the Bank of Japan because they feel it is critical as a basis for the economic activity of the country. They state that as prices change significantly, it is difficult for companies and consumers to make the right investment and consumption choices. Unstable prices are also negative for fair income distribution. To make the decisions on its monetary policy, the Bank of Japan holds eight Monetary Policy Meetings (MPMs) each year. Here the policy board considers the financial and economic situation in Japan and then chooses what money market operations they should pursue. All decisions are made by the majority vote of the nine members on the Policy Board. The board is comprised of the Governor, two Deputy Governors, and six remaining members. Following each MPM, the bank releases to the public an assessment of prices and economic activity. They also divulge the monetary policy of the bank for that point and for the near future. This comes out with their guideline for money market operations. The guideline that they decide on and release at the MPMs determines how many funds they will allow in the money market using their money market operations. The bank engages in funds-supplying operations by making loans to the country’s financial institutions. These are backed up by the collateral the banks submit to the central bank. Opposite transactions called funds-absorbing operations occur as the Bank of Japan issues and sells government debt in the form of bills. In the Financial Crisis of 2008, the central bank chose three areas in which to expand monetary policy to help stabilize the economy and encourage economic expansion. They began by reducing their policy interest rate. They next took appropriate measures to make sure that Japanese markets had financial stability. As part of this effort, the Bank of Japan restarted purchasing bank stocks. It also engaged in offering additional loans to banks at subordinated interest rates. Finally, the bank took various steps to facilitate struggling corporate financing. They created and

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designated special funds and operations to encourage lending to corporations in Japan. They also expanded the variety of collateral they would accept for corporate debt. For a year, they even purchased company’s commercial paper and corporate bonds in an effort to help companies find the financing they needed for normal operations. The bank has also engaged in quantitative easing, creating money and using it to buy assets of banks and companies that needed support. They continue to pursue these policies in an effort to encourage growth and inflation in their economy.

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Bank Run A bank run is an event that happens when a bank or financial institution’s customers choose to withdraw all of their deposits at the same time. This happens because of fears of the solvency of a particular bank. The effect is like a snowball. The more individuals who pull out their funds the greater the default probability becomes. This in turn leads still other customers to pull out their deposits. Severe bank run cases can create a scenario where the reserves of the bank are insufficient to meet all withdrawal demands. Bank runs like these are not usually a result of actual insolvency of a financial institution. Rather they occur because of panic. Such fear can still evolve into a self fulfilling prophecy as a greater number of clients request their money. What starts as rumor and panic can transform into an actual ugly insolvency scenario. This means the fear of a default can actually cause a default in banking circles. Banks run into these troubling situations sometimes because they generally only hold a tiny percentage of their actual deposits at hand. When withdrawal demands rise, it forces banks to boost their cash reserves. A common method for doing this is to sell assets, often at fire sale prices because they need funds immediately. The losses banks book for selling off assets at greatly reduced prices can lead them to actual insolvency. A bank run can become a full scale bank panic when a number of banks experience such runs on them all at once. The best known example of a bank run occurred surrounding the infamous stock market crash in 1929. This led to numerous runs on financial institutions throughout the United States and finally to the Great Depression. The cascade of runs on the banks in the end of 1929 and the beginning of 1930 became like dominos falling. One bank’s failure created fear and caused the panic of customers at neighboring banks that motivated them to take out their deposits as well. A failing bank in Nashville at the time created a number of bank runs throughout the Southeastern U.S. Still other runs on banks occurred in the Great Depression because of the rumors begun by individual clients of the banks. The Bank of United States told a New York customer in December of 1930 he should not sell a certain stock he held. He departed from the branch and told other customers and individuals that the bank could not or would not sell his stock shares. Clients of the bank thought this meant the bank was insolvent. Thousands of them then lined up and withdrew more than $2 million out of the bank in only hours. The developed nations’ governments enacted a serious of steps to decrease the possibilities for future date bank runs as a result of the chaos in the 1930s. The most effective centered on minimum bank reserve requirements. These dictated what percent of aggregate deposits banks had to keep readily available in cash. In 1933, the American Congress also created the FDIC Federal Deposit Insurance Corporation. They established it as a direct result of the numerous bank failures. The government agency has since then insured deposits in banks to a maximum account amount. It works to keep up public confidence and banking stability within the financial system of the United States.

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Bank Stress Tests Bank stress tests are special analyses that a government authority or company runs to determine the strength of a bank to resist difficult economic times. They conduct such tests using economic conditions that are unfavorable to learn if the banks possess sufficient capital to survive the effects of negative financial environments. In the United States, the law requires that banks which claim at least $50 billion worth of assets must perform their own internal stress tests. Their risk management department is responsible for overseeing these. The Federal Reserve conducts these stress tests on such banks as well. The idea behind these bank stress tests is to look at several critical risks which can afflict the banks and banking system. They are supposed to evaluate the financial condition of the bank being tested in one or more crisis scenarios with regards to liquidity risk, market risk, and credit risk. The tests simulate fictitious potential crises using a number of different factors that the International Monetary Fund and Federal Reserve determine. This mostly came about after the worldwide financial crisis and Great Recession of 2007-2009. As many banks had failed or nearly collapsed, government and international bodies became more concerned about checking on the financial strength of banks in potential crisis scenarios. These bank stress tests were effectively set up and used on a widespread basis after this worst collapse since the Great Depression of the 1930s. The financial crisis had left in its wake a number of financial institutions, investment banks, and commercial banks that had insufficient capital. The stress tests were established to deal with this threat before it became severely problematic again. There are two main types of bank stress tests that exist. The Federal Reserve runs its own yearly oversight stress tests of the U.S. banks that have at least $50 billion in assets on their balance sheets. The primary purpose of such a stress test is to learn if the banks possess sufficient capital to weather the storm of challenging economic conditions. The company operated stress tests are done twice a year by law. They must be strictly reported according to the deadlines set by the Fed. Results must be turned in to the Federal Reserve board by no later than January 5th and July 5th. In either of the stress tests, the banks receive a typical set of circumstances to evaluate their performance. It might be a 30% free fall in the prices of housing, a 5% to 10% decline in the stock market, and a 10% or higher unemployment rate. The banks must then take their future nine quarters of financial forecasts to ascertain if their capital levels are sufficient to endure the hypothetical crisis. These bank stress tests have broader repercussions. Banks must make public their results by publishing them after they undergo the tests. The pubic and investors then learn how the bank in question would survive in a significant crisis situation. Laws and regulations passed since the financial crisis require that companies which are unable to pass the stress tests must cut their share buyback programs and dividend payments so that they can preserve the capital they have. There are cases where banks receive a conditional passing grade on a stress test. This result states that the

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bank nearly failed its test. It puts them at risk of not being allowed to engage in more capital distributions going forward. Conditional passing means that a bank has to turn in a plan of action to address the capital shortfall. These failures cause a bank to look bad to not only investors but the banking public. There have been a number of banks that failed such stress tests. Foreign banks like Germany’s Deutsche Bank and Spain’s Santander have failed to pass such tests on a number of occasions.

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Bankruptcy Bankruptcy is a term that refers to the elimination or restructuring of a person or company’s debt. Three principal different types of bankruptcy filing are available. These are the personal bankruptcy options of Chapter 7 and Chapter 13 filings, and the business bankruptcy restructuring option of Chapter 11. Individuals avail themselves of Chapter 7 or Chapter 13 bankruptcy filings when their financial situations warrant significant help. With a Chapter 7 filing, all of an individual’s debt is erased through discharge. This provides a new start for the debtor. Due to changes in laws made back in October 2005, not every person is able to obtain this type of total debt relief any longer. As a result of this new bankruptcy law, a means test came into being that prospective bankruptcy filers must successfully pass if they are to prove eligibility for this kind of bankruptcy relief. The net effect of this new test is that consumers find it much more difficult to qualify for total debt elimination under Chapter 7. Besides the means test, the cost of bankruptcy attorneys has now risen dramatically by upwards of a hundred percent as a result of the new laws. Before these laws went into effect, Chapter 7 filings represented around seventy percent of all personal filings for bankruptcy. Chapter 7 offered the individual the advantage of simply walking away from debts that they might be capable of paying back with sufficient time and some interest rate help. Chapter 13 Bankruptcy filings prove to be much like debt restructuring procedures. In these proceedings, a person’s creditors are made to agree to the repayment of principal and zero interest on debts over a longer span of time. The individual gets to keep all of her or his assets in this form of filing. The most common motivation for Chapter 13 proves to be a desire to stop a foreclosure on a home. Individuals are able to achieve this by halting foreclosure proceedings and catch up on back mortgage payments. Once a court examines the debtor’s budget, it will sign off on the plan for repayment proposed by the person. Depending on the level of an individual’s income, he or she may have no choice but to file a Chapter 13 filling, as a result to the 2005 law changes. Companies and corporations that are in financial distress may avail themselves of bankruptcy protection as well. Chapter 11 allows for such businesses to have protection from their creditors while they restructure their debt. Some individuals who have a higher income level will take advantage of this form of filing as well, since it does not place income restrictions on the entity filing. It has been instrumental in saving many large and well known companies over the years, including K-Mart, that actually emerged strong enough from the Chapter 11 bankruptcy to buy out higher end rival Sears afterward.

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Barclays Barclays is a British based banking giant that calls its twin home markets both the United Kingdom and the United States. The bank is well known as a transatlantic consumer, investment, and corporate bank that provide financial services and products through investment, corporate, personal banking, wealth management, and credit cards. The banking group’s goal is to concentrate on its core strengths in investment banking, consumer banking, and corporate banking from its two anchors in the financial capitals of the globe - London and New York City. Barclays is the oldest of the major international global banks. Its history stretches back over 325 years to 1690 where it began on Lombard Street in London. Since then the bank has pioneered numerous first in banking achievements such as the first ATM machine in the globe to industry leading cell phone payment services. The bank today operates in more than 40 countries and territories and maintains over 130,000 employees around the globe. It operates in such key international markets as the United States, Brazil, Canada, and Mexico in the Americas; Australia, India, China, Hong Kong, Indonesia, Malaysia, South Korea, Taiwan and Singapore in Asia Pacific; Egypt, Israel, Nigeria, South Africa, Kenya, Tanzania, and the UAE in Africa and the Middle East; and France, Germany, Italy, the Netherlands, Russia, Spain, Sweden, and Switzerland in Continental Europe. The banking giant operates as two well defined and differentiated businesses. These are Barclays UK and Barclays Corporate & International. The bank’s UK division caters to both consumers and small to medium sized businesses. This franchise has substantial scale throughout the United Kingdom. It is made up of their UK retail banking operations, the UK wealth offering, the UK consumer credit card business, and their corporate banking for smaller businesses. This division counts 22 million individuals as retail customers and another one million business clients. This makes Barclays a leading financial products and services provider within the United Kingdom as well as the world. The bank will ring fence this division from its other operations by 2019 in an effort to protect traditional banking assets from other riskier endeavors of the investment bank. Under Barclays UK, personal banking offers checking and savings accounts; personal, car, and credit card loans; travel, home, and life insurance; and mortgages. The UK credit cards business focus on the Barclay Card brand. Its wealth, entrepreneurs, and business banking business covers such offerings as private banking, wealth advisory, and wealth investment services. Barclays Corporate & International division focuses on all of the rest of the bank’s operations and offerings throughout the world. This diversified transatlantic banking division comprises their U.K. market leading corporate banking, world class investment bank, growing and powerful U.S. and global credit card businesses, international wealth services, and world leading merchant payments processing systems through Barclaycard merchant and corporate banking. The division boasts impressive size and scale in consumer lending and wholesale banking. It offers tremendous growth potential for the future, core strength in critical markets, and solid balance of revenue streams.

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The bank’s Corporate & International Division focuses on three key businesses. Its Corporate and Investment Bank provides big business banking, access to market securities and debt issue, and business research for its corporate clients. Consumer Cards and Payments concentrate on the proprietary Barclay Card credit card offering and merchant processing in the United States and overseas. Barclaycard and Wealth International handles over 40 different credit card branding relationships, providing credit card services for travel, entertainment, educational, financial, and retail institutions. It also provides the wealth management services to the bank’s many international individual and institutional clients.

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Barings Bank Collapse The Barings Bank collapse is a tale of tragedy involving greed, poor banking oversight, and a complete failure of internal checks and balances that ruined the oldest bank in London and banker to the Queen. It took only several weeks for Nick Leeson the Singapore trading head of the bank to amass hundreds of millions of pounds in losses which he camouflaged as profits before fleeing from the law. After the family led management uncovered how severe the losses were, the bank went into bankruptcy protection until the Dutch banking giant ING acquired it for only a single pound. Barings had originally been founded by brothers John, Charles, and Francis Baring on Christmas of 1762. The company started out as a merchant firm but quickly began to finance other merchants as a true bank. The bank gained fame over the years for financing many historic events. It helped the British government pay for the Revolutionary War in America and then the Napoleonic Wars in France. The bank financed the Louisiana Purchase for America in 1803 so that the fledgling country could double the size of U.S. for $15 million. In 1806, Barings moved to its Bishopsgate office in London which remained its headquarters for nearly 200 years until the Barings Bank collapse. The banker to Queen Elizabeth had grown its commercial activities successfully for centuries. It floated the renowned Guinness brewery in 1886 and expanded its commercial endeavors after barely surviving collapse through a Bank of England bailout because of an Argentina near debt default. The bank eventually bought a Japanese based securities firm in 1984. In 1991 it obtained a 40 percent stake in Dillon Read the U.S. investment bank. The negative turning point for the bank came after they put Nick Leeson in charge of Barings Futures Singapore (BFS) in 1992. He had come over from Morgan Stanley three years before as a banker in the back office. His unit’s function centered on only trading futures contracts for customers on the Nikkei 225 and 10 year Japanese bonds. The mistake came in putting Leeson in charge of both the transaction settlement operations and the trading floor. At the time, James Bax the head of Barings’ Asia lamented that the structure they were setting up would lead to both a loss of a huge amount of money and customer goodwill. Barings Bank collapse was brought on by the BFS group starting to trade with its own account. Leeson was attempting to gain from arbitrage spreads between Singapore and Japanese exchanges. The London management and chairman Peter Baring believed that this was extremely profitable and basically risk free trading. The problems arose from Leeson establishing a secret account called 88888 where he began to make enormous bets on Japanese markets. At first he appeared to make the company huge amounts of money, including 10 million pounds in 1993 that represented 10% of all the bank’s annual profits. In 1995, the secret account was uncovered, along with losses of 827 million pounds he had wracked up in the name of Barings in only a matter of weeks. Leeson had left a note that said “I’m sorry” in the Singapore office and gone on the run. Once he was captured and extradited back to Asia, Singapore charged him with fraud and forgery. They sentenced him to jail where he spent four years. Leeson later emerged from prison and sold his story as an autobiography Rogue Trader and the rights to the movie of the same title.

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As a result of the Barings Bank collapse, the Bank of England lost banking oversight powers that were given to the newly organized Financial Services Authority. This organization later received criticism for ineffectively overseeing the banks under its charge and making the 2008 financial crisis significantly worse. The name Barings ceased to exist except in an asset management arm that an American life insurance group purchased. The bank’s collapse ended the longest running and most famous banking dynasty in the world.

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Barristers Barristers are one of two types of lawyers used in many systems for different functions in the case law and courts arenas. The other designation of lawyer is a solicitor. Barristers’ roles prove to be one of simply representing clients as their personal advocate in the courts of the appropriate jurisdiction. Barristers’ duties include actually speaking in court. Here, they present a case to a jury or a judge. They do not engage in preparation tasks such as advising a client, handling or accepting client instructions, reviewing or writing up legal documents, handling the daily administration of a case, or getting evidence ready for the court. These tasks are commonly handled by a solicitor when the two roles of attorneys are separated out. In this way, barristers function as the in court lawyer on behalf of the solicitor trial preparation lawyer. Barristers enjoy unrestricted access and audience to the higher law courts. This stands in contrast to various other legal personnel, who are only allowed limited access to the courts after demonstrating appropriate qualifications. As such, barristers’ occupation has much in common with the duties of lawyers who argue trials before civil law courts. Barristers have little or nothing at all to do with actual clients. The solicitor of a client acts as intermediary between the two parties, even engaging the barrister to argue a case. Any client correspondence would be addressed directly to a solicitor, and not a barrister. Solicitors generally handle the barristers’ fees and provide barristers with their instructions for actually arguing the case on behalf of the client. Generally, barristers work as individual sole proprietors, as they are restricted from forming corporations or partnerships. Barristers are able to form chambers where they share office expenses and the use of clerks. There are chambers that have evolved into sophisticated and big operations that feel like corporations. Barristers are useful for their highly specialized understanding of precedent and case laws. Generally practicing solicitors will often seek out a barrister’s professional opinion when they encounter a rare or atypical section of law. Some countries permit barristers to be engaged by corporations, banks, or solicitor firms as legal advisers. The long held traditional division between the roles of barristers and solicitors is gradually breaking down in numerous countries. In the British Isles for example, barristers long enjoyed their unique right to make appearances in the higher courts. Nowadays, solicitors are allowed to argue directly on behalf of clients in trial. Solicitor firms are more commonly keeping the more difficult litigation tasks within their own companies anymore. Barristers are also allowed to deal with members of the public directly now, yet many still do not. This results from their narrow training pertaining to arguing before the courts that does not qualify them to offer legal advice to everyday individuals. Barristers still argue cases on behalf of solicitors and their clients. These days, they no longer play a

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significant role in getting a trial ready. Barristers are mostly given briefs from solicitors that they will argue either one or several days in advance of a hearing.

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Barter Barter is a concept that pre-dates the invention of money. It proves to be the practice of trading goods, products, or services for other such products, services, and goods. Barter is a simpler way of transacting business, commonly without using money. Although money systems have been in existence and well established for several thousand years, bartering for things as a practice is still alive and well nowadays. Systems of barter are used much of the time between one nation and another. Countries and companies occasionally engage in the practice as well. Barter is frequent in between businesses, and is sometimes also seen between a person and a business, or two different people. Within the U.S., bartering involves billions of dollars of services and goods that are exchanged back and forth in a single year. Per the International Reciprocal Trade Association that monitors bartering, over 400,000 businesses around the world bartered for more than $11 billion in just 2009. Barter is sometimes referred to as counter-trade, in particular when it is used between two different countries. Bartering can be supremely convenient for countries that have an abundance of one or more resources or commodities but little cash on hand. Countries that produce huge quantities of wheat might exchange it directly with other countries for produce, oil, or textiles. Where businesses are concerned, barter usually involves trading out services or products in consideration for advertising. Radio stations, television stations, and newspapers are common participants in barter, who may accept promotional goods for ads or on the air time. Other companies will exchange goods and services for stock in a company, or advice in consideration for services and goods. Companies and individuals sometimes engage in barter as well. One company might give a consumer free merchandise in exchange for helpful sales leads. Individuals barter between each other for almost any item imaginable. Auction sites represent outlets for trading and bartering things. Interpersonal bartering is also carried out using online and print versions of classified ads. Today there are even barter clubs that help individuals learn more about and practice bartering. In some countries like Spain, barter markets have arisen and spread. These swap meets forbid the use of money in any transactions. Participants simply bring along unwanted items and trade them with one or more parties for other items that they desire. In times of national crises, bartering becomes more popular and commonplace. When currencies become victims of hyperinflation or devaluation, barter is resurrected. In these times and situations, barter can even supersede money as the principal medium of exchange.

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Bear Market Bear markets are periods in which stock markets drop for an extended amount of time. These pullbacks typically run to twenty percent or even greater amounts of the underlying stock values. Bear markets are the direct opposites of bull markets, when prices rise for extended amounts of time. Bear markets and their accompanying drastic drops in stock share prices are commonly caused by declining corporate profits. They can also result from the correction of a too highly valued stock market, where stock prices prove to be overextended and decline to more historically fair values. Bear markets commonly begin when investors become frightened by lower earnings or too high values for their stocks and begin selling them. When many investors sell their holdings at a single time, the prices drop, sometimes substantially. Declining prices lead still other investors to fear that their money that they have invested in the stock market will be lost too. This motivates them to sell out through fear. In this way, the vicious cycle down progresses. There have been many instances of bear markets in the United States since the country began over two hundred years ago. Perhaps the greatest example of an extended bear market is that found in the 1970’s. During these years, stocks traded down and then sideways for more than a full decade. These kinds of encounters keep potential buyers out of the markets. This only fuels the fire of the bear market and keeps it going, since only a few buyers are purchasing stocks. In this way, the selling continues, as sellers consistently outnumber buyers in the stock exchanges. For long term investors, bear markets present terrific opportunities. A person who is buying stocks with the plan to keep them for tens of years will find in a bear market the optimal sale price point and time to purchase stocks. Though many individual investors become frenzied and sell their stocks continuously during a bear market, this is exactly the wrong time to sell them. Bear markets provide savvy investors with the chance to seek out solid companies and fundamentals that should still be strong ten to twenty years in the future. Good companies will still do well in the coming years, even if their share prices fall twenty or forty percent with the overall market. A company like Gillette that makes razors will still have a viable and dependable market going years down the road, even if the stock is unfairly punished by a bear market. Making money in a bear market requires investors to understand that a company’s underlying core business has to be distinguished from its short term share price. In the near term, a company’s fundamentals and stock prices do not always have much in common. This means that a discounted price on a good company in a bear market is much like a periodic clearance sale at a person’s favorite store. The time to buy the products heavily is while they are greatly discounted. The stock market is much the same. History has demonstrated on a number of different occasions that the stock prices of good companies will rebound to more realistic and fair valuations given some time.

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Bear Stearns Bear Stearns was formerly among the biggest important securities trading outfits within the United States. At one point it boasted a total asset base of almost $400 billion. The investment bank pursued a wide variety of financial activities. Among these were the clearing and trading of derivatives and securities, investment banking, brokerage account services, and creating and packaging up residential mortgages and commercial property loans. In the swamping wake of the subprime mortgage meltdown and beginnings of the Global Financial Crisis, the company’s financial condition rapidly and catastrophically deteriorated from the middle of January through the middle of March in 2008. March 13th was the day when Bear Stearns informed the Federal Reserve it would no longer have sufficient liquid cash-like assets or funds in order to cover its financial responsibilities the next day. It reported that there was no practical way it could come up with an alternative means of financing in time from the private sector. The Federal Reserve considered that a looming insolvency of Bear Stearns the next day would create havoc in financial markets. This investment bank and brokerage was a dominant figure in a few different critical financial markets. Among these were especially the foreign exchange markets, over the counter derivative transactions, repo transactions, securities clearing services, and the market of mortgage backed securities. The Fed considered that contagion from the failure of this systemically critical investment banking and market-making firm was highly likely. They feared that the day to day operations of the nation’s (and even world’s) financial markets would be severely compromised at the point where Stearns could not cover its various counterparty obligations. The Federal Reserve opted to provide credit so that the firm’s affairs could be resolved in an orderly fashion. The Federal Reserve considered the range of options and found they had grown thin. In order to deal with the urgent liquidity concerns Bear Stearns suffered from, they opted to have the FRBNY Federal Reserve Bank of New York extend $12.9 billion in credit via JP Morgan Chase Bank to Bears Stearns. This was necessary in order to delay systemic disruptions which the bankruptcy or at least default of the firm would have created in credit markets that were already highly stressed. The loan itself became secured by the $13.8 billion in market value assets which Stearns claimed on its balance sheet. The entire reason of being for the bridge loan from the Federal Reserve Bank was to make certain the investment bank could cover its same-day and next-day obligations to counterparties. This would give it the weekend to consider what its options were and to discuss possibilities with the other major financial institutions that would make it possible to sidestep bankruptcy. It would also provide federal policy makers with some time to figure ways to limit the contagion to other financial institutions and markets if a private sector-based solution did not materialize in time. On Monday, March 17th, the entire $12.9 billion emergency loan via JP Morgan Chase Bank to Stearns had been paid back to the Federal Reserve Bank of New York along with an almost $4 million in interest. Many critics at the time wondered how the Federal Reserve could pursue such an extraordinary measure as to provide credit to a member bank on such an enormous scale. The Fed cited Section 13(3) under the

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Federal Reserve Act. This allowed the Board itself to order Reserve Banks to provide credit to corporations, partnerships, or individuals in unusual and extraneous circumstances. Despite the heroic efforts of the Federal Reserve to save Bear Stearns with its bridge loan, over the weekend the market pressure mounting against the company increased. It soon reached the point that it could not escape from bankruptcy by Monday, March 17th unless it received enormous liquidity injections from the Federal Reserve or an offer for acquisition by a larger, more financially sound financial institution. Fortunately for markets at that point, there was one such practical bidder in the form of JP Morgan Chase and Co. Bear Stearns agreed to merge with JPMC before markets reopened. This happened on Sunday, March 16th of 2008. As part of the merger and because of the unknown scale of possible losses that Stearns faced from the stressed credit markets, the Fed had to help out with the transaction. The FRBNY was ordered to form a special Maiden Lane LLC to absorb the trading portfolio from Bear Stearns. It was this Fed holding company that purchased and gradually wound down around $30 billion worth of Bear Stearns assets utilizing a $29 billion loan from the FRBNY and a $1 billion loan from JPMC.

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Ben Bernanke Ben Bernanke served as Chairman of the Federal Reserve System’s Board of Governors from February 1, 2006 until January 31, 2014. As the successor to former Chairman Alan Greenspan, Bernanke received his Congressional approval because of his expertise in the failed monetary policies led to the Great Depression and for his ideology of targeting inflation. Bernanke left many legacies from his eight year term in the office. When the banking and financial crises broke out, he developed many ground breaking and unprecedented Federal Reserve tools to stave off a worldwide financial depression. Ben Bernanke also took the Fed into unchartered territories with bailouts of global insurance giant AIG (to the tune of $150 billion) and investment bank Bear Stearns. In order to prevent a global banking panic, Bernanke’s Fed chose to loan out $540 billion to the money market funds so they could meet the overwhelming liquidation requests from their customers. Ben Bernanke expanded his and the Fed’s roles in growing the group’s open market operations after they found lowered interest rates were not enough to close out the destabilizing financial crisis of 2008. He created the infamous American quantitative easing programs and Operation Twist as part of these efforts. Critics constantly accused him of playing with hyperinflationary fire, but Bernanke insisted that the dangers primarily lay in doing too little and not too much to save the economy. After Ben Bernanke resigned from his important position as Chairman of the Fed at the end of January 2014, his Vice Chair Janet Yellen succeeded him as the new Fed Chairman. Yellen had demonstrated in the past that she agreed with many of his policies. Bernanke then went on to become a member of the Economic Studies Program at Brookings Institute where he was appointed as a Distinguished Fellow in Residence. He is also an affiliate of the Hutchins Center on Fiscal and Monetary Policy. Here he helps to analyze and educate members of the public regarding monetary and fiscal policies. Ben Bernanke’s efforts to guide monetary policy in the American economy yielded results at a difficult time for the nation. The national debt’s growth had severely limited fiscal policy over the past decade. Bernanke served as the nation’s leading economic expert as the spokesman and public face of the Federal Reserve. His speeches continuously influenced the dollar’s value against other currencies and gold as well as the American stock markets. Many believe that in his time as the Chairman of the Fed, big Ben Bernanke evolved into the most critical single individual in the U.S. and worldwide economies. Ben Bernanke set a number of records while Chairman of the Fed. Other chairman had only previously used the Fed funds rate to reduce inflation or stop recessions. Ben also utilized this critical national lending rate, employing rate cuts on ten separate occasions from September of 2007 to December of 2008. During this time, he conclusively reduced the interest rate from 5.25% to 0%. When this by itself did not prove sufficient to rebuild liquidity in sinking and panicked banks, Bernanke relaxed banking reserve requirements, reduced the discount borrowing rate, and eventually provided credit to the banks via the discount window, something else that had never been done. This still did not thaw the lending freeze.

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Bernanke then developed and launched the TAF Term Auction Facility in December of 2007. With this program, Bernanke and company loaned literally billions of dollars to banks in exchange for their notorious bad debts as collateral for the loans. The TAF turned out to not be so temporary as intended. It expanded until it reached an enormous $1 trillion amount by June of 2008. As credit markets around the world had frozen up, Bernanke labored with other major central bank heads globally to restore lost liquidity. His contribution to this important effort included increasing the dollar credit swap lines by $180 billion. By injecting trillions of dollars into the U.S. and global economies, Bernanke earned the scornful nickname of “Helicopter Ben” from his detractors who were convinced his proverbial throwing money out of helicopters would lead to national hyperinflation in the end.

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Benjamin Graham Benjamin Graham was born in 1894 in London, the then British Empire to an importer. When he was still young, his family moved to the United States to open up an import business. Despite his father dying shortly thereafter and his mother subsequently losing the family savings in 1907 to a financial crisis, Graham excelled in school and attended Columbia University afterward, which even offered him a teaching professorship after he graduated. Rather than enter the world of academia full time, Benjamin Graham accepted a job with Newburger, Henderson, and Loeb on Wall Street as a chalker. He soon did fantastic financial research for the company and achieved the impressive status of partner before turning 25 years old. At this still young age, Graham was already earning more than half a million dollars per year, a vast fortune in the 1920s, equal to over $5 million per year in today’s drastically devalued dollars. Graham was not content with this incredible success. He started his own investment company partnership with a fellow broker Jerome Newman in 1926. This firm lasted thirty years through his retirement in 1956. Graham also began to lecture as a finance professor at Columbia in his free time at night. Graham nearly suffered total financial destruction as a victim of the “Black Monday” Crash of 1929. His fledgling partnership managed to survive the national crisis thanks to the two partners selling most everything they owned and getting some aid from friends who had fared better during it. Graham’s wife also returned to dance teaching to help pull the company through. Graham never forgot this most painful and humiliating of lessons once he got back on his proverbial feet with the partnership. It provided him with a number of valuable stop loss management lessons to share with his legions of readers in years to come. By 1934, Benjamin Graham was writing and publishing his classic work Security Analysis with fellow Columbia academic David Dodd, a volume which remains in print to this day. The book featured countless valuable stories and instructions for how to invest in common stocks successfully using prudent investment practices. In this book, Graham and Dodd co-introduced the idea of the intrinsic value investment and their eternal wisdom on how to buy stocks at a discount to their true value. Graham and Newman continued their legendary investment partnership all the way through 1956 and never again lost their clients any money. The earnings of the company were a difficult to replicate 20 percent returns annually at a time when the S&P 500 earned 12.2 percent per year. Thanks to his moonlighting stint at Columbia as economics and investment professor, Graham met a young student named Warren Buffet and eventually consented to hire him after he graduated. Legendary billionaire investor Buffet has never forgotten either the education or the start his beloved mentor Graham gave him in the business, acknowledging Benjamin Graham as the investing master guru to this day. Graham and Buffet combined their powers to pick out insurance company GEICO, a firm that has made both Buffet’s Berkshire Hathaway group and Benjamin Graham’s heirs a vast fortune. Graham and Newman bought the company outright in 1948 and then had to convert it to a public company and distribute shares to their partnerships’ investors because of regulations that prohibited investment firms

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from owning insurance companies. Benjamin Graham also wrote what is still called the Bible of Value Investing in 1949 a few years before he ultimately retired. This work The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel, has also never stopped being in print. In 1976 after 20 years in retirement, legendary investor, teacher, and writer Benjamin Graham finally died. He had justified his ongoing reputation as “Father of Security Analysis” for more than 80 years.

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Berkshire Hathaway Berkshire Hathaway represents the multinational American holding company that has been ranked among the largest five publically traded companies in the world by Forbes magazine. The conglomerate investment company has been controlled by Warren Buffet since the mid 1960s. Its headquarters are found in Omaha, Nebraska. Originally Berkshire Hathaway was involved with manufacturing textiles and cotton manufacturing. Its roots go back to the early 1800s. This business began to fail in the 1950’s and 1960’s. Plants were closed and people laid off over the years. Warren Buffet took control of the company gradually by buying shares over time. When the owner offered to buy back Buffet’s shares but then slighted him on the final price offer, Buffet took action. In 1964 he bought out the then President Stanton and installed his own president. Buffet then concentrated on the financial structure and affairs of the company. By 1967 he began buying his first insurance companies, a tradition he continues to this day. The first insurance ventures he purchased were National Fire and Marine Insurance and National Indemnity. GEICO has been the largest one he acquired. Today Berkshire is an enormous holding company that has been ranked as high as the number five largest publically traded company in the world by Forbes in its Forbes Global 2000. Buffet has acquired full interest in companies including GEICO, Lubrizol, BNSF, Fruit of the Loom, Dairy Queen, Helzberg Diamonds, NetJets, and Flight Safety International. Berkshire also counts a 26% ownership holding of the Kraft Heinz Company. The firm owns an unknown percentage of Mars, Inc. Important minority share holdings of the company include the Coca-Cola Company, American Express, Apple, IBM, Wells Fargo, and Restaurant Brands International. No one can argue with the success of Berkshire Hathaway under Warren Buffet’s leadership. He holds posts of Chief Investment Officer, Chairman of the Board, and Chief Executive Officer. Under his leadership the company book value has grown by 19.7% annually on average during the past 49 years at a time when the S&P 500 including dividends has averaged 9.8%. Berkshire has deployed enormous amounts of capital and used little debt during this tenure. Charlie Munger is the other major figure at the company. He serves as Vice Chairman on the Board of Directors. Warren Buffet has changed his method of investing since his early days with Berkshire. In the first years he concentrated his efforts into making long term investments in companies that were publicly traded. Over the last few decades he has instead bought out entire companies. Thanks to this more recent strategy, Berkshire now counts a wide range of many different types of businesses among its stable. This includes retail, insurance, jewelry sales, candy, home furnishings, railroads, vacuum cleaner makers, encyclopedias, uniform manufacturing and selling, newspaper publishing, and gas and electric utilities in the U.S. and U.K. The future of Berkshire Hathaway has been a concern to many of its share holders as Warren Buffet continued to control the company so tightly and directly and began to get older. Buffet set out a succession plan that breaks up the three jobs he holds of CEO, Chief Investment Officer, and Chairman of

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the Board. For CEO, he wants one of the 50 CEO’s of their subsidiaries selected to succeed. This would be someone who is within the organization and who has proven himself or herself successfully. For investment handling, Buffet has hired several people over the last decade who are doing well in this capacity with a small percentage of the investment book. For Chairman of the Board, Buffet wants a family member like his oldest son Howard. Howard has given interviews where he agreed that Berkshire Hathaway has been his father’s life work and that maintaining this legacy is critical to him.

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Bernard Madoff Bernard Madoff used to be a nationally famous and admired stock broker and investment advisor. In the end, it turned out that he oversaw a multibillion dollar empire which he ran as an elaborate and far-flung Ponzi scheme. Madoff is presently serving out a 150 year prison sentence for his crimes in this endeavor. Bernard Madoff was born in Queens, New York in 1938 on April 29th. After earning his Political Science bachelor’s degree from Hofstra University in New York City in 1960, he pooled together $5,000 of his own money with another $50,000 which he borrowed from his wife Ruth’s parents. The couple then founded Bernard L. Madoff Investment Securities, LLC. Thanks to assistance from his father in law, a retired CPA, Bernard Madoff and his company were successful in attracting in wealthy and famous investors that gave him a prestigious client roster. Among his investor-clients were Steven Spielberg, Kyra Sedgwick, and Kevin Bacon. Word of mouth spread his consistent fame for delivering yearly returns amounting to ten percent or even higher. By the conclusion of the 1980s, the Bernard L. Madoff Investment Securities company handled over five percent of the entire daily trading volume of the NYSE New York Stock Exchange. Not all of Madoff Securities’ successes were mere mirages. He had been forward thinking in adapting his business to changing technologies and times. His company proved to be among the first to deploy computerized technologies in its trading. In this way, his firm actually became a key player in the rise of the famed NASDAQ stock market exchange, which is actually the National Association of Securities Dealers Automated Quotations. Madoff was such an important part in the NASDAQ operation that he eventually held the NASDAQ Chairmanship for three separate year-long terms. Bernard Madoff loved to bring in his many family members to the family business. The company grew by leaps and bounds, prompting his younger sibling Peter to come aboard in 1970 as the company’s Chief Compliance Officer. Afterwards, his two sons Mark and Andrew began to work for the firm as traders. Shana, Peter’s daughter worked as rules compliance lawyer of the trading division. Peter’s son Roger worked for the firm until he died in 2006. It all seemed charmed and too good to ever end for Madoff’s satisfied clients and colleagues. Yet the truth was that Madoff had been hiding a dark secret for over 30 years. On December 10th of 2008, he told his two sons he would award a few million dollars in company bonuses sooner than originally planned. When the two insisted on knowing where these funds would come from, he admitted that he had an arm of his company which actually ran as a massive and complex Ponzi scheme. The two sons went straight to the federal authorities with this information on their father. That next day December 11, 2008 saw the legendary Bernie Madoff arrested by the Feds under charges of securities fraud. Bernard Madoff confessed to the federal investigators that his firm had actually lost an eye-watering $50 billion in investor money in recent years. March 12th in 2009 was the day he pleaded guilty on 11 different felony charges. These included investment adviser fraud, securities fraud, wire fraud, mail fraud, perjury, false statements, money laundering on three counts, theft from his employee benefit plan, and falsified filings before the U.S. SEC Securities Exchange Commission. He had moved an incredible $170 billion through his main accounts over decades of time. Yet at the time of his arrest, the statements of the

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firm only showed $65 billion in accounts, most of which had been lost in the markets. The judge sentenced the 71 year old Bernie Madoff to a 150 year long prison sentence without the possibility of parole.

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BG Group The BG Group, or British Gas group, was once the largest multinational gas company headquartered in Britain. It was based in Reading, England. The company became acquired via an agreement announced on April 8th of 2015 by Royal Dutch Shell to take the company over in a friendly acquisition which saw 19% of the stock in the newly combined entity going to the former BG shareholders. The purchase price for BG was $70 billion. Regulatory approval and shareholder agreement were reached amicably so that the sale became completed on February 15th of 2016. Before this friendly takeover commenced, the BG Group had been prominently listed on the London Stock Exchange as a constituent member of the internationally renowned FTSE 100 Index. Before this game changing acquisition spelled an end to the independent life of the BG Group, the company had considerable global operations throughout more than 25 nations across Asia, Africa, Australasia, North America, South America, and Europe. The company produced fully 680,000 equivalent barrels of oil per day. It’s Liquefied Natural Gas LNP business proved to be so large that it became the biggest LNG supplier to the United States. The proven commercial reserves of the company as a standalone operation were 2.6 billion barrels of oil equivalent as of December 31st in 2009. The company originally arose as the original British Gas Plc divested itself of Centrica to become BG Plc. The group then reorganized yet again in 1999 as the BG Group Plc. The company produced a wide variety of products, the most significant of which were natural gas, crude oil, and petrochemicals. Their revenues as of 2014 were $19.289 billion, their operating income was $6.155 billion, and their profit or turnover was $1.044 billion. As of 2015, they employed 5,200 individuals in more than 25 countries around the world. Shell gained control of all the natural resource assets of the BG Group as a result of this friendly takeover. They also gained access to the extensive assets in LNG that BG dominated in the industry, which catapulted Shell’s deep water natural gas and global LNG strategies years into the future. The main business lines of the BG Group had been the discovery of and extraction of both natural gas and crude oil, as well as the production, sales, and distribution of liquefied natural gas. The British energy giant vended such products to its wholesale mega customers like retail electricity generating firms and gas suppliers throughout the globe. It owned some of its gas pipelines and had a stake in a few powergenerating projects around Britain and the world in general. The company proved to be globally active and only kept a minority percentage of its primary businesses in its home market of Great Britain. BG Group proved to be a true multinational energy player till the end, controlling its sizeable operations in fully 27 different nations. Among its chief operations and markets were Australia, Brazil, Egypt, India, Kazakhstan, Norway, Thailand, Trinidad and Tobago, Tunisia, the United Kingdom, and the United States. This continued all the way up until February 15th of 2016, the date upon which substantially larger rival Shell/Royal Dutch Petroleum acquired the company’s full issue of publically traded stock, and it ceased to be as an independent going concern.

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Big Oil Super Majors The Big Oil Super-majors are the six to eight companies which oil analysts utilize to talk about the world’s biggest publically owned gas and oil corporations. They are often just called the super-majors, oil majors, or big oil. Today’s super-majors are the following: British based BP plc and Royal Dutch Shell plc, American based Exxon Mobile Corporation and Chevron Corporation, Italian based ENI SpA, and France based Total SA. Besides these six companies, sometimes American ConocoPhillips is included in the list of the Big Oil Super-majors, though less often since they spun off their downstream operations. This industry is often described by the phrase Big Oil much like similar industries which only a couple of enormous producers control. Big Steel is another such example. The phrase became popular in the later years of the 1960s when “Big Oil” appeared everywhere in print. The phrase today specifically relates to the seven super-majors. It conspicuously leaves out the OPEC oil firms and the national country state producers, even though today they bear a far larger role in the manipulation of oil prices than the Big Oil Super-majors do. There were two different state owned Chinese oil firms, Sinopec and CNPC which boasted larger revenues in 2013 than any of the super-majors besides Royal Dutch Shell. The Big Oil Super-majors have a history which stretches back to the original “Seven Sisters.” These seven Anglo-American oil firms had combined their powers into forming the “Consortium for Iran” cartel. This allowed them to near-control the world’s petroleum industry from the decades of the middle 1940s through the early 1970s. This group dominated approximately 85 percent of all the oil reserves on earth up through the 1973 oil crisis. It was in the decade of the 1990s that the famed Big Oil Super-majors started to appear. Because oil prices had fallen dramatically, this caused a flurry of merger and acquisition activity in the industry. The new super-majors were attempting to boost their economies of scale, to lower the enormous cash reserves by reinvesting them, and to hedge their bets against wildly gyrating volatility within the world oil markets. There were several important acquisitions and mergers of the gas and oil major companies which occurred from 1998 through 2002. These included Exxon’s mega merger with Mobil that led to the creation of ExxonMobil in 1999, Chevron’s takeover of Texaco in 2001, and the combination of Conoco Inc and Phillips Petroleum Company to form ConocoPhillips in 2002. BP also acquired both Amoco and ARCO in 1998 and 2000, respectively. France’s Total merged in 1999 with Petrofina and then in 2000 with Elf Aquitaine to create the newly named Total S.A. This resulted in the creation of among the biggest international and multinational corporations on planet earth per the Forbes Global 2000 list. By 2007, all of the six Big Oil Super-majors were listed in the top 25 largest corporation in the world. In 2011, the largest of the Big Three by market capitalization, profits, and cash flow was ExxonMobil, though it was closely followed by both Royal Dutch Shell and BP. Today’s Big Oil Super-majors only control about six percent of all worldwide gas and oil reserves. At the same time, around 88 percent of the world’s gas and oil reserves are held by the state owned and run oil companies as well as the OPEC cartel companies, mostly found within the region of the Middle East. The London based newspaper Financial Times sometimes calls these “The New Seven Sisters.” They refer to

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the new group of the most powerful gas and oil national companies in the world today. Their list includes Gazprom of Russia, CNPC of China, Petrobras of Brazil, National Iranian Oil Company, Saudi Aramco, PDVSA/Citgo of Venezuela, and Petronas of Malaysia.

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Binary Options Binary Options are a fairly new means of trading on the financial markets in the United States. They became a legal vehicle within the U.S. only back in 2008. Since then, they have rapidly evolved into what is now one of the quickest and simplest means of trading. These options are different from most other forms of trading since participants do not assume ownership of anything. Instead, they are simply trying to forecast the price direction of the asset that underlies the binary trade. The most basic form of such binary options involves only two directions to potentially correctly predict. Will the underlying security go up or down is the only question traders must attempt to answer in this scenario. These are “all or nothing” trades without any confusing grey area in the middle. It makes them far easier to understand. Once traders arrive at their final conclusion on the price direction, they can punch in the security and see the percentage return on that given scenario if they are right before actually committing to the trade. It means traders know exactly how much time they have for the trade to work, what the maximum profit point is, and the maximum (total invested) loss amount could be. The simplicity of this idea appeals to countless traders. Binary options permit trading on any of the significant cross currency pairs, stock market indices, many individual stocks, and commodities like gold and silver. This means that all of these various instruments, ranging from the British Pound Sterling currency versus the U.S. Dollar, to Apple stock, to gold futures can all be speculated on from a single unified and cohesive platform. It eliminates the need to switch back and forth between laptops or computer screens while trading internationally without having to switch from one broker to the next. This is especially true since a great number of the top binary options brokers have a wide range of stock market indices and individual stocks from the U.S., Europe, and Asia. This permits international traders to utilize their platforms without difficulties or hindrances. It makes these brokers a one-stop shop for binary options trades. It is important to remember with these forms of option trades that every trade will entail a specific time line that the trader must pay careful attention to in order to profit. They may be set for shorter or longer time periods depending on the markets and the individual instrument involved. For those who resent having their funds committed for long, there are 5 minute options and even 60 second time frame trades available. Those who prefer to have more time for the trade to pan out are able to enter into trades with several hours and even days. These expirations can be changed as often as the trader wishes until the trade is executed. At this point, the time restriction becomes immutably set. Most binary options do not permit the traders to sell out early either at a partial profit or loss. Instead, they have to wait till the option expiration to realize their total gain or loss. Three different kinds of binary options are available. These are the ones described above, as a basic straight call or put. Will the price be up or down at time of expiration? The second type is known as the one touch trade. In this binary option, traders select a target price before executing and committing to the trade. Should the underlying asset “touch” that price or surpass it at any point in the trade’s life time, even just one time, then the investment is considered to be a profitable one. The final type is called a boundary trade. In this scenario trade, the broker supplies a range of prices to the traders. The traders have to decide if the price will fall within or without the provided range at expiration.

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There are also several creative variations on these three kinds of trades along with a few exotic versions that feature higher payoffs of even 300 percent. Some of these are one touch trades with far-away target prices. While the odds of the underlying asset achieving such a price are considerably lower than with a closer target, the potential returns can be hundreds of percent if the traders are in fact correct in their prediction by expiration time.

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Bipartisan In the two party system found in the United States and other countries around the world, Bi-partisan signifies any resolution, act, or bill, as well as any action taken by a political governing body, where the two major political parties agree on the item or action in question. Compromises between two parties are referred to as bi-partisan when they bring together the wishes of the two parties in a final version of a proposal or piece of legislation. When bi-partisan support can not be attained in a two party governing system, the end result is commonly gridlock. At this point, political party members and their home constituencies get angry with one another. Bi-partisan is similarly used to describe the efforts of two radically differing groups who hold opposing views that they reconcile for a time or on an issue. Conservatives and liberals are two examples of such groups. If they can come to agreement on a course of action on a matter of urgent national importance, this is an example of bi-partisan efforts, or bipartisanship. In the United States, the word bi-partisan commonly is employed to detail a political action or government policy that involves working together or compromising on behalf of the Republicans and Democrats, the two important political parties. Many politicians and political candidates cling to the mantle of bi-partisan efforts and policies, in particular during an election. In reality, these bi-partisan ideals are seldom actually put into place once a politician is securely and firmly in power. In the history of the United States, precious little evidence exists to showcase that the answers to large, complex, and critical problems are found using bi-partisan agendas. The weight of evidence actually suggests that bipartisanship has little to do with the resolution of such conflicts and disagreements. Historians call bi-partisanship an invented construct that seeks to array itself as a noble tradition in order to hide its lack of results. In fact, in times of crisis, bi-partisan solutions rarely effectively deal with the problem. The opposite of bi-partisan is partisan. American history actually demonstrates partisan ideas to be the more successful ones. The United States’ civil liberties, existence as an independent country, and idea of equality before the law, as well as many of the most beloved and successful programs of the government, all started out life as extremely partisan causes. The truth is that many aspects that are central to American life were partisan accomplishments that previously divided the nation, even to extremes.

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Bitcoin Currency Bitcoin is the name of a new electronic currency. An unknown individual who called himself Satoshi Nakamoto created this currency in 2009. This world’s first widespread virtual currency appeals to many individuals because there are no banks or governments involved in issuing, trading, spending, or processing the transactions. There are also no transaction fees involved. Owners do not have to provide their actual identity to use them. Bitcoin users like that they are able to purchase goods and services completely anonymously. They also enjoy the inexpensive and simple to use international payment system. This exists because this currency is not heavily regulated nor tied to any single bank or nation. Small businesses tend to like Bitcoin since they do not have to pay any credit card usage fees. Many speculators have purchased Bitcoins for investment. Booms and busts in this currency are all too common. Those who bought in to the crypto currency early made spectacular returns as the value skyrocketed with growing demand. Others lost fortunes as the price of the Bitcoins subsequently crashed in value. There are several ways to obtain these Bitcoins. Users buy them on open marketplaces known as Bitcoin exchanges. Those who wish to have them can buy and sell it with a variety of different currencies. Mt. Gox was the largest Bitcoin marketplace until it spectacularly collapsed and went bankrupt. Many clients who held their Bitcoins at Mt. Gox lost most of their money there at the time. Individuals also buy and sell Bitcoins by transferring them to each other and by paying with them. They can do this with their computers or mobile apps. This is much like sending cash with a digital service like PayPal. A last way to obtain Bitcoins is by mining them. Mining is the way that individuals create new Bitcoins. They do this by utilizing computers to solve complicated math problems or puzzles. When such a puzzle is solved, 25 Bitcoins are awarded to the group which solves them. Owners keep their Bitcoins in a digital wallet. This can be stored on a personal computer or in the cloud. A virtual wallet is much like an electronic bank account which permits owners to receive or send Bitcoins, to save their money, or to pay for their goods and services. These wallets do not receive the protection of FDIC insurance as do traditional bank accounts. To users, Bitcoins are simply computer programs or mobile apps which give the owners the Bitcoin wallet. The payment system is easier to utilize than is a credit card or debit card purchase. An individual does not require a merchant account in order to receive the currency. All an individual has to do to make a payment is to put the payment amount and address of the recipient then click send. An important fact about Bitcoin is that no one owns the actual network. Bitcoin users control the Bitcoin currency. Various developers work on the software to improve it. Users are able to decide which version or software they use it on, which prohibits developers from forcefully changing the operation. For the software to work properly, all Bitcoin users have to work with programs that abide by the same rules.

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As with most new currencies Bitcoin is not without problems. When digital wallets are left in the cloud, some servers have been hacked and coins stolen. Bitcoin exchanges like Mt. Gox have failed. Other companies have disappeared with their clients’ Bitcoins. When the wallets stay on a person’s computer, they can be destroyed by viruses or accidentally deleted. Increasing government regulation appears to be in the future of Bitcoin and other crypto currencies. Because of the anonymous nature of the currency, they have evolved into the preferred payment method for illegal activities such as drugs and smuggling. Governments are concerned about being able to trace these types of activities back to the users. They are also worried about not being able to tax transactions made in Bitcoin currency.

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Black Monday Black Monday refers to three separate stock market crashes that coincidentally happened on Mondays. These were the crashes of October 19 in 1987, the one on October 28 in 1929, and the stock market correction crash of August 24 in 2015. The Black Monday in 1987 proves to be the most common reference for the phrase. It was the biggest single day percentage drop in the markets in the history of the stock market. This dark day saw the Dow Jones Industrial Average plunge 22.61% on October 19, 1987 when the market cratered 508 points down to 1738.74. At the same time, the S&P 500 plummeted 57.64 points down to 225.06 for a 20.4% loss. The Dow did not recover this single day loss for two years. The background to this crash started with a five year long bull market. The Dow Jones had run up 43% in just 1987. This brought it to a peak o 2,747.65 in the trading session of August 25, 1987. A little bit lower range held over a month until October 2. At this point, the markets began to decline precipitously. They declined 15% over the two weeks that led to Black Monday. Various studies were done to determine what caused this nearly 37% drop in the markets in two weeks. The SEC Securities and Exchange Commission analysis decided that traders’ nervousness about anti takeover legislation being reviewed in the House Ways and Means Committee led to it. On Tuesday, October 13 they introduced this bill, and it passed October 15th. In only three days, stocks tumbled over 10%. This represented the biggest three day decline in markets in 50 years. The securities which declined the most steeply proved to be the corporations which would have suffered most from the legislation’s impacts. The bill had proposed to do away with a tax deduction on corporate takeover loans. Congress was attempting to better regulate the markets. Wall Street reacted with Black Monday. The upsetting tax deduction proposition was removed from the bill before it passed into law after the damage in the stock markets had already occurred. More factors than this aggravated the crash. Stock trading programs were already computerized at this point. They caused the sell off to be worse than it should have. These programs were set up with sell stop loss orders that entered sell orders as the markets declined by a specific percentage. As the programs all began to react at the same time, the New York Stock Exchange dealers became overwhelmed. There simply were not enough buyers available on some of the stocks. This forced them to halt trading on the exchange. Besides this, an October 16th announcement from then Treasury Secretary James Baker unsettled the markets. He stated the U.S. could permit the dollar’s value to fall. This would have created lower stock prices for foreign investors. A great number of them decided to sell then to buy back in after the dollar declined. Baker was only attempting to lower the worrisome increase in the U.S. trade deficit. Numerous investors, economists, and observers feared that the devastating crash would lead to recession. The Federal Reserve managed to hold it off by forcing money into banks. This stabilized the markets and

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led to a partial recovery. At the conclusion of October, the Dow was back up by 15%. The rest of the year saw the Dow confined to a narrower trading range. It stayed between 1,776 and 2,014 until 1988. Though there was no direct recession resulting from Black Monday, it did serve as a precursor to the Savings and Loan Crisis of 1989 and the recession of 1990-1991.

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Black Thursday Black Thursday began the stock market crash of 1929. That Thursday saw the markets decline steeply by 11%. The following Black Monday of 1929 a few days later proved to be worse. Stocks crashed another 13% that Monday, October 28th. The following day became known as Black Tuesday as all of the remaining gains for the whole year were wiped out in that continuing stock market rout. This comprised the worst markets crash in American history. Black Thursday and the subsequent few days of crashes eventually led to the Great Depression. The day before Black Thursday, investors had already taken significant losses and were feeling nervous. That prior Wednesday the markets declined by a steep 4.6%. The Washington Post made matters worse with their Thursday morning headline that roared, “Huge Selling Wave Creates Near Panic as Stocks Collapse.” The market opened at 305.85 on Thursday morning and proceeded to drop 11% throughout the day. The losses of this first crash day proved to be greater than a typically lengthy stock market correction. Wall Street bankers became worried as they observed that stocks had already retraced almost 20% from the record close of September 3, 1929 at 381.2. The Black Thursday volume turned out to be three times as high as the daily average at 12.9 million shares. This made matters worse. After the three stock market crashes of Black Thursday, Black Monday, and Black Tuesday, the three foremost banks attempted to restore market confidence by purchasing stocks. This intervention seemed to work for a time, but it proved to have only a temporary effect. These crashes alone did not begin the Great Depression of 1929. They did set the scene in destroying business investing confidence. Next individuals understood that the banks had taken their savings and invested them in stocks on Wall Street. They raced to be the first to withdraw their deposits. Banks closed down for the weekend then only disbursed ten cents for every dollar. A great number of individuals who had never participated in the stock markets similarly lost all of their life time savings. The banks that no longer had deposits were forced into bankruptcy. This meant that businesses could no longer access loans and individuals were unable to purchase houses. Wall Street sought safety in gold and pushed up the prices of the precious metal. At the time the dollar was on the gold standard. People traded in their dollars in exchange for gold which dangerously reduced gold reserves. This forced the Federal Reserve to increase interest rates to safeguard the dollar’s threatened value. It was this contractionary monetary policy that severely worsened the self destructive economic down spiral. The irrational exuberance of the Roaring Twenties led to the black week of 1929. Stock market investing grew to become a national hobby. Stock market values roared up by 218% in the years from 1922 up to just before the crash. These returns amounted to more than 20% per year. The financial situation became aggravated as people with no cash to invest could simply buy stocks on margin from their stock brokers with as little as 10% or 20% down. Banks began investing their depositor’s money without letting them know.

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The resulting misappropriation of funds caused the run on the banks that came to characterize the Great Depression. Because of these all too common events, President Roosevelt came up with the Federal Deposit Insurance Corporation as part of his New Deal in order to restore confidence in the banks and to safeguard future depositors’ money.

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Black Wednesday Black Wednesday refers to September 16, 1992. This proved to be the day that Britain was forced to withdraw from the European Exchange Rate Mechanism system of currency band pegs. The same day it had to allow the pound to be devalued by 15%. The catastrophe for the Bank of England and British government occurred only two years after British sterling had become a member of the long running EU ERM in 1990. From the beginning of becoming a member of the Exchange Rate Mechanism, British Prime Minister John Major had struggled to keep the pound within its designated floating band. The weekend following Wednesday September 16 was to be a French referendum on the Maastricht Treaty. Polls showed 58% of the French were against closer economic and political union with the rest of the EU. This had put markets on edge and increased the pressure on the pound, considered to be the weakest member of the fledgling monetary union. The European ERM system mandated that governments keep their participating currencies within a band pegged to other currencies in the system. In order to hold these values steady compared to each other, countries with the more valuable currencies were supposed to sell their own currency and purchase the weakest ones. In September of 1992, the British pound turned out to be the weakest in its band while the German Deutschmark remained the most powerful currency. In fact it was not only the British pound struggling ahead of the French referendum. The Spanish peseta and Italian lira were also falling under intense pressure. The pound had the misfortune of getting the most media attention. The antagonist in the day’s bloodbath turned out to be currency hedge fund speculator George Soros. He and his Quantum Fund took on the Bank of England directly in the currency markets. He accomplished this by borrowing UK gilts bonds and selling them. He then purchased them back moments later for lower prices. Soros and other speculators following his lead were able to repeat this action every couple of minutes and turn a profit with every trade. Soros later explained how he had earned £1 billion (British pounds) by selling the pound sterling he never even owned. The pressure grew throughout the day as the Bank of England kept purchasing British pounds in an effort to support their price within the band. At middle of the morning, Bank of England officials had to purchase £2 billion every hour in order to defend against the global speculators’ selling pressure. They also pushed interest rates up to 12% in an effort to support the pound. Prime Minister Major refused to accept defeat easily and later that day raised British interest rates higher to 15%. By the time currency markets closed in London, the pound still remained outside of its required currency band. At 7:40 pm that night, the government announced Britain had suspended membership in the ERM. It was never to re-enter it. The entire European Exchange Rate Mechanism came close to the edge of collapse over the shock announcement and sudden withdrawal. The EC monetary committee entered crisis talks to keep the system together. It later emerged that the

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German Bundesbank had failed to keep up its end of the ERM agreement by selling marks and buying pounds on the critical day. Britain had spent nearly £10 billion, roughly a quarter of their reserves, in efforts to defeat the currency speculators. Thirteen years after Black Wednesday, the Treasury released papers that proved the Bank of England lost £3.3 billion in the day from the continuously declining value of their own currency they kept purchasing.

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Blanket Loans Blanket loans are those which cover multiple properties or parcels of land. They handle the costs for or can be secured by more than a single piece of real estate. These are most typically employed by commercial land developers or investors. For individual consumers, they can be utilized as a type of bridge between new and old properties and mortgages. For these consumers, such a blanket loan will make it possible to pay for both mortgages until the owner reaches the point of selling the old property. The feature that makes these mortgages most useful for developers is their release clause. These permit the borrowers to sell a single or even several pieces of real estate without the need of being forced to refinance the mortgage. This makes them significantly different from traditional mortgages. Normal mortgages make borrowers completely pay down their loan balance before they can sell the property which secures them. For developers of residential properties, they find these blanket loans particularly helpful. They employ them to pay for large tracts of land on which they will build. When it is time for the loan to fund, it becomes secured by the full piece of property. The developer is allowed to subdivide his property and sell it in individual lots. For part of the security to be released, the developer must utilize some of the sale proceeds to pay down part of the loan. This is helpful when builders are constructing subdivisions. Such a developer could put the blanket loan to use to buy the consecutive pieces of land while they are available. The developer would then be able to subdivide the total land into specific lots for building houses. With each home that he finishes and sells, the property becomes detached from the blanket loan without the financing having to be disrupted on the remainder of the development project. Consumers also find these types of blanket loans helpful in making it possible to transition from the sale of their current home to the building or buying of the new house. This makes much more sense than having two concurrent mortgages or obtaining a more costly short term bridge loan. It can also help them so that they do not have to sell the property early and move into a rental while they look for a property to purchase. These kinds of blanket loans are often governed by a contingency clause. These clauses detail that the newly purchased house and its mortgage will not close until the person is able to sell the existing home. The problem with such a contingency clause is that they have limited time frames on them. They may force a borrower into selling the home in a panic in order to meet the clause expiration date. This can lead to a lower selling price or disadvantageous terms on the sale. Blanket loans get around such a dilemma by providing the borrowers with an extended period of time in the clause to sell their old house. Sometimes they are arranged as interest payment only loans for a full 12 months before amortizing starts. This gives the seller a sufficient time period to sell the house for a good price and reduces the overall burden of the mortgage at the same time. The main downside to blanket loans for individuals is that they are significantly harder to find since the real estate crash and Great Recession of 2009. Their advantages include both flexibility and efficiency in

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financing. For an individual consumer, this means a single mortgage payment rather than two. Developers do not have to worry about constantly refinancing their property debt as they sell off parts of the property. Should a developer default on his loan, the bank simply assumes control of all remaining property which secures the loan.

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Bloomberg Bloomberg is a multimedia news and financial data services provider company. It puts decision makers in touch with an enormous network of ideas, people, and information. Bloomberg rapidly deploys financial and business news, information, insight, and general news to people around the world. The company provides important decision makers with the necessary edge through financial and business information intelligence. The company is named for New York billionaire businessman, philanthropist, and politician Michael Bloomberg. Three other individuals founded Bloomberg L.P. alongside Michael Bloomberg. These were Thomas Secunda, Charles Zegar, and Duncan MacMillan. In less than ten years from the company’s beginnings, it boasted more than 10,000 individual installations of the Bloomberg Professional service. This groundbreaking service delivered data, information, and analytics. That same first decade saw Bloomberg L.P. open up offices throughout the globe and launch their ubiquitous Bloomberg News. In its second decade of existence, Bloomberg’s subscriptions increased massively to 150,000. The company launched Bloomberg Tradebook so that individual traders were able to place stock trades directly via the Bloomberg Professional service. They also created Bloomberg.com that decade. In the most recent decade, the company experienced an even more rapid pace of growth. Impressive technological ideas and innovation helped propel Bloomberg L.P. as the professional’s information choice for news, data, and analytics. Subscriptions again doubled, increasing to more than 300,000. This was in part thanks to new and improved algorithms that helped finance and financial professionals to remain a step ahead of their industry competition. Today Bloomberg.com covers markets, technology, politics, opinion, business week, and collectors’ interests. Parts of the site require a paid subscription, while other portions of the news and financial data site remain free to users. Today the site has a global circulation with more than 980,000 subscribers living in 150 countries of the world. Principle founder Michael Bloomberg has used the springboard of his international multimedia news and financial company to successfully launch himself into politics. He served as Mayor of New York City for three terms from 2002 to 2014. The billionaire founding businessman attended John Hopkins and Harvard, which he paid for with his own efforts. He worked his way to partner level at investment firm Salomon Brothers. It was the founding of his own self-titled company that brought Bloomberg to international fame. This company remade the way that financial information became distributed around the world. In the process it turned him into a billionaire. Bloomberg constructed his company on the platform of a financial information computer. This revolutionized both the storage and consumption of securities and financial data. The company became so incredibly successful that it expanded into the global media business. In the process it opened up over 100 offices around the globe. In the late 1990s, Michael Bloomberg used his among the greatest in the world fortunes to become a

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philanthropist. He funded countless endeavors centering on medical research, education, and the arts. In 1997, he published his own autobiography entitled Bloomberg by Bloomberg. By 2002, Michael Bloomberg had won election as mayor of New York City as a Republican. He served the legally allowed two terms after winning re-election. In the midst of the 2008 global financial crisis and Great Recession, Bloomberg changed the city statutes to allow himself to run for a third consecutive term. Running as an independent, he won and served a controversial third term until the city had recovered from the devastation wrought by the terrible financial crisis. Though he has mostly been known as a liberal Republican, in 2016 Michael Bloomberg decided to endorse democratic candidate for President Hillary Clinton over his long time republican candidate rival Donald Trump.

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Blue Chip Stocks A blue chip stock proves to be the nickname given to a stock that belongs to a firmly established company. Blue chip stock companies commonly feature no major outstanding liabilities and incredibly stable earnings track records. These blue chips are believed to be in excellent financial condition, and are commonly referred to as safe investments. Blue chip company stocks feature many similarities with one another. On the one hand, they are all solidly established as a leader or the leader within their respective fields. They all pay reliable dividends to their shareholders, even if business is not as strong as is typical for them. On the other hand, for literally decades now, investors have thought highly of blue chip stocks in general. Blue chip stocks feature proven track records of solid growth and incredibly high market capitalization. Some examples of blue chip stocks are Coca-Cola, Wal-Mart, McDonald’s, Berkshire Hathaway, IBM, Gillette, and ExxonMobile. Blue chip stocks are occasionally also known as bell weather issues. The name blue chip came from casinos. In casinos, blue chips stand for the highest value chips out of all the various chip colors available. The origin of the phrase Blue Chip Stock dates back to 1923/1924. At this time, Oliver Gingold of the Dow Jones coined the phrase one day. Dow Jones company history says that Gingold used the phrase for the first time when he stood beside a stock ticker at the firm that eventually became Merrill Lynch. After watching a few stocks trading at $200 to $250 each share and higher, Gingold reportedly said to Lucien Hooper from Hutton and Company that he would get back to his office so that he could “write about these blue chip stocks.” Oliver Gingold’s coined phrase stuck. It has been utilized to talk about successful stocks from that point forward. Originally, Blue chip stocks were those that were expensively priced. Today they are more likely the ones that are the highest quality stocks and their associated companies. The financial channels and newspapers will regularly display the performance of blue chip stocks next to the major stock market averages such as the NYSE and the Dow Jones Industrial Average. This is why these blue chip stocks are also known as bell weather issues.

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BNP Paribas BNP Paribas is the largest French-based bank in the world. It has strong roots in the banking history of Europe. Today it remains one of the leading banks on the continent and Euro zone as well as an important international banking group. The group claims 189,000 employees around the world, of which the overwhelming majority of 146,610 are based in Europe. It also has an extensive international network of branches and employees. The bank maintains 19,845 employees in America; 12,180 workers in Asia; 9,860 staff members in Africa; and 580 employees in the Middle East, as of 2015. BNP Paribas locations can be found in 75 different countries and territories around the world. For 2015, it boasted 42.9 billion euros of revenue and 6.7 billion euros of net profit. The bank organizes itself along two main business lines. These are Retail Banking and Services (RBS) and the Corporate Institutional Banking (CIB) divisions. The Retail Banking & Services division covers its retail banking activities and specialized financial products and services in both France and the rest of the world. The company subdivides this into Domestic Markets and International Financial Services. The group’s Domestic Markets is comprised of the company’s four retail banking networks found in the euro zone, as well as three specific lines of business. The retail bank networks are FRB French Retail Banking located in France, BNP Paribas Fortis in Belgium, BNL in Italy, and BGL BNP Paribas found in Luxembourg. Its three specific business lines are Arval the long term corporate leasing program, its Leasing Solutions that provide financing and rental services, and its Personal Investors that offer online brokerage services and savings vehicles. Corporate clients also can access the business of Cash Management and Factoring. High Net Worth Individuals have the company’s Wealth Management business as their private banking franchise within the domestic markets of the group. As of 2015, the Domestic Markets subdivision boasts over 15 million individual customers located in 27 countries. The bank also counts almost 1 million clients comprised of professional individuals, small businesses, and corporate entities. To service these numerous accounts, they devote the efforts of 68,000 employees in these over two dozen countries. International Financial Services of the group handles the company’s diversified business activities operating in over 60 countries. The group’s Personal Finance provides credit to people residing in 30 countries. They deliver products and services via such major brands as Findomestic, Cofinoga, and Cetelem. The IFS division also operates several other businesses. International Retail Banking covers the retail bank operations in another 15 non-euro zone nations like TEB in Turkey and Bank of the West in the U.S. BNP Paribas Cardif offers savings and insurance for assets, projects, and individuals living in 36 countries. IFS rounds out its business lines with three specific asset management and private banking operations. These include the group’s Wealth Management for private banking, their Investment Partners for asset management, and their BNP Paribas Real Estate for international real estate services. All of the International Financial Services businesses and lines together employ over 80,000 staff residing in over

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60 countries. The group’s Corporate & Institutional Banking (CIB) prides itself on being a leading worldwide provider of financial products and services to its institutional and corporate clients around the globe. They group counts 13,000 of these clients in 57 countries throughout Europe/Middle East/Africa, the America, and Asia Pacific. To support them it maintains nearly 30,000 staff. The company delivers specialized services that help their clients through treasury, financing, securities services, capital markets, and financial advisory offerings. It proves to be a world-renowned leader throughout numerous disciplines. As such, CIB has vast expertise in derivatives, risk management, structured financing, and other areas. The CIB division serves as a bridge between the two types of clients it counts by helping its corporate clients to obtain financing while offering investment possibilities to its institutional investors.

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Bond Market A bond market is a financial market where investors buy and sell bonds. In practice this is mostly handled electronically over computers nowadays. There are two principal types of bond markets. These are primary markets where companies are able to sell new debt and secondary markets where investors are able to purchase and resell these debt securities. Companies generally issues such debt as bonds. These markets also trade bills, notes, and commercial paper. The goal of the bond markets is to help private companies and public entities obtain funding of a long term nature. This market has generally been the domain of the United States that dominates it. The U.S. comprises as much as 44% of this bond market on a global basis. There are five primary bond markets according to SIFMA the Securities Industry and Financial Markets Association. These include the municipal, corporate, mortgage or asset backed, funding, and government or agency markets. The government bond market comprises a significant component of this market thanks to its massive liquidity and enormous size. Because of the stability of U.S. and some international government bonds, other bonds are often contrasted with them to help determine the amount of credit risk. This is because government bond yields from countries with little risk like the U.S., Britain, or Germany are traditionally considered to be free of default risk. Other bonds denominated in these various currencies provide greater yields as the borrowers are more likely to default than these central governments. Bond markets often serve a useful secondary function to reveal interest rate changes. This is because the values of bonds are inversely related to the interest rates which they pay. This helps investors to measure what the true cost of obtaining funding really is. Companies which are perceived to be riskier will have to pay higher interest rates on their bonds than companies believed to have strong and stable credit and repayment abilities. When companies or government entities are unable to make a partial or full payment on their bonds, this becomes a default. When a company or a government needs to raise money and does not want to issue stock, it can sell bonds. These are contracts the issuers who are the borrowers make with investors who function as lenders. When investors purchase such instruments, they lend money to the issuing organization (company or government). The issuer of the bond promises to repay the original investment back along with interest in the future. Bonds traded on these markets have many elements in common, whichever type of market they represent. All bonds have a face value. This is the amount of money which a bond would be valued at when it matures and the amount on which interest payments are based. They also have coupon rates that represent the interest rate which the issuer of the bond pays in its interest payments. The coupon dates turn out to be the times when the issuer will pay its interest payments. Issue prices are the amounts for which the issuer sells the bond in the first place. The maturity date proves to be the exact date when the bond would be repaid. At this time, the issuer of the bond would pay the bond’s face value

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to the bond holder. Though a holder of a bond might keep it until maturity, this is often not the case. Many investors buy and sell them on the bond markets as their needs dictate. It is possible to sell a bond at a premium when the market value becomes greater than the original face value. Investors could also sell them at a discount to their original face value as the market price declines.

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Bonds Bonds are also known as debt instruments, fixed income securities, and credit securities. A bond is actually an IOU contract where the terms of the bond, interest rate, and date of repayment are all particularly defined in a legal document. If you buy a bond at original issue, then you are literally loaning the issuer money that will be repaid to you at a certain time, along with periodic interest payments. Bonds are all classified under one of three categories in the United States. The first of these are the highest rated, safest category of Federal Government debt and its associated agencies. Treasury bills and treasury bonds fall under this first category. The second types of bonds are bonds deemed to be safe that are issued by companies, states, and cities. These first two categories of bonds are referred to as investment grade. The third category of bonds involves riskier types of bonds that are offered by companies, states, and cities. Such below investment grade bonds are commonly referred to as simply junk bonds. Bonds’ values rise and fall in directly opposite correlation to the movement of interest rates. As interest rates fall, bonds rise. When interest rates are rising, bonds prices fall. These swings up and down in interest rates and bond prices are not important to you if you buy a bond and hold it until the pay back, or maturity, date. If you choose to sell a bond before maturity, the price that it realizes will be mostly dependent on what the interest rates prove to be like at the time. Bonds’ investment statuses are rated by the credit rating agencies. These are Standard & Poor’s, Moody’s, and Fitch Ratings. All bond debt issues are awarded easy to understand grades, such as A+ or B. In the last few years of the financial crisis, these credit rating agencies were reprimanded for having awarded some companies bonds’ too high grades considering the risks that the companies undertook. This was especially the case with the bonds of banks, investment companies, and some insurance outfits. Understanding the bond markets is a function of comprehending the yield curves. Yield curves turn out to be pictorial representations of a bond’s interest rate and the date that it reaches maturity, rendered on a graph. Learning to understand and read these curves, and to figure out the spread between such curves, will allow you to make educated comparisons between various issues of bonds. Some bonds are tax free. These are those bonds that are offered by states and cities. Such municipal bonds, also known as munis, help to raise funds that are utilized to pay for roads, schools, dams, and various other projects. Interest payments made on these municipal bonds are not subject to Federal taxes. This makes them attractive to some investors.

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Book Value The book value refers to the tangible asset value of any company. Tangible value here is used to refer to any assets that can be felt, seen, or touched, such as inventory, plants, equipment, cash, offices, or properties. Because of this tangible factor to book value, it is often referred to as Net Tangible Assets. Finding a company’s book value is not particularly hard if you have a company’s balance sheet. To determine this number, all that you have to do is to look at the shareholder’s equity. From this number, you simply subtract out all of the intangible items’ values, such as goodwill. What remains is the book value of tangible assets that the company has. Book value, or the net tangible assets, that companies possess proves to be extremely important. You ought to analyze a company’s balance sheet directly from them, not from a third party website. This means that the book value figure may not be determined on the balance sheet. Coming up with the figure is just a matter of taking all of a company’s assets and subtracting the intangible types of assets from the figure. You will then be looking at the company’s true components, including properties, office buildings, phones, computers, chairs, etc. In the past, this book value represented the ultimate measurement for value investors who were looking for bargains on stock prices of companies. This meant that higher assets, and thereby book values, proved to be the principal measurement for making value investing decisions. During the last twenty or so years, investors who seek out value have shifted away from the importance of the dollar values of assets to preferring companies that create higher earnings using a smaller base of assets. As an example of why book value is less valuable than smaller asset bases with earnings creation, consider a company that possesses thirty million dollars in physical assets and earns $10 million per year. Look at another company that makes the same $10 million in earnings while having $50 million in asserts. Relationships between the asset base of a company and its earnings are well known and established. This means that doubling the earnings of the company with $30 million would require investing another $30 million. This would leave the business with $60 million in assets and $20 million in earnings. Doubling the earnings of the company with $50 million in assets would similarly require adding another $50 million in assets. The business would then own a $100 million of assets and create the same $20 million in earnings per year. The new company with $100 million in assets has the higher book value to be sure. But the smaller asset company only needed to retain $30 million in earnings in order to double its profits. The $20 million difference could be used for expansion of the business, paying dividends, or buying back shares. So while higher book values are still important, higher returns on assets are actually more significant and beneficial.

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Bookkeeper A bookkeeper is an individual who maintains a business’ important financial records. These are typically kept in journals or ledgers format. This is where the word books derives from, which is used in the title of bookkeeper. Although bookkeepers typically engage in basic levels of accounting tasks, they are still not labeled as fully qualified accountants. This is because bookkeepers are given substantially less amounts of training than are accountants. On top of this, bookkeepers do not have the requirements of legal certification applied to them. Bookkeepers could perform their duties as employees of a single business. They might also become a small sole proprietorship, working on the behalf of several small groups or individuals. In such a capacity, bookkeepers actually keep the books of a number of different clients at a time. An individual who labors as a bookkeeper has important responsibilities. They must dutifully record each and every financial transaction in which a business engages. Bookkeepers make notes of every payment received or made, and for what each of these amounts represented. Monies that are both spent and received have to be carefully tracked. All entries placed into the ledger books have to be balanced at the end of the period, so that a company’s expenses and income are accurately and precisely detailed in the accounting. Bookkeepers are not expected to do all of the financial tasks of a business. When an accounting period that is either a quarter or a month is reached, they will often carry the books over to a qualified accountant. Such an accountant will handle the tasks of figuring up the taxes that need to be paid to the IRS. They also create official accounting reports. There are a number of larger or mid-sized firms that simply engage their own accounting staff and accountant rather than have a bookkeeper as well. This is generally considered to be more efficient financially. Smaller companies will tend to have their own bookkeeper on staff then engage an accountant on a basis of need. Such accountants are generally used for reporting taxes, as well as profits or losses. Bookkeeping tasks, like with accounting, can become very complicated. This is especially true as companies expand. Capable bookkeepers are able to work flexibly, handling a constant barrage of data and even unexpected issues. A reliable bookkeeper will also have to possess people skills. This is because bookkeepers actually interact with other employees through the company to make certain that the company is able to keep track of every expense, ranging from ink and paper for the copy machine to hotel stays for business related to work. Bookkeeping can occasionally involve a bookkeeper in activities that are against the law, like with creating incorrect records on the ledgers in order to make a company look to be in better financial health than it truly is. When this happens, it is casually referred to as cooking the books. No only is such activity in bookkeeping immoral, but it is highly illegal.

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Boom A boom is an economic expansion that happens when the economy of a country is growing at a rapid economic pace. Booms are more precisely commonly defined as periods in which the Gross Domestic Product expands at a faster rate pace than the long term economic growth trend rate. Total demand of goods and merchandise proves to be high in boom periods. Businesses generally respond to this rising demand by boosting production and accompanying employment. Sometimes they will choose to increase their profit margins through raising their prices. Higher demands finally pressure limited resources. If sufficient extra capacity is not present to address the demand, then demand pull inflation can result. Economic booms are characterized by numerous factors. Increasing, strong demands are mostly pushed by consumption in households. Ultimately, demand is furthermore boosted by exports, fixed investments, and government spending. Export growth results along with an expansion of world trade growth. Along with greater demand comes higher wages and employment rates. Booms lead to increasingly tighter employment markets and better incomes for those working. This tightness in labor market conditions is most evident in lower unemployment rates. It is also seen in the labor force percentage that is working, the quantities of job openings that are not filled, and reports on labor shortfalls in particular careers and fields. The actual incomes of those people working in boom times increase rapidly as the demand for labor is high and numerous chances exist to increase earnings from higher productivity and more overtime shifts. In booms, the tax revenues accruing to government rise rapidly as well. This results from rising employment and income levels. This has been called a fiscal dividend that comes from a sustained expansion. A budget surplus typically results that can be utilized to further public spending or to reduce the amount of outstanding government debt. Booms further see the rising of company investments and profits. These in turn often result in greater amounts of capital investments. The amount and strength of the given demand has a great impact on how many investments are planned during the boom. Productivity also rises during booms. These booms that happen in cycles are healthy for the productivity of labor. This is because in these times, businesses stretch their employees and resources to keep up with the additional demand by utilizing the companies’ resources more effectively and intensely. Productivity rises as a direct result. Booms commonly also increase a country’s demand for goods and services that are imported. This is especially the case in countries that are huge importers in general, such as the United States and Great Britain. Rising imports lead to higher trade deficits, which have to be offset with cash or debt in payment.

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Bretton Woods Agreement The Bretton Woods agreement represents the outcomes of a three week conference that the United Nations held to set up a new monetary system at the end of World War II. The U.N. organized this meeting called the United Nations Monetary and Financial Conference for July 1 to July 22 of 1944. They held it at Bretton Woods in New Jersey, which gave its name to the deal that ultimately resulted from the conference. The agreement itself proved to be a famed framework that set up a new exchange rate system. Three significant outcomes resulted from this conference. Two of them are still a major part of the world financial system today. First the group agreed on the Bretton Woods Agreement which set up a new foreign exchange system. Besides this, the United Nations authorized forming the International Monetary Fund and also the International Bank for Reconstruction and Development. A new foreign exchange system had been called for in the wake of World War II. The international economic system had been destroyed by the already more than five years of fierce global fighting. Allied nations decided even before they successfully concluded the war they needed to come up with a new currency and a plan to rebuild the devastated nations and world economy. The conference saw 730 delegates attend from all of the 44 Allied countries. They met at the Mount Washington Hotel and spent three weeks coming up with the new currency system and financial institutions. On the last day of the conference on July 22, they signed the Bretton Woods agreement. The new system rested on several key proposals. One of these involved currency convertibility. All currencies had to be converted for trade purposes and to settle current account transactions. The U.S. sat in a position of commanding strength as it controlled fully two thirds of all the gold in the world. This gave it the basis to call for a new system of pegging foreign exchange to both gold and the U.S. Dollar. The final agreement had the currencies pegged to gold, but more countries added the U.S. dollar as it became clearer over the subsequent years that it was the world’s new reserve currency. Naturally not everyone felt satisfied with these outcomes to the agreement. Soviet Union (Russia and surrounding republics) representatives came to the conference and participated. They accused the institutions that the conference had created of being mere branches of Wall Street. As a result, they refused to ratify the final important agreements. Many nations including those of Western Europe, South America, Canada, Australia, the U.S., and eventually Japan after the war did sign on to the agreements and these new institutions began operating in 1945 after enough nations ratified them. Meanwhile, countries began to exchange their currencies at rates based on the set quantity of gold they held. Whenever an imbalance of payments would occur as a result of the artificial currency pegging system, the International Monetary Fund had the powers to intervene and adjust as necessary. This encouraged foreign trade and global economic growth. It caused expansion in the majority of the developed world following the war.

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Besides the International Monetary Fund, the conference also created the International Bank for Reconstruction and Development that eventually evolved into the World Bank. These two organizations still thrive today and promote financial stability and international trade. They encourage worldwide monetary cooperation and economic growth that is sustainable. They also help to reduce poverty and push for higher employment. Europe and other damaged parts of the world engaged in a long era of rebuilding and development after the war ended with the aid of these institutions. The Bretton Woods system itself became abandoned in 1971 when the U.S. unilaterally left the gold standard. It was replaced by today’s free floating currency exchange system.

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Bretton Woods Committee The Bretton Woods agreement failed in 1973 with President Richard Nixon unilaterally abandoning the gold standard. Other countries soon followed suit, first with Switzerland and other European nations and eventually the rest of the world. The death of the Bretton Woods agreement did not end dreams of restoring a semblance of order and low volatility to the since-then troubled currency markets. One man who was already in government service as Chairman of the Fed in the wake of the agreement’s collapse was Paul Volcker. It was he who first seriously called for a new Bretton Woods Agreement back in 2014. The old defunct 1944 based agreement had set up the U.S. dollar to be the global currency by linking and tying up its value to gold. This had produced thirty years of unprecedented stability in global currency markets and exchange rates. Volcker remembered the consequences of abandoning the agreement personally. He observed that in the years since the agreement had ended, continuously recurring currency crises had plagued the world economy. Among these were the Mexican, Latin American, and Asian currency crises. In 2008, the global financial crisis and Great Recession had also rocked the world. This amounted to four major currency crises in only 35 years. Paul Volcker argued convincingly that a new Bretton Woods Agreement would lead to an internationally coordinated financial and monetary system. This would provide much needed stability for the continuously troubled global economy. Such a renewed system would create rules to guide and foster better world monetary policy. He even foresaw the potential for a new global reserve currency that would take over from the U.S. dollar. This system would lead to a balanced equilibrium in various nations’ balance of payments. In this way, countries around the world would be able to maintain sufficient foreign exchange reserves. Paul Volcker made all of these suggestions and observations as he chaired the Bretton Woods Committee meeting in 2014. As the Chair Emeritus, he leads the body of worldwide leaders who wish to rebuild cooperation among the various international financial institutions. Among these are the European-based International Monetary Fund, the U.S.-based World Bank, international major and important central banks, various national Treasuries, and influential private banks. The Bretton Woods Committee arose in 1983 around the ten year anniversary of the failure of the Bretton Woods Agreement. Two former U.S. Treasury officials suggested that it be established, democrat Secretary Henry Fowler and republican Deputy Secretary Charls Walker. Both men recognized the urgent need for a concerted, overt effort to make sure that leading global citizens spoke up regarding the critical importance of the IFI International Financial Institutions. The yearly meetings have continued without fail since 1983, with the 2016 meeting representing the 33rd year of the annual meetings. Bretton Woods Committee members are comprised of around 200 different leaders from the heads of finance, business, academics, and not for profit sectors of economies. This includes numerous former presidents, industry CEOs, lawmakers, and cabinet level officials. They all have one belief in common

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that it is essential to maintain international levels of economic cooperation which is most effectively achieved via strong and efficient IFIs. Through their work on the Bretton Woods Committee, they spearhead worldwide endeavors to encourage economic growth, to foster financial stability around the world, and to reduce poverty wherever they find it. The Bretton Woods Committee today puts on regular conferences, educational opportunities, and seminars. A great number of these activities were developed in order to address a large segment of the public. Other events are more exclusive and provide the Bretton Woods Committee membership with the chance to give their support, insight, and constructive criticisms to the IFIs management teams. The Bretton Woods Committee has a track record of successfully working with all U.S. administrations to remind the elected leaders of yesterday and today that the twin ideas of enduring national security and worldwide economic prosperity are inseparably linked and improved by continuous movement forward on multinational issues.

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Brexit Brexit refers to the Jun 23, 2016 referendum on the future of Britain in the European Union. The term comes from the Grexit reference to the potential for Greece to leave the Eurozone shared currency area in past years. In this historic referendum, British voters have to answer the question “Should the UK remain a member of the EU or leave the EU?” Britain’s electoral commission came up with the phrasing of the question and parliament accepted it. The question of having a referendum on the issue arose in the 2015 general election in the U.K. Prime Minister David Cameron promised voters that he would offer the British people a final say on the issue of remaining in the EU if he won reelection. His ruling conservative party has been split on the Euro-skeptic idea and EU membership for around 40 years. The individual on the ground Conservative members are largely for exiting from the European Union over a variety of issues of sovereignty and border and legal control. Those in favor of Britain leaving the EU believe that the restrictive rules hamper creation of new jobs. They also want to be able to decide on which laws to pass and on their trading partners. Though parliament in London passes laws, these can and have been overturned by the European Parliament and courts in Brussels. Part of the reason the government decided to hold the referendum in early summer was to have it over before the next summer migration crisis begins in earnest. This migration problem has recently stirred up anger and fear in British citizens that they are losing control of their migration policy to the European Union in Brussels. Proponents of the leave campaign want to make their own immigration policy and decide on who comes into the country. Those in favor of staying in the EU have their own reasons for their position. They feel that remaining in the block of European countries increases the nation’s economic, military, and global influence around the world. Remain campaigners argue that Britain is stronger and more secure at home and abroad by being a part of this largest economic block in the world. The voting base for this historic referendum is different than for general elections. Any British citizen who is older than 18 is allowed to vote. Citizens of the Commonwealth of Nations who reside in Britain are also eligible to cast ballots. There are 53 member nations of the Commonwealth. This means that residents in Britain of such countries and entities as Canada, Australia, New Zealand, Ireland, Malta, Cyprus, and Gibraltar will be allowed to vote on the Brexit issue. Brexit supports have argued that the European Union has many incentives to continue trading with the United Kingdom. It remains a large importer of services and goods and carries out much of its trade with the block. They feel that they will be able to forge new and better trade agreements with the rest of the world. This would save them more than 8 billion pounds in contributions made to the European Union budget every year. They believe that the country will be able to join Norway, Iceland, and Liechtenstein as a European Economic Area member nation. Those who favor remaining in the EU argue that leaving the block will create too much uncertainty in

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British markets. They argue that foreign companies will not be so likely to invest in Britain and others may move their EU regional or international headquarters to other countries should Britain cease to have unfettered access to the common market. The Treasury has predicted that a recession created by leaving the EU block would cost households 4,300 Pounds per year in lost jobs, trade, and higher taxes by the year 2030. They argue that the pound will weaken substantially and push up the costs for weekly shopping, travel, and imported goods. Others are worried about what will happen to outside Europeans living in Britain and British expatriates who live around Europe after an exit from the European Union.

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Bridge Loan A bridge loan is a temporary short term loan whose purpose is to help a home owner to afford to buy a new house before they are able to sell their present house. They might do this to avoid having to move into a rental in between houses. The home buyer’s existing house secure these loans. The money that comes from these loans is utilized to purchase the house into which the buyers are moving. A bridge loan can be more popular in real estate markets which favor the buyer, or a buyer’s market. The home owner may find it easier to buy a new house than to sell his or her existing one in these cases. This means that the buyers will have to come up with the down payment through either these types of loans or by using a home equity loan. Home equity loans can be less costly than bridge loans are. A bridge loan will offer some borrowers greater advantages. Besides this, a great number of lenders will refuse to make a home equity loan on a house that is already up for sale. The best thing is to compare the advantages of the two different kinds of loan in order to decide which works best for a given buyer’s unique scenario before he or she puts in an offer on another house. Bridge loans do not always involve credit score minimums and set debt to income ratios. It depends on the lender and the underwriting process that is involved. Instead approvals are more often granted based on whether such underwriting makes sense to the loan officer and lender. There would be stricter guidelines on the part of the loan that pertains to the new house and its long term mortgage. There are lenders who will make conforming loans and not consider the bridge loans’ payments when qualifying the borrower for the new mortgage. In other cases the borrowers become qualified to purchase the new house by combining the present loan payment with the additional mortgage payment on the new house. A great number of lenders will qualify the borrowers on two payments for a variety of reasons. They understand that the majority of buyers already have a current first mortgage on the home which they own. Banks also know that buyers would probably close on the new house they are buying before they sell their present home. Most importantly, banks are aware that home buyers in this scenario will own two different houses, even if for a short time frame. Qualifying on a bridge loan based on two payments requires a greater income or a lower payment on one of the houses. With conforming loans, banks and lenders can find more room to work with a greater debt to income ratio. They can do this by using one of the automated mortgage underwriting programs with Freddie Mae or Fannie Mac. In general with jumbo loans, the restrictions are greater. The majority of lenders will limit the borrower to a maximum of 50% debt to income ratio.

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British Bankers Association (BBA) The British Bankers Association turns out to be the members’ representative for the biggest international banking cluster in the world. This main trade association for the British banking sector boasts over 200 member banks headquartered in both the U.K. and more than 50 other countries that run operations in over 180 jurisdictions around the globe. As such fully 80% of all the systemically critical banks on earth carry membership with the BBA. This is the voice of UK banking. The BBA claims the greatest and most comprehensive policy resources for those banks operating in the UK. They represent membership not only to the government of the U.K., but also throughout Europe and globally. Besides this impressive membership roster, their network also is comprised of more than 80 of the foremost professional and financial services organizations in the world. The BBA’s members collectively manage over £7 trillion (British pounds) of British bank assets. The members employ almost half a million people throughout the country. Their contributions to the British economy every year are more than £60 billion. Members loan in excess of £150 billion out to business based in the U.K. The British Bankers Association works to encourage both initiatives and policies that promote the interests of not only banks but also the overall public. They have three principal priorities in their work. The first is to help out customers. This includes both businesses and consumers. The second is to encourage growth. By this they intend to support Britain as the world’s global financial center. Finally they are interested in improving standards in the industry on both an ethical and professional level. The BBA works with two strategic aims in mind. The first is to encourage a superior and improving banking sector for the overall U.K. They do this by working alongside banks and other beneficiaries to increase trust in the banking industry, by raising standards, by encouraging growth, and by assisting customers. They promise to facilitate public approval and overall awareness of the important position banks play in the economy. They are also aspiring to build appreciation for the advantages of hosting an internationally critical banking sector. Chief among their public relations tasks are to encourage acknowledgement of the substantial improvements the sector has gone through since the global financial crisis. The BBA’s goal is to be understood as an agent of positive change that makes a better banking industry by its non members and members alike. They strive to be a trusted partner of both banking regulators and the government. They also take the initiative to impact international and national debates on banking issues. Their second strategic aim is to be the banking industry’s trade association that is world class. They are the principal trade association for the foremost sector of the British economy as well as the main trade group for the foremost banking cluster in the world. This is why they aim to be best in class in their operations. Before September in 2012, the BBA both compiled and published the LIBOR London Interbank Offered Rate, the most important interest rate in the world. They lost their role in managing the rate after the Barclays scandal erupted that showed the bank had been consistently manipulating the rate for a number

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of years. As lobby organization for the rate submitting banks, the Bank of England decided the BBA’s conflict of interest was too great. Nowadays the BBA puts on training and events throughout Britain. These include training classes, briefings, and forums besides their annual industry dinners and conferences. They also publish a monthly report that covers figures on high street banking. This is used in their Annual Abstract of Banking Statistics that they produce every August. BBA furthermore runs the GOLD Global Operational Loss Database for members. This serves as a helpful tool in helping to manage risk from operations.

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British World Economic Order The British World Economic Order has also been called the Pax Britannica, or “world peace of Britain.” What is often overlooked amidst the grandeur, splendor, and sheer military power of the Empire was that it was essentially an approximately 150 year lasting economic order that held sway over most of the planet in one form or another from 1763 at the end of the Seven Years War to the outbreak of World War I in 1914. The empire itself originally began as an amalgamation of commercial projects which relied heavily on private-party risk and -provided capital to succeed. This was true with the colonizing of the original American 13 colonies, the Hudson Bay Company in Canada, and the East India Company and its ruling of the largest territory in the world (the Indian subcontinent) while still operating as a publically traded stock company on the historic London Stock Exchange. In essence, for the first hundred years or so of the East India Company, an investor could purchase shares in the whole country, land, resources, and population of India. This changed because of the American colonial revolt in 1775 and the Sepoy Rebellion in India that had to be brutally put down by a previously disinterested and laissez faire styled government which reluctantly took over the reigns from the economic pioneers and their succeeding commercial enterprises. Despite this radical shift in the British World Economic Order, private ventures like the founding of Singapore by British businessman Sit Stamford Raffles in 1819 and the build up of unimportant fishing island backwater Kowloon into Hong Kong in China still occurred with enormous success throughout much of the 1800s. This “Britannic Century” following the final defeat of Napoleon in 1814 saw the zenith of the British World Economic Order which expanded, prospered, and flourished all the way until the outbreak of the financial ruinous and devastating First World War in 1914. In practice there were four different versions of the British Empire from the end of the Napoleonic Wars to the end of World War I. The first were self governing dominions of the empire in far flung places such as Australia, Canada, the Caribbean islands, and New Zealand. The second was the crown jewel of the empire--- the Indian subcontinent. This strategically-centered, massive, and unquestionably wealthy territory allowed the British to project vast power and influence both militarily and economically from lands and islands extending from the Persian Gulf all the way to the South China Sea. Third was the ragtag collection of smaller territories which were nonetheless important as way stations along the sea route to India or the new world. Among these were the great trade depots and eventually financial centers of the world like Singapore, Hong Kong, Bermuda, and the Cayman Islands as well as smaller enterprise beachheads including West and East African ports that had little impact on the vast interiors of the continent (at least for several generations until malaria could be conquered as a territorially-limiting disease). The last type of empire was the purely commercial and diplomatic one, an unofficial realm that extended through such lands as Egypt, China, Hawaii, and Argentina/Uruguay. Investment, commerce, and shrewd diplomacy assured the British power and influence was almost as potent and lasting in these various quarters as it was in places like the Caribbean and Africa.

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British commercial ventures enjoyed such historically unparalleled success throughout the world because of the uncanny British Imperial ability to substantially involve and include local elite rulers and minorities alike as willing and helpful partners in their endeavors. British law, rule, and investment may have built up Hong Kong and Singapore into the titans they have become in the world today, yet it was local Chinese hard work, enterprising nature, and all around partnership that ensured the necessary other critical ingredients were there for success. Great credit is deserved by the grand British Imperialists for their unquestionable genius in diplomacy with cultures, nations, and continents from one corner of the world to the other extreme. Technology helped to assure the ascendency of this British World Economic Order and to bind together what they established with such hard-won efforts. This started with railways and faster steamships which could transport officials, armies, supplies, and armaments (when necessary) on both land and sea with unprecedented speed, effectiveness and importantly, cost efficiency. Later they developed the telegraph and finally telephone which made it not only possible but relatively easy to police, govern, communicate with, and expand this one quarter of the world sprawling empire that stretched from the South Pacific islands through the Indian Ocean and Mediterranean all the way to the North and South Atlantic Ocean territories and islands. They accomplished this remarkable feat with the smallest army and administrative class of any massive empire in the history of the world. At one point, the British World Economic Order and Empire covered fully 90 percent of all islands on the earth and nearly one-quarter of the world’s entire population The British Empire and British Economic World Order they established in the 1800s had a noble purpose that was achieved in large measure all around the globe. Slavery was abolished by the might and power of the British navy, commercial influence, and diplomatic pressure where necessary working together to pursue a noble and enlightened agenda of the earliest human rights. Besides this, the Imperialists effectively spread scientific and technological advances and progress, free trade, the values and morals of Christianity, and the rule of law, order, and good governance. Without any doubts, these agendas were in the ultimate best interests of all tribes and peoples of mankind everywhere.

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Brokers Brokers are professional intermediaries that work on behalf of both a seller and a buyer. When brokers function as agents on behalf of only a buyer or seller, they become representatives and principal parties in any deal. Brokers should not be confused with agents, who instead work on the behalf of a single principal. In the financial world, there are stock brokers, commodity brokers, and option brokers. Stock brokers are highly regulated broker professionals that sell and buy stock shares and related securities. They work on the part of investors who purchase and sell such securities. Stock brokers transact through either Agency Only Firms or market makers in a given security. These types of brokers are commonly employees of brokerage firms, such as Morgan Stanley, Prudential, or UBS. Stock brokers are essential in stock transactions, since these exchanges of stocks can only occur between two individuals who are actual members of the exchange in question. A regular investor can not simply enter a stock exchange like the NASDAQ and ask to buy or sell a stock. This is the role that brokers fulfill. Within the stock broker realm, three different kinds of broker services exist. One of these is advisory dealing, in which a broker makes recommendations to the client of what types of shares to purchase and sell, yet allows the investor to enact the ultimate decision. A second type is an execution only broker, who will simply transact the customer’s specific buying and selling instructions. Finally, discretionary dealing involves brokers who learn all about the customer’s goals in investing then carry out trades for the customer based on his or her interests. These same functions are carried out by other financial market brokers as well. Commodities brokers deal in commodities contracts for clients in commodities such as gold, silver, wheat, and oil. Commodities contracts are comprised of options, futures, and financial derivatives. These commodities brokers act as middle men to an investor to transact buy and sell orders on such commodities exchanges as the New York Mercantile Exchange, Commodities Mercantile Exchange, and New York Board of Trade. Options brokers deal in options on stocks, commodities, or currencies, depending on what their area of specialty proves to be. They specialize in providing research, trading, and education on options to individual investor clients. Besides handling the main options that include straddles, option spreads, and covered calls, a number of options brokers facilitate trade in related fields that include ETF’s, stocks, bonds, and mutual funds. Brokers in the financial world are typically regulated by one oversight group or another. Stock brokers, for example, are licensed and overseen by the Securities Exchange Commission. They must pass an exam called the Series 7 in order to practice their trade as a stock broker. Commodities brokers, on the other hand, must obtain a Series 3 license from the Financial Industry Regulatory Authority. They are closely monitored by the Commodities Futures Trading Commission. Options brokers are monitored by the regulatory agency associated with the area of options that they trade.

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Bubble In economic terms, a bubble is high volume levels of trade at prices that are significantly out of line with actual intrinsic values. A simpler definition is the trading of assets that have over inflated values. Bubbles are also called market bubbles, speculative bubbles, balloons, financial bubbles, and speculation mania. Prices within bubbles can vary wildly. At times, they are no longer predictable using the traditional market determining forces of only supply and demand. There are countless explanations offered for the reasons that bubbles occur even when there is no speculation, uncertainty, or limited rationality in the market. Some have theorized that bubbles could be caused in the end by prices coordinating against each other and by changing social scenarios. Bubbles are generally identified with certainty after they have burst, in the light of drastic drops in prices. This results from the difficulty of ascertaining real intrinsic values in actual trading markets. Bubbles burst, sometimes violently, in what is known as a crash or a bursting bubble. Mainstream economics holds that you can not predict or call bubbles before they happen or while they are forming. It argues that you can not stop bubbles from developing, and that attempting to gently prick the bubbles leads to financial crises. This school of economic thought favors authorities waiting vigilantly for bubbles to burst by themselves, so that they can handle the aftermath of the bursting bubble with fiscal and monetary policy tools. The Austrian school of economics argues that such economic bubbles are most always negative in their impacts on economies. This is because bubbles lead to misappropriation of economic resources to inefficient and wasteful uses. The Austrian business cycle theory is based on this argument concerning bubbles. Examples of economic bubbles abound within the U.S. economy. In the 1970’s, as the United States departed from the gold standard, American monetary expansion led to enormous bubbles in commodities. Such bubbles finally ended after the Federal Reserve tightened up massively on the excess money supply by increasing the interest rates to in excess of 14%. This led to the bursting of the commodities bubble that caused gold and oil to fall down to more historically normal levels. Another example of price bubbles proved to be the rising housing and stock market bubbles created by the extended period of low interest rates that the Federal Reserve enacted from 2001 to 2004. These bubbles burst once the interest rates returned to more normal levels. An enormous amount of dislocation occurred in the following years as this bubble burst rippled over to the financial system and the entire economy in 2007 and 2008. The Great Recession and financial collapse were created in the wake of this bursting bubble. This example demonstrates how the larger bubbles grow before they finally pop, the more dangerous and damaging they become when they finally do burst.

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Budget Deficit Budget deficits are accounting positions in which revenues are not sufficient to cover expenditures. As such they involve spending more than the entity takes in from receipts. This term is most often utilized to address government accounting and spending instead of individual or business spending. This concept can also be applied to a number of government deficits that have been built up over time. In this case, the phrase national debt is employed. A budget surplus is the opposite of the budget deficit. Budgets are balanced when money coming in equals money being spent. Budget surpluses are rare and have occurred for only 6 times since World War II in the United States. When economic conditions improve and become prosperous budget deficits may decrease as a share of GDP. This happens because tax revenues rise while the economy is growing and unemployment becomes reduced. It also lowers the government expenditures on programs like unemployment. If economic conditions instead deteriorate then budget deficits can grow as a percentage of the country’s GDP. This is because government spending rises to help stimulate the economy and cover higher unemployment while tax revenues typically decline at these times. Nations are able to fight budget deficits with some efforts. They can do this by encouraging economic growth. They might also choose to raise taxes or lower government spending. One easy way to promote better economic conditions is by decreasing the burdensome regulations and complicated tax rules for businesses. This boosts business confidence and results which inevitably increase tax inflows to the national treasury. Lowering the amount of government expenditures such as defense and social programs and improving the efficiency of entitlement programs like state pensions can also help countries to borrow less money. The United States has been struggling with deficits since its founding in the 1780s. Alexander Hamilton served as Secretary of the new Treasury in the 1790s. He suggested that the states pay back their Revolutionary War debts via the Federal government using bond issues to assume them and pay them off. The interest payments on these bonds caused deficits which were not finally eradicated until they paid off the debts in the 1860s. This set a precedent for the U.S. Every war the country fought after the Revolutionary War the nation paid for using debt. This led to increasingly larger deficits. In the early years of the twentieth century, there were not many industrial countries that struggled with larger budget deficits and debt. This financial position changed dramatically during the First and Second World Wars. In these years, governments were forced to borrow extensively to pay for the expensive conflicts as they ran down their financial reserves. The United States ran up enormous deficits of 17% of national GDP in World War I and 24% in World War II. The industrial nations were able to reduce their deficits into the 1960s and 1970s thanks to many years of consistent economic growth. High budget deficits consistently will lead to high national debt. As a percentage of GDP, President Franklin D. Roosevelt earned the record for the largest national budget deficit. By 1949, he had amassed a

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national deficit of $568 billion that equated to nearly 130% of GDP. While his deficits remained high because of the New Deal and war costs, they did decline to $88 billion under President Harry Truman. President Barack Obama holds the distinction of having the first $1 trillion deficit in all of history. He ran these up with stimulus programs to battle the Great Recession. In the full first four year term of his time in office, these deficits remained at over $1 trillion per year.

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Bull Market A bull market is one in which an entire financial market or a select grouping of securities sees rising prices over an extended period of time. It is also used to describe a scenario in which prices are expected to rise. While the phrase bull market is most frequently utilized to address the stock markets, it can similarly reference any items that trade, such as sustained rising prices in commodities, currencies, or bonds. The opposite of a bull market is a bear market. The simplest definition of a bull market is one that is rising. Bull markets are those that witness an increase in prices of market shares that is sustained for a period of time. In bull markets, investors show great confidence that this rising trend will only continue to exist over a longer term. When bull markets are in effect, a nation’s economy remains strong and employment levels prove to be higher. Bull markets show the characteristics of high investor confidence, general enthusiasm about the future, and anticipation that strong and successful results will continue to occur. Forecasting with any certainty when such bull market trends will wane is challenging. Much of the problem lies in attempting to decipher speculation’s role and the psychological impacts of investors that can often have a major influence on the markets in general. Bull markets in stocks commonly develop as an economic slow down is waning. They begin in advance of an economy demonstrating a convincing recovery. As investors’ confidence levels grow, they show this by their buying and investing in a belief that stock prices will gain in the future. Bull markets generally turn out to be positive and winning scenarios for most investors. The phrase bull market is derived from the animal world, as is its opposite concept of bear markets. Bulls attack their prey by using their horns in an upward thrust, as when markets are moving up. Bears on the other hand swipe their victims down with their paws, as when markets are falling down. When the trend is rising, the market is a bull market. When it is falling instead, it is called a bear market. Examples of bull markets abound in both the United States and developing countries. Throughout most of the 1980’s and 1990’s, the U.S. stock markets rose in a long running bull market. Prices rose by nearly ten fold in that time period. The Dot Com bubble put an end to this bull market at the turn of the century. Around the world, there have also been numerous bull markets in foreign stock exchanges. In India, the Bombay Stock Exchange, known as SENSEX, experienced a dramatic bull market for five years from mid 2003 to the first of 2008. In this time frame, the index ran from 2,900 points on up to 21,000 points.

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Bundesbank The central bank of Germany is the Deutsche Bundesbank. The Federal Republic of Germany established it as the German central bank in 1957. The bank headquarters reside in Frankfurt in the state of Main. The bank maintains regional offices throughout nine cities in the country. These regional offices have a total of 35 different branches. This bank is different from many central banks in its many locations and interactions with the public. The Bundesbank has a presence in every major region of Germany. Every regional office has responsibility for either one federal state or sometimes several of them. The Bundesbank Executive Board makes the decisions for the central bank. The President of the bank, Vice President, and other members comprise this critical body. The Bundesbank carries out a number or roles. It provides the German economy with bank notes. The bank is also the regulator for supervising the German banks. Besides traditional central banking roles like these, it also provides information to the public in the form of economic education through its around 40 locations in the country. About 2,600 staff work in the regional offices. Another approximately 2,600 employees serve in the branches of the bank. Bundesbank branches and regional locations have different roles. The regional offices prove to be the onsite financial institution supervisors. Each of the regional offices is responsible to oversee the financial services and banks that operate in their one or more regions. These supervisors have to consider and evaluate reports and notifications that the banks must submit in turn routinely. Among these is their statement of annual accounts. The supervisors from the regional offices of the central bank also have regular meetings with these financial institutions’ senior management teams. Inspectors from the regional office determine if the liquidity and capital on hand are sufficient according to the laws. They also decide if the banks are meeting the minimum risk handling requirements. Assessing credit is another critical role that the regional office staff carry out with the individual banks. They provide the banks with money in exchange for collateral the central bank accepts as eligible. Regional offices make sure that the balance sheets are healthy. Economic education comes from the regional offices as well. Experts from the central bank give updates in plain language on important issues like monetary policy, cash, and financial markets. They do this at events held in each region, like the “Bundesbank Forum.” Any member of the public is allowed to attend. Regional offices also provide seminars to students and teacher on developments in monetary policy. Branches of the central bank are where matters related to cash are handled in the country. These branches issue the new banknotes and coins into circulation by delivering them to the major customers such as grocery stores and financial institutions. The branches are responsible for checking deposited coins and banknotes to make sure they are authentic and of high quality. They replace damaged ones for any customer who brings them to the branch.

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In order for a customer to exchange a bank note, he or she must have minimally 50% of the note in hand. If they do not, customers must offer conclusive proof that the missing part of the note was destroyed. Germany’s central bank does not set interest rates or conduct monetary policy on its own. As a member of the euro zone, the country has ceded control of this important function to the European Central Bank. The German central bank is an important member of the ECB and plays a major role in influencing the overall policy of the euro zone wide central bank.

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Bureau of Economic Analysis (BEA) The Bureau of Economic Analysis is also known by its acronym the BEA. It is a bureau within the United States Department of Commerce. This BEA develops and publishes statistics for economic accounts that help a variety of groups to make decisions and to understand the economic performance of the U.S. Among the parties that follow their publications and statistics are business and government leaders, researchers, and members of the American public. The publications which the Bureau of Economic Analysis produces prove to be among the most critical statistics of economics in the country. This includes such national benchmark economic indicators as the GDP Gross Domestic Product along with the balance of payments. The PCE Personal Consumption Expenditures Index is also compiled and released as part of their national economic data. These and other statistics which the Bureau of Economic Analysis publishes have significant impact on important decisions in the U.S. Public policymakers, consumer households, individual people, and business heads use these numbers. They impact such important business, personal, and economic fundamentals as exchange rates, interest rates, budget and tax forecasts, investment plans for businesses, and the distribution of federal funds. These federal government grant monies total in excess of $390 billion. Numerous agencies distribute them to local and state organizations and communities. Besides the two national bell weather statistics of GDP and balance of payments, the Bureau of Economic Analysis also puts together and publishes a variety of regional, national, international, and industry specific economic accounts. These deliver crucial information on a range of issues. Among these are relationships between various industries, economic development on a regional basis, and the position of the United States in the global economy as a whole. Chief among the important statistics the Bureau of Economic Analysis keeps and uses are the NIPAs National Income and Product Accounts. They serve as a cornerstone for all of the agencies’ other national and regional statistics. They include the country’s gross domestic product numbers and other relevant measurements. Many individuals are not aware of the depth of the international statistics which the Bureau of Economic Analysis keeps and provides on its website. Their international trade and investment country facts cover all of the nations in the world. These statistics are essentially complete reports on each nation’s trade and direct foreign investment with the United States. They provide information on the exports from and imports to the U.S. from each country. They also showcase the dollar amount of direct foreign investment to and from America for each nation selected. Included in this information is a detailed breakdown of the different types of imports, exports, and trade goods exchanged between each country selected and the United States. Regional reports which the BEA provides cover GDP on a state by state and metropolitan area basis. They also deliver information on each state’s and local area personal income throughout the country. The PCE Personal Consumption Expenditures is provided on a state wide level under this category of information as well.

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For industry reports, the BEA offers a GDP by industry report and statistics. They also offer an annual industry accounts section which includes a 50 year survey of current business input-output and GDP figures.

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Bureau of Engraving and Printing (BEP) The Bureau of Engraving and Printing is the Treasury Department entity that actually makes the United States’ currency. Their mission centers on creating and producing American currency notes which are trusted around the world. They have a vision to be considered the world standard for securities printing. This is so that they can deliver the public and their customers with the best products that are exceptionally well designed and manufactured. The main activities of the BEP are to print up billions of Federal Reserve notes (or dollars) every single year. They then deliver these to the Federal Reserve System for distribution into the economy. It is the Federal Reserve that exists to be the American central bank. They bear the responsibility to be certain that sufficient coins and bills currency are in active circulation. The BEP handles all of the U.S. printed bills but does not make any coins. United States coins are always minted at the U.S. Mint. When various federal agencies have concerns or questions about document security, they turn to the BEP for help and advice. The BEP also engages in research and development for improving their utilization of automation processes in production. They are always seeking out technologies to deter counterfeiters of U.S. currency and security documents as well. It is no understatement to say that currency creation at the BEP offices has changed drastically from its origins in 1862. In those early years, they used the basement in the Treasury building. Here a handful of individuals worked with hand cranked machines to print and separate notes. Today’s BEP does not engage in an easy process or job. Nowadays making the currency bills takes greatly skilled and expertly trained craftspeople who work with specially designed equipment. They utilize both sophisticated and world leading technology alongside the time tested old world printing methods. Producing the currency takes numerous specific steps. This starts with designing, engraving, and making the plates. The specially sourced paper is then plate printed and inspected. Bills are numbered and re-inspected again before being packaged and shipped to their customer the Federal Reserve Bank. The Bureau of Engraving and Printing also offers redemption of mutilated currency services and the sale of shredded currency. BEP will redeem such mutilated currency for free for the public. If the bills are so damaged that the value can not be conclusively determined, they can be sent on to the BEP so that their trained experts can examine them. After their determination is made, they will redeem the currency for full face value. They accept currency that has been mutilated by water, fire, chemicals, or explosives; deterioration or petrification from burying; or insect, animal, or rodent damage. Bills missing security features are also treated as mutilated. For them to consider these bills without supporting documentation and explanations for what happened, at least half of the note has to be identifiable as American currency and remain. If less than 50% is present, Treasury will require proof that the rest of the currency has been destroyed. Each year the department examines 30,000 mutilated currency claims and redeems them for more than $30 million.

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The BEP also sells bags of shredded currency as novelty souvenir items. The Fort Worth and Washington, D.C. BEP visitor centers offer them in pre-packed small amounts for those who just want to have some. The D.C. visitor center and online store of the BEP also sell larger five pound bags of such shredded currency. In order to obtain larger quantities, individuals must get permission from the Treasury department and obtain them from one of the Federal Reserve Banks.

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Business Cycle Business Cycle refers to changes in economic activity which economies around the globe undergo in a certain time-frame. Such cycles are generally framed under the concepts of recession or expansion. When an economy is expanding, it is growing in true terms, which means faster than inflation. This is demonstrated with economic indicators such as industrial production, personal income levels, employment levels, and consumer goods sales. Conversely in times of economic recession, the economy is shrinking. Economists measure this with the same economic indicators as with expansion. In expansions, analysts measure the period from the bottom called the trough of the prior business cycle to the height (or peak) of the present cycle. With recessions, they instead measure them from the peak up to the trough. There are organizations which decide what the official technical dates for any such business cycles actually are. Within the U.S., the group that makes these calls is the NBER National Bureau of Economic Research. The American NBER has decided for official purposes that fully 11 business cycles have occurred between the years of 1945 and 2009. They have also broken down the average times of such cycles. The average business cycle length has run approximately 69 months. This means that they typically last for slightly under six years. Meanwhile, the average expansion in that time frame has run for 58.4 months long. In the same time period, the average length of contraction has amounted to a mere 11.1 months. This is good news as recessions or contractions are often painful and sometimes deep, bringing unemployment and financial hardship on millions of individuals. The business cycle is also useful for investment positioning. Personal investors can effectively utilize it to allocate and position their various investments and funds. Looking at an example helps to clarify this idea. When an expansion is underway in the early months and years, the best cyclical stocks in different industries like technology and commodities usually outperform the other sectors. Within the recessionary periods, it is more effective to position in defensive sectors. These include consumer staples, health care, and utilities. Such segments commonly outperform their peers as they possess high and dependable dividend yields and reliable cash flows. The NBER declared (per January of 2014) that the prior expansion began at the end of the Global Financial Crisis and Great Recession which ended officially in June of 2009. This represents the point when the Great Recession that held from years 2007 to 2009 attained its trough. Economists consider that expansion is the normal mode of the American and Western based economies. Recessions are commonly far shorter and less frequent as well. Many people have wondered why recessions must happen. There is no general consensus among economists. Usually though, a definitive and destructive pattern of speculation that becomes carried away reveals itself in the end stages of the prior expansion. This is the case with many different business cycles. As an example, the recession from 2001 had a mania which former Federal Reserve Chairman Alan Greenspan referred to as “Irrational Exuberance” that came before it. In this time, the various technology

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and especially “dot-com” stocks went from boom to bust in a short matter of months. Similarly the recession of 2007 to 2009 came after a time when real estate activity, primarily in housing, had experienced its greatest speculation in American history. Since the 1990s began, the average time span for expansions has grown substantially. With the last three business cycles that ran from July of 1990 through June of 2009, the average expansion ran for 95 months, nearly eight years. At the same time, the typical recession lasted around 11 months. Some overly optimistic economists believed that this somehow meant the business cycles were finished. This euphemistic hope became dashed when the world financial markets, banks, and economies melted down in spectacular free fall from 2007 to 2009. During this terrible time in the global economy, the majority of stock markets throughout the world suffered eye-watering declines exceeding even 50 percent in only 18 months. This amounted to the most severe contraction worldwide since the Great Depression of the 1930s.

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Call Option A call option is a contract that grants a person the right, and yet not the requirement, to purchase a given security at a certain price by a certain cut off time. The securities that have call options associated with them are generally stocks, commodities, bonds, and certain other instruments. Call options are commonly abbreviated as simply calls. In practice, call options are regulated financial contracts made between a buyer and a seller of the particular option. The purchaser of such a call is given the right to buy a set amount of the underlying instrument or commodity in question from the party selling the call option at a particular time, which is the expiration date, and at a particular price, which is called the strike price. The seller binds himself or herself to selling the underlying commodity or financial issue if the buyer wishes to obtain it. For this opportunity, the buyer pays a premium, or a fee. Purchasers of call options are hoping that the underlying commodity or instrument’s price will go up in the future. Sellers hope that such a price will not rise. Otherwise, a seller may be agreeable to give away a portion of the rise in price in exchange for the premium that is paid to them upfront. The seller still has the opportunity to make any profits that exist all the way up to the particular strike price. For buyers, call options prove to be at their greatest profitability as the instrument that underlies them goes up in price. The goal of a buyer is for the underlying instrument’s price to approach, or rise over, the actual strike price. The purchaser of the call feels that the chances are good that the underlying asset’s price will increase by the expiration or exercise date of the option. The risk of this happening influences the value of the premium paid. Profits made on call options can be substantial. They are only restricted by how high the price of the underlying commodity or instrument can go. Options become in the money as the underlying instrument price exceeds the specified strike price. When they reach the strike price, such options are said to be at the money. For a call writer, or seller, who does not own the underlying commodity or instrument, selling a call entails an unlimited amount of risk potential. The call writer sells such a call in order to obtain a premium. Losses for such sellers can be enormous, and are only limited to how high the price of the underlying instrument can rise. Call options may be bought on a wide variety of instruments besides stocks in a company. You can buy options on interest rate futures or commodities such as oil, gold, and silver. There are also two different sets of rules for exercising call options. European call options permit option holders to exercise an option on just its date of expiration, while American call options give the owner this ability to do so at any time in the option’s life span.

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Cap Rate Cap rate refers to the real estate property and its rate of return. Investors figure this out by utilizing the income which they anticipate the property will generate. The cap rate is also referred to as the capitalization rate. Realtors utilize it to gauge how much return investors will realize on their investments. The way people determine this cap rate is by using an easy to understand formula. Investors take the property’s NOI net operating income and divide it by the current fair market value of the property. This NOI turns out to be the annual return less all operating costs. The capitalization rate formula can be written as Capitalization Rate = Net Operating Income / Current Market Value. Investors and realtors express it as a percentage. Investors consider the cap rate to be very helpful because it summarizes information regarding real estate investments. It is also simple to understand. This important rate discerns the profitability of a given piece of property. In order for it to remain consistent, the net operating income and current market value have to be constant compared to each other. If the NOI goes up when market value remains constant, the capitalization rate rises. If instead market value increases while NOI remains the same, then this rate will go down. Real estate investments only stay profitable if the NOI goes up at the same rate as or a greater rate than the increase in the value of the property. This is another way that the capitalization rate is helpful. It can be employed to track the performance of real estate investments through time to learn if their performance is increasing. When the rate declines instead, investors may decide to sell the property so that they can reinvest the capital in some other place. The cap rate is especially practical because it allows individuals to measure different investments in property. It permits them to compare and contrast a number of different investment possibilities against each other. Sometimes it is not easy to compare operating income or market values of radically different properties. Comparing percentages to one another is simple and intuitive. The rate is at its most useful when either the current market value or NOI are similar. This is because investments where the cost is vastly different can create a variety of other considerations that interfere with effective comparison. Many times investors will come up with a minimum capitalization rate which they are willing to take so that the investment is practical. They might set 12% as their minimum rate. This helps them to sift through the various possibilities to rule out the ones that do not measure up to their desired minimum. Investors may also employ the capitalization rate to figure out the amount of time it will take for the investment to reach its payback point. They can find the payback period by taking 100 and dividing it by the capitalization rate. This will provide an estimate of the payback period and not a fixed number. Most investments will see their capitalization rate change during significant amounts of time. Another useful way of determining the value for a real estate investment is to utilize direct capitalization. To find this number, investors simply divide their NOI by the cap rate. This provides them with the capital cost of the real estate investment in question.

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Investors should realize that the capitalization rate is not so helpful for shorter time frame investments as it is for longer ones. Figuring up NOI requires some time to determine a cash flow number that is reliable.

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Capital Appreciation Capital appreciation refers to the increase in an asset’s value. This gain is based on the increase in the market price of the asset. It primarily happens as the asset which an investor backed goes for a greater market price than the investor first paid for the asset in question. The part of the asset which is considered to be capital appreciating covers the entire market value which exceeds the cost basis, or original amount invested. There are two principle sources of returns on investment. The largest of these is typically the capital appreciating component of the return. The other return source is from dividends or interest income. The total return of an investment results from the inclusion of both the appreciation of capital and the dividend return or interest income. There are a wide variety of reasons why capital appreciation can occur in the first place. These differ from one asset class or market to the next, but the idea is the same. With financial assets like stocks or hard assets such as real estate, this can occur similarly. Examples of this appreciation of capital abound. If a stock investor buys shares for $20 a piece while the stock provides a yearly dividend of $2, then the dividend yield is ten percent. A year after this, if the stock is trading at $30 and the investor obtained the $2 dividend, then the investor has enjoyed a return of $10 in capital appreciating since the stock increased from $20 to $30. The percent return of the stock price increase amounts to a capital appreciating level of 50 percent. With the $2 dividend return, the dividend yield is another ten percent. That makes the combined capital appreciation between the stock price increase and the dividend payout $12, or 60 percent. This stunning total return would please most any investor in the world. A variety of different causes can lead to this appreciation of capital for a given asset. A generally rising trend can support the prices of the investment. These can come from such macroeconomic factors as impressive GDP growth or accommodative policies of the Federal Reserve in lowering their benchmark interest rates. It might also be something more basic having to do with the company that issued the stock itself. Stock prices could rise when the firm is outperforming the prior expectations of analysts. The real estate value of a house or other property could increase because it has good proximity to upcoming new developments like major roads, shopping centers, or good schools. Mutual funds are another investment example which seeks out capital appreciation. The funds hunt for investments which will likely increase in value because of their undervalued but solid fundamentals or because they have earnings which outperform analysts’ expectations. It is true that such investments often entail larger risks than those alternatives picked for income generation or preservation of capital, as with municipal bonds, government bonds, or high dividend paying stocks. This is why those funds which focus on capital appreciation are deemed to be more appropriate for those investors who have a higher tolerance for risk. Growth funds are usually called capital appreciation investments since they pour their funds into company stocks which are rapidly expanding and boosting their shareholder values at the same time. They do employ capital appreciation as their primary investment strategy to meet the expectations of lifestyle and retirement investors.

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Capital Expenditures Capital expenditure refers to money that a firm employs to purchase physical assets. This can also be used to upgrade existing assets. These can include items such as equipment, industrial buildings, and property. It is also known as CapEx. Companies often use this CapEx to make new investments or to begin a new project. Other corporations utilize capital expenditures to build up their operations’ size and scale. Such expenditures can cover many different items like buying a new piece of equipment, fixing the roof on a company building, or constructing a new factory for the company. Accounting procedures utilize this capital expenditure concept regularly. Expenses will be labeled as CapEx if the item the company buys is a new purchase of a capital asset. They also fall under this category when the purchase is some type of investment that extends the practical life of an already owned capital asset. When a purchase falls under the capital expenditure’s category, the accounting department will be required to capitalize it. They do this when the fixed cost of the purchase is spread out over the asset’s useful life. In other cases, the money they spend will only keep the capital item in its present condition. For these scenarios the company and accountants may simply deduct the entire expense for the year in which they spend the money. Different industries will employ varying levels of capital expenditures. Some use very little, while others are more capital intensive. Among the most intensive capital industries in the world are the exploration and production of energy such as oil or natural gas, manufacturing businesses, telecommunications, and electricity, gas, and water utilities. It is important to not confuse capital expenditures with other ideas like operating expenses, known as OPEX, or revenue expenditures. Operating and revenue expenses are money that companies pay to cover the daily cost of running the business. Revenue expenses are different from CapEx in another significant way. The former can be completely deducted from taxes in the year in which the company spends them. Capital expenditures can be used to help come up with the relative value of a company also. Cash flow to capital expenditure ratio is one such measure. It is commonly referred to as CF/CapEx. This explains the ability of a company to purchase assets for long term use by utilizing its free cash flow. This ratio commonly goes up and down for businesses as they engage in cycles of small capital versus large capital expenses. Ideally a business wants to have a higher multiple in this ratio. Higher numbers signify that the company is in a position of solid financial health and strength. This is because firms that possess the financial capabilities to invest in their future with capital expenditures can expand with greater ease and flexibility. Cash flows to capital expenditures are ratios that are specific to every industry. Each segment’s ratio will be different. This means that the ratio of one company in one business should not be compared to a second company in another industry. Instead, the ratio is only useful for comparison when two companies

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that possess comparable CapEx requirements are examined. Comparing various CapEx ratios from two oil firms or utility companies makes sense. Holding up the CapEx ratios of an oil company or telecom firm against a consulting business or advertising agency does not. The higher a company’s capital expenditure is, the lower its other measures of financial health may be. As an example, firms with high CapEx will often show less free cash flow to equity.

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Capital Flight Capital flight refers to the major scale departure of money and financial assets out of a country. This usually occurs because of geopolitical events including economic volatility or political instability, capital controls, or deliberate currency devaluation. There are times when such a flight of capital is legal. An example of this is when investors choose to repatriate their foreign-based capital home to their own nation. It is often illegal, as when individuals in countries which have capital controls choose to move their money away from their home economy anyway. Such capital controls attempt to limit the ability of citizens and foreigners in their nation to transfer their personal or business assets away to another country. This is a major reason why governments impose capital controls in the first place. They feel like they must stop capital flight from their own nation and economy, particularly if they are a poor state. Poor countries simply can not afford to have their little bit of national capital stock withdrawn without this causing significant financial and economic harm. Fleeing capital slows down economic growth and also causes living standards to decline. Ironically, those economies which are most open and transparent turn out to be the least likely to suffer from capital flight. The reason for this is that openness and transparency give investors greater confidence in the longer-term outlook for these economies and nations and their future. Capital flight as a phrase can actually relate to a variety of scenarios. It might describe the literal departure of money and investments from only a single country, from a whole region of the globe, or from a grouping of nations that possess similar characteristics and economic fundamentals. It is possible that a single national event might cause such flight. Alternatively it could be a macroeconomic situation which leads to a major shift in the confidence and intentions of investors. This flight of capital from a nation could be a multi-decade event or a short term and temporary development. Where illegal capital flight occurs, this typically happens in those nations which enforce tough currency and capital controls in the first place. A classic example of such a regime is India. Their flight of capital during the 1970s and 1980s equaled billions because of their strict currency controls. The Indians were able to reverse this dilemma through liberalizing their economy starting in the 1990s. Foreign capital actually reversed and returned to India in droves as the economy surged from these years. It is also possible for capital flight to plague those smaller countries which struggle with economic or political chaos. Another good example of this is Argentina. They have suffered from a flight of capital for decades because the inflation in Argentina was high while their own national currency continued to plunge in value. This currency devaluation often leads to the legal and substantial flight of capital when foreign investors attempt to send their money abroad before their assets decline too severely in value. This became the case in the Asian Currency Crisis of 1997. Foreign investors did come back into these economies some time later once their economic growth restarted and their currencies had re-stabilized. It is this fear of a future tainted by the flight of capital that causes the majority of nations to favor FDI Foreign Direct Investment instead of FPI Foreign Portfolio Investment. This is because the FDI revolves

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around investments of a longer-term nature in businesses and factories in a given nation. This makes it very complicated to sell or withdraw from the investment and country without long term planning. Those investments which are portfolio related can be simply sold off and withdrawn in only minutes. This is why critics of such capital sources refer to this type of investment as “hot money.”

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Capital Gains Capital gains refer to profits that arise when you sell a capital asset like real estate, stocks, and bonds. These proceeds must be above the purchase price to qualify as capital gains. A capital gain is also the resulting difference between a low buying price and a high selling price that leads to a financial gain for investors. The opposite of capital gains are capital losses, which result from selling such a capital asset at a price lower than for what you purchased it. Capital gains can pertain to investment income that is associated with tangible assets like financial investments of bonds and stocks and real estate. They may also result from the sale of intangible assets that include goodwill. Capital gains are also one of the two principal types of investor income. The other is passive income. With capital gains’ forms of income, large, one time amounts are realized on an asset or investment. There is no chance for the income to be continuous or periodic, as with passive income. In order to realize another capital gain, another asset must be purchased and acquired. As its value rises, it can also be sold to lock in another capital gain. Capital gain investments are generally larger amounts, though they only pay one time. Capital gains have to be reported to the Internal Revenue Service, whether they belong to a business or an individual. These capital gains have to be designated as either short term gains or long term gains. This is decided by how long you hold the asset before choosing to sell it. When an asset with a gain is held longer than a year, the capital gain is long term. If it is held for a year or less time frame, such a capital gain proves to be short term. When an individual or business’ long term capital gains are greater than long term capital losses, net capital gains exist. This is true to the point that these gains are greater than net short term capital losses. Tax rates on these capital gains are lower than on other forms of income. Up to 2010’s conclusion, the highest capital gains tax rates for the majority of investors proves to be fifteen percent. Those whose incomes are lower are taxed at a zero percent rate on their net capital gains. When capital gains are negative, or are actually capital losses, the losses may be deducted form your tax return. This reduces other forms of income by as much as the yearly limit of $3,000. Additional capital losses can be carried over to future years when they exceed $3,000 in any given year, reducing income for tax purposes in the future. These capital gains and losses should be reported on the IRS’ Schedule D for capital gains and losses.

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Capital Markets Capital markets refer to those marketplaces for the sales and purchase of both debt and equity financial issues. These markets move investments and savings back and forth between capital suppliers like institutional and retail investors to capital users. These are individual entrepreneurs, businesses and corporations, and governmental agencies. Economies do not function efficiently or successfully without such liquid markets of capital. This is because capital is a crucial component for producing economic output. There are two types of such capital markets. These include the primary markets and secondary markets. In the primary markets, investors buy and sell new bond and stock instruments. Secondary markets are the ones that trade already existing securities. The two financial instruments categories are equities and debt securities. The equities are typically called stocks. The debt securities are usually called bonds. Such markets revolve around the selling of bonds and stocks for longer and medium term durations, typically of at least a year. These capital markets in the United States function under the auspices of the Securities and Exchange Commission. In other nations, they operate under different financial regulators. In general, such markets tend to cluster in the several important financial centers of the globe. The greatest of these are London, New York City, Hong Kong, and Singapore. Despite the fact that the markets lie in these principal city centers, the majority of their trades happen via sophisticated electronic and computer trading systems. While members of the public can access some such capital centers in person, the other ones remain highly secured and regulated. Primary markets are where these investments first appear. The companies which need to raise capital issue bonds and stocks directly to the financial institutions, businesses, and investors here. They typically buy these in a process called underwriting. Another advantage offered by companies which require capital is that they can do it there without having to hold initial public offerings (IPOs) so that the profit remains theirs. When companies do opt for IPOs, they typically sell all of their stock shares off to several underwriting investment banks through a lead investment bank and other financial firms which choose to participate. From this stage, the new shares become a part of the secondary market. Here the investment banks, financial firms, and private investors are allowed to resell their debt and equity instruments to retail investors. There are many entities which participate in capital markets. These include institutional investors like mutual funds and pension funds, retail investors, corporations and other organizations, governments and municipalities, and financial institutions and banks. Governments may be allowed to issue bonds on these markets, but they can never sell equity via stocks. These markets are where supply and demand between capital suppliers and users meet and adjust. While capital users desire to raise their capital for the lowest cost they possibly can, the suppliers wish to obtain the highest return they possibly can for the least amount of risk possible.

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A country’s capital markets’ size will be directly proportional to the economic size of the nation in question. As the biggest economy on the planet, the U.S. boasts the deepest and biggest capital markets. These markets are still interdependent on other such capital centers in the global economy of today. Small ripples in another center such as London or Hong Kong can lead to substantial waves in Singapore and/or New York City. The downside to the interconnectedness of the financial and capital centers is illustrated by the financial and credit crisis of 2007 to 2009. It was actually the failure of the mortgage-backed securities markets in the United States that triggered the crisis and collapse. This de facto meltdown in the U.S. became transmitted around the world by the global capital markets as financial institutions, investment banks, and commercial banks throughout both Europe and Asia were holding literally trillions of U.S. dollars worth of such securities.

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Capital Stock A business’ capital stock is the up front capital that the founders of the firm invest in or put into the company. This capital stock also proves useful as security for a business’ creditors. This is because capital stock may not be taken out of the business to disadvantage the creditors in question. Such stock is separate from a business’ assets or property that can rise and fall in value and amount. A company’s capital stock is segregated into shares. The complete number of such shares have to be detailed when the business is founded. Based on the entire sum of money that is put into the company when it is started up, each share will possess a particular face value that must be declared. This value is referred to as par value of the individual shares. These par values are the minimum sums of money that may be issued and sold in stock shares by the business. It is similarly the capital value representation in the business’ own accounting. In some countries, these shares do not contain any par value period. In this case, the capital stock shares would be termed non par value stock. Such shares literally represent a portion of an ownership in the business in question. These businesses may then declare various classes of shares. All of these could have their own privileges, rules, and share values. The owning of such capital stock shares is proven by the possession of a certificate of stock. These stock certificates prove to be legal documents that detail the numbers of shares each shareholder owns. Other particular data of the capital stock shares, including class of shares and par value, is similarly detailed on these certificates. These owners of the firm in question may decide that they need more capital in order to invest in additional projects that the company has in mind. Besides this, they might decide that they want to cash out some of their own holdings in order to release a portion of capital for their own private needs. They can do this by selling all or some of their capital stock to many partial owners. The ownership of one such share gives the share owner an ownership stake in the company. This includes such privileges as a tiny portion of any profits that may be paid out as dividends, as well as a small part of any decision making powers. These shares sold from the capital stock each represent a single vote. The owners could decide to offer various classes of shares that could then have differing rights of voting. By owning a majority of the shares, the owners can out vote all of the little shareholders combined. This permits the original owners to maintain effective control of their company even after issuing shares of their capital stock to investors.

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Carl Icahn Carl Icahn is a billionaire corporate raider, investor, hedge fund manager, and philanthropist. He earned a vast fortune operating as one of the infamous corporate raiders of Wall Street back in the 1980s. He is consistently ranked in the top 100 richest men, and he secured the spot of 43 on the Forbes’ billionaire list for 2016. Carl Icahn was born in 1936 in New York City. He started a financial career in 1961 working for Dreyfus & Co. as a broker. By 1968, he had been successful enough to get his uncle’s financial help to secure a New York Stock Exchange seat. With this, he opened his own securities firm Icahn & Co. dedicated to options trading and arbitrage plays. By the late 1970s, Carl Icahn had moved his efforts on to taking over a family owned appliance company Tappan. Once he was the majority share holder, he started a proxy battle to sell the company. His first successful corporate raid allowed him to sell the outfit to Electrolux for double the share prices. This was to be his first of many ventures that earned him a leading reputation among the corporate raiders throughout he 1980s. Icahn would do this via a process called greenmail. He would threaten to gain control of major corporations like Viacom, Phillips Petroleum, RJR Nabisco, Texaco, and Marshall Field. He later sold his stocks and exited with substantial gains for he and his partners. His defenders say that he also made regular shareholders major money in the process. He became so good at this that his real life endeavors inspired the Wall Street 1987 blockbuster movie main character Gordon Gekko. Not all of Carl Icahn’s efforts succeeded. He tried to run some companies that he purchased. He met with success with American Car & Foundry Company, but lost money with the TWA (Trans World Airlines) bankruptcy and the failure with Time Warner. Though other Wall Street raiders such as Michael Milken and Ivan Boesky fell victim to scandal, Icahn avoided their mistakes and managed to carry his activist investing successfully through the 1990s and early 2000s. Even when he failed to take over RJR Nabisco, he still earned over $600 million in the battle. Carl Icahn opened his first hedge fund in 2004. This failed to break up Time Warner or to gain control of Blockbuster. He had more success in selling companies such as Kerr-McGee and Mylan Laboratories. He took on the role of CEO of Icahn Capital LP, subsidiary company to his Icahn Enterprises in 2007. His fund closed to investments from outsiders in 2011. The year 2012 saw him acquire a major stake in Netflix. Though over 80 years old, he continues to capture headlines in dealings with Apple and eBay and a feud he went though publicly with Bill Ackman of Pershing Square Capital Management. In 2016, he held majority stakes in firms Tropicana Entertainment, XO Communications, and CVR Energy. Besides being a tough negotiator and ruthless investor, Carl Icahn has also shown a more humanitarian side to the world. He has given substantially to medical research and education. Genomics has been a specialty interest of his. In 2012, he provided a $200 million donation to Mount Sinai School of Medicine. He also set up the Icahn Scholars Program to help bring over the top physician scientists to the school. He has also founded a number of homeless shelters and charter schools throughout the Bronx and New York City.

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Case Shiller Index The Case Shiller Index represents the collection of United States’ Home Price Indices. These were developed by economists Karl Case and noted Yale Professor Robert Shiller. The two men’s company Case Shiller Weiss, Inc. produced the statistics from 1991-2002. Allan Weiss their partner oversaw the production and release of the index on a regular basis. This index is a collection of house price indicators for where the market has come and currently is. Among the many versions of the Case Shiller Index is the 20 city composite, the 10 city composite, and also twenty metro individual regions. The commercial versions of the Case Shiller Indices data points start in January of 1987 and run to date. CoreLogic has since taken over the production of the index where David Stiff and Linda Ladner assumed direction. There is now a wide variety in this Case Shiller Index because Standard & Poor’s 500 produces and owns a number of them. For example, Standard & Poor’s publishes the Case Shiller twenty cities, condominium indices, high, medium, and low tier home price indices, and the national U.S. index. Anyone who is interested in following them can do so on the S&P company website. Eleven of the various S&P produced indices can be traded as futures on the Chicago Mercantile Exchange. Standard and Poor’s set their value to a level of 100 for the prices based in January 2000. Robert Shiller and Karl Case calculated the original Case Shiller Index on a different basis. Their index gathered home price data back to 1890. In their calculations, the 100 value was based on the house prices for the index in 1890. Robert Shiller’s version of the index on his website comes out quarterly. His calculations are probably different than the ones Standard and Poor’s uses as is his reference point. This is why in 2013 for the fourth quarter, the S&P 20 city index showed in the 160s, while the same point for Robert Shiller’s data was in the 130s. Professor Shiller wrote and published a book in 2000 about the housing market called Irrational Exuberance. In this book, he made the statement that no other country in the world seems to have published this type of housing data going back to the 1890s. There are some important economic inferences that the Case Shiller Index shows. Shiller also detailed these in his book. He insists the idea that housing prices have been in a continuing uptrend over time in the United States is false. Instead, the prices of houses have a powerful tendency to go back towards their levels in 1890 as adjusted for inflation. He also notes that there is no correlation between changing home price patterns and the changes in population levels, interest rates, or even construction costs. The Case Shiller Index also gives Shiller enough information to explain why there is no constant uptrend in the inflation adjusted home prices. Part of this is mobility. He has stated that if the prices of houses rise enough then people can simply move to another area of the country. This is because urban land makes up less than 3% of the U.S. total land area. Improvements in technology are another reason Shiller has discussed for this phenomenon. As technology of home construction has consistently improved, it has become quicker and less expensive to build houses. This keeps a lid on the inflation adjusted cost of homes.

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Between these reasons, Shiller argues that there is no trend in home prices either up or down. He has observed this not only in the United States, but also in other countries. The real house price indices of Norway and the Netherlands show the same truth.

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Cash Flow Cash Flow is either an incoming revenue or outgoing expense stream that affects the value of any cash account over time. Inflows of cash, or positive cash flows, typically result from one of three possible activities, including operations, investing, or financing for businesses or individuals. Individuals are also able to realize positive cash flows from gifts or donations. Negative cash flow is also called cash outflows. Outflows of cash happen because of either expenses or investments made. This is the case for both individuals’ finances, as well as for those of businesses. Where both individual finances and business corporate finances are concerned, positive cash flows are required to maintain solvency. Cash flows could be demonstrated because of a past transaction like selling a business product or a personal item or investment. They might also be projected into a future time for some consideration that a company or individual anticipates receiving and then possibly spending. No person or corporation can survive for long without cash flow. Positive cash flow is essential for a variety of needs. Sufficient cash flow allows for money for you to pay your personal bills and creditors. It also allows a business to cover the costs of employee payroll, suppliers’ bills, and creditors’ payments in a timely fashion. When individuals and businesses lack sufficient cash on hand to maintain their budget or operations, then they are named insolvent. Lasting insolvency generally leads to personal or corporate bankruptcy. For businesses, statements of cash flows are created by accountants. These demonstrate the quantity of cash that is created and utilized by a corporation in a certain time frame. Cash flows in this definition are calculated by totaling net income following taxes with non cash charges like depreciation. Cash flow is able to be assigned to either a business’ entire operations or to one particular segment or project of the company. Cash flow is often considered to be an effective measurement of a business’ ongoing financial strength. Cash flows are also used by business and individuals to ascertain the value or return of a project or investment. The numbers of cash flows in to and out of such projects and investments are often utilized as inputs for indicators of performance like net present value and internal rate of return. A problem with a business’ liquidity can also be determined by measuring the entire entity’s cash flow. Many individuals prefer investments that yield periodic positive cash flow over ones that pay only one time capital gains. High yielding dividend stocks, energy trusts, and real estate investment trusts are all examples of positive cash flow investments. Real estate properties can also be positive cash flow yielding investments when they provide greater amounts of rental income than their combined monthly mortgage payments, maintenance expenses, and property management upkeep costs and outflows total.

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Cash Flow Quadrant The cash flow quadrant is a diagram that shows four types of individuals involved in a business. These four people make up the entire business world. The four quadrants are E, S, B, and I. The E quadrant stands for employees. Employees have the same core values in general. This is security. When any employee sits down with a manager or a president, they will always tell them the same thing. This is that they are looking for a secure and safe job that includes benefits. The S in the cash flow quadrant represents a small business owner or a self employed person. They are generally solo actors or one person outfits. These types would rather operate on their own, as their motto is always to have something done right, you should do it yourself. On the right side of the cash flow quadrant are the B’s. B stands for Big Business people. Big businesses have five hundred or greater numbers of employees. They are completely different from the others in the quadrants, as they are constantly looking for the most intelligent and capable people, networks, and systems to aid them in running their large business. They do not want to micro manage the company themselves, rather they want good people to do it on their behalf. The last quarter of the cash flow quadrants is the I, which stands for Investor. Investors are those individuals who make money work effectively and efficiently for themselves. The main difference between them and the B quadrants it that the investors have their money working hard while the Big Business people have other people working hard for them. Both groups of B’s and I’s represent the wealthy. The employees and the self employed are the people who work hard for the business people and investors on the right, or wealthy side of the quadrant. The cash flow quadrant explains the differences between the rich and the working poor. It is useful to describe four types of income that a person can generate as well. The smartest people in the cash flow quadrant are the ones who manage to make the other people and their money work hard for their benefit. That is why they are the wealthy, while the hard working members of society on the left side are the ones who do all of the working on the wealthy people’s behalf. Learning to become wealthy means effectively changing which square of the cash flow quadrant a person occupies.

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Cash Management Cash management refers to the corporate functions of gathering, handling, and short term investing cash. This represents a critical part of making certain a firm is financially viable and stays solvent. In many cases, the business managers of a company or corporate treasurers of a large corporation will handle the aggregate cash management responsibilities. This means they will be responsible for ensuring the firm continues to be financially viable and solvent on a week to week basis. There is more to successfully handled cash management than simply sidestepping financial problems or even bankruptcy. This job also involves bringing in invoice payments and account receivables, boosting the rates and speed of collection, improving the level of available cash at hand, and picking out relevant short term investment instruments which will all contribute to better profits and a stronger cash position for the firm in question. Those small business managers and developers must learn to manage cash flow well since they do not enjoy low cost access to easy credit. They also encounter many ongoing running costs that they have to stay on top of while they are waiting for their customers to pay their receivables. By properly and prudently managing their cash flow, firms are able to cover unanticipated costs and to effectively cover their routine financial events like payroll on a bi-weekly or semi-monthly basis. The point of cash management is to effectively balance out two main corporate counteracting forces. These are the receivables for incoming cash and the outflows of payables. Part of the dilemma for many companies struggling to effectively run their cash management operations is that invoices and receivables are positive cash flow on the books, yet in practice they are not always received immediately. Some invoice terms allow for the customer to wait from 30 to 60 to even 90 days to settle their invoices. This is how businesses can actually find themselves in the uncomfortable position of their sales growing even rapidly and still have cash flow problems because their receivables come in slowly or even unfortunately late. Businesses have a variety of tools and means to speed up their receivables so that their payment float becomes reduced. Some of these are to deploy an auto billing service that immediately invoices the customers electronically, to make clear the billing and payment terms to the clients, to keep on top of all collections with an aging receivables spreadsheet, to offer incentives for same as cash 10 day invoice payments, and to collect payments via electronic payment processing at a bank. Businesses which are successful in controlling their payables will be better capable of maintaining positive cash flows. Through streamlining the efficiency of the payables operations, firms are able to lower their costs all the while holding on to more cash which they can put to work in the company operations. There are a wide variety of effective payable management solutions available today. Some of these include direct payroll deposits, payment processing which is handled electronically, and closely and carefully controlled cash disbursements. Each of these processes will help to both automate and make efficient all of the payout operations. Thanks to the variety of digital age offerings, the vast majority of payable management and receivable operations may be simply automated through current day solutions in business banking. Smaller

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companies are now able to operate with the same big scale technologies for cash management as the mega corporations. This is in no small part due to the rapid march of technological advances across business solutions and banking. Such cost savings created by these cutting-edged cash management techniques effectively more than offset the costs of utilizing them. The best part of the process nowadays is that a firm’s management is capable of allocating critical resources to expanding the core business better than ever before possible.

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Cash On Cash Return (CCR) Cash on cash return, also known by its acronym CCR, is an investing term. It describes a ratio of the yearly cash flow before taxes against the total sum of cash invested. This cash on cash return is expressed as a percentage. Cash on cash return is mostly utilized to analyze any income generating asset’s actual cash flow situation. This percentage is commonly applied as a simple and quick test to decide if an asset under consideration is worthy of additional study and analysis. An investor who believed that cash flow is the greatest goal would be most interested in an analysis based on cash on cash return. Others employ it to discover if a particular property or asset turns out to be under priced. This would mean that equity in a property would exist immediately upon purchase. Cash on cash return formulas do not figure in any deprecation or appreciation of an income producing asset. This means that the cash on cash return number may be skewed to the high side if some of the cash flow produced turns out to be a return on capital. This is because return on capital is not income. Another limitation to cash on cash returns as a measurement lies in the fact that the calculation is more or less one of simple interest. This means that it does not take into consideration the compounding of interest. As a result of this, investments that provide a lower compound interest rate might be better over time than those that provide greater cash on cash returns, which is only a simple interest calculation. A last downside to using cash on cash returns as a means of evaluating an investment centers around the fact that they are only pre tax cash flow evaluations. This means that your tax situation as a unique investor will not be considered in the formula. Varying tax situations can determine if an investment is a good match for you or not. Consider an example of figuring up out a cash on cash return. You could buy an apartment complex for $1,200,000 using a down payment of $300,000. Every month, the resulting rental cash flow after expenses for this property is $5,000. This means that in a year, the income before tax would amount to $60,000, as $5,000 was multiplied by twelve months. This would make the cash on cash return the cash flow for the year before taxes of $60,000 over the entire amount of money invested in the asset of $300,000. This results in an actual twenty percent cash on cash return.

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Cash Reserves Cash reserves refer to money which an individual person, a company, or a corporation saves in order to be ready to cover any emergency funding or short term requirements. They can also be utilized to refer to a kind of extremely liquid, short term investment which usually garners a poor rate of return (under three percent in a year). An example of this would be Fidelity Cash Reserves, one of the Fidelity mutual families of funds particular investments. Sometimes individuals will hold money they need rapid access to in such a fund which can be instantly liquidated on the same day they issue the order. Possessing a major amount in a cash reserve fund provides corporations, companies, individuals, families, or communities with the necessary capability to engage in a significant purchase right away. There are various reasons why firms wish to maintain some cash reserves. They need to have sufficient money on hand in order to cover all of their costs which may be anticipated or even unanticipated over the short term time-frame. Besides this, they often prefer to have enough cash readily available for such interesting possible investments which could arise with little to no warning. Though cash is always considered to be the most liquid type of wealth and assets, there are also short term kinds of assets like three month U.S. Treasury bills which investors also deem to be a type of a cash reserve because of the ease and frequency with which they can exchange them and their close proximity to maturity date. Major corporations like Alphabet (Google), General Electric, IBM, and Apple keep enormous cash reserves available. These typically range from fifty billion dollars to one hundred and fifty billion dollars. At the beginning of 2016, Apple boasted such cash reserve ranging from fifty billion to one hundred fifty billion dollars. At the same time, Alphabet (Google) counted $75.3 billion in their immediate cash on hand reserves. This permitted Google to buy out major corporate purchases like their acquisition of Nest, which they bought for a hefty $3 billion price tag back in 2014. With banks, governmental oversight agencies require that they maintain a minimum quantity of cash reserves on hand. This is because their operations are critical for the functioning of any economy. In the United States, it is the American Federal Reserve that determines these cash reserve amounts for the banks. In other countries, it is often the national central bank or some other governmental oversight regulator who makes the call. Banking cash reserves will typically be set as a certain percentage of the banks’ liabilities or net transaction accounts. With those banks which contain in excess of $110.2 million in their net transaction accounts, this amount within the U.S. proves to be 10 percent of such liabilities. This amount became effective on January 1st of 2016. Such bank reserves have to be kept in either deposits at a Federal Reserve Bank or in their own vaults as cash on hand. With euro currency liabilities or time deposits of a non-personal nature, these liabilities are not subjected to such a cash reserve requirement. Economists and personal finance gurus generally state that individuals are wise to keep minimally sufficient cash on hand to cover from three to six months of expenses in the event they suffer a family

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emergency. Such an emergency fund is a form of a cash reserve. These reserves would be kept in either their local bank accounts or otherwise in a stable and short term time frame investment which will maintain its value regardless of what happens in the markets. In this way, individuals are able to draw on their own emergency funds or alternatively to sell such investments at a moment’s notice without taking a financial loss. This needs to be the case no matter how the financial investment markets are performing. Other forms of personal cash reserves could be held in a savings account, checking account, money market account, money market fund, or even CDs and Treasury Bills. For those businesses or individuals who do not plan ahead with enough cash reserves, they may have to instead to fall back on credit, loans, or in some drastic cases, declaring bankruptcy.

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Cash Savings Account A cash savings account is a place that you can park your cash and gain interest on it. Effective short term savings accounts are ones that permit you to meet your needs in four important areas. The access to the funds is critical. Cash savings accounts should allow you to withdraw funds from the account whenever you need. This should be accomplished through convenient methods like ATM cards or online means. Funds in all types of cash savings accounts are insured by the FDIC, or Federal Deposit Insurance Corporation, to $100,000 for all people and $250,000 for retiree accounts. Interest is another area of concern for cash savings accounts. This pertains to the rate that the bank or institution will give you for holding your money. Larger amounts generally attract superior rates. Penalties should not have to be endured for withdrawing cash from cash savings accounts either. Certificates of Deposits and other instruments feature such penalties, but cash savings accounts should not. These terms of withdrawal should be clearly specified in any cash savings account. Finally, service is an issue to be considered with cash savings accounts. You might wish to have customer service in a bank branch included. Otherwise, do it yourself online accounts can be established. There are several types of cash savings accounts from which you can choose. One is a checking account that includes interest. This might be called a money market account. Such money market accounts include check writing privileges and check based access to funds. These can be held at banks or brokerage houses, which are gaining in popularity at banks’ expense. Some privileges besides check writing include higher money market rates of interest and ATM card and machine access to funds. Downsides to these types of accounts include sometimes high minimum balances and possible fees. Standard savings accounts are another option with cash savings accounts. These were once called passbook accounts. The interest rates provided by these accounts are lower than inflation, which proves to be their major downside. Their major advantage lies in the extremely low account minimums and fees charged to have them. High yield bank accounts are a third type of cash savings accounts. Providing versatility of adding or withdrawing funds without penalties, they also offer the liquidity of not tying up your money for long periods of time. Nowadays, there are high yield bank accounts that provide interest rates that prove to be comparable to Certificates of Deposits, without showcasing these investments’ restrictions on taking out money. The highest rates available on high yield bank accounts come from banks that are online only versions of the traditional lending institutions. They accomplish this by not offering branches and in person customer service benefits. This means that unless such an online high yield account includes an ATM card, the only way to withdraw the funds is through electronic transfers to other brokerage, savings, or checking accounts, which can result in delays of as much as two to five full days. Without such an ATM card, it can be inconvenient to access cash stored in these accounts in a hurry or emergency situation. High yield accounts sometimes offer shorter

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term teaser interest rates, so individuals should investigate the product’s prior six month history of interest rates to learn what their consistent rates turn out to be.

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Central Bank Central banks are national monetary authorities or reserve banks that are given the unique privilege and responsibility of loaning a government its currency. Central banks have many of the same characteristics that traditional banks do, such as charging set rates of interest on loans that they make to borrowers like the government of the country that they represent, or alternatively to commercial banks in dire need and as a last resort. Central banks are different from regular banks in a variety of interest ways. Chief among these is their monopoly of creating the nation’s currency. They also have the power to loan such currency out to their government as fully legal tender. These banks are the only ones that will lend to commercial banks in difficult times of need, too. The main role of a central bank is to issue and oversee a country’s supply of money. Besides this, they also engage in a number of more vigorous activities including setting and monitoring the interest rates of subsidized loans and helping out the banking sector in periods of financial difficulties or even crisis. Some central banks additionally supervise the commercial banking sector and individual banks in order to make certain that they do not engage in corrupt behavior or rash decision making and practices. Not all countries possess central banks that are independent of the other branches of government’s meddling and interference. Most of the wealthy countries of the world do have this type of central bank in a system that stops politicians from intervening in monetary policy. The European Central Bank, Bank of England, and Federal Reserve System of the United States are all good examples of independent central banks. Central banks can be privately held or publicly owned. In the U.S., the Federal Reserve proves to be a unique combination of private and public components. Central banks are involved in many important functions. These include carrying out monetary policy and fixing the nation’s interest rates. They also control their country’s whole money supply. They act as both banker for the government and for all of a country’s banks in difficult times. Central banks similarly handle the nation’s gold reserves and foreign exchange reserves. They may adjust these by buying or selling more gold, or by balancing the amount and kinds of currencies that they hold at any time. Many central banks supervise their banking industries as well, though not all perform this function. Central banks also help to deal with and combat inflation and manage a country’s currency exchange rate by modifying the nation’s official interest rates and utilizing similar policies to ensure that the desired outcomes of low inflation and stable currency exchange rates are in fact achieved.

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Certificate of Occupancy A certificate of occupancy is a local government issued document. These papers give permission for tenants or residents to occupy a new building or even a residence. The reason that local governments mandate such certificates is because of building codes. The certificate proves that a building inspector has certified the building to be safe so that it can be occupied. It means that the structure complies with all present building codes. Local governments will inspect and then issue such a certificate of occupancy any time that a construction company puts up a new building in the local government’s jurisdiction as defined by the city limits. Even buildings that are opened outside of city limits can requires these before people can use them. In these cases, it might be the parish or county government that would issue the certificate. Local government will give these after they are satisfied with the results of the inspection. Inspectors look at all of the basic elements in the building including wiring, construction basics, plumbing, and other features to ensure they meet up to date code standards. Then they can sign off on a building being safe to inhabit. Upgrades and additions to building that already exist can also require a new certificate of occupancy. In these cases, the owner of the building will have to apply to the local government for a new certificate after he has finished the changes and improvements. Inspectors will also check over all features of the structure to make sure that both existing and new parts meet the codes, as they would with a new building. After they finish such an inspection, the building department will have to sign off before the government agency can issue the certificate. The owners of the building are not generally the parties responsible for requesting an inspection. Professional contractors and renovators will contact the responsible government entity so that the department can schedule the inspection. They also go through any necessary arrangements to make sure the certificate of occupancy becomes issued. The builder or contractor will receive the certificate first. They will provide copies of the document to the building owner. They keep copies in the construction company files too. Other copies will be delivered to appropriate parties as well. One of these would be a lender. Should the building owner wish to use the property as collateral for an application on a loan, he will likely have to furnish a certificate of occupancy copy to the lender along with the application. A great number of lenders will refuse to make the loan until they have a proper copy of the certificate of occupancy on file. In the event that a building fails an inspection, a certificate of occupancy will not be issued at first. Whatever modifications the inspector insisted on will have to be made. The building has to be brought up to current code before they can request another inspection. After successfully passing a second or later inspection, the certificate will then be issued by the appropriate department.

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Certificate of Title A certificate of title represents a document which states who the owners or owner of real estate or personal property actually are. It is issued by a municipal or state government. This certificate gives evidence of any ownership rights. In general a title insurance company will issue a certificate of title opinion on a house or piece of property. This is their statement of opinion regarding the status of a title. They draft this opinion after carefully looking through public records pertaining to the property. Such a certificate of title opinion will not necessarily assure the buyer of a clean title. It will list out any encumbrance on the property. Encumbrances are often items that keep the property from being freely sold. These could include easements or liens. The title companies will issue such certificates to financial institutions which are making the loan. Many of these lenders must have such documents in hand before they will approve a mortgage loan for a house or piece of property. Certificates of title are extremely important with real estate. This is why a title company will issue their opinion that the person selling the property actually owns it. Personal property is easier to give to another person than is land. Where land is concerned, a person might be living on a given property and yet not own it. This makes the certificate opinion from the title company critical. It promises that the company has performed the complete background check regarding who owns the land and so has the right to sell it. This certificate of title is a statement of fact when a state or municipal government actually issues it. These documents contain a good deal of useful information on them. All of them will have the name and address of the owner of the property. They also have information that identifies the property itself in some specific way. If the certificate pertains to a real estate property, then it will have the location of or address for the land in question. If it is instead for a car or other vehicle, it will have the license plate number and possibly the vehicle identification number. These certificates will also state what the encumbrance is on the property if there is any. If there is a lien on a vehicle or mortgage on the house or land, this will be noted. State agencies will also issue certificates of title on a variety of vehicles. This covers such things as buses, trucks, motorcycles, trailers, motor homes, boats and watercraft, and airplanes. When a lender makes a loan on such a vehicle, it is able to keep the title in its possession until the debt has been paid in full. They then release the lien at this point and send back the title certificate to the actual owner. Certificates of title should not be confused with deeds though they share certain common characteristics. Each of these two documents offers a proof of ownership for the property in question. The certificate of title has sufficient information to specifically identify the property itself and any relevant encumbrances. Deeds have additional information on the real property. This includes any conditions for the ownership as well as more detailed information on and about the property. Deeds are critical elements in any transfer of real estate.

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Certified Public Accountant (CPA) CPA’s, or certified public accountants, are accountants who have taken and successfully completed a series of demanding exams that are given by the American Institute of Certified Public Accountants. Many states also have their own state level exams that have to be passed along with the national one. CPA’a are accountants in every sense of the word, but not every accountant is qualified as a CPA. Because of the difficulties in becoming a CPA, there are many accountants who either never attempt or never succeed in successfully passing the Certified Public Accountant exam. This does not mean such an accountant is not qualified to practice accounting tasks, only that he or she will not be allowed to do tasks that require specific CPA credentials. Such Certified Public Accountants do a number of varying tasks and jobs. Many will provide advice and simple income tax preparing for various clients who might be comprised of corporations, small companies, or individuals. Besides this, Certified Public Accountants practice many other tasks that include auditing, keeping the records of businesses, and consulting for business entities. Keeping a CPA license is not accomplished through automatic renewal. Certified Public Accountants are required to engage in a full one hundred and twenty hours of courses on continuing education in every three year period. This is so that they will be on top of any and all changes going on in the field of their chosen profession. The opportunities for Certified Public Accountants are many and varied. The FBI seeks to hire them routinely, preferring applicant candidates with either such a CPA background or alternatively an attorney background. Numerous state and Federal government agencies offer CPA’s opportunities by providing CPA positions. Businesses ranging from small companies to large corporations also seek them out. With these firms, CPA’s can occupy positions ranging from controllers, to CFO or Chief Financial Officers, to CEO’s or Chief Executive Officers. Among the most significant parts that CPA’s can play proves to be one of a consultant. As a consultant, Certified Public Accountants can be looking into possible means of saving small businesses or even enormous corporations money on expenses or putting together specific financial plans that permit a corporation or business to appear more appealing to investors or possible buyers. Certified Public Accountants are sworn to a particular code of ethical conduct. They are required to provide their clients with honest and reliable advice that is also ethical. Certified Public Accountants who do not stay within the bounds of their ethical code can lead to the total financial failure of a firm. This turned out to be the case in recent years at Enron, the energy trading and producing giant. Not only were Enron corporate executives charged for illegal accounting activities, but also a number of CPA’s from nationally renowned accounting firm Arthur Anderson were charged with unethical practices of accounting.

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Cession Deed A cession deed is used to give up property rights to a government authority. It is possible for individuals, companies, or organizations to sign a cession deed with a state or the federal government in the U.S. Cession deeds have generally been utilized between great imperial powers like the United States or Great Britain and smaller independent entities such as islands or Indian tribes ruled by chieftains. Both American Samoa and the British colony of Fiji were created by a cession deed in the 1800’s. American Samoa arose because of the Deed of Cession of Tutuila. The local chiefs from the island of Tutuila signed this treaty with the United States on April 17, 1900. As part of the cession deed, the chiefs ceded their island to the U.S. and swore allegiance to the country. Four years later in 1904, the chiefs of neighboring island Manu’a also agreed to cede their territory to the U.S. In exchange for this, the chiefs received guarantees that they could continue to exercise control over their individual villages. Their rule had to be maintained according to the American laws that pertained to Samoa. The control also could not obstruct any advances of civilization or the peace of the people over which they ruled. The U.S. promised to protect and respect the rights of the inhabitants, particularly their property and land rights. Congress did not ratify this cession deed until the Ratification Act of 1929. The navy administered this new American Samoa during the years of 1900 to 1951. At that point the President of the U.S. issued executive order 10264 and transferred control of the American Samoa territory to the Secretary of the Interior. American Samoa has been a territory of the U.S. with a locally elected governor, lieutenant governor, and legislative assembly since the 1960s. The territory is self governing under its constitution that took effect in 1967. The British Empire also signed a cession deed when in gained control of the Kingdom of Fiji. This process began in 1871 when the British honorary consul John Bates Thurston persuaded the other chiefs of Fiji to accept the great war chieftain Cakobau as constitutional monarch. Actual power resided in the legislature and cabinet that the Australian cotton settlers dominated. The assembly had its first meeting in November 1871 in Levuka. This constitutional monarchy arrangement did not work out well for Fiji. The government spent more money than it had and built up an unmanageable debt in only a matter of months. Two years of economic and social unrest followed in the islands kingdom. At this point, Cakobau asked the British consul Thurston to talk with the British government about ceding control of the islands to the empire. This was the second time Cakobau had attempted to cede his control to Great Britain. Two British commissioners came to Fiji to consider the practicalities of annexing Fiji. Cakobau presented a final offer on March 21, 1874. The British accepted this deal. Sir Hercules Robinson who was eventually to be appointed governor arrived in September on British naval ship Dido. Cakobau enjoyed a royal 21 gun salute as Robinson received him. King Cakobau, rival chief Ma’afu, and other senior Fijian Chiefs signed two separate copies of the Deed of Cession on October 10, 1874. One copy remained in Fiji while the other copy went back to Great

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Britain. The British ruled Fiji for the next ninety-six years under a series of appointed governors before granting the island nation its independence.

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CFA Institute The CFA Institute stands for the Chartered Financial Analyst institute. This global organization was formerly called the AIMR Association for Investment Management and Research. This institute is made up of over 70,000 individual members (from 137 different member societies located in 60 countries) who have the CFA Chartered Financial Analyst designation or who instead agree to be bound up by the organization’s rules. The principal mandate of the group lies in setting forth and ensuring that there is a lofty standard for the members of the investment and financial advisory universe. The CFA Institute boasts an active membership in nearly all nations of the world, 150 countries and territories specifically. Their board of governors is steered by 20 individual board members. The majority of these become elected by the votes of the members of the institute for three-year long terms. The institute counts important offices in the United States, the United Kingdom, and Hong Kong. It also staffs satellite offices in Mumbai, India, and Charlottesville, Virginia in the United States. It crafts and releases such important industry guidelines as the financial industry’s GIPS Global Investment Performance Standards. Ultimately, the aims of the CFA Institute are to encourage and foster the greatest possible standards in education, ethics, and excellence in the profession for the worldwide investment industry. As such, the Institute itself works to help out financial professionals via offering professional development, education, and also networking possibilities and opportunities. It also concentrates on becoming the world leader in best practices for the industry, highest investment ethics, and integrity for the capital markets of the globe. The CFA Institute developed its famed Code of Ethics and Standards of Professional Conduct. This is the worldwide benchmark for investment professionals throughout the globe, whatever their particular roles in the industry may prove to be. The members of the Institute as well as the CFA charter holders and candidates for this designation must abide by the gold standard document so long as they are practicing. The Institute similarly strives to influence and direct the public policy and practices of the industry in such a way as to make sure the interests of the investors come first. The CFA Institute does a lot of great work in the industry, but the educational programs are among the most important. These programs lead to designations of various kinds. The most important, widely recognized, and popular of these accreditations is the CFA Chartered Financial Analyst. The program itself offers an important foundation in investment analysis and portfolio management skills. In fact, this CFA designation proves to be the preferred professional accreditation for more than 31,000 different investment companies around the world. Attaining this designation mandates that the prospective candidates successfully complete three consecutive exams which deal with professional and ethical standards, economics, quantitative methods, corporate finance, financial reporting, equity, derivatives, fixed income, portfolio management, and alternative investments. The CFA Institute also purveys its CIPM, the impressive Certificate in Investment Performance Measurement. This designation provides candidates with risk evaluation and investment performance credentials that are based on actual practice. These various skill sets are considered to be useful and

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relevant on a global scale. In this program, the participants learn useful subjects such as measurement, attribution, appraisals, selection of managers, reporting standards, and ethics. Another program of the CFA Institute is called the Claritas Program. This course addresses the important elements of ethics, finance, and investment roles. It is also interesting for being a self study program which was specifically designed to help those individuals who already work for financial services and investment firms. This includes professionals in marketing and sales, information technology, and/or human resources.

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Chain of Title A chain of title refers to the consecutive historical transfers in a title on a particular piece of real estate property. These chains start with the current owner of the property and trace their way back to the property’s first owner. Reconstructing such a chain can be extremely important when a lender needs complete ownership documentation. Such title documents are generally kept by registry offices with local and municipal governments. The field of real estate places tremendous importance on such a chain of title. Because it can be difficult to construct them, companies have come up with systems to track ownership and registration of real estate property. One of these is the Torrens Title system. Insurance companies in the United States will provide title insurance on a property. They do this using the chain of title on real estate that the owners are transferring. These chains are so important that many title insurance companies will keep their own private title operations to track such titles so they do not have to rely on only official government records. In cases where it is difficult to come up with a complete chain, abstracts of title can be utilized. Attorneys will sometimes certify these. Lack of a clear chain of title has caused significant problems during the Great Recession of 2008. These problems began when many lending companies made the choice in 1995 to use an electronic registry to hold the title. The best known company in this arena was MERS Mortgage Electronic Registration Systems. The banks tried to use this system so they could sell and purchase mortgages without needing to register ownership changes with the appropriate local governments. Without clear title chains, the banks were often not able to come up with the original titles needed to force foreclosures and evictions as individuals defaulted on their mortgages. A number of states throughout the U.S. sued the banks over these actions. The chain of title is also utilized in intellectual property areas. With the film industry, they refer to documentation that demonstrates the ownership rights of a particular movie. These chains can be used in other creative endeavors in the movie business. If many individuals contributed to the creative work, authorship is owned by a large number of the writers. Film distributors and buyers must carefully examine these chains of title to know the proprietary rights or rights under license of the owner. This is also important with books and encyclopedias. Documents on chains of title for films can include a number of other intellectual properties. Trademarks can be included. Musical copyrights often form part of these chains as well. Talent agreements are an important part of these. They provide the talent’s legal release to utilize their images, works, appearance, and personal rights in movies. This covers everyone from directors to actors to choreographers and cinematographers. There are even insurance policies that cover omissions and errors of movie producers who do not obtain sufficient chains of title. Specific organizations compile these reports for copyright property on behalf of the movie studios. To do so, they consult with the U.S. Copyright Office regarding author claimants, screening searches, and registration renewal searches. This detailed work requires that records from the Copyright Office dating back to 1870 and extending to the present be consulted. There are also other databases and trade

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publications which have to be reviewed for possible ownership claims.

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Chapter 7 Bankruptcy Chapter 7 bankruptcy is a form of protection from creditors. Unlike Chapter 13 bankruptcy, it does not have any repayment plan. In the Chapter 7 a bankruptcy trustee determines what eligible assets the debtor individual or company has. The trustee then collects these available assets, sells them, and distributes proceeds to the creditors against their debts. This is all done under the rules of the Bankruptcy Code. Debtors are permitted to keep specific property that is exempt, such as their house. Other property that the debtor holds will be mortgaged or have liens put against it to pledge it to the various creditors until it is liquidated. Debtors who file chapter 7 will likely forfeit property in partial payment of debts. Chapter 7 bankruptcy is available to corporations, partnerships, and individuals who pass a means test. The relief can be granted whether or not the debtor is ruled to be insolvent. Chapter 7 bankruptcy cases start when debtors file their petitions with their particular area’s bankruptcy court. For businesses, they use the address where the main office is located. Debtors are required to give the court information that includes schedules of current expenditures and income and liabilities and assets. They are also required to furnish a financial affairs statement and a schedule of contracts and leases which are not expired. The debtors will also have to deliver the trustee tax return copies from the most current tax year along with any tax returns which they file while the case is ongoing. Debtors who are individuals also have to furnish their court with other documents. They are required to file a credit counseling certificate and any repayment plan created there. They must also file proof of income from employers 60 days before their original filing, a monthly income statement along with expected increases in either, and notice of interest they have in tuition or state education accounts. Husbands and wives are allowed to file individually or jointly. They must abide by the requirements for individual debtors either way. The courts are required to charge debtors who file $335 in filing, administrative, and trustee fees. Debtors typically pay these when they file to the clerk of court. The court can give permission for individuals to pay by installments instead. When the income of debtor’s proves to be less than 150% of the amount of the poverty level, the court can choose to drop the fee requirements. Debtors will have to provide a great amount of information in order to complete their Chapter 7 filing and receive a discharge of debts. They have to list out each of their creditors along with the amounts they owe then and the type of claim. Debtors have to furnish a list of all property the own. They must also give the information on the amount, source, and frequency of income they have to the court. Finally, they will be required to provide an in depth list of all monthly living expenses that includes housing, utilities, food, transportation, clothing, medicine, and taxes. This helps the court to determine if the debtor is able to set up a repayment plan instead of discharging the debts. From 21 to 40 days after the debtor files the petition with the courts, the trustee hosts a creditors’

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meeting. The debtor will have to cooperate with the trustee on any requests for additional financial documents or records. At this meeting, the trustee will ask questions to make sure the debtor is fully aware of the consequences of debt discharge by the bankruptcy court. Sometimes trustees will deliver this in written form to the debtor before or at the meeting. Assuming the trustee makes the recommendation for discharge, the Federal bankruptcy court judge will discharge the debts when the process is completed.

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Charge Off A charge off refers to an expense item found on a corporation’s income statement. This could be one of two things. It might be connected with a debt that the reporting firm has decided is not realistically collectable. They would then write this off from the corporate balance sheet. It might also be a likely one time only expense which is called an extraordinary event. The company incurs this, and it impacts the earnings negatively. This then leads to a portion of the corporate assets’ becoming written down in value. Because the assets have become impaired, the write down occurs. Where bad debt costs crop up, this is related to a company not being able to collects bills owed for at least a portion of its accounts receivable, also called AR. These events unfortunately happen sometimes, and firms can do little about them. They might attempt to sell off the likely bad debts to an interested collection agency. The company would then record a sale on the books, yet it would not be marked down as an expense item. Otherwise, they might simply charge off the amount which is uncollectable on the income statement by calling it an expense. In order for debts to be considered to be bad debts, they have to be run up in the typical operations of the business. Such a debt could be incurred by either a person or another company. These charge offs for the bad debts more typically happen as companies extend credit (to other entities) that is unsecured. Examples of this would be signature-only loans or credit cards. One time expenses which are charged off are another story altogether. Sometimes a firm will consent to an extraordinary charge off in a given period of accounting. This would impact the current period earnings, yet they feel it will not likely happen again in the near future. The end result is ultimately that the company will commonly offer its EPS earnings per share numbers both without and with the charge off in question reflected. This allows them to show the company shareholders that the expense is unusual and uncommon. They might also call this a one off charge. Such charge offs could involve the buying of a major asset. This could be a significant piece of equipment or a brand new production facility. These expenses would not be repeated too often. There might also be charges that are associated with an unusual event. Examples of this are paying deductibles for insured items that became damaged in a natural disaster. There could also be a flood or a fire for which the firm has to pay the costs to cover the damage. There might also be maintenance types of expenses that are not normal. These might include replacing a roof. It is true that maintenance issues like these can be predicted to a degree. Because the exact date of service and amount of charge can not easily be quantified. Since such maintenance issues are only necessary every few decades, they are extraordinary items indeed. Charge offs could also pertain to individuals who have seen one of their personal debts charged off. Such an event does not mean that a creditor has specifically cancelled the debt. Borrowers will still have to pay off the balance in theory. When credit card payments become late, they go into late payment status. After a payment is 180 days late, the creditor companies will at last charge off the debt. They might then send it out for collection agencies or file lawsuits if the laws of the state where the debtor resides allow.

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Charles Schwab The Charles Schwab Brokerage was created when “Chuck” Schwab started a discount brokerage in 1975. From this point on the company led the investing industry by innovating in a variety of ways. In 1982, they expanded their offerings to include 24 hours per day, 7 days per week service. They launched their financial advisor service in 1987. The company began providing low cost online trading to customers in 1996. Charles Schwab began rating investments according to a quantitative fact basis in 2002. As of 2006, they started offering affordable and professional investment advice. The company provided ETF investing with no commissions from 2009. By 2015 they had begun their automated and simple investing program. This Schwab Intelligent Portfolios does all the work of building, investing, monitoring, and re-balancing portfolios for their clients with no commissions or fees. It allows them to easily invest and monitor their positions without having to invest significant time in research, selection, and monitoring. All of this pioneering over the years has helped Charles Schwab to become a powerful force in the brokerage world. They serve investors, employers, and financial advisors all at once. As of September 30, 2016, they hold an impressive $2.73 trillion of client assets. They number 1.6 million participants in their corporate retirement plans. Clients maintain 1.1 million banking accounts with them. Seven thousand different registered investment advisors are served by their products and services. Even though Charles Schwab has excelled as a telephone and internet based advisory service, they also maintain an extensive network of branches and financial consultants. This includes over 330 branches and around 1,200 financial consultants who work for them. Their advisory solutions counts over $210.2 billion under management. The company takes great pride in having delivered more than 100,000 different financial plans as of September 30, 2016. Charles Schwab has always been sought out by motivated investors who took pride in their personal engagement with their investments. Their clients are typically committed to investing and have an understanding sense of ownership. They wish to make and control their financial futures for themselves. All of these characteristics and traits of the brokerage company have paid off handsomely in terms of not only size and assets, but also with numerous awards for 2016 and earlier years. JD Power and Associates’ 2016 Full Service Investor Satisfaction Study ranked Schwab the Highest in Investor Satisfaction Among Full Service Brokerage Firms. Fortune Magazine chose Charles Schwab as one of its Top 50 Most Admired Companies in the World. The magazine gave them its number one rankings for their Innovation and Social Responsibility in Key Attributes of Reputation categories. They received the number two ranking for the category of Securities and Asset Management. Gallup has also recognized Schwab with its Great Workplace Award. For the fifth year in a row in 2016, they took one of the top 35 spots for companies acknowledged for possessing workforces which are most engaged in the world.

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The company celebrated its 40th anniversary in 2015. In this time, they have successfully navigated and led with being a telephone centered discount full service brokerage, a branch network based one, and an Internet platform brokerage services provider. Despite being discount, they still rank at the top of their category for client satisfaction, most admired companies, and engaged employees.

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Citigroup By number of countries and territories in which it operates as well as raw numbers of customers, Citigroup is the largest global bank. The United States based banking giant offers a substantial variety of financial products and services to its 100 million individual, corporate, institutional, and government customers around the world. The bank maintains a presence in more than 100 countries and territories throughout the globe. It operates in two primary groups of the Global Consumer Bank and the Institutional Clients Group. Citigroup’s Global Consumer Bank offers services throughout the most rapidly expanding cities in 24 different countries around the world. This group boasts over 100 million individual customers. Within the Global Consumer Bank (GCB), Citi runs four geographically based business lines in their four regions of North America, Latin America, Asia, and Europe/Middle East/Africa. These are Retail Banking, Commercial Banking, Retail Services, and Branded Credit Cards. The Citi GCB boasts over a century of well-respected market leadership and brand recognition throughout areas such as the United States, Mexico, and Asia. It is focused on expanding its high credit profiled customer base utilizing its global abilities and reach. The Institutional Clients Group operates in over 100 countries. It is here that Citigroup is able to assist multinational corporations in expanding, hiring, providing services, and delivering products. Citi proudly offers finance capabilities and support to not only companies, but also governments at every level. It assists them not only in funding their daily operations, but also in creating sustainable transportation, housing, infrastructure, schools, and other key public works and services. Institutional investors are able to maximize the depth of product offerings and global footprint to reach into both local and international markets. Citigroup boasts an impressive history of financing among the most transforming projects in the world during the last two centuries. They remain devoted to supporting expansion and creative innovation around the world today with cash management, lending, and advisory services. The Citigroup ICG maintains trading floors in over 80 nations, as well as custody and clearing networks in more than 60 countries and has connections via 400 different clearing systems. This means that Citi proudly controls among the biggest global financial facilities and infrastructure platforms. These help it to facilitate the movement of a daily average of more than $3 trillion in global monetary flows. The ICG Group if Citigroup operates six primary businesses. Citi’s Capital Markets Origination business concentrates on raising capital for their institutional clients. This includes cross border issues, transactions, and exchanges. The Citigroup Corporate and Investment Banking business delivers complete relationship coverage and service utilizing product, sector, and nation expertise to provide their worldwide abilities to clients in whichever market they wish to have a competitive presence. They organize these teams by country and industry. Every team is comprised of the two parts. Strategic Coverage Officers provides for merger and acquisition and equity financing activities. Corporate Bankers work with the Global Subsidiaries Group

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and Citi Capital Markets in order to help provide finance and banking services to local, national, regional, and global customers. Citi’s Markets and Securities Services business delivers world-leading financial services and products to its thousands of institutions, investors, corporations, and government clients. It covers an impressive array of asset classes, sectors, currencies, and products. Among these products are commodities, equities, futures, credit, emerging markets, foreign exchange, G10 rates, prime finance, municipals, and securitized markets. The Citigroup Global Private Bank business is a world leader. They have 800 private bankers residing in 16 countries at 51 individual offices who provide dependable advice to members of the most successful families and influential private individuals on earth. Finally, the Citigroup Treasury and Trade Solutions, or TTS, business delivers trade finance and seamless cash management services to Citi’s wide range of financial institutions, multinational corporations, and public sector outfits throughout the world. These services include receivables, payments, investment services, liquidity management services, commercial card programs, working capital solutions, and trade finance.

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Closed End Funds Closed end funds refer to those investment companies which are publicly traded and regulated by the SEC Securities and Exchange Commission. They are similar to mutual funds in some ways. Both represent investment funds which are pooled and overseen by a portfolio manager. The closed end varieties raise fixed amounts of capital. They do this in IPO initial public offerings. Such funds will then be established and structured, listed on a stock exchange, and finally then traded, bought, and sold as a stock is on one of the exchanges. Other names for these closed end funds are closed end mutual funds or closed end investments. These funds have things in common with the open end funds as well as characteristics which are unique to them and which set them apart from such ETF exchange traded funds and mutual funds. Closed end funds are only able to raise their capital in a single instance by utilizing an IPO and issuing a set quantity of shares. Investors in this closed end operation will then buy the shares like stock. They do have an important difference from typical stocks. Their shares are actually a certain interest within a given portfolio of securities that an investment advisor will actively manage. Usually they focus on a chosen and particular sector, geographic area and market, or industry. Stock prices of these closed end funds vary with the market supply and demand forces. They also fluctuate based on the changes in the values of the underlying assets or securities which the fund contains. While there are many of these particular closed end funds, among the biggest in the fund universe is the Eaton Vance Tax-Managed Global Diversified Equity Income Fund. There are a number of important characteristics which the closed end and open end funds share in common. Management teams run their investment portfolios in the two cases. The two types similarly assess and collect their annual expense ratio. They also may both provide capital gains and income distributions to their stakeholders. The differences between the two types of funds in this universe are important. While open ended funds have their own particulars of trading, the closed end funds will trade exactly like stocks on their respective exchanges. The open ended variants receive a value and pricing only one time per day at the end of trading. The closed end variety will be both priced and traded repeatedly all through the market trading days. The closed end funds need a broker service to sell or buy them. In marked contrast to this, investors in the open ended funds many times may buy and sell their relevant shares directly with the provider of the fund. A closed end fund also has some unique characteristics in the ways that its shares become priced. There is a difference between the funds NAV net asset value and the trading price. The NAV will be figured up at regular intervals throughout the day by computers. The actual price for which they trade on exchanges becomes set only by demand and supply forces interacting on the exchange. The end-result of this unique set of features is that the closed end fund might actually trade at a discount or premium to the net asset value. This might occur for several different reasons. Those funds which are closed ended might be

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concentrating on a sector in the markets which happens to be more popular, such as biotechnology or alternative energy sources and technology. This would allow sufficient interest from investors to bid up the price of the fund to a premium over its actual NAV. When such funds are run by a stock picker with a successful track record, they can trade for a premium. At the same time, when investor interest is insufficient or there is a negative profile of risk and return perceived on the fund, it will often trade for a discount to net asset value.

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Closeout Sale A closeout sale represents the last sale for a given item from a retailer. It could also refer to the last offers from a retailer in its inventory it provides to the public or another company. Sometimes certain items simply are not selling effectively. Other time it may be that a retailer is forced to sell off its inventory thanks to a fire, moving to another location, or too much inventory. In many cases, the company has simply gone bankrupt and has to liquidate everything. In these last cases, this type of sale is also referred to as a “going out of business sale.” Car dealerships also offer these types of inventory-moving events following hail storms. These are called “hail sales” in this case because the car dealership inventory has suffered extensive damage from the inclement weather. In any of these last chance scenarios, stores or outlets make an effort to get the word out to their customers and the general buying public. A closeout sale should never be confused with a closeout store. These outlets are stores that concentrate their efforts on purchasing wholesale closeout items off of retailers. They then sell them to their own customer base for a price discount. In the United States, there are several nationally known examples of this type of operation. Closeout store chains include Big Lots, Marshalls, Ross Dress for Less, TJ Maxx, and Value City. They mostly specialize in goods that are house ware or clothes related. It is a well-known fact that many times, items purchased in closeout sale offers cannot be returned according to the company policy of many stores. The goal is to move these items, not exchange them for other closeout sale items. In the cases of store closing and liquidation efforts, this is usually the policy. In other jurisdictions outside of the United States, like the United Kingdom, the buying customers maintain their typical rights of return in any sale. This means that they are allowed to return defective goods under the country’s Distance Selling Regulations. Holiday-themed merchandise is often the subject of closeout sales in the U.S. and other Western nation economies. This is because it is expensive and space-intensive to store Christmas merchandise for the better part of a year. Most American stores therefore engage in after-Christmas clearance sales. Some of them even commence ahead of the holidays. The discounts at such events can typically be 25 percent or more, though they actually range from five percent to as high as 50 percent. Sometimes stores will later boost this discount from 75 percent to even 90 percent rather than store the final merchandise, allowing it to age. In Canada, these post-Christmas sales are called “Boxing Day sales.” They attract enormous shopping crowds looking for their closeout deals following Christmas. Merchandise which is specific to a given season is often seen at clearance sales. This is especially true for winter wear or summer time patio furniture. This allows the store to bring out more current styles and fashions in their limited showroom or shelf space. Thrift stores that are normally better priced than traditional big box department stores also practice what they call “rolling” closeouts. In these stores, they simply take all of the merchandise which they offer in a particular week and tag it with a special color or sometimes letter to make it clear which items are part of the closeout sale. In these cases, they rotate out the clearance goods once per month.

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In the more traditional department stores, they also utilize closeout sales in their physical locations. They will take merchandise they wish to discontinue and place it on their clearance racks. The price will continue to drop until the point that a shopper finally takes the item to buy it. Stores have taken this concept and reproduced it on online in recent years. The first Internet-based operation to imitate the retail store clearance idea was the now-failed Drop.com. They permitted sellers on the site to auto reduce the price of their items for the online customers.

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Closing Costs Closing costs are the fees that are charged when you buy a house. Many other costs are associated with buying a house than only the down payment. These closing costs are fees like recording fees, title policies, courier charges, inspections, lender fees, and start up reserve fees to create an impound account. The most expensive component of these closing costs is the lender charged fees. Such closing costs are charged beyond the home’s purchase price. Most closing costs are set and predetermined, meaning that they are not open to negotiation. The total price of closing costs is fairly standard. Typically, a good guideline for closing costs is that they will run you somewhere between two and four percent of a house’s purchase price. The range is as large as this spread because the origination fees and points for making the loan vary significantly from one lender to the next. These points and origination fees that are charged by the lender are always revealed to a buyer in the Good Faith Estimates that are provided to the buyers. For example, a home that is $400,000 will have closing costs that run from around $4,000 to $16,000. They could be even higher than this amount, on some occasions. Some closing costs are of the non-recurring kind. Such fees are charged to a buyer of a house on only a single time. They include escrow or closing, title policies, courier fees, wire fees, notary charges, endorsements, attorney costs, city or county or state transfer taxes, recording, natural hazard disclosures, home protection plans, lender fees for the HUD-1 800 line, and home inspections. Other closing costs are called prepaid closing costs, or recurring closing costs. Although these are paid for in a single lump sump up front, they cover those costs that continue to recur throughout the life of the home loan. There are comprised of property taxes, flood insurance when required, fire insurance premiums, prepaid interest, and private or mutual mortgage insurance premiums. Closing costs are also impacted by the month of the year in which you close on the house in question. This is because future insurance and tax payments will be collected on a pro rated basis for the number of months of premiums for the year. Not all loans come with an escrow or impound account either. Yet loans that are for in excess of eighty percent of the purchase price of your house will mandate such an escrow account and impound be established. Closing costs are some of the unfortunately high expenses associated with buying a house. They are only avoidable when a person takes over an assumable mortgage. In these cases, most closing costs, such as lender points and origination fees, are side stepped by a buyer.

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CME Group The CME Group is the Chicago Mercantile Exchange group of futures market companies. It calls itself the most diverse and global leading marketplace for futures and derivatives. The group itself is made up of four different DCM Designated Contract Markets. These include the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX). All four exchanges have their own commodities which they trade as well as different historical beginnings. The world comes to the CME Group to manage its risk. The group provides the greatest variety of worldwide benchmark products in every significant class of assets. Through these offerings they assist businesses around the globe in compensating for the many risks they face in the uncertain global economy of today. Chicago Mercantile Exchange received the honors of Exchange of the Year and Risk Awards Winner for 2016. Beyond their various trading products they offer an educational Futures Institute with a Futures Challenge competition to try to help potential investors learn how to trade these markets. This program takes six days and allows participants to learn interactively and simulate their own trading while they compete against others for cash awards. First place offers $1,000, second place $500, and third place a $250 reward. In order to compete, participants must complete six training modules, lay out their trade plan, and pass a quiz. This gives them a good understanding of the basic operations of futures trading. The Chicago Mercantile Exchange represents the largest futures and options on futures exchange in the United States and the second largest one in the world. The commodities available to trade on this exchange center on currencies, interest rates, stock indices, equities, and a few agricultural products. CME was established in 1898 as a non profit company. In its early days investors knew the exchange as the Chicago Butter and Egg Board all the way till 1919. CME proved to be the first financial exchange in the U.S. to demutualize so that it could become a company owned by stockholders in November of 2000. The CBOT’s roots go back to 1848. In its initial days it allowed for trading of agricultural products like soybeans, corn, and wheat. Today it offers trading in agricultural as well as financial contracts. Futures contracts and options today are available on a number of additional products such as energy, U.S. Treasury bonds, gold, and silver. For many decades the exchange functioned solely as an open auction market. Traders would get together in a trading pit and utilize hand signals to buy and sell. Now the CBOT also offers futures contracts that are electronically traded. The entity became a for profit company via an IPO on the New York Stock Exchange in October of 2005. NYMEX is the largest futures exchange for physical commodities in the world. The trading done here occurs through the two divisions of NYMEX and COMEX. On NYMEX, traders can participate with platinum, palladium, and energy markets. In COMEX they are able to trade precious and industrial metals such as silver, gold, and copper. COMEX also offers index options on the FTSE 100 exchange in London.

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During the day, NYMEX and COMEX utilize a system of open outcry on the floor. After regular trading hours, all trading is done on an electronic trading system. Dairy merchants originally founded the NYMEX as the Butter and Cheese Exchange of New York. NYMEX and COMEX merged together in 1994. Today the exchanges specialize in precious metals and energy products.

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CMG Plans CMG Plans are special mortgage plans. In these types of plans, the mortgage of the borrower is set up to work like a checking account does. Instead of depositing the employee’s payroll to a traditional checking account at a bank, the individual’s company deposits paychecks directly into the mortgage account. Once a check deposits, the mortgage balance owed by the individual becomes reduced by this deposit total. The CMG Plans accounts also work like a checking account as the individual writes checks against the account. When the checks clear or the owner withdraws money from an ATM machine, the balance increases by the amount taken out or cleared. Money that remains in the account that has not been taken out by the end of the month becomes permanently applied to the mortgage balance. This acts as principle repayment. There are significant benefits to such CMG Plans. As paychecks become deposited to the account, the average outstanding principle amount for the month on the mortgage is reduced. This average outstanding monthly principle turns out to be the amount on which banks charge interest. Interest accrues on a daily basis with these plans. This means that interest totals on the mortgage are reduced even if the principle amount at the conclusion of the month remained the same as it was on the first day of the month. The balance actually would not be the same at the month’s end. These CMG Plans require that minimally 10% of the mortgage holder’s paycheck stays with the account by the end of the month. This is how the principle balance becomes permanently reduced over time. Such a 10% of payroll savings towards the mortgage means that principle reduces quicker than typical 30 year amortizing mortgages require. The final result is that the amount of time on the mortgage is significantly less. Greater interest charges will be saved by the mortgage holder this way. With interest rates at historic lows, these CMG Plans make greater sense than simply keeping the money in a non interest paying checking or negligible interest bearing savings account. The borrower literally begins to earn the same interest rate of the mortgage on the literal day that his or her company affects the payroll deposit. It does not hurt the borrower or cause any negative consequences in the account as bill pays, cash withdrawals, or check writing activities are performed. Regardless of how much of the money is taken back in expenses, the average monthly balance of the mortgage and associated interest rate charges come out lower. There are two downsides to such CMG Plans. It is possible that these types of mortgages will come with a higher interest rate than a more typical mortgage would. Paying a higher rate for this service turns out to be mostly unnecessary, since borrowers can get the same results of early principle retirement simply by paying additional principle repayments on their normally amortizing mortgages. The other downside concerns eligibility requirements. Only consumers with strong and consistent income streams are able to utilize these types of CMG Plans. The average person would not qualify for them.

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Collaboration Collaboration proves to be a process where two or more individuals or entities choose to work in concert on behalf of a common goal or endeavor. Intellectual enterprises and other activities that tend to be creative by their nature are often most effectively accomplished through collaboration, which involves learning together, mutually sharing knowledge, and building up consensus. Scientific collaboration is very common because of this. Most forms of collaboration must have leadership. Such leadership does not have to be in the form of traditional command structures, but can instead be social leadership affected in a group of equals or alternatively that is decentralized. Reasons for practicing collaboration are fairly evident. Teams working together in collaboration have access to a greater number of resources, rewards, and recognition when they compete for limited resources. Collaboration can be extremely structured. When it is set up like this, then inward looking communication and behavior are encouraged. Such forms of collaboration particularly attempt to boost teams’ successes as they work on problem solving in collaboration. Charts, graphs, rubrics, and forms are all utilized in this type of collaboration in order to lay out personalities and personal characteristics without bias, so that the future and present projects’ collaboration will be bettered. In business and finance, collaboration can be as simple as a partnership or as complicated as a multinational corporation. Team members that work together in an organization using collaboration achieve superior communication both in the business supply chains and the entire outfit. Such collaboration proves to be a means of putting together the various ideas and concepts of a wide variety of individuals in order to assemble a great range of knowledge and information. This proves to be invaluable to businesses and other organizations that require both general and specialist forms of knowledge from as many viable sources as possible. Mass collaboration has become a reality as a result of fairly recent technological innovations. These include wireless Internet, high speed Internet, and various Internet based tools for collaboration, such as wikis, blogs, and others. Through these means, individuals from literally all over the planet can effectively share ideas and discourse back and forth via the Internet and even Internet based conferences, without being limited to certain geographical locations or challenges. Thanks to these forms of collaboration in both business and other forms, the possibilities of improving a project’s results are practically endless.

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Collateralized Debt Obligations (CDO) Collateralized Debt Obligations are one of the financial weapons of mass destruction that helped to derail the global financial system in the financial crisis of 2007-2010. They are literally securities that are supposed to be of investment grade. The backing of collateralized debt obligations proves to be pools of loans, bonds, and similar assets. These investments are rated by the main ratings agencies of Moody’s, Standard and Poors, and Fitch rating companies. The actual value of collateralized debt obligations comes from their asset backing. These asset backed securities’ payments and values both derive from their portfolios of associated assets that are fixed income types of instruments. CDO’s securities are divided into different classes of risk that are called tranches. The senior most tranches are deemed to be the most secure forms of securities. Since principal and interest payments are given out according to the most senior securities first, the junior level tranches pay the higher coupon payments and interest rates to help reward investors who are willing to take on the greater levels of default risk that they assume. The original CDO was only offered in 1987 by bankers for Imperial Savings Association that failed and became folded in to the Resolution Trust Corporation in 1990. This should have been a warning about collateralized debt obligations, but their popularity only grew apace during the following ten years. CDO’s rapidly became the fastest expanding part of the synthetic asset backed securities market. There are several reasons for why this proved to be the case. The main one revolved around the returns of two to three percentage points greater than corporate bonds that possessed identical credit ratings. CDO’s also appealed to a larger number of investors and asset managers from investment trusts, unit trusts, and mutual funds, to insurance companies, investment banks, and private banks. Structured investment vehicles also made use of them to defray risk. CDO’s popularity also had to do with the high profit margins that they made for their creators and sellers. A number of different investors and economists have raised their voices against collateralized debt obligations, derivatives in general, and other asset backed securities. This includes both former IMF Head Economist Raghuram Rajan and legendary billionaire investor Warren Buffet. They have claimed that such instruments only increase and spread around the uncertainty and risk that surrounds these underlying assets’ values to a larger and wider pool of owners instead of lessening the risk via diversification. Though the majority of the investment world remained skeptical of their criticism, the credit crisis in 2007 and 2008 proved that these dissenters had merit to their views. It is now understood that the major credit rating agencies did not sufficiently take into account the massive risks that were associated with the CDO’s and ABS’s, such as a nationwide housing value collapse. Because the value of collateralized debt obligations are forced to be valued according to mark to market accounting, where their values are immediately updated to the market value, they have declined dramatically in value on the banks’ and others owners’ balance sheets as their actual value on the market has plummeted.

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Collateralized Mortgage Obligation (CMO) Collateralized mortgage obligations are investments that contain home mortgages. These mortgages underlie the securities themselves. These CMO yields and results derive from the home mortgage loans’ performance on which they are based. This is true with other mortgage backed securities as well. Lenders sell these loans to an intermediary firm. Such an intermediary pools these loans together and issues certificates based on them. Investors are able to buy these certificates to earn the principal and interest payments from the mortgages. The payments these homeowners make go through the intermediary firm before finally reaching the investors who bought them. The performance of collateralized mortgage obligations depends on the track record of the mortgage payers. What makes them different from other types of mortgage backed securities is that it is not only a single loan on which they are based. Rather they are categorized by groups of loans according to the payment period for the mortgages within the pool itself. Issuers set up CMOs this way to try to reduce the effects of a mortgage being prepaid. This can often be a problem for investments based on only a single mortgage as owners refinance their loans and pay off the initial one on which the investment was based. With the CMOs, the risk of home owners defaulting is spread across a number of different mortgages and shared by many investors. Tranches are the different categories within the mortgage pools on which the collateralized mortgage obligations are based. The tranches are often divided according to the mortgage repayment schedules of the loans. For each tranche, the issuer creates bonds with different interest rates and maturity dates. These CMO bonds can come with maturity dates of twenty, ten, five, and two years. The bondholders of each individual tranche receive the coupon or interest payments out of the mortgage pool. Principal payments accrue initially to those bonds in the first tranche which mature soonest. The bonds on collateralized mortgage obligations turn out to be highly rated. This is especially the case when they are backed by GSE government mortgages and similar types of high grade loans. This means that the risk of default is low compared with other mortgage backed securities. There are three types of groups who issue these CMOs. The FHLMC Federal Home Loan Mortgage Corporation issues many of them. Other GSE Government Sponsored Enterprises like Ginnie Mae provide them as well. There are also private companies which issue these CMOs. Many investors consider the ones issued by the government agencies to be less risky, but this is not necessarily the case. The government is not required to bail out the GSEs and their CMOs. There are investors who choose to hold their CMO bonds until they mature. Others will re-sell or buy them using the secondary market. The prices for these investments on this market go up and down based on any changes in the interest rates. The other most common type of mortgage backed securities besides these CMOs are pass through securities. Pass throughs are usually based on a single or few mortgages set up like a trust that collects and passes through the interest and principal repayments.

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Collectibles Collectibles can be almost anything of real or notional value. People enjoy collecting everything ranging from coins and stamps to baseball cards and paintings. It is the thrill of obtaining things that are new and putting them alongside an existing collection that proves to be so addicting and rewarding for people. Collectibles can be obvious items of great value, such as expensive antiques or works of art, or common things like sand from different beaches around the world. From a business and investment standpoint, collectibles offer more than simply the joy and thrill of collecting. They offer another means of building up wealth. Collectible coins, stamps, baseball cards, and paintings all have intrinsic value that can appreciate over time. This is especially the case if the collectible items in question prove to be limited in issue, or they become rare over time, or the demand for them increases with the years. Values can increase to dramatic levels even in the millions of dollars with some collectibles. The benefits of having collectibles as a past time go beyond simply investment opportunities, as lucrative as these can be for you. With a collectible, you are able to own a piece of living history. Coins, stamps, and antiques are especially useful ways of achieving this objective of owning history. Such collectibles also make exciting and personally fulfilling hobbies that provide you with a reason to go to antique shops, garage sales, flea markets, and hobby shops. You may also hope to meet new people and build up friendships through collectibles. Finally, collectibles are often an attractive way to decorate the interior of your house in your own one of a kind style. Finding collectibles once required you to go to physical locations to seek them out. These could be auction sites, hobby shops, coin and stamp stores, swap meets, yard sales, and flea markets. The Internet age has made a tremendous impact on the past time of collectibles, since now such collectibles can simply be found by going to online auction sites or specialty websites. The past practice of walking past booths and through stalls proved to be an integral part of being a collector but a few years ago, but this is changing. Collectibles can still be found at flea markets and garage sales, though these require more tracking down now than they did prior to the Internet revolution. It is still possible to find collectibles at a physical location that you would never encounter online. A danger to acquiring collectibles on the Internet is that you have no guarantee as to an item’s authenticity. The only way to thoroughly examine it is after you have already bought and received the item. One way to get around this lies in requesting certificates of authenticity from a seller. So if you decide to purchase a collectible over the Internet, you should consult an expert in the area and have him examine the collectible item in person.

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Collective Bargaining Collective bargaining is the labor engagement of re-negotiating the employment terms in between a group of workers and an employer. Such terms of employment will often cover various elements including (but not limited to) working conditions, conditions of employment, various rules pertaining to the work place, overtime pay, base pay, working hours’ times and numbers of hours, work holidays, shift length, sick leave, vacation time, health care benefits, and retirement contributions and benefits. Within the jurisdiction of the United States, such collective bargaining happens when the leaders of a labor union or several labor unions working in concert get together with the firm’s in question’s management team which employs the workers of the given labor union. A final result from this type of bargaining is termed a collective bargaining agreement. It sets up the regulations in the employment of the group for several years at least. The members of the union are the ones who pay out for the expenses of being represented with the union dues which they contribute to the organization and its endeavors. The process of bargaining collectively can revolve around nasty strikes and even employee lockouts when the two sides can not come to a mutually agreeable conclusion and deal. The United States has two types of labor unions. One exists primarily within the private sector for jobs ranging from factory workers to miners. The other pertains to only public sector employees, such as Federal employees and teachers. Per the 2015 report from the Bureau of Labor Statistics, or BLS, 11.1 percent of all American workers were represented by membership in labor unions. In the public sector, being unionized is far more common. In fact, 35.2 percent of all public workers are union members, compared to a mere 6.7 percent of private sector employees. There are so many different types of employees who choose to participate in unions. These include airline employees, grocery store workers, teachers at public and private schools, professional athletes, postal workers, auto workers, farm workers, actors, steel workers, and others. Those wages of workers who are members at unions are significantly higher than for those who are independents and not a part of unions. This is still the case even though the power and influence of unions has waned dramatically within the United States as the base of manufacturing jobs has drastically declined over the past four to five decades. Median wages amount to $980 per week for unionized employees versus $776 weekly for those who are not union members. It is also worth noting in the scheme of the collective bargaining universe that the unionization rates are vastly different from one state to the next. As an example, in the year 2015, almost 25 percent of aggregate workers within New York State were union members. In South Carolina conversely, not quite two percent of all employees belonged to unions. Some states cling to their “right to work” motto and heavily discourage unionization within their states, as with Florida among others in the South. In the twenty-first century especially, the subject of collective bargaining has caused huge and far ranging controversies, especially in the instances where public sector employees were involved. Tax revenues are what pay for the wages of all public sector workers. This means that opponents to bargaining

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feel that higher and higher wages which the unions secure for them create an unfair and heavy burden on the American tax base. Supporters of the practice argue that runaway pay worries are not grounded in reality. They hold up statistics which claim that these public workers who are a part of unions actually earn no more than five percent more than their public employee peers who do not participate in unions.

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Collective Investment Fund (CIF) A collective investment fund is a vehicles that manages a combined group of trust accounts. They are sometimes called collective investment trusts. Trust companies or banks operate these funds. The idea behind them is to pool together the funds and assets of organizations and individuals so that the managers can create bigger and better diversified portfolios. Two types of these CIFs exist. A1 funds are combined together so that their operators can effectively reinvest or initially invest them. With A2 funds, trusts contribute assets that are not subject to any federal income taxes. The main goal with a collective investment fund lies in utilizing superior economy of scale in order to reduce costs. The operators are able to combine together pensions and profit sharing funds to come up with a greater amount of assets. Banks then put these funds which are pooled together in a master trust account. The bank that controls the account then serves as executor or trustee of the CIF. Banks that serve collective investment funds are the fiduciaries. This means that keep the legal title for the fund and all assets within it. The individuals or groups that participate in the CIF still own the results of the invested fund’ assets. This makes them the beneficial owners of the relevant assets. Those who are participating within the fund do not actually own any individual assets that the CIF holds. They do maintain an interest in the aggregated assets of the fund. Banks designed these collective investment funds so that they could improve their investment management tactics. They do this when they pull together a number of accounts’ assets and merge them into a single fund with a common investment strategy. Pooling these assets into only one account allows the banks to dramatically reduce their administrative and operating costs for the fund. The investment strategy they come up with is structured to optimize the performance of the investments. There are a number of different collective investment funds operating. Invesco Trust Company operates several of them. Examples of their funds are the Invesco Balanced Risk Commodity Trust and the Invesco Global Opportunities Trust. Though comptrollers use the name collective investment funds, other names sometimes refer to these vehicles. Generally applied names for them include common funds, common trust funds, comingled trusts, and collective trusts. An important characteristic of CIFs is that they are not regulated by the Investment Act of 1940 (as with mutual funds) or the SEC Securities Exchange Commission. Instead the OCC Office of the Comptroller of the Currency regulates and oversees them. Mutual funds and collective investment funds are both pooled funds with an important distinction. These CIFs are not registered investment vehicles. Instead they exist in a class that is similar to hedge funds. In 1927, the world’s first collective fund began. Thanks to the stock market crash that occurred only two years later, CIFs became a scapegoat. They were believed to have contributed to the severe crash. This caused regulators to heavily restrict them. Banks could only provide them to trust clients or by utilizing employee benefit plans. They received a significant boost in the Pension Protection Act of 2006. This act

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chose them to be the standard option in defined contribution plans. Now 401(k) plans often feature them as an option for stable value.

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Commercial Banks Commercial banks are those financial institutions which offer a wide range of financial services to a variety of clients. Chief among these services are issuing loans and receiving deposits. The customers of such commercial financial institutions are able to avail themselves of a broad range of investment products that such banks offer. Included in these are certificates of deposit and savings accounts. Such banks issue a wide variety of loans which range from car loans and business loans to home equity loans and mortgages. Banks which are commercial in nature deliver a range of financial products like checking accounts, savings accounts, and certificates of deposit. Customers of banks prefer these kinds of financial products since they are guaranteed by the FDIC Federal Deposit Insurance Corporation within the U.S. In consideration for their funds’ deposit, the commercial banks provide interest to their clients against their deposits. This is how these institutions realize profit--- they utilize the deposits of their customers to make loans that bring in higher interest rates than the ones they offer to their depositors. This spread from the amount the banks are paying out to the ones it is gathering back in becomes the net interest income of the commercial banks. Such financial institutions do not all offer the same exact loan products to their various customers. They may specialize in several types or only a single kind of loan. These commercial banks are able to provide mortgages to purchase homes and home equity loans. In these cases, the houses provide the collateral to underlie the loans. Such financial institutions also provide auto loans with the vehicles as the loan collateral. The institutions similarly deliver personal loans, credit cards, and lines of credit to wellqualified borrowers. Besides the interest such banks earn for their loans on the books, they can also create income through levying fees on their customers for banking services. This is common on products including checking and savings accounts, credit cards, and especially mortgage applications and originations. There has been an evolution within the universe of commercial banks over the last two decades. Institutions that originally began as traditionally physical “brick and mortar” outlets complete with bank tellers, ATM’s, bank vaults, and safe deposit boxes are still dominant. Yet a new and powerful challenger has arisen. This is the story of the commercial bank without physical branch locations. Such virtual banks, or online only banks, lack physical branches. They force customers to do all of their transactions either over the Internet or by phone banking. The trade off for this accommodation is that these financial institutions deliver higher interest rates for accounts, deposits, and investments as their overheads are substantially lower. They also tend to charge significantly smaller and fewer fees. They can do this since they lack all of the associated costs which come with property taxes, rents, utilities, and additional staff salaries and benefits. It is important to realize that the activities of commercial banking are vastly different than those of their colleagues in investment banking. With investment banking, the institutions engage in a number of stock and financial markets-related businesses. Among these are financial markets underwriting, performing

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tasks as intermediaries between the investors of and issuers of securities, fostering and participating in mergers and acquisitions and various kinds of corporate restructurings, and performing services as primary broker on behalf of institutional clients. Other commercial banks boast investment banking divisions. This means that they are both involved in commercial banking and investment banking all at once. These include such well-known and enormous American financial institutions as JPMorgan Chase and Citibank and the multinational giant British banks like HSBC and Barclays. Other operations including Ally focus exclusively on the commercial banking segment of the industry.

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Commercial Paper Commercial paper proves to be a corporation-issued short term form of debt instrument which is unsecured. This paper is generally used to finance such things as inventories, accounts receivable, and other short term liabilities. The maturity dates for commercial paper vary, but they do not typically run any more than 270 days. Such paper instruments are generally issued at discounts to their face value. These discounts take into account the market interest rates that are effective when the company issues its paper. Because commercial paper does not come with any underlying collateral, it turns out to be unsecured corporate debt. This means that only those companies that boast debt ratings which are highest quality will be able to find takers easily. Other companies must float their paper debt issues at greater discounts. This makes the funds come at a higher cost. Large organizations issue these paper instruments in significant denominations of typically $100,000 or higher. The most usual buyers of these paper instruments are banks and financial institutions, other companies, money market funds, and wealthy investors. Commercial paper offers significant advantages for the corporations who utilize it. One of the biggest is that they do not have to register these offerings with the SEC Securities and Exchange Commission if the paper reaches maturity within 270 days or before nine months pass. This makes it a cost effective and quick way to obtain finance. While companies do have up to 270 days before the SEC is involved, typical maturity time frames for this paper only average around 30 days. There are some restrictions to the use of commercial paper. It’s funds can only be utilized for current assets and inventories. They may not be employed to purchase fixed assets like new facilities or plants unless the SEC is involved. The financial crisis that began to erupt in 2007 involved the commercial paper market in a significant way. When investors had fears that major companies like Lehman brothers had problems with their liquidity and financial condition, markets for commercial paper seized up. Companies lost their access to funding which was affordable and simple to obtain. This market freezing also led to money market funds “breaking the buck.” As major investors in these paper instruments, the funds suffered from the suspect health of firms whose issued paper caused their own fund values to drop below the standard $1. Up to this point, money market funds had been considered risk free for investors. Government backing and guarantees were required to restore order and functionality to these markets. A company might need additional short time frame funds in order to pay for Christmas holiday season additional inventory. The company could issue paper for $20 million in needs at $20.2 million face value. This means investors will provide it with $20 million in funding and receive $200,000 as interest when the paper matures. It would amount to a 1% interest rate. If the paper is not redeemed at its initial maturity, the interest rate would adjust the amount of principal and interest the paper would return appropriately based on the number of days it remained outstanding.

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Commodities Commodities turn out to be items that are taken from the earth, such as orange juice, cattle, wheat, oil, and gold. Companies buy commodities to turn them into usable products like bread, gasoline, and jewelry to sell to other businesses and consumers. Individual investors purchase and sell them for the purposes of speculation, in an attempt to make a profit. Commodities are traded through commodities brokers on one of several different commodities exchanges, such as COMEX, or the Commodities Mercantile Exchange, NYMEX, or the New York Mercantile Exchange, and NYBOT, or the New York Board of Trade, among others. Commodities are traded with contracts using a great amount of leverage. This means that with a small amount of money, a great quantity of the commodity in question can be controlled and traded. For example, with only a few thousand dollars, you as an investor are able to control a contract of one thousand barrels of heating oil or one hundred ounces of gold. As a result of this high leverage that you obtain, the amounts of money made or lost can be significant with only relatively small moves in the price of the underlying commodity. This leverage results from the fact that commodities are nearly always traded using margin accounts that lead to significant risks for the capital invested. For example, with gold contracts, each ten cent minimum price move represents a $10 per contract gain or loss. Commodity trading strategies center around speculation on factors that will affect the production of a commodity. These could be related to weather, natural disasters, strikes, or other events. If you believed that severe hurricanes would damage a great portion of the Latin American coffee crop, then you would call your commodity broker and instruct them to buy as many coffee contracts as they had money in the account to cover. If the hurricanes took place and coffee did see significant damage in the region, then the prices of coffee would rise dramatically as a result of the negative weather, causing the coffee harvest to be more valuable. Your coffee contracts would similarly rise in value, probably significantly. A variety of commodities can be traded on the commodities exchanges. These include grains, metals, energy, livestock, and softs. Grains consistently prove to be among the most popular of commodities available to trade. Grain commodities are usually most active in the spring and summer. Grains include soybeans, corn, oats, wheat, and rough rice. Metals commodities offer you the opportunity to take positions on precious metals such as gold and silver. Changes in the underlying prices of base metals may also be traded in this category. Metals include copper, silver, and gold. Energy commodities that you can trade are those used for heating homes and fueling vehicles for the nation. With the energy complex you can trade on supply disruptions around the world or higher gas prices that you anticipate. Energy commodities available to you are crude oil, unleaded gas, heating oil, and natural gas.

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Livestock includes animals that provide pork and beef. Because these are staple foods in most American diets, they provide among the more reliable pattern trends for trading. Pork bellies, lean hogs, and live cattle are all examples of tradable livestock commodities. Softs are comprised of both food and fiber types of commodities. Many of these are deemed to be exotic since they are grown in other countries and parts of the earth. Among the soft markets that you can trade are sugar, coffee, cocoa, cotton, orange juice, and lumber.

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Commodity Broker A commodity broker commonly is an individual who makes commodity trades for his or her customers. The term also refers to the brokerage company that manages the trades for whom this broker works. This is an oversimplification as there are several different kinds of brokers. Where the CFTC Commodities and Futures Trading Commission is concerned, there are FCM Futures Commission Merchants, IB Introducing Brokers, and AP Associated Persons who are the individuals at the various commodity broker firms. Commodity brokers do interesting jobs. They are involved in facilitating trades done in the commodity markets on behalf of the typical investor. The main other way to place such trades is by having one’s own seat on the commodities exchange or by trading in the open outcry commodity pits. For the majority of people interested in trading these markets, they will be required to utilize the broker in some fashion to place their trades. The commodity brokers themselves have one of two ways they can route their clients’ trades through to the exchanges. They may have their company’s floor traders who can place the trade literally on the exchange floor. Otherwise they will possess a special direct link trading platform that will allow them to place and then execute the trades via the electronic system on the various exchanges. The commodity exchanges depend on these commodity brokers to gather in the business and clients for them. This is because they are unable to do so directly thanks to the governing rules on the way brokers carry out their business. The exchanges find it much simpler to carry out trade with only several dozens of brokerage firms than they do with literally hundreds of thousands of different customers trying to place their particular trades at the exchange directly. Besides this valuable introducing service which the commodity broker provides, a great number of individual investors and traders need the brokers to offer them both recommendations and general position trading advice. This is because the commodities markets are often hard to comprehend in the beginning. Without the services and assistance of a good commodity broker, many investors would simply never engage in commodities trading ultimately. Until the 1990s, the realm of commodities trading was limited to only the commodity pits at the various exchanges. The majority of the different orders came in from what was called a full-service commodity broker. The customers would first call their introducing brokers to make them aware of a trade they wished to enter. Next this broker would write up the order and place a timestamp on it. They immediately called their FCM clearing firm which takes their orders. The broker would articulate the exact trade from the ticket which their customer had phoned in to them. The clearing firm was receiving calls at a special phone bank directly on the floor of the relevant exchange. A clerk would be taking down the order. The clerk would then write up a ticket to hand off to one of the floor brokers. These individuals stood in the trading pits and physically filled the order. The floor broker would then hand back the ticket to a runner who would run it back to the clerk. Finally the clerk would phone the introducing broker back and provide the trade confirmation and fill price. After the broker received his confirmation information, he would contact the original client back to provide the fill

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price and other information. This form of manual trading via the telephone has all but disappeared in the past two decades. Now clients simply log on to the trading platform which their broker provided. They enter the trade information and hit buy or sell using their mouse. Such orders instantly route and match up at the relevant exchange’s trading platform so that the confirmation on a market order is no more than one to two seconds away. This has made the trading process far more efficient, less expensive, and faster. Other traders insist on working with the full-service broker model still so they have a professional with whom they can talk about the various trading strategies and possibilities.

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Commodity Exchange (COMEX) The COMEX Commodity Exchange is the wholly owned subsidiary of the Chicago Mercantile Group that is responsible for both precious metals and base metals futures and options on futures trading. This once independent exchange is where the speculators, hedging companies, and traders all come to participate in trading FTSE 100 London exchange index options, along with precious metals silver and gold futures and options on futures, and industrial metals futures such as copper, aluminum, lead, and zinc futures. For the first more than half a century of its existence, the Commodity Exchange proved to be an individually owned and run commodities futures exchange. COMEX arose in New York back in 1933 in the depths of the Great Depression. Through ups and downs in the markets, this exchange endured. On December 31st of 1974, the Commodity Exchange launched its gold futures contract. This was the date when Americans regained the right to own gold again after a more than 40 year hiatus. This made it the biggest and most important center around the globe for gold futures and options. COMEX next launched options trading based on their gold futures in 1982 to cement their place in the world futures market and history. Silver has also been traded on the exchange since the 1970s. COMEX merged with rival exchange NYMEX in 1994 to form the two still separately run exchanges under the listing of NYMEX Holdings, Inc. They did not obtain their publicly traded listing on the New York Stock Exchange until November 17th of 2006 when it began to trade under the ticker symbol of NMX. This new entity did not maintain its independence for long. By March of 2008 the Chicago Mercantile Exchange Group of Chicago had conclusively committed to an agreement to purchase all of NYMEX holdings at a combined stock and cash offering that totaled $11.2 billion. The deal successfully completed in August of 2008. From this point forward, the once independent and then jointly held NYMEX and COMEX exchanges continued their existence as Designated Contract Markets of the CME Group. As such, they joined the two sister exchanges of the organization, the Chicago Mercantile Exchange and the Chicago Board of Trade. All four of these exchanges together make up the DCMs of the CME Group. COMEX still maintains its separate identity under the CME Group. The precious metals trade is what it is best known for today. This precious metals complex volume that it transacts both monthly and annually is so large that it is greater than the volume of all competing futures exchanges in the world combined. Commodities Exchange brings in participation from around the globe. A substantial number of the traders from East Asia, Europe, and the Middle East remain at their offices until the daily closure of COMEX. This fact provides the Commodities Exchange with unparalleled liquidity almost around the clock. This more or less explains why it has been so very successful for the past near century despite intense competition in a constantly changing global trading environment. The hours that it trades continue to reflect the global participation. This is why the Commodities Exchange has opened ever earlier in order to meet the needs of the Asian, Middle Eastern, and European overseas trading clientele base.

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Electronic trading on COMEX starts from the night previously from 4pm until the following morning at 7am. The regular trading session occurs from 8:20am through to 2:30pm. This means that COMEX is open for 21 hours per trading day from Monday to Thursday. Sunday electronic hours begin from 7pm EST. The group publishes both exchange open interest and volume every trading day.

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Commodity Futures Modernization Act (CFMA) In the year 2000, the U.S. Government passed the Commodity Futures Modernization Act. The act did several things. First it reaffirmed the regulatory authority of the Commodity Futures Trading Commission over all American futures markets. This authority became extended for a period of five years with this act. A second and more significant result of the act came about as the government allowed Single Stock Futures to be traded for the first time in the United States. Other countries already allowed their investors to trade these particular types of futures when Congress passed this act. In America up to this point where the CFMA passed, it was illegal for investors to participate. Yet investors were eager to gain the leverage that these futures delivered. Single Stock Futures are popular precisely because they do allow significant exposure to equity markets. A single stock future is a special kind of futures contract. The instrument allows a buyer to trade a certain number of shares in a single company at a price that they agree on now for a particular date in the future. The price is known as the strike price or futures price. The future date that the two parties set is the delivery date. Buyers of these contracts are long the future in the stock. Sellers of the contract are short the stock in question. The buyer makes money if the price of the underlying stock increases, while the seller makes money if the value of the underlying stock declines. There is no cost to open the contract besides commissions and fees. Single Stock Futures trade typically in contracts of 100 shares. Buying the contract does not cause any dividend or voting rights to transfer from the seller to the buyer. Futures trade using margin and provide tremendous leverage. There are no short selling rules applied to them as there are to stocks themselves. Other countries adopted the Single Stock Futures trading ahead of the United States. The American market was not allowed to trade them before the passage of the Commodity Futures Modernization Act of 2000. This was because there was conflict between the two regulatory agencies the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. The two could not work out which agency would regulate these new Single Stock Futures products and trading. When the government passed the CFMA of 2000 into law, they agreed to a compromise. Both of these agencies decided to share the jurisdiction under a plan that allowed the Single Stock Futures to finally start trading on November 8 of 2002. This allowed the United States based traders to catch up with other countries who were already trading these instruments. The Commodity Futures Modernization Act brought the United States into a global market of the Single Stock Futures that included Great Britain, Spain, South Africa, India, and other countries. The South African market has traditionally been the largest of the single stock futures marketplaces. Their average numbers of contracts amount to 700,000 each day. Though the CFMA allowed single stock futures to be traded, this did not establish a marketplace for them on which they could be traded in the U.S. Two different companies began trading them initially. One of

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these closed. The remaining company trading these types of futures in the U.S. is now known as the One Chicago. This is a joint venture of the main Chicago commodities and futures exchanges the Chicago Mercantile Exchange, the Chicago Board Options Exchange, and the Chicago Board of Trade.

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Commodity Markets Commodity Markets refer to exchanges where individuals and businesses can trade, buy, or sell primary inputs and raw materials either in person or virtually (over the Internet or phones). These days there exist around 50 important commodities markets around the globe. Each of these works in some way to make trade and investment possible in around 100 different main commodities. Commodities can be subdivided into two principal types. These are soft and hard commodities which entities trade on the commodities markets. Soft commodities refer to livestock and agricultural produce. This includes wheat, corn, sugar, coffee, cattle, pork bellies, and soybeans. Hard commodities are generally the kinds of natural resources which have to be extracted or mined. This includes such famous commodities as silver, gold, oil, and rubber. A wide range of means exist for investing in such commodities. Investors have the ability to buy stocks in companies whose enterprises are based upon commodities prices. They might also buy them indirectly through ETF exchange traded funds, index funds, or mutual funds which specialize in them. There is a much more direct way to invest in these commodities though. This is through purchasing futures contracts on the commodities themselves from the commodity markets on one of the various commodities exchanges. Such a contract will contractually obligate the owner of the instrument to sell or buy the commodity for a preset price level on a future delivery date. There are two cities in the United States which host the most important commodities markets and exchanges domestically. These are New York City and Chicago. A few less important exchanges are based in other cities of America. The biggest of them by far is the CME Chicago Mercantile Exchange which became so wealthy and powerful (as the CME Group) that it bought out a host of other rival exchanges. On the CME, investors and traders can buy, sell, and trade such well-known commodities as pork bellies and lean hogs, lumber, cattle, feeder cattle, butter, and milk. Another exchange is the CBOT Chicago Board of Trade, which dates back to 1848 in Chicago. On this exchange, contracts include gold, ethanol, rice, oats, wheat, corn and soybeans. On the NYBOT New York Board of Trade, there are a wide range of commodities. Chief among these are the standards of the commodities world orange juice, sugar, cocoa, ethanol, and coffee. On the NYMEX New York Mercantile Exchange investors can trade such commodities as gold, oil, copper, silver, platinum, palladium, aluminum, propane, heating oil, and even electricity. There are also a few regional American commodity markets. These include the MGE Minneapolis Grain Exchange and the KCBT Kansas City Board of Trade. Both mostly concentrate their commodities offerings on agriculture. Among the biggest and most important international commodity markets are the LME London Metals Exchange and the Tokyo Commodity Exchange. Nowadays, these commodity markets mostly trade on cutting-edged and state of the art electronic systems. There are a few of the United States’ exchanges which still utilize the in-person, open outcry method. Commodities’ trading which takes place outside the operating hours and locations of the exchanges is called the OTC over the counter market.

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Commodity markets are highly regulated in the United States. It is the responsibility of the CFTC Commodity Futures Trading Commission to regulate the options and futures on commodities markets. Their primary goal is to ensure efficient, competitive, and transparent marketplaces which assist consumers by protecting the clients from manipulation, fraud, and unethical practices. Once upon a time, the regular investors could not invest at all in commodity markets. This was because it took major amounts of money, time, and know-how to do it successfully. Thanks to the various numerous routes to the different commodities markets today, even those traders who are not professionals can take part in the excitement and opportunity that are the commodity markets.

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Commodity Money There are several forms of money which have been used throughout history. The oldest and best proven form is known as commodity money. A form of money invented in the past century which has become the major competitor to this historical currency is called fiat money. A newer post-modern technologically advanced form of spending power is today’s electronic money. All three have their pros and cons, yet the arguments about commodities being safe and trusted keep them alive despite their critics colorfully referring to them as barbaric relics of ancient history. Commodity money is that type of money that possesses intrinsic value on its own, independent of any governing body. This means the money itself contains its own worth. It is not merely a token or representative of financial value as with bank notes or numbers on a computer screen and in a ledger. The longest reigning and best loved form of commodity money remains gold and silver coins. Their history is legendary and stretches back five thousand years through times good, bad, and tragic. Any type of commodity is able to fulfill the role of commodity money. As long as the money’s value springs from the material from which it is comprised and not some arbitrary decree of a ruler or government representative, it is in fact hard money. Numerous commodities in various times and places have been effectively utilized as this form of tired and true currency. Besides gold and silver, peoples, nations, and empires have employed salt, chocolate beans, copper, decorative belts, shells, cigarettes, and even large stones. Critics have argued that many of these forms of currency were prone to spoilage or gradual deterioration. The overwhelming majority of cash forms with which people buy and sell nowadays lack any intrinsic value whatsoever. Banknotes are a case in point. They are fiat money. This is money that only contains any value because the government decrees it has the full faith and credit of the nation backing it. It works because members of society and businesses choose to accept it as their primary form of currency and means of exchanging goods and services. It is interesting that commodity money does not have to be inherently useful to the owner to have value for exchange. Few people have practical uses for gold or silver coins. These coins have dramatically high value because goldsmiths and jewelers are able to utilize them to produce costly jewelry or collectible items of great worth and because of their inherent scarcity. When societies choose to utilize such commodity money as metal coins for their official legal tender, it is up to the government in question to determine the fixed value of each coin in the currency lineup. The face value of these coins is the one that will be accepted rather than the value of the metal contained within each piece. Coins are usually circulated at a face value that is greater than the costs of the underlying metal materials. There are some cases, as with runaway inflation, where coins can have greater metal value than face value. This is especially the case with coins made mostly or entirely from gold or silver. When this is a persistent problem, governments often attack the problem by taking that currency unit out of circulation. Fiat money is the opposite of this commodity money. Fiat money only derives its value from legal claims

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and obligations of the law. It is truly like a purchase voucher which can be utilized to exchange for services and goods. This means that its purchasing power varies. Fiat money only has fixed value in settling debts. Originally it emerged as a means of convenience so that individuals could carry lighter paper certificates that the government guaranteed rather than having to ship and guard heavy gold and silver. Over time, governments stealthily stopped exchanging this paper money for the gold and silver that originally backed it. Fiat money is now useless intrinsically and can not be redeemed for any commodity as it once could. The only reason it has any value at all is because the government says it will be valued for that purpose.

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Common Securitization Platform (CSP) During the financial crisis that started back in 2008, the federal government took control of both Fannie Mae and Freddie Mac the government sponsored enterprises because they became insolvent. One of the ideas that the since-then managing agency the FHFA Federal Housing Finance Agency came up with is the Common Securitization Platform. This strategic goal resulted from the FHFAs 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac report. The hope with this Common Securitization Platform is to create a new and greatly improved securitization infrastructure for both Freddie Mac and Fannie Mae. These two groups are collectively known as the Enterprises. Their new platform is to be for American mortgage loans which are backed up by single family kinds of properties. In order to put this vision into reality, the two GSEs have established a joint venture called CSS Common Securitization Solutions. It is actually designing the Common Securitization Platform under the leadership and direction of the FHFA. The CSS fills the role of agent for both enterprises to help with issuing the single family mortgage securities. It also is handling disclosures when the securities are issued and in the future. Besides this, CSS is administering such securities after they are issued. Among the more important tasks the Common Securitization Solutions is carrying out with regards to the program surrounds the operational capabilities of the Common Securitization Platform. CSS is responsible for creating these so that the CSP will run. The CSP will eventually support the securitizing activities of the GSEs and their single family mortgage program. This will culminate in the two Enterprises issuing one Single Security, which will actually be a single mortgage backed security. Issuing this Single Security is important for several reasons. The FHFA along with Fannie Mae and Freddie Mac all want to see their securities’ all around liquidity improve. This will also aid in the mission of the two GSEs to ensure the country’s housing finance markets remain liquid too. Common Securitization Platform is both a technology and operating platform then. In the future, it will handle a great number of the critical back office functions and operations of the Single Security. It will also take over the majority of the two GSEs present securitization operations in the single family mortgages for them. Without the CSP, it would be practically impossible to actually launch and integrate the Single Security. Single Security is the future of Freddie Mac and Fannie Mae. It will help to ensure that adequate financing for fixed rate mortgages and loans continues for the one unit to four unit single family properties. The way that it will actually do this is by taking elements from both of the GSEs and combining the best of each. There are three areas where these different procedures have to be aligned for the Single Security to function properly. The key features of the Fannie Mae mortgage backed securities and the Freddie Mac participation certificates will be taken mostly from Fannie’s mortgage backed securities model. Investor disclosures will be modeled after Freddie’s participation certificates. A final area to be aligned concerns the practices and policies that will be utilized to take loans out of securities.

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The Single Security endeavor also promises to allow for some exchanges of old for new securities. This pertains particularly to the 45 day Participation Certificates of Freddie Mac. These will be exchangeable for 55 day time frame Single Securities that Freddie Mac will issue.

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Common Stock Common stocks are shares in an underlying company that represent equity ownership in the corporation. They are also known as ordinary shares. These are securities in which individuals invest their capital. Common stock is the opposite of preferred stock. While common stock and preferred stock both represent ownership in the company, there are many important differences between the two. Should a company go bankrupt, common stock holders are only given their money after preferred stock owners, bond owners, and creditors. Yet, common stock performs well, typically seeing greater levels of price appreciation than does preferred stock. Common stock typically comes with voting rights, another feature that preferred stock does not have. These votes are used in electing the board of directors at the company’s annual meeting, as well as in determining such things as company strategy, stock splits, policies, mergers and acquisitions, and the sale of the company. Preemptive rights in common stocks refer to owners with these rights being allowed to keep the same proportion of ownership in the company’ stock, even if it issues additional stock. Common stocks do not always pay dividends to share holders, as preferred stocks typically do. The dividends of common stocks are not pre-set or fixed. This means that the dividend returns are not completely predictable. Instead, they are based on a company’s reinvestment policies, earnings results, and practices of the market in the valuing of the stock shares themselves. Common shares have various other benefits. They are typically less expensive than are preferred stock shares. They are more heavily traded and readily available as well. The spreads between the buying and selling prices on them tend to be tighter as a result. Common stocks generally provide capital appreciation as the price of the shares rises over time, assuming that the company continues to do well and meet or exceed expectations. Dividends are often paid to common share holders when these things prove to be the case. Common stocks can be purchased in any denominated amount. Round lots of common stocks are sold by even one hundred share amounts. This means that five hundred shares of common stock would be considered to be five lots of common stock. Common stocks represent principally capital gains types of investments, as an investor is looking to buy them low and sell them at a higher price. This leads to a capital gain when the stock is sold at this greater level. The capital gain is the difference between the selling price and the purchasing price. Common stocks can also be cash flow types of investments when they pay a reliable stream of dividends every quarter. These income amounts are typically smaller than the one time amounts realized in capital gains, though they are obtained four times per year on a quarterly basis, or occasionally more often on a monthly basis.

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Commonwealth of Nations The Commonwealth of Nations is a voluntary membership organization that counts 52 different equal and independent sovereign countries on its roster. Within these nations live 2.2 billion citizens. More than 60% of these residents are less than 30 years old. Included in the Commonwealth are countries which are among the smallest and largest as well as poorest and richest in the world. The member nations hail from five different regions including Europe, North America, South America, Africa, and Asia/Oceania. Fully thirty one of the members of this organization are smaller countries, a number of them being island states. The Commonwealth of Nations’ history stretches back to the days of the British Empire. This makes it among the oldest political groups of countries in the entire world. The vast majority of nations in the club were once ruled indirectly or directly by Great Britain. Many of these states chose to become independent and self governing even when they kept the monarch of Britain as their Head of State. They created the Commonwealth in 1949 as a successor organization to the empire. In the years since then, other nations from the Americas, Africa, Europe, Asia, and the Pacific have also become members. The two most recent nations to join were Mozambique and Rwanda. Neither one had a historical connection to the British Empire. Leaders of Commonwealth of Nations countries meet together every other year in order to discuss pressing issues of shared concern. Queen Elizabeth has attended all but one of the meetings since the organization began in 1949. The last meeting held in 2016 took place in Malta in the Mediterranean Sea. The next meeting is scheduled to occur in the United Kingdom in 2018. Today membership in the Commonwealth of Nations is a matter of equal and free cooperation which is voluntary. The nations making up the Commonwealth count on the support of over 80 intergovernmental, professional, cultural, and civil society organizations. They ascribe to a body of guiding principles which are found in the Commonwealth Charter. The group participates in a variety of projects to improve aspects of infrastructure, education, health, and all around society in its member states. One of the important leadership institutions within the Commonwealth of Nations is the Commonwealth Secretariat. This office leads and guides the group with technical assistance, policy making, and advisory help to member states of the Commonwealth. It works to support governments in their quest to build development that is equitable, inclusive, and sustainable. Its work strives to encourage rule of law, democracy, good government, human rights, and economic and social development. It gives a platform for small countries and helps to empower the youth. The most important work of the organization is laid out at the biannual Commonwealth Head of Government Meetings (CHOGM). The vision of the Commonwealth of Nations is to work to form and sustain an organization that strives towards mutual peace, prosperity, resilience, and respect while cherishing diversity, equality, and shared values. The Commonwealth’s mission is to empower member state governments while it works with the overall Commonwealth nations and other countries in order to better the lives of every Commonwealth citizen and to help move forward their mutual interests around the world.

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Compound Interest Compound interest represents interest which calculates on both the original principal amount as well as the interest that was accumulated previously during the loan or investment. Economists have called this miraculous phenomenon an interest on interest. It causes loans or invested deposits to increase at a significantly faster pace than only simple interest, the opposite of compound interest. Simple interest proves to be interest that calculates on just the principal amount of money. Compound interest accrues at an interest rate which determines how often the compounding occurs. The higher the compound interest rate turns out to be, the faster the principal will compound and the more compounding periods will occur. Consider an example of how effective compounding truly is. $100 that is compounded at a rate of 10% per year will turn out to be less than $100 which is compounded at only 5% but semi annually during the same length of time. Compound interest is important to individuals as it is able to take a few dollars worth of savings now and transform them into significant money throughout lifetimes. Investors do not need an MBA or a Wall Street background in order to benefit from this principle. Practically all investments earn compounding interest if the owners leave these earnings in the investment account over the long term. This form of interest cuts both ways on the receiving and paying sides. When individuals are saving and investing money, it helps them grow the amount faster. When they are borrowing and paying the same interest on the debt, it grows against them faster. Individuals who are saving wish their money to compound as often as they can. Individuals who are borrowing wish it to compound as infrequently as possible. Savers are better off if they are able to compound quarterly instead of annually while just the opposite is true for borrowers. For people who are compounding their investments, time works on their side. Money that grows at a rate of 6% each year doubles every 12 years. This means that it increases to four times as much as the original amount in only 24 years. For individuals paying compound interest, time is similarly working against them. Credit card companies utilize this principle to keep their card owners in debt forever by encouraging them to only make minimum monthly payments on the bills. Thanks to compounding, a smaller amount of money that a person adds to an account upfront is more valuable than a larger sum of money he or she adds decades later. This cuts both ways. By paying down principal on a credit card with an extra $5 per month, the amount of compound interest individuals pay on a 14% interest rate credit card decreases by $1,315 over ten years. This is true even though they have paid only $600 in extra payments over this amount of time. Anyone can make the miracle of compounding work for them. The idea works the same whether individuals are investing $100 or $100 million instead. Millionaires have greater ranges of investment choices. Even relatively poor people can compound their interest to increase their original amount and double their money as often as possible. Compounding interest means that participants have to give up using some dollars today in order to obtain a greater benefit from them in the future. The little money may be missed now, but the rewards for the

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more significant amounts in the future will more than make up for the little sacrifice the individual makes now. Financial planners have claimed that the difference between poverty and financial comfort in the future amounts to even a few dollars in savings each week invested now rather than later.

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Compounding of Money The compounding of money has everything to do with compound interest. Compounding of money through such compounding interest can become among the most potent of weapons in your investing arsenal. Compound interest allows your money to grow at a faster rate as a result of the way that the interest is added to your money’s balance. Various types of compound interest are available for compounding your money. Compounding your money with compound interest works through taking the interest that your money has earned over a time frame and adding it back to the initial amount of money. Then when the next period is figured up, this total dollar value is calculated in the next portion of interest that you will earn. Simply put, every time frame’s interest is placed directly back in to the entire sum of money on which the interest will be earned. Every time the interest is figured up, your money will earn a greater amount of interest like this. A variety of different forms of compound interest exist. These always relate to the time frame over which the interest and money compounds. Such time frames of compounding of money are comprised of yearly, monthly, and daily compounding interest. With yearly compounding interest, the interest rate is figured up each year. In monthly compounding of interest, this rate is applied to the new principal balance each month. Daily compounding of interest involves an every day accounting of the interest and new principal. Compounding of money involves several factors. These are periodic rates of compound interest, which are the rates actually applied to your balance, and compounding periods, which are the amount of the time frame before such interest is literally applied on to your total balance. As an example, if you invested $10,000 in a .1% daily periodic rate money market form of account, then on the second day, your balance would be $10,010. The next day, this rate would then be applied to the new balance of $10,010. Figuring out the actual annual effective rate entails you taking the whole year’s interest and dividing it by the amount of the investment that you started with at the beginning of the year, or $10,000 in this case. Compounding of money through such compound interest proves to be an extremely potent weapon. This is because the interest earned is immediately added on to the account balance to be counted as principal for the next time period. Each time frame the interest rate applies to the greater balance. Accounts grow faster through the compounding of money as the interest is not held back. This compounding of money effect multiplies when you use it with accounts that are tax deferred, such as municipal bond funds and annuities. As no penalties of taxes are paid in a given year, your money increases quicker and quicker since greater amounts are constantly in the account to receive interest. An example of how effective compounding of money using compound interest can be is illuminating. If you put $10,000 into a simple interest account that does not compound but receives twelve percent interest, then it will increase to $46,000 over thirty years. The same money that is compounded annually will rise to about $300,000, and to as much as $347,000 if the money is compounded quarterly. Money that is compounded over a daily time frame would naturally earn the greatest amount of interest and highest principal over a period of time.

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Congressional Budget Office (CBO) The Congressional Budget Office was created by Congress in 1975. Since that time, it has continuously developed and published its own independent analyses for economic and budget related issues. Its goal is to support the process of making Congressional budgets. Ever year the agency puts together literally hundreds of estimates for costs of proposed legislation as well as dozens of routine reports. The CBO is religiously non partisan so that it can engage in unbiased and objective analysis. It only hires staff based on their professional abilities and does not consider their political affiliations. CBO never engages in recommending policies. It is concerned with all of its reports and price estimates explaining its analytical methodology. The CBO produces Baseline Budget and Economic Projections. It does this regularly to come up with predictions for economic and budget outcomes. These estimates assume that the present conditions for revenues and spending will continue. Such baseline projections extend for 10 year time frames as utilized in the process of Congressional budget making. Long Term Budget Projections are another item that the Congressional Budget Office offers Congress. These extend well beyond the usual 10 year budget forecasts to cover the next 30 years. They reveal the impacts of economic developments, demographic trends, and increasing health care expenses for federal deficits, spending, and revenues. With the Cost Estimate analyses, the Congressional Budget Office delivers estimates in writing for the expenses created by every bill which the committees in Congress approve. They reveal the ways the bill will impact revenues or spending for the coming five to 10 years. The CBO also develops Analytic Reports which consider specific elements of the tax code, programs of federal spending, and economic and budget constraints. Such reports pertain to a number of elements of federal policy. This includes economic growth, health care, social insurance, taxes, income security, the environment, energy, national security, education, financial issues, infrastructure, and other areas. Once the President submits his Presidential Budget, CBO get involved. It re-estimates the impacts of it. The office does this by using its particular methods for economic estimating and forecasting. From time to time, the CBO comes up with a volume on Budget Options. This reference work provides a number of ways that the government could reduce its budget deficits. The options are varied and come from a number of sources. They include raising additional revenues and lowering spending. The Congressional Budget Office also produces Sequestration Reports. They must put out estimates of funding caps on discretionary programs in every fiscal year that goes through 2021. They consider these numbers to determine if cancelling the pre-allocation of budgeted resources is necessary. The CBO knows what it should study because of its mandates. It’s responsibilities are to assist the Senate and House Budget Committees in their jurisdictional affairs. They also are directed to support various other committees of the Congress. This includes especially the Finance, Ways and Means, and

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Appropriations Committees as well as the leadership of Congress. They are required by law to produce many of the annual reports which they create. The best known of these remains the Budget and Economic Outlook.

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Constructive Eviction Constructive eviction is a backdoor way of evicting a tenant. It is not done through legal means because of a tenant failing to pay rent or seriously breaking the property rules. It is instead the process of a landlord making a rental uninhabitable for the tenant. Though the term sounds positive, it is quite the opposite. Landlords who engage in this type of eviction are failing to carry out their legal obligations. For constructive eviction to take place, a residential rental property must deteriorate into enough disrepair that it becomes very difficult or near impossible to live in the property. It could also be that the landlord allows a condition to exist that makes inhabiting the home or apartment intolerable. As the condition becomes so severe that the property is no longer fit to live in, the tenant is forced to leave. An uninhabitable property exists in a state that compels the renter to move away, or to be constructively evicted. Because the renter is incapable of completely utilizing and possessing the property, he or she has been evicted technically. There are a number of way in which a tenant could be a victim of constructive eviction. The landlord might turn off the electricity, gas, or water utilities. The owner might disregard an environmental problem such as toxic mold or flaking off lead paint and not properly clean it. He or she could also not fix leaking roofs. This causes water damage to walls and eventually leads to mold. The owners could block the unit entrance or change the locks. They might do something extreme such as take out sinks or toilets from the property as well. When the conditions deteriorate to the point that tenants abandon the rental then constructive eviction has occurred. A landlord might engage in this type of unethical behavior because of rental controls. Many cities limit the amount by which rent can be increased. They may also allow the tenant to remain in the rental with an automatically renewing lease so long as they fulfill the contract obligations. Tenants have the ability to fight back against this type of eviction. This starts with providing the owner a notice in writing of the constructive eviction. The landlord must be given a fair amount of time to address the issue. This may not translate to an instant repair that happens in 24 hours. Many repairs require more time to have completed. Water and gas leaks are examples of these. Still the repairs have to be done in a time frame that is reasonable. Renters who find themselves in living conditions that are poor should take pictures. They also should invite independent inspectors to examine the property. These types of inspectors come from the permit or building department, as well as from the area health department. When landlords are unwilling to address the uninhabitable living conditions in a reasonable time frame after having been given fair written notice, renters have rights. They are usually allowed to leave the property without having to pay rent that would still be owed according to the rental or lease agreement. In general, tenants have to move away from the property while they begin the legal process of terminating the lease and suing the owner for damages. It is often better to compel the owner to make the necessary repairs or to address the issues that are creating the uninhabitable living conditions on the property in the first place. This is easier in cities and

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states that have strong legal enforcement of the landlord obligations. New York City and state are an example of places in the United States that make it difficult for owners to practice constructive eviction by requiring that they fulfill their maintenance duties.

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Consumer Data Industry Association Consumer reporting has become a huge business in the United States. It makes sense that they would have a large and important trade association. The Consumer Data Industry Association is this organization that functions as the industry trade association for credit reporting companies in the United States. While they have over 140 different corporate members, they represent approximately 200 companies in the consumer data business. These companies provide a wide range of services. Among these are risk management, fraud prevention, and mortgage and credit reports in the data reporting business. Other companies offer additional services that are newer in nature. These cover employment and residential screening services, collection services for companies and individuals, and even check verification and check fraud services. Naturally the major consumer reporting agencies are important pillar members of the CDIA. These include Experian, Equifax, TransUnion, and Innovis. This Consumer Data Industry Association works to provide education to all parties involved in the learning process of consumer data and information. This includes regulators, legislators, the media, and consumers. Their goal is to teach about the proper utilization of such information. The members of this association also deliver analytical tools and data to help companies provide safe, fair transactions for their customers. Their products and services encourage competition and make better opportunities for the economy as a whole and their customers. The products and services produced by the members of the Consumer Data Industry Association are enormously utilized. They are a part of over nine billion transactions that are processed every year. The goal of these companies is to offer better access to consumers. They also strive to create products and services which are centered on the needs of the consumers. Finally, they try to offer innovation in an industry that is constantly changing to keep up with rapidly expanding technology and the times. The history of the Consumer Data Industry Association goes back to 1906. Its founders established it in Rochester, New York as the National Association of Retail Credit Agencies. The organization arose because American consumers were requiring more credit. At the same time, Americans were moving around like never before. Creditors needed a standardized and consistent form of credit information on these consumers. This way they would be able to assess their history of credit payment. The CDIA underwent numerous name changes over the decades before settling on their present one as the services provided by their membership gradually evolved. In 1907 they became the National Association of Mercantile Agencies. After World War I this organization changed to the Associated Credit Bureaus of America. Under this identity they created the very first standardized system for credit data reporting following World War II. In the 1960s they began computerizing the industry to keep better track of credit records. Nearly all credit became accessed through such automation by the end of the 1960s. The agency again changed its name at this time to Associated Credit Bureaus as it had expanded to become international. The government took

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notice of all this activity and passed the first of the consumer reporting industry regulatory laws the Fair Credit Reporting Act in 1971. In 1991 they moved the office to Washington, D.C. to be near the regulatory and legislative bodies of the U.S. A final name change came about in 2001 as the group evolved to its present Consumer Data Industry Association. Today the organization is the representative body for all companies that deal with analyzing and managing credit data for consumers. Since the 1990s this has grown beyond credit reports to include background screening and employment reporting.

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Consumer Debt Consumer debt refers to debts which individuals owe because of goods they have purchased. These goods must be consumable forms which do not appreciate in value to qualify for the designation. Having huge amounts of consumer debts is generally considered to be negative for individuals since it raises the burden on their resources to keep up with the debt servicing. It also makes it harder to remit the installment payments which are often laden with interest. When these types of debts are not well managed, they can cause a consumer to be forced into bankruptcy. There are cases where some analysts and economists feel that a little consumer debt can benefit the individual. These scenarios mostly center on instances where the debt is run up in purchasing an asset that will increase the earning power of the individual. Several examples of this are useful to consider. One of them surrounds buying a car with financing in order to reach a job which pays more. Another might be incurring student debt to obtain a higher degree that will make it possible to secure a promotion or better job. There are differences between this consumer debt and those that governments or businesses owe. Consumer debt is also referred to as consumer credit. This type of debt can be obtained from credit unions, commercial banks, and sometimes the United States federal government. Among the two categories of consumer debt are revolving debt and non-revolving debt. Revolving debt is represented by credit cards. These debts are called revolving as they were originally intended to be repaid every month when the bill comes due. In practice this does not often happen, as consumers carry balances forward much of the time. Non-revolving debts are fixed installment payment loans. They are not paid off fully in a typical given month. They are more commonly held against the underlying asset’s useful life. Mortgages on homes are not considered to be consumer debt. Rather they are counted as personal forms of investment in real estate under the category of personal residential. As of January 2017, the total debt of American consumers increased to $3.77 trillion. This represented a 2.8 percent increase over the prior month. Around $2.78 trillion of this consumer debt was comprised of non-revolving loans. It had grown by 5.5 percent. Debts on credit cards represented $995 billion at this point. This had dropped by 4.6 percent in January versus December of 2016. There are three reasons why Americans find themselves so deeply in debt today. These are school loans, car loans, and credit cards. School loans commonly last for ten years. They can also be pushed to an over 25 year repayment schedule by extension. The federal government guarantees most of these loans since there are no assets with which to back a college degree. The rates are low to encourage higher education. During the Great Recession, these loan defaults skyrocketed as the loans increased massively with many people who were unemployed “going back to school” to improve their prospects. The Affordable Care Act gave the Federal government authority to take over this national student loan program from Sallie Mae, the private company which previously administered it. Car loans typically run from three to five years, which is considered to be the safe collateral life of the new vehicle. After this point, the value of these cars depreciates so highly that they are no longer considered to be valuable collateral. Banks simply repossess the vehicle if the borrowers default on the

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payment schedule. There are more of these loans now thanks to the low interest rates which encourage borrowing to buy vehicles. Finally, credit card debt soared because of the Bankruptcy Protection Act of 2005. People could no longer easily declare bankruptcy, so they were forced to run up their credit cards in an effort to pay bills, especially healthcare. In July of 2008, the credit card debt peaked at its historic high of $1.028 trillion. This amounted to a per household average of $8,640.

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Consumer Financial Protection Bureau (CFPB) The CFPB is the Consumer Financial Protection Bureau. Congress created this government agency in 2008 as one of the reactions it took to the devastating financial crisis and Great Recession, the worst financial shocks to the system since the end of the 1930s era Great Depression. The idea was to erect an organization that would protect consumers from risks and predatory practices of Wall Street and the mega banks which already had been determined as “too big to fail.” The Dodd-Frank Wall Street Reform and Consumer Protection Act actually set up this new entity the CFPB. The role of this new twenty-first century organization is to assist consumers in the financial markets through creating rules that are more efficient and fair, by continuously and equitably enforcing the rules, and by helping consumers to be able to gain additional command over their own economic futures and affairs. The Consumer Financial Protection Bureau’s goal is to ensure that the various financial markets function fairly and appropriately for providers, consumers, and the all around national economy. To this effect they strive to safeguard consumers from deceptive, predatory, abusive, and unfair activities in the marketplaces. They enforce action on any companies which break the laws. The CFPB provides people with the tools and information they require to make decisions that are smart for their own situations. The Consumer Financial Protection Bureau believes in and labors towards a financial market that works fairly. This means that the terms, risks, and prices of any deals must be transparent and obvious in advance so that all consumers are able to know their choices and fairly and effectively comparison shop. They work to see that all corporations abide by the identical consumer protection rules. Each company must fairly compete to provide high quality goods and services. To see this vision become reality, the Consumer Financial Protection Bureau strives to empower, enforce, and educate. Empowering means that they develop tools, answer commonly posed queries, and offer helpful tips for consumers who are interested in making their way through the various financial options to shop around for the deal that best meets their needs. They pride themselves on their effective enforcement of the rules against predatory operations and actions that break the law. The CFPB has obtained and returned literally billions of dollars in damages to customers who were wronged. Education means that the CFPB fosters consumer abilities and educational opportunities from a young age extending on to retirement. They inform financial companies of their legal and ethical responsibilities and publish research to help out consumers. The Consumer Financial Protection Bureau operates in several core functions. They acknowledge that the government created them to offer one accountability agency to enforce the laws for federal consumer finance and to safeguard consumers in the financial arena. This used to be the purview of a number of different agencies. Among the CFPB’s core functions are receiving complaints from consumers, enforcing the discrimination laws in consumer finance, and creating and enforcing rules to rid the market of abusive, deceptive, and predatory actions by companies.

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They also foster financial education among consumers, regulate and oversee the financial markets for upcoming risks for consumers, and do research on consumer’s experiences in utilizing financial services and products. They do this to try to locate problems lurking in the financial marketplace so that more fair ultimate outcomes can be achieved for American consumers everywhere. As of 2016, Richard Cordray is the Consumer Financial Protection Bureau’s first director. Before he assumed this important responsibility, he served in the role as head of the Bureau’s Office of Enforcement.

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Consumer Price Index (CPI) The Consumer Price Index, also known by its acronym of CPI, actually measures changes that take place over time in the level of the pricing of various consumer goods and services that American households buy. The Bureau of Labor Statistics in the U.S. says that the Consumer Price Index is a measurement of the over time change in the prices that urban consumers actually pay for a certain grouping of consumer goods and services. This consumer price index is not literal in the sense of what inflation really turns out to be. Instead, it is a statistical estimate that is built utilizing the costs of a basket of sample items that are supposed to be representative for the entire economy. These goods and services’ prices are ascertained from time to time. In actual practice, both sub indices such as clothing, and even sub-sub indices, such as men’s dress shirts, are calculated for varying sub-categories of services and goods. These are then taken and added together to create the total index. The different goods are assigned varying weights as shares of the total amount of the expenditures of consumers that the index covers. Two essential pieces of information are necessary to build the consumer price index. These are the weighting data and the pricing data. Weighting data comes from estimates of differing kinds of expenditure shares as a percentage of the entire expenditure that the index covers. Sample household expenditure surveys are sourced to figure what the weightings should be. Otherwise, the National Income and Product Accounts estimates of expenditures on consumption are utilized. Pricing data is gathered from a sampling of goods and services taken from a sample range of sales outlets in varying locations and at a sampling of times. The consumer price index is figured up monthly in the United States. Some other countries determine their CPI’s on a quarterly basis. The different components of the consumer price index include food, clothing, and housing, all of which are weighted averages of the sub-sub indices. The CPI index literally compares the prices of one month with the prices in the reference month. Consumer Price Index is only one of a few different pricing indices that the majority of national statistical agencies calculate. Inflation is figured up using the yearly percentage changes in the underlying consume price index. Uses of this CPI can include adjusting real values of pensions, salaries, and wages for inflation’s effects, as well as for monitoring costs, and showing alterations in actual values through deflating the monetary magnitudes. The CPI and US National Income and Product Accounts prove to be among the most carefully followed of economic indicators. Cost of living index is another measurement that is generated based on the consumer price index. It demonstrates how much consumer expenditures need to adjust to compensate for changes in prices. This details how much consumers need to keep up a constant standard of living.

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Contango Contango refers to an unusual situation in which a given commodity’s future price rises to a higher amount than the anticipated future spot price. As such, it also means that the commodity in question has a future date spot price that is lower than the present price. It relates that investors will pay a greater price for a commodity in the future than the price for the commodity which economists and analysts expect the commodity to fetch. There could be a variety of reasons for this. It could be that individuals would prefer to offer a higher premium over the spot in order to hold the future date of the commodity instead of having to pay for storage costs and/or any carrying costs for purchasing the commodity physically now. There are other ways of looking at such markets that exist in contango. It is at once a scenario where the price for delivery of the futures contract under discussion must adjust to the downside in order to level off with the futures price. Similarly markets that are in this state show a futures curve (or forward curve) that is sloping upward. The prices must converge closer to each other quickly. If they do not in fact do this, then savvy investors will rapidly recognize that they can begin to set up trades to profit from the unnatural situation by utilizing arbitrage trading. These scenarios are actually not only unnatural, but they are expensive for investors who maintain positions which are net long. This is because the prices for the futures are declining while they are long the positions. It is helpful to look at a clear example to demystify the concept. Consider than an investor might take a long position using a futures contract at the price of $100. In one year, the contract becomes due. Should the anticipated spot price in the future sit at $70, then the market is in contango. This means that the futures price has to come down (or the spot price for the future must rise). They will have to converge together in some way or another at one point in the near future. Contango should never be confused with Backwardation. In fact this is the opposite of backwardation. Such a backwardation state is viewed as the typical and natural position of the commodities markets. These markets are in this state as futures prices sit lower than the anticipated spot price in the future in a given commodity. Such a view point means that the futures curve or forward curve slopes downward. This is most optimal for those investors who carry long positions because they hope for the price of the futures contract to increase. Consider this particular example. The Brent Crude oil trades for $45 per barrel while the contract futures price in a year from now is $55. This means that the commodity is in a state of backwardation since the futures price must increase to converge along with the spot price that is anticipated in the future. Those investors who have long net positions in commodities which suffer from this state of contango naturally lose when it is time for futures settlement or expiration to occur. The only way that such investors will find it tolerable to remain long in such commodities will be to purchase the contracts at greater prices. This would lead to a negative roll yield though. As an example, consider Frank the investor who is holding a long futures gasoline contract. It will expire in 9 months. Assume that gasoline is in this state with a $19 price level while the commodity itself trades for only $13. Nine months later, the futures contract has fallen to $16 while the spot has risen to $15. In order for Frank to remain long, he will need to roll his futures contract. He might do this by buying one

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futures contract at a higher price of $22 that will expire three months from then. The downside would be that he will continue to suffer losses as he rolls such futures contracts over into the future month for a higher price.

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Contingency Contingency in business relates to insurance products that generally are not included within the most commonly accepted types of insurance products such as property, casualty, marine, and financial services handled by the majority of insurance companies. The London Market began the industry of contingency insurance products. These forms of insurance cover cancellation, non appearance, prize indemnity, transmission failure, weather, political risk, reduction in yield, and various other forms of unusual and esoteric coverage. These types of insurance products protect business clients from losses every bit as much as do typical insurance coverage. Cancellation coverage pays a business or individual client back all of the costs and income associated with conventions, concerts, and other special events that are forced to be canceled or postponed for reasons beyond a promoter’s control. Reduced attendance, ticket refunds, and obligations of contract may also be covered by this category of contingency insurance. Non appearance contingency insurance protects a business’ income should their scheduled famous performer not appear at the event as promised. Included with this type of contingency coverage are dangers such as sickness, extortion, accident, family catastrophe, and even incarceration of the performer. The total dollar amount that is covered includes not only the fee paid to the performer but also the revenue generated indirectly from the event appearance, including parking, ticket sales, merchandising, and concessions. Prize indemnity contingency proves to be the widest type of contingency insurance business. Such products permit clients to be capable of insuring give away products and cash prizes to customers via promotions. To qualify for this coverage, a prize winning has to result from a lucky event. Transmission Failure contingency safeguards a business’ advertising money spent, or other revenues that would be generated, if a television signal somehow became preempted or interrupted. This contingency insurance is set up to provide coverage for a specific time frame or television event. Interruption has to be something that the insured is unable to control, such as catastrophic or segmented coverage. Contingency insurance for the weather is commonly utilized alongside event cancellation coverage. These policies pay an insured entity if poor weather happens at a certain time on a particular day. Included in these types of weather are snow, rain, wind, lightning, or tornado watches and warnings. It might also be utilized in a promotion where weather turned out to be a factor in a prize being won. Political risk contingency coverage pertains to an individual event that might lead to an event being canceled. Such coverage could pertain to delay, abandonment, or repatriation having to do with a covered event. Such coverage is available for limited time frames only. Reduction in yield contingency is useful for casinos, amusement parks, and resorts. This policy actually pays if anticipated revenue from visitors or ticket sales does not reach the expected level because of a covered peril. If attendance is less than expected, the policy will pay to its limit.

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Conversion Discount Conversion Discount refers to a special option applied to conversion investments. Understanding what a conversion is first becomes necessary in order to make sense of the discount clause. Conversions are the abilities to exchange some from of a convertible debt instrument into another kind of asset such as company stock. This conversion will be contractually spelled out at a prearranged price for a pre-set date deadline. The feature of a conversion itself proves to be a financial derivative type of instrument which has a separate and distinct value from the security itself. This is why including a conversion option in a security will only increase its all around value to the potential buyers. Convertible bonds are excellent examples of assets that go through conversions and may end up with these discounts. Such a bond provides the holders with the ability to trade in the bond for a previously arranged quantity of stock in the company which issued the bond. This would usually be attractive to the holders of the bonds when the stock shares’ value is greater than that of the bond itself. This is the point when most bond holders choose to exercise their conversion clause. Looking at a tangible example helps to clarify the issue. Consider that Paul has a convertible bond from Astra Zeneca the Anglo-Swedish pharmaceutical company. The bond has a value of $1,000. Should Paul have the option to convert this bond into 10 shares of Astra Zeneca stock, then he will probably choose to do so only if the stock is worth more than $100 per share. This would give him equity holdings greater than the $1,000 original value of the company bond. The idea becomes interesting with discounts. The interest rates on such bonds is often very low, even less than five to six percent. This does not fairly compensate investors for the risks they often take on with companies that have non-established track records, insecure income streams, or shaky credit. Because of this, investors can be additionally compensated with the option to convert the note into equity. Once upon a time in the early years of the 2000’s, companies used to set this up as a stock warrant. In the last ten plus years they have been using conversion discounts with these notes instead. Conversions discounts are quite attractive for investors. They do not simply deliver an options to buy a stock at a given time in the future as warrants do. Instead, they provide the right (but usually not the obligation) to convert into the stock at a lower price for every share (compared to other buyers) in a certain Qualified Financing event of the convertible notes. Naturally the investors’ benefits in this are far more instantaneous than with warrants. They are not required to wait for a company sale in order to buy more shares. They also receive these shares instead of having to buy them all over again, as with warrants. This means that no exercise price applies. This conversion discounted price for shares actually pays the cost of the additional shares which they are provided in the round of Qualified Financing. As a result, they are getting more shares for their money. This is because the conversion discount is commonly 20 percent to 40 percent or even higher. As a concrete example, if the holder of a conversion note in the Cancer Cure Company offers the conversion discount at 30 percent, then for every seventy cents of the note the bond holder owns, he will receive a dollar face value share of stock.

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Convertible Bond A convertible bond is like a hybrid between a stock and a bond. Corporations issue these bonds which the bondholders may choose to convert into shares of the underlying company stock whenever they decide. Such a bond usually pays better yields than do shares of common stocks. Their yields are also typically less than regular corporate bonds pay. Convertible bonds provide income to their investors just as traditional corporate bonds do. These convertibles also possess the unique ability to gain in price if the stock of the issuing company does well. The reasoning behind this is straightforward. Because the bond has the ability to be directly converted into stock shares, the security’s value will only gain as the stock shares themselves actually rise on the market. When the stock performs poorly, the investors do not have the ability to convert the convertible bond into shares. They only gain the yield as a return on the investment in this case. The advantage these bonds have over the company stock in these deteriorating conditions is significant. The value of the convertible instrument will only drop to its par value as long as the company that issues it does not go bankrupt. This is because on the specified maturity date, investors will obtain back their original principal. It is quite correct to say that these types of bonds typically have far less downside potential than do shares of common stocks. There are disadvantages as well as advantages to these convertible bonds. Should the issuer of the bond file for bankruptcy, investors in these kinds of bonds possess a lower priority claim on the assets of the corporation than do those who invested in debt which was not convertible. Should the issuer default or not make an interest or principal payment according to schedule, the convertibles will likely suffer more than a regular corporate bond would. This is the flip side to the higher potential to appreciate which convertibles famously possess. It is a good reason that individuals who choose to invest in single convertible securities should engage in significant and extended research on the issuer’s credit. It is also important to note that the majority of these convertible bonds can be called. This gives the issuer the right to call away the bonds at a set share price. It limits the maximum gain an investor can realize even if the stock significantly outperforms. This means that a convertible security will rarely offer the identical unlimited gain possibilities which common stocks can. If investors are determined to do the necessary research on an individual company, they can purchase a convertible bond from a broker. For better convertible diversification, there are numerous mutual funds which invest in only convertible securities. These funds are provided by a variety of major mutual fund companies. Some of the biggest are Franklin Convertible Securities, Vanguard Convertible Securities, Fidelity Convertible Securities, and Calamos Convertible A. Several ETF exchange traded funds provide a similar convertible diversification with lower service charges. Among these are the SPDR Barclays Capital Convertible Bond ETF and the PowerShares Convertible Securities Portfolio.

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It is important to know that the bigger convertible securities portfolios such as the ETFs track have a tendency to match the performance of the stock market quite closely in time. This makes them similar to a high dividend equity fund. Such investments do offer possible upside and diversification when measured against typical holdings of bonds. They do not really offer much in the way of diversification for individuals who already keep most of their investment dollars in stocks.

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Core CPI Core CPI refers to the Consumer Price Index. This term revolves around the idea of core inflation. It reveals the longer term price trend in a given item or economy. Core CPI is a means of measuring inflation which leaves out some specific items, particularly those that experience volatility in their pricing. There is a reason for excluding these items. To learn what long term inflation actually is, volatility in prices over the short term and temporary price changes have to be eliminated. Core inflation is most typically figured up by using the core CPI. This takes out some products like food and energy items, especially oil and gas. Both of these categories may experience short term price changes. Such short term shocks often differ from the bigger picture trend in inflation and provide a false reading of it. There is another way of calculating core CPI. This is called the outlier method. This way of figuring core inflation takes away products that show the biggest price movements. Many of these items’ prices fluctuate rapidly in commodity markets when speculators trade them for profit. Since their prices do not reflect actual alterations of supply and demand, it can make sense to exclude them. The government is very concerned about which method of measuring inflation it uses. The Federal Reserve decided to switch from CPI to the PCE Index back in January of 2012. They prefer PCE because it offers trends in inflation which are less dramatically impacted by changes in short term prices. Different agencies find other ways to get to what they believe are more accurate means of measuring inflation. The BEA Bureau of Economic Administration is concerned with eliminating those short term price changes that speculators and traders cause. To get around this, the BEA works with the gross domestic product numbers that already exist and calculates price changes from it. It then takes the monthly release of Retail Survey numbers and measures them against the CPI data-provided consumer prices. The BEA eliminates irregular fluctuations in the inflation data this way and gains more accurate long term trend information. Determining core CPI inflation is important. It reveals the correlations between goods and services with their prices and the purchasing value of the general income of consumers. Should the costs of goods and services go up in a given time frame while the consumers’ parallel income levels do not rise, the buying power of consumers is weakening. This is because their money’s actual value is declining when measured against the costs of critical goods and services. The process could be virtuous as well. Sometimes inflation occurs only on the income of consumers while the costs of goods and services remain constant. In this case, consumers gain greater purchasing power. This means that they will be able to buy an additional amount of the identical services and goods. Asset inflation can also benefit consumers. If the price of their house or the value of their investment portfolio goes up, the consumer has additional buying power also.

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Corporate Bonds Corporate bonds are debt securities that a company issues and sells to investors. Such corporate bonds are generally backed by the company’s ability to repay the loan. This money is anticipated to result from successful operations in the future time periods. With some corporate bonds, the physical assets of a company can be offered as bond collateral to ease investors’ minds and any concerns about repayment. Corporate bonds are also known as debt financing. These bonds provide a significant capital source for a great number of businesses. Other sources of capital for the companies include lines of credit, bank loans, and equity issues like stock shares. For a business to be capable of achieving coupon rates that are favorable to them by issuing their debt to members of the public, a corporation will have to provide a series of consistent earnings reports and to show considerable earnings potential. As a general rule, the better a corporation’s quality of credit is believed to be, the simpler it is for them to offer debt at lower rates and float greater amounts of such debt. Such corporate bonds are always issued in $1,000 face value blocks. Practically all of them come with a standardized structure for coupon payments. Some corporate bonds include what is known as a call provision. These provisions permit the corporation that issues them to recall the bonds early if interest rates change significantly. Every call provision will be specific to the given bond. These types of corporate bonds are deemed to be of greater risk than are government issued bonds. Because of this perceived additional risk, the interest rates almost always turn out to be higher with corporate bonds. This is true for companies whose credit is rated as among the best. Regarding tax issues of corporate bonds, these are pretty straight forward. The majority of corporate bonds prove to be taxable, assuming that their terms are for longer than a single year. To avoid taxes until the end, some bonds come with zero coupons and redemption values that are high, meaning that taxes are deferred as capital gains until the end of the bond term. Such corporate debts that come due in under a year are generally referred to as commercial paper. Corporate bonds are commonly listed on the major exchanges and ECN’s like MarketAxess and Bonds.com. Even though these bonds are carried on the major exchanges, their trading does not mostly take place on them. Instead, the overwhelming majority of such bonds trading occurs in over the counter and dealer based markets. Among the various types of corporate bonds are secured debt, unsecured debt, senior debt, and subordinated debt. Secured debts have assets underlying them. Senior debts provide the strongest claims on the corporation’s assets if the venture defaults on its debt obligations. The higher up an investor’s bond is in the firm’s capital structure, the greater their claim will ultimately be in such an unfortunate scenario as default or bankruptcy.

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Corporation A corporation refers to a business entity where it is distinctive and separated from the owners. Such corporations may take on many responsibilities similar to individuals. They can borrow and loan out money, make and execute contracts, hire and terminate employees, sue or become sued, pay taxes, and own cash and assets. This is why corporations are many times referred to by the phrase of legal person. A corporation is a legal construct that controls and runs businesses of all types all over the globe. There may be differing legal arrangements from one government jurisdiction to the next, but they all have the attribute of a limited liability. With this protection, shareholders enjoy important rights like benefitting from dividends as a result of profits and price appreciation from successful business endeavors. While enjoying these advantages, limited liability means that they do not carry any of the personal responsibility for payment of the company’s debts. Practically every famous business and brand in the world is a part of a corporation. This includes such internationally recognized entities as Coca-Cola, McDonalds, Microsoft, and Toyota Motors. Corporations can also do business under a different name. A classic example of this is Alphabet Inc. that runs Google. Corporations are established as a group of stock holders choose to incorporate. They pursue this follow up after a common goal in their ownership of the business. Such corporations may be charitable as well as for profit. The overwhelming majority of such companies are founded with the ambition of earning positive returns for the stock holders. These shareholders own some percentage of the corporation in exchange for paying for their shares. If they obtain them directly from the company, then their payments remit to the treasury of the company itself. Corporations sometimes possess thousands of shareholders, especially when they are publicly traded companies. These entities could also have only a few or even one shareholder. The most common corporations within the United States are called “C Corporations.” Shareholders use their one vote per share to vote for the company board of directors every year. This group is responsible for naming the management which they oversee. The managers run the daily activities of the company. It is the corporation’s board of directors which must carry out the business plan of the entity. They also do not bear responsibility for the company’s debts, but have a fiduciary responsibility to care for the corporation. If they do not fulfill the duty faithfully, they may become personally liable for mistakes. There are tax statutes that allow for board of directors members to be personally liable. As these corporations fulfill their goals, they can be wound down through a process also known as liquidation. In this process, they appoint a liquidator to sell off the company assets, pay the creditors, and share out all cash assets which remain among the stockholders. This can be done as a result of an involuntary or a voluntary procedure. Creditors can force liquidation when a company can no longer pay its debts. This often leads to corporate bankruptcy.

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Cost of Goods Sold (COGS) The Cost of Goods Sold refers to those costs which directly arise from the creation of a firm’s goods or services. The phrase also sometimes is summarized by its acronym COGS or by an alternative name the “cost of sales.” It will cover many expenses. Among these are all of the materials the company utilizes to physically produce the goods. It also considers the labor expenses employed to create the items. It will not include expenses that are considered to be indirect. This means that sales force and distribution expenses will not be taken into account. COGS shows up on income statements. Accountants and economists can utilize it to subtract it out from the given company’s revenues in order to establish the firm’s gross margin. Every business has the ultimate goal to earn profits at the heart of what it is doing. This is why a less expensive goods production for their product or service will lead to higher profits, all else being equal. A fuller explanation of what the Cost of Goods Sold includes involves inventory, materials, labor, factory equipment for production, and even overhead. All of these factors of production directly pertain to the goods or services the company produces. The calculation also takes into consideration the freight or shipping of inputs utilized. It would never include associated costs like rent for a facility or general payrolls of a company. Looking at an example helps to clarify the Cost of Goods Sold concept. Where an automobile manufacturer is concerned, there will be a number of material costs. Chief among these would be those parts that actually combine to produce the car, as well as the cost of labor for assembling the car. The COGS would not include the cost of the sales force personnel which actually sell the car nor the price for getting the cars out to the dealership. Both of these last ideas are post-production costs, so they are not a part of the primary COGS. There are a number of different ways for calculating the Cost of Goods Sold. It also varies from one certain kind of business to those in another industry. Among the most simple means of figuring this number out is to start with the costs of inventory over the production period. Next they would add in the aggregate purchase amounts in the same time frame. They would likely then subtract out the inventory at the end of production point. Such a calculation will provide the literal cost of the inventory which the company produced in a given time frame. Another example helps to make the explanation clearer. Assume that a firm begins its production phase with $15 million worth of inventory. If they make $3 million in additional purchase in this time and end the production period with $14 million of inventory, then the firm’s Cost of Goods Sold is calculated by taking the $15 million and adding in the $3 million in purchases and subtracting out the final $14 million in remaining inventory. This gives a final COGS of $15M plus $3M minus $14M for a final result of $4M. The significance to this formula and Cost of Goods Sold figure is important. The COGS reveals how effectively the firm is able to convert its inventory into revenues and profits. This is why it is critical to compare the COGS against the revenue of the period under consideration. When the company above had a revenue exceeding $4 million, then it would boast a gross profit that was positive. If the revenue of the

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firm in question was less than the $4 million COGS, then there would be a negative gross profit. In other words, understanding and knowing the COGS figure for a company tells investors which companies are ultimately successful and which are in financial trouble, assuming that state of (negative profit) affairs continues for long.

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Cost Push Inflation Cost-push inflation is a scenario where all around price levels go up, creating inflation. This happens because of rising prices in the important inputs of raw materials as well as higher wages for labor. This type of inflation appears because of rising production factors costs. This leads to a lower amount of total supply and production in the economy. With a smaller quantity of good being produced as the supply weakens while demand for such goods remains constant, the final cost for the finished products goes higher. This creates the inflation. Cost-push inflation most typically begins when the costs of production rise. This is many times an unexpected cost increase. It could come as a result of higher prices in input raw materials, an unforeseen shutdown of or damage to a key production facility (like with natural disasters or fire), or forced higher wages for the employees in production. The higher wages could result from an increase in the minimum wage that automatically boosts the salaries of the workers who were making less than the new legally accepted minimum standard. In order for such cost-push inflation to occur, the associated demand of the product in question has to stay constant while the changes in costs of production are actually happening. Producers then feel they have no choice but to compensate for the rising production expenses. They raise their end prices for their consumers so that they can hold their profit margins as they attempt to keep up production with anticipated demand for the products. There can be several unanticipated causes of this cost-push inflation. Natural disasters are a common example. There might be earthquakes, floods, tornadoes, hurricanes, or other kinds of large “acts of God” events that interfere with some component in the production chain. These create higher costs of production. Natural disasters that do not lead to higher costs of production do not qualify as an example of this type of inflation. There are other actions that can eventually cause rising costs of production as well. It might be a strike of the plant workers that happens because of failed negotiations in contracts. It could also result from a rapid change in government as often happens in developing countries. This might create an inability for the country to keep up its prior levels of production output. There are similarly cost-push inflation causes that may be anticipated but are still unavoidable. Present regulations and laws can change. These changes may be foreseen. Despite this, there could still be no practical means of offsetting the resulting higher costs that come along with the changes. Cost-push inflation is one of the two main types of inflation. The other kind is demand-pull inflation. This is the opposite form. In demand-pull, higher production costs force up the price of an individual service or good. With demand-pull inflation, the increase in demand happens even when production may not be boosted to cover the rising needs. In such cases, the costs of the product will go up because of the resulting imbalance that is created in the natural demand and supply model.

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Cost Segregation Cost segregation proves to be a procedure of identifying assets of personal property that commonly become lost or bunched together in the real property asset. Cost segregation involves reclassifying costs of assets to a depreciable life that is the shortest one possible. This allows owners of real estate to optimize their tax deductions in the depreciation category, which lessens the amount of present income tax due. Any investor who is buying a building, renovating a building, or getting into a construction project can qualify for significant Federal and state tax advantages using cost segregation. Particular assets that pertain to these types of projects may be eligible for such accelerated depreciation. This translates to you being capable of realizing bigger tax deductions now in a shorter time frame. Advantages in bigger tax deductions now include a less expensive capital cost and greater positive cash flow over the principal several years after a purchase has been made or a project completed. Cost segregation studies help you to find such chances to claim more accelerated tax purpose depreciation. These cost segregation studies show always be performed by well qualified Certified Public Accountants. Cost segregation is able to reduce the time frame for depreciation significantly via s simple strategy. These studies go through all of the costs involved in a property that are currently being tax depreciated over the usual thirty-nine year time frame. Many of these might be reclassified to far shorter time periods of depreciation, including fifteen years, ten years, seven years, or even only five years. The shorter the time frame of depreciation, the greater the tax deductions will be in this far shorter period of time. Greater amounts of depreciation are realized immediately when this is done properly. In this way, not only are tax savings in the present and coming years maximized, but cash flow is similarly increased. Cost segregation studies make sense for anyone who is purchasing an already existing building. They are efficient for investors who are putting up a new facility. They similarly help those who are engaging in leasehold improvements to a present building. Finally, they give tremendous advantages to businesses or individuals who are renovating, improving, or expanding a building that already exists. Even older buildings can be cost segregated for better tax deprecation purposes. Cost segregation should not be confused with simple deprecation analysis. A great deal more is involved than simply taking line items off of construction invoices to classify them. The procedure actually involves a team of professionals who are familiar with tax laws and accounting rules, along with construction and engineering concepts. A CPA will be the center of such a team, since he or she will have to make various building components tangible to quantify them in a way that they can be estimated as costs that work with IRS rules. This team would also feature an engineer, contractor, and possibly architect much of the time. Between them, these professionals will examine in depth electrical and mechanical plans, working drawings, and even blueprints to break segregate out the electrical, mechanical, and structural parts of the building from other components that are associated with the personal property. Even engineering and architect fees as they pertain to various parts of the project are included as soft costs.

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Council of Economic Advisers (CEA) The President’s Council of Economic Advisors proves to be an agency of the President’s Executive Office. They give the President unbiased and non partisan economic advice for coming up with both international and national economic policies. This council is made up of three people of whom one is the chair. They use analysis of empirical evidence based on economic research to come up with their regular recommendations to the President. They gather the most esteemed information they can to help the President in putting together the critical national economic policy and annual report. In 2016 the Chairman of this CEA was Jason Furman. The two members of the group were Jay Shambaugh and Sandra Black. Distinguished one time chairs of the group include former Chairmen of the Federal Reserve Alan Greenspan and Ben Bernanke and 2016 Federal Reserve Chairperson Janet Yellen. This council receives significant support from a number of staff members. Among their support personnel are staff economists and senior economists, research assistants, and a statistical back office. Congress established this Council of Economic Advisors for the President with its 1946 Employment Act. In this act, the legislation called for three members whom the President would appoint. The Senate was to advise on selection and give consent on the final selection of these members. Members chosen for the CEA are to be recognized for their experience, training, and accomplishments in the field of economics. Their purpose in greater detail is to consider and explain the economic developments to the President and to review the activities and programs the government establishes for economic appropriateness. They are also expected to create and recommend policies to encourage production, better employment, and higher purchasing power in a freely competitive economy. One of the three members the President is to appoint as Chairman for the council. The council specifically has five different duties in the performance of their role. They have to help with and give advice for the Economic Report that the President’s office prepares annually. They are instructed to collect information that is timely and accepted on the economic trends and developments in the U.S. They can then analyze and understand if the trends are interfering with attaining the stated Presidential policy. The group has to put all of this information together and turn it in to the President. A third role is to consider the activities and programs of the government. The CEA is supposed to ascertain which of these activities and programs are helping to advance the policy and which are hurting it so they can let the President know. They must also create and recommend policies for the President that help to develop and encourage competitive free enterprise. These policies should help to reduce and stop economic fluctuations and to improve national production, employment, and purchasing power. Finally, the Council of Economic Advisors was set up to create and provide a range of reports and studies that have bearing on national economic legislation and policies. These are to be drawn up as the President requests them. Every month the CEA prepares a report for the Joint Economic Committee of Congress. This is known as

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the Economic Indicators. In this publication there is information on income, gross domestic product, business activity, production, employment, prices, credit, money, security markets, international statistics, and the finances of the Federal government. They also produce reports and fact sheets on a nearly every month basis that address a wide variety of economic issues. These reports and the speeches and testimony of the members of the Council of Economic Advisors are all available to the public on their official website.

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Counter Offer Counter offers are those made by home sellers after buyers have turned in an official offer to buy the house. Usually, such counter offers spell out the terms with which the seller will accept the buyer’s official initial offer. Many different specifics can be addressed with a counter offer. Some of these things include the consideration of a higher offering price, presenting a larger earnest money deposit, and modifying time frames for contingencies. Others counter offer elements might revolve around altering service providers, excluding any personal property from the home selling contract, or changing the possession date or closing date. A seller might also refuse to cover the costs of certain fees or reports. Not only can sellers counter a buyer’s original offer, but buyers can similarly submit counter offers back to the seller on their counter offer. This is labeled a counter-counter offer. No limit to the actual numbers of counter offers which can be handed back and forth exists. Counter offers are easily rejected. A number of purchase contracts for houses have places at the bottom of the contract for a seller to put his or her initials if the offer is being rejected. Many offers have time frames, or expiration dates, when the offer will be rejected if the seller has not responded. Sellers can simply write the word rejected over a contract’s face, then date and initial it to reject a counter offer. In some states, sellers are allowed to come back with various counter offers at once. For example, in California, sellers are allowed to counter more than one offer at a time and every counter offer is permitted to be different. Should one of these buyers choose to affirm the counter offer of the seller in this scenario, the seller is not required to agree to the acceptance of the buyer. This can become confusing, so talking with real estate attorneys can be a good idea in these complicated cases. Counter offers can similarly be accepted without difficulty by the buyer. All that a buyer needs to do to take the counter is to accept the offer and send it back to the entity to which it goes. Like with anything, timing is critical. Counter offers expire much as purchase offers do. This means that a seller could always elect to take an alternative offer while a buyer contemplates whether or not to sign off on the counter offer. Even though many agents become discouraged at the mention of a counter offer being on the table, this should not be the case. Houses can be secured with new offers submitted even while a counter offer is out. In such a scenario, sellers commonly go ahead and take the second buyer offer. They then withdraw their counter offer from the first buyer. This is permissible and proper in every state.

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Credit Agricole Credit Agricole calls itself the foremost financial partner in the French economy. This is not idle boasting as they have a number of impressive accolades to their credit. It is rated the second largest bank in France and third largest banking group in Europe by assets. What makes it different from other global banks is that it proves to be a cooperative and mutual organization rather than a standard commercial bank. The Credit Agricole group counts 140,000 employees working under the leadership of 31,500 directors in its regional and local banks. The bank serves 52 million individual and business customers and has 8.2 million mutual share holders. There are also 1.1 million traditional individual share holders. By some measures, this banking group is the most important bank on the continent. It turns out to be the foremost retail bank in Europe by branch numbers and the largest manager of European assets. The group is the leading bank assurer in the continent and the third biggest player in the world of project financing. The group operates under the universal retail bank model. The individual retail banks cooperate together under a unique arrangement. Their regional banks are independent banks in which the corporate Credit Agricole owns 25% stakes. They work together on the common business lines. Besides retail banking, these include real estate, insurance, asset management, payments, consume finance, leasing and factoring, and investment and corporate banking. The group is listed on the stock exchange Euronext in Paris. The group provides finance and technical assistance for not only customer projects found in France, but also throughout the world. Credit Agricole has locations in more than 37 countries and territories around the globe. The bank corporation operates with a central body, a central bank, and an entity which handles the group’s strategic development. The entity provides coordination to the numerous business lines in France and internationally. They ensure that the bank runs smoothly and cohesively despite the independent nature of the regional banks. The banking group operates in three lines of business. These are French and international retail banking, specialized business lines, and corporate & investment banking. Credit Agricole has 2,512 local banks that are the basis of the banking group. These local banks own the majority of the capital of the Regional Banks. The other 25% is owned by the corporation. There are over 6.9 million members who own the local banks. The group’s 39 regional banks provide services to farmers, individuals, corporations, businesses, and local governments. In daily banking services, this group is the leading French bank. The regional banks provide a wide range of services. This includes investments, savings, loans, life insurance, property/casualty insurance, and payment instruments. They boast 20 million customers and hold the rank of number one in practically every local market in France. These regional banks also own the majority stake position in the Credit Agricole corporation as a whole. Regional banks obtain information, express opinions, and engage in dialogue with each other through the FNCA Fédération Nationale du Crédit Agricole. Credit Agricole’s main rivals in France include BNP Paribas, Societe Generale, and Group BPCE. These

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other competing banks are more traditional commercial banks that are not majority owned by their members as cooperatives or mutual organizations. This has not helped any of them to become larger by assets except for BNP Paribas.

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Credit Analysis Credit analysis refers to a kind of detailed consideration of a corporation or similar agency which issues debt. It is performed by managers of bond portfolios and investors. They seek to determine the ability of the borrower to cover their obligations of debt with this type of analysis. The ultimate goal is to discern the correct amount of default risk which investing in that specific agency or company will entail. There are a number of different considerations in performing this credit analysis. Some of these are fixed expenses, operating margins, cash flows, and overhead costs. These are also considered in equity analysis, yet with a different emphasis. It is true that stronger credit ratings do not equate to any guarantee of impressive share price performance. Yet when investors grasp a company’s credit ratings and the implications, they are able to better assess both the debt and equity results for a given corporation. Financial elements of a particular company are extremely important in credit analysis. Analysts will consider incoming revenues as well as costs and expenses of the corporation. These will be assessed both as stand-alone values and versus the competitors in the industry. For a firm to be considered strong where credit is concerned, its overhead must permit it to attain better than average profit levels in all points of the business life cycle. Even in a downturn in the economy, stronger companies can deliver results which are higher than average for the industry. Stronger firms also can demonstrate pricing power. This represents the capability of passing on cost increases for inputs and raw materials to the customers via higher prices. Competitive position is also important in a thorough credit analysis. Only companies which are strong competitively will be capable of maintaining their financial performances in the future. Companies which are highly competitive show long-running positive trends and abilities with quality of service, development of new products, and customer retention and satisfaction levels. It also helps a company’s competitive position when there are effective barriers to competition. These can be in the form of protective regulations, substantial copyright and/or patent protections, or agreements on licensing, permits, and franchising. The business environment is a third area of consideration for those performing credit analyses. This refers to three primary areas known as country risk, currency risk, and industry risk. Country risk relates to the ways in which the business activities of the enterprise can be negatively impacted by changes in the tax, regulatory, social, legal, and political regimes in those nations where they have a significant business presence. Currency risk simply refers to the effects of drastic foreign exchange movements on both the corporate balance sheet and the company’s capabilities of sourcing raw materials and other inputs or of selling their goods and products abroad. Industry risk pertains to the dynamics of the business, regulatory regime, and legal and market elements within the industry. These considerations can impact not only the industry but a particular company being evaluated by credit analysis. Looking at some examples of this can help to better understand the concept. Where there are currency exposures throughout the supply chain, the company could hedge these appropriately in the futures markets. Another example is that the company may know its earnings will not change much even as their

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industry segment progresses along a change in technology. There are many parallels between credit ratings of even different borrowing entities. This is why though the risk profile on an AAA-rated state government is less than that of an AAA-rated corporation, triple A rated borrowers in either scenario will always be far safer and less risky than the comparable B- and especially C-rated borrowers in each field. As an example, the A-rated S&P 500 companies boasted an average return of 10.74% in the period ending August 30th of 2013. For those same S&P companies with BB or lower credit ratings, their average return over the identical time period proved to be only 6.53%.

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Credit Bureaus Credit bureaus are agencies that collect financial information. They go by different names in various countries around the world. In the United Kingdom they are known as credit reference agencies. In Australia, the bureaus are called credit reporting bodies. India knows their credit agencies as credit information companies. Within the United States, these organizations are called consumer reporting agencies. Whatever name they go by, they all serve the same function. The bureaus gather information from banks and other financial sources to deliver consumer credit information about individual consumers. The U.S. consumer reporting agencies are governed by the Fair Credit Reporting Act. Other laws that regulate the activities of the bureaus are the Fair and Accurate Credit Transactions Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, and Regulation B. These acts attempt to safeguard consumers against unfair practices and mistakes made by the data providers and the credit reporting agencies themselves. The U.S. has two separate government organizations who oversee the credit bureaus and their data suppliers. These are the FTC and the OCC. Primary oversight of the credit reporting agencies as they deal with consumers belongs to the Federal Trade Commission. The banks are monitored for all of the information that they provide the reporting agencies by the Office of the Controller of the Currency. This government agency supervises, regulates, and charters all of the national banks and any information they turn over to the consumer credit reporting agencies. Three main credit reporting bureaus dominate nearly all credit reporting in the U.S. These are Experian, Equifax, and TransUnion. None of these three agencies are owned by government entities. All of them exist as companies seeking to make a profit and are traded publically. They are carefully monitored for fairness by the government provided oversight organizations. The consumer reporting agencies operate through a vast network with the credit card issuing companies, banks, and other financial entities with which individuals have accounts. All of these ties ensure that credit account information and histories show up on the credit reports of one, two, or even all of the bureaus. The credit bureaus compile all of this information into a consumer credit report. They each then utilize proprietary trade secret formulas to determine every individual’s FICO credit score. Each of the three bureaus formulates its own score that is different from that of its competitors. They also come up with educational credit score numbers which are often vastly different from the official scores. Consumers do not have to settle for educational credit scores. They have the rights to see what is on their credit reports. Each and every year, individuals are able to obtain an official credit report from each of the three credit bureaus. This can be done by going to the government mandated website AnnualCreditReport.com. Besides this, consumers are allowed to go to the websites of the three main consumer reporting agencies

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and order credit reports and scores from them directly. The only way to get the official credit score is to pay for and order it from the credit bureaus themselves. These are not provided in the annual free reports. Experian and Equifax offer all three credit reports in a single convenient to view document. Sometimes the credit bureaus will make mistakes with individuals’ credit reports. When this happens, it is important to get in touch with the credit bureau itself in order to dispute any information that is inaccurate. These organizations also should be contacted directly if there is concern about fraud so that they can place a security alert or fraud alert on the person’s credit report.

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Credit Default Swaps A credit default swap, or CDS, is a contract exchange that transfers between two parties the exposure of credit to fixed income products. Two parties are involved in this exchange. The purchaser of a credit default swap obtains protection for credit. The seller of this credit default swap actually guarantees the product’s credit worthiness. In this process, the default risk moves from the owner of the fixed income security over to the party that sells the swap. In these CDS transfers, the purchaser of the protection gives a series of fees or payments to the seller. This is also known as the spread of the Credit Default Swap. The party selling the protection gets paid off in exchange for this, assuming that a loan or bond type of credit instrument suffers from a negative credit event. In the most basic forms, Credit Default Swaps prove to be two party contracts arranged between sellers and buyers of credit protection. These Credit Default Swaps will address a reference obligor or reference entity. These are typically governments or companies. The party being referenced is not involved in the contract as a party or even necessarily aware of its existence. The purchaser of such protection then pays pre defined quarterly premiums, or the spread, to the party who is selling the protection. Should the entity that is referenced then default, the seller of the protection pays the face value of the instrument to the buyer of the protection against a physical transfer of the bond. Such settlements can also be accomplished by auction or in cash. Defaults in Credit Default Swaps are called credit events. These defaults might include a bankruptcy, restructuring of the referenced entity, or a failure to make payment. Credit Default Swaps are much like insurance on credit. The difference between them and such insurance lies in the fact that a CDS is not regulated like life insurance or casualty insurance is. Besides this, investors are capable of purchasing or selling this type of protection without having any such debt of the entity that is referenced. Resulting naked credit default swaps permit investors to engage in speculation on issues of debt and credit worthiness of entities that are referenced. These naked Credit Default Swaps actually make up the majority of the CDS market. The majority of Credit Default Swaps prove to be in the ten to twenty million dollar range. They typically have maturities ranging from one to ten years. The Credit Default Swap market is mostly unregulated and turns out to be the largest financial market on earth. These CDS products were actually created in the early part of the 1990’s. The market for them grew dramatically beginning in 2003. By the conclusion of 2007, the total amount of them in existence proved to be an astonishing $62.2 trillion dollars. This amount declined to $38.6 trillion in the wake of the financial crisis at the conclusion of 2008. Since then, it has been growing alarmingly again. Critics of Credit Default Swaps have consistently referred to them as financial weapons of mass destruction, capable of blowing up the financial system and world economies in the process.

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Credit Derivatives Credit derivatives refer to bilateral contracts which are privately held. These contracts permit the holders to manage their credit risk exposure. Such derivatives turn out to be financial assets. Examples of the better-known ones in the derivatives universe are swaps, forward contracts, and options. The price of these is necessarily based upon the credit risk of economic entities like governments, companies, or private investors. This means that banks which are worried about one of their customers not being capable of repaying their loan are able to purchase protection against such a potential loss in default. They do this by keeping the loan on their books at the same time as they transfer the credit risk off to a third party more commonly referred to as the “counter party.” Such credit derivatives are only one of numerous different kinds of financial instruments available to investors and financial institutions today. With these derivatives, they are merely instruments whose existence derives from underlying financial instruments. The value which underlies them comes from a stock or other asset. Two different principal forms of derivatives exist. These are calls and puts. Calls provide the right but not obligation to purchase a stock for a pre-set price called the strike price. Puts deliver the right but not obligation to sell particular stocks for pre-arranged strike prices. With either calls or puts, investors are obtaining insurance in case a stock price rises or falls. This makes every form of derivative product an insurance vehicle and particularly these credit derivative examples. Numerous credit derivatives exist on the markets today. Among these are CDO Collateralized Debt Obligations, CDS Credit Default Swamps, credit default swap options, total return swaps, and credit spread forwards. Banks are allowed to utilize these complicated instruments in order to completely take away their default risk from even an entire loan portfolio. The financial institutions or banks pay a premium, or upfront fee, for this accommodation. Considering a concrete example helps to make the credit derivatives concept clearer. Plants R Us borrows $200,000 off of a bank with a ten year repayment term. Because Plants R Us shows a poor credit history, they are forced to buy the bank a credit derivative in order to be able to receive the loan. The bank accepts this product which will permit them to transfer all of the default risk to a third counter party. This means that the counter party would be forced to deliver all unpaid interest and principal on the loan in the event that Plants R Us defaults on the said loan. For this guarantee, Plants R Us pays an annual fee to the counter party for their assumed risk. Should the Plants R Us not default on the loan, then the counterparty firm keeps the entire fee. This makes it a win-win-win situation for all three parties. The bank is protected against a default by Plants R Us, which gets to have its loan. The counter party collects the yearly fee. All parties gain and benefit from the arrangement. Credit derivatives’ values vary widely depending on several factors. These include the borrower’s credit quality as well as the counter party’s credit quality. The biggest concern comes down to the credit quality of the third party - counter party. If the counter party defaults or is otherwise unable to honor their commitments specified in the derivatives contract, then the financial institution will not get its payment for the loan principal and interest. The counter party would naturally no longer receive its annual premium payments any longer either. This is why the quality of credit for the counter party is so much

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more critical than is the credit quality of the borrower (Plants R Us in the example).

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Credit History Credit history is an official record that shows the company or personal history of borrowing and paying back loans. This history provides business or personal identifying information, a record of credit that the individual or company has, and negative elements such as bankruptcies and late payments. It describes how individuals use their money and finances. It lists out the number of credit cards, loans and other obligations, and bills that a consumer has. It keeps records of whether they pay these bills in a timely fashion. The credit history information is compiled as companies send in data on credit cards and loans to one of the three main credit bureaus. These are Experian, Equifax, and TransUnion. They act as the gatekeepers of credit history. These companies compile all of this information on credit and bills into a file called a credit report. This credit report is the repository of all an individual’s credit history. It contains a great deal of personal information that starts with the owner’s name, social security number, and address. All credit cards and loans are itemized out and detailed. It states the total money a person owes. Finally, credit reports put together a profile on the individuals as to whether they pay their bills late or on time. Credit history and credit reports are important for individuals. Businesses will not loan out money to people until they know all about them and their spending and borrowing habits and past. Businesses find all of this information on personal credit history in these credit reports and then make decisions as to whether they will extend credit in the form of a credit card or make a loan to the applicant. Some employers choose to examine a candidate’s credit report along with a job application. Insurance companies also consider it when they are determining rates of their customers. Even cell phone and utility companies often look it up when they are deciding how much a person will need to pay in deposits to start service. Credit history is also used to create a credit score. Credit scores are numbers that the three credit reporting bureaus maintain for individuals using their credit history. If the credit history is good, then the credit score will be as well. Individuals can see their credit history and obtain their credit reports for free every year. Credit scores are not available unless people pay for them. High credit scores convey a good credit history. Lower credit scores refer to a poor credit history for an individual. Each of the three credit bureau companies will have a slightly different score for a person. High credit scores range from 700-850. Low credit scores start from 300 to 600. Credit history as shown in a personal credit report is very important to know. Each of the three companies is required to send individuals their credit report every year showing personal credit history on demand. Individuals are able to request this at no charge by going to AnnualCreditReport.com. There are other companies that advertise offers to provide credit scores for free along with free credit reports. These are usually promotional offers that require individuals to sign up for a monthly service of some type in order to qualify for them. Such offers are often monthly credit monitoring services for a fee. As a rule, a person will generally have to pay something to obtain his or her credit scores.

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Credit Ratings Agencies Credit Ratings Agencies are those companies whose purpose is to consider and report on the financial strength which firms and government agencies demonstrate. They report on national as well as international corporations and agencies in this capacity. Their reports are most interested in the ability of the entities in question to fulfill their obligations for both principal and interest repayments of their bonds and other kinds of debts. Besides this, the various ratings agencies carefully examine and review the conditions and terms on every debt issue. The end result of the agencies’ work is to release a credit rating on both the debt issues in particular and the debt issuers more generally. When they agencies have high confidence that the issuer will be able to meet their debt servicing of principal and interest as promised, they will issue a high credit rating. When the opposite is true, the credit rating will be lower. It is entirely possible for a particular issue of debt to receive a differing credit rating from the issuer. This heavily depends on the particular terms of the issuer. The impacts of these debt issue ratings are enormous in the industry and for the specific issuers in question. Those debt issues that obtain the best credit ratings will receive the most attractive interest rates from the credit markets. This is because the confidence of investors in an entity’s capability of making their various payment obligations comes down to the credit ratings agencies review, analyses and especially ratings. Since the interest rates which investors demand for a specific debt issue will be inversely correlated to the borrower’s particular creditworthiness, weaker borrowers will have to pay more while the stronger ones will enjoy paying less. In this way, the credit ratings agencies act on behalf of businesses in much the same capacity as the consumer credit bureaus do for individual consumers. Such credit scores which the credit bureaus develop for individual people will greatly impact the interest rates at which individuals are able to borrow money. The downside to these credit ratings agencies and their work is that they have been made the scapegoat for company and government defaults in recent years. Their research quality in particular has been the target of heavy criticism from observers and analysts who point out companies which they rated highly suddenly collapsed. Governments in Europe on which they provided high credit ratings defaulted or almost defaulted on their debts, as with Greece in particular. This caused third party observers to argue that the various credit ratings agencies are actually poor at financial forecasting, at uncovering growing and negative trends for the debt issuers they follow, and also are overly late in revising down their ratings. Besides this, critics point to the many conflicts of interest of the ratings agencies. This is because the debt issuers are able to pick out and pay the ratings agencies for the reviews of their bonds. In a survey conducted in 2008, 11 percent of the various investment professionals surveyed by the CFA Institute responded that they had observed personally instances where the major ratings agencies had actually upgraded their given ratings on bonds when they were pressured by the debt issuers in question. There are only three firms today which dominate the space, and this is part of the problem. The Wall Street Journal provided the ratings shares of the big 3 agencies in their 2011 report. Of the 2.8 million ratings they issue collectively (with the other seven minor agencies), S&P 500 controls the greatest

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market share with 42.2 percent. Moody’s holds 36.9 percent of the market. Fitch rounds out the top three with 17.9 percent. The article claimed that fully 95 percent of all revenues in this industry were earned by the big three. Only 2.9 percent of the ratings issued came from the other seven firms. The other seven credit ratings agencies were A.M. Best, DBRS, Japan Credit Rating Agency, Rating and Investment Info., Egan-Jones Ratings, Morningstar Credit Ratings, and Kroll Bond Rating Agency. Between the top two issuers Moody’s and Standard & Poor’s, they provide ratings for roughly 80 percent of all municipal and corporate bond issues. They are typically regarded as a level higher than Fitch. One particular example speaks volumes. While Egan-Jones had downgraded the U.S. Federal government debt to the second highest rating years earlier, it was ignored largely by the markets and world. When Standard & Poor’s took the same action by downgrading the Federal government of the United States debt to AA+ on August 5th of 2011, this shook the world bond, currency, and stock markets. It demonstrates the clout S&P and Moody’s especially enjoy over all of their various credit ratings agencies rivals.

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Credit Repair Organizations Credit repair organizations are those which offer to assist individuals with clearing up their credit report and improving their credit scores. While a number of them are legitimate operations, others can be scams. Such credit repair clinics often charge exorbitant prices to perform services that individuals can do for themselves. There were enough problems with fraud or unfulfilled promises from these organizations that Congress created a law to reduce abuse. This is known as the Credit Repair Organizations Act. Many credit repair organizations will offer to have incorrect information removed from the credit file of an individual. Consumers can do this themselves according to the provisions of the Fair Credit Reporting Act. Others will promise to take off information that is negative but correct from the files. Generally this takes seven years or longer for such information to go away if it is accurate. The credit repair clinics have a strategy to challenge all items in a customer’s file. These could be neutral, negative, or positive. They do this hoping that they can overwhelm the credit bureaus so that they will simply take off information rather than verify it first. The problem with this tactic is that credit bureaus are allowed under the Fair Credit Reporting Act to dismiss frivolous challenges. There are cases where the credit bureau may remove such information. The problem is that correct information often shows up again in one to two months as the original creditors will report negative information again. Credit repair organizations also offer to have court judgments and existing debt balances taken off of credit files. They can do this by negotiating partial or whole payments with the creditors in exchange for taking negative information away from the credit report. While these are legitimate negotiation tactics, individuals can do this without having to pay credit repair clinics for the service. Another suggestion that such credit repair organizations may make to consumer clients is to obtain a secured credit card from a bank which offers them. These are simply credit cards that individuals use after putting a deposit in an account at their bank. These secured credit card lists that the credit repair clinics offer are not proprietary. Individuals can find the same information for free or very little online. Congress attempted to curb abuses from credit repair clinics with their Credit Repair Organizations Act. It regulates these clinics that are for profit. The law states that these credit repair outfits must provide individuals with written statements of rights provided by the FCR Act. They must correctly present what they are and are not able to accomplish. They are not allowed to charge and collect fees until they render all services which they promised. The credit repair clinic must provide a contract in writing. They have to allow consumers to cancel the contracts within three days of signing them. Consumers must provide such cancellations in writing. All contracts that do not follow the Credit Repair Organizations Act become void. Consumers can not sign away any of their rights. There are unethical credit repair clinics which have found a means to get around the law. They incorporate themselves as not for profit organizations. This makes it easier for them to offer poor or limited results and to take customers’ money. They also find it simpler to perform the same services that consumers can do for themselves this way.

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Credit Report A credit report is an individual or business’ credit history. This includes their record of borrowing and repaying money in the past. It similarly covers data pertaining to any late payments made or bankruptcies that have been declared. In some countries, credit reports are also referred to as credit reputations. When an American like you completes a credit application for a bank, a credit card company, or a retail store, this information is directly sent on to one of the three main credit bureaus. These are Experian, Trans Union, and Equifax. These credit bureaus then match up your name, identification, address, and phone number on the application for such credit with the data that they keep in their bureau’s files. Because of this match up process, it is essential that lenders, creditors, and other parties always provide exactly correct information to the credit bureaus. Such information in these files at the three major credit bureaus is then utilized by lenders like credit card companies in order to decide if you are deserving of having credit issued to you by the creditor. Another way of putting this is that they decide how likely that you will be to pay back these debts. Such willingness to pay back a debt is usually indicated by the timeliness of prior payments to other lenders. Such lenders will prefer to see the debt obligations of individual consumers, such as yourself, paid on time every month. The second element considered in a lender offering loans or credit to individuals like you is based on your actual income. Higher incomes generally lead to greater amounts of credit being accessible. Still, lenders look at both willingness, as shown in the credit report and prior payment history, along with ability, as shown by income, in deciding whether or not to extend you credit. Credit reports have become even more significant in light of risk based pricing. Practically all lenders of the financial services industry rely on credit reports to determine what the annual percentage rate and grace period of repayment of a loan or offer of credit will be. Other obligations of the contract are similarly based on this credit report. In the past, a great deal of discussion has gone on considering the information contained in the credit reports. Scientific studies done on the issue have determined that for the most part, this credit report information is extremely accurate. Such credit bureaus also have their own authorized studies of fifty-two million credit reports that show that the information contained therein is right a vast majority of the time. Congress has heard testimony from the Consumer Data Industry Association that in fewer than two percent of credit report issue cases have there been data which had to be erased because it was wrong. In the few cases where these did exist, more than seventy percent of such disputes are handled in fourteen days or less. More than ninety-five percent of consumers with disputes report being satisfied with the resolution.

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Credit Risk Credit Risk pertains to the possibilities that borrowers might not be able to pay back their loan. This means that the lender would potentially lose its loan principal amount as well as the interest which goes along with it. Such risk occurs as a result of a borrower premise. The borrowers almost always believe that they will be able to utilize their cash flows from the future in order to pay back their currently agreed upon debts. The reality is that it is practically impossible to guarantee that borrowers will certainly receive those ongoing funds in order to pay back their debts. The reward that issuers receive for taking on such credit risk is the interest payments which borrowers deliver to the issuers of the debt. Lenders provide credit cards, mortgages, auto loans, and even personal loans to consumers and businesses. Regardless of how strong a candidate may appear on paper, there is always some chance and risk that the borrower will in fact default on the loan obligation. This is much like when a business provides credit to one of its clients. The chances exist that the client may be incapable of paying their invoices to the company. The phrase credit risk similarly refers to the danger that bond issuers may be unable to deliver their scheduled payments. It could also mean that an insurance company cannot honor a claim on a purchased policy. The credit risks are figured using the borrower’s total capability of repaying a debt. Assessing credit risks on loans made to consumers involves reviewing and considering what analysts call the “Five C’s.” These are the consumers’ capacity to pay back, their credit history, their collateral, their capital, and their conditions of the loan. Investors who are contemplating purchasing or investing in a bond also must consider the bond and firm’s underlying credit rating. With a lower rating, the government entity or corporation is in danger of defaulting. It means they have a high risk for default. Alternatively, when such organizations enjoy higher ratings, analysts will call them safer investments. It is up to the likes of credit risk agencies including Moody’s and Fitch to evaluate the various risks posed by literally thousands of municipalities and corporate bond issuers. They do this continuously in what amounts to an enormous undertaking. Investors which want to take on a limited amount of credit risk will choose to purchase bonds from municipalities with AAA (triple A) rated credit. When they do not care about some risk in the investment, they could instead pick out a bond that boasts a lesser rating. In compensation for this risk, they will receive potentially more interest in the form of a higher interest rate. Sometimes there will be a greater perceived risk of default from a bond issuer or borrower. In these cases, investors or lenders would insist on a greater interest rate return for the danger in which they are placing their capital. Examples of this abound. Mortgage applicants who possess fantastic credit ratings as well as a consistent income from a historically stable job will be considered a lower credit risk. This means they

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will enjoy a better interest rate for their mortgage. Alternatively, those applicants with poor credit history and scores from the three main credit bureaus will be forced into dealing with a subprime lender. These often predatory types of lenders provide loans with quite high interest rates to those borrowers considered to be higher risk individuals. The same is true with bond issuers. Those that have ratings which are less perfect will be forced to offer greater interest rates and amounts to investors. The bond issuers in the opposite camp with unblemished credit ratings will enjoy lower rates on their proffered bonds. This is simply because those bond issuers with poorer credit quality will have to engage in offers of higher returns. This is so they can attract investors who would then be taking on a substantial risk of the bonds not being repaid in a timely fashion.

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Credit Suisse Credit Suisse is a leading global Swiss-based banking giant whose history stretches back to 1856. Their global reach is supported by operations in more than 50 different countries. This banking group maintains over 48,000 employees who hail from more than 150 different countries around the globe. Their broad international reach allows the bank to create a well-balanced revenue stream geographically and helps them to engage in significant opportunities for growth throughout the globe. Credit Suisse serves its international clientele in three divisions which are regionally focused. These are the Swiss Universal Bank, the International Wealth Management, and the Asia Pacific divisions. The three principle divisions receive support from Global Markets and Investment Banking & Capital Markets support divisions. The Swiss Universal Bank focuses on the home country market of Switzerland. Here Credit Suisse delivers a significant variety of financial products and services to corporate, private, and institutional clients residing generally in Switzerland. The Private Banking business here is one of the leading brands in the country. More than 1.6 million individuals or entities count themselves as customers of this business of the bank. This includes not only regular retail clients, but also affluent and ultra high net worth individuals (HNWI). Included in this division is their Bank-now consumer finance business. This division also provides top of the line service, technology, and platform support for asset managers throughout Switzerland. The bank within Switzerland is comprised of 184 branches and 1,570 relationship managers. Included in this is their affiliate bank Neue Aargauer Bank. The Swiss Universal Bank division also has the Corporate and Institutional Banking business. It provides best in class services and advice to over 100,000 corporations, businesses, financial institutions, and commodity traders. Included in this business is their Swiss investment banking business. This division comprises 48 different locations and 490 relationship managers. The second Credit Suisse division is the bank’s International Wealth Management. Here they take care of international institutional, corporate, and private clients by offering them expert advice and a wide variety of financial products and services. The Private Banking business helps wealthy individual clients and outside asset managers throughout Europe, Africa, the Middle East, and Latin America. The bank maintains 46 locations and 1,200 relationship managers. Besides their own products, they also represent a number of third party services and products. The Asset Management business provides investment products and services worldwide to governments, pension funds, endowments, foundations, individuals, and corporations. This business concentrates on both traditional as well as alternative asset allocations and strategies. The third Credit Suisse division is the group’s Asia Pacific group. Here they focus on providing financial services and products to their high net worth and ultra high net worth individual clients, as well as corporate, entrepreneur, and institutional customers. The group offers its clients integrated access and support to the wider financial markets, specific financing solutions, and numerous products.

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Within this division, the Private Banking business offers tailored products and services that include digital access to the private banking services. They maintain 13 locations throughout 7 countries and 590 relationship managers within them. The Investment Banking business in this division advises their important clients on merger and acquisition deals, on takeover defense strategies and divestitures. Also on corporate restructuring and sales, and offers debt and equity underwriting services to institutions and individual and business clients. Besides this, the Investment Banking business covers trading and sales of both equities and fixed income instruments and offers a variety of derivatives, equity and debt securities, and opportunities for financing for its sovereign, corporate, and institutional customers. Credit Suisse’s core strengths remain its leading worldwide reputation and presence as a wealth manger, its impressive market share in home country Switzerland, and its particular skills and abilities in investment banking.

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Credit Union A credit union represents a financial cooperative. Members own these financial institutions. It is these members who both start and run them so that they can reduce costs for financial services and share profits with each other. There are a variety of sizes of these institutions. A credit union might be a small operation that volunteers run. It could also be a substantial outfit with thousands of members or more. The idea is the same in either case. The business model has members pooling their savings within the credit union so that they can make loans to other members and receive financial benefits. Such benefits include lower interest rates on loans and higher savings rates. Credit unions are similar to building societies in Britain, Australia, and other countries. Many of the building societies that allow members to invest their money to help members buy or build houses were started in the 1800’s. Halifax in the United Kingdom is the largest in the world with 18 million members. It is easy to become a member of a credit union, especially when individuals are invited. Once they deposit initial funds into the account at the institution, they become part owners of the organization. This allows them to share in the profits that it makes. They also gain the rights to vote for the board of directors of the credit union and in other important decisions. Many credit unions get started because a large corporation or other organization wants to offer these benefits to their employers or their members. In cases like these, profits can be invested in community services, membership interests, or projects that benefit the members. Credit unions are considered not for profit. This is because they are helping the community or their members out rather than making a profit for the organization itself. When credit unions began in America, the membership had limitations to those who held a common bond with others in the group. They might have to live in the same town or work in the industry of the other members. Credit unions have since loosened up the rules for becoming a member. Banks have been frustrated by this development that permits many people to participate in a rival organization which does not have to pay taxes. There are some risks to belonging to this type of organization. If the union is unable to cover its expenses beyond the services, they could possibly fail. Should the organization not possess enough cash flow, it will be unable to run the operations smoothly enough to take care of the members. At this point, it would be closed. The benefits of belonging to such an organization are significant. The friendliness and feeling of community is greater than from an average bank. The unions also give benefits that a bank will not, like less expensive loans, better rates for credit, and other financial services without fees or with lower costs. Other unions provide the membership with significant advantages like free insurance coverage or reduced cost and free education. The building societies of Europe predated credit unions in America. The first ones in the U.S. appeared in

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the 1900s. St. Mary’s Bank Credit Union of Manchester, New Hampshire became the first such organization in America. They are now found all over the globe. Some of them in the U.S. now run under the regulations of the Federal government instead of state regulations.

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Creditor Creditors are those financial institutions or individuals who extend credit to a business or other individual. They carry this out by providing financing which they expect will be paid back at a set time in the future. There is another type of creditor as well. This is a company which delivers services or supplies to a person or other business yet does not insist on immediate payment. Since the customer actually does owe the company money for the goods or services provided in advance of payment, that company becomes their creditor de facto. Within the universe of a creditor there are real and personal categories of them. Finance companies and banks represent real creditor situations. This is because they possess official and legally binding contracts which they sign with the borrower. In this action, they bind assets of the borrower as collateral against the loan in many cases. Typical collateral would be the underlying asset for which the borrower is obtaining credit in the first place. This is often a car, a house, or some other piece of Real Estate. A personal creditor is a family member of friend choosing to loan out money to their loved one or friend. Real creditors do not loan out money out of the goodness of their hearts. Instead, they intend to earn profits by charging the borrowers interest for these loans. Looking at an example helps to clarify the concept. A creditor might loan out $10,000 to a borrower at a six percent rate of interest. The lending institution will realize earnings in the form of loan interest. For this accommodation, the creditor is taking on some amount of risk that the borrowing business or individual might potentially default on the loan. This is why the majority of those extending credit will price the interest rate which they charge the borrower based on the business or persons’ prior credit history and creditworthiness. It becomes important to borrowers of especially large amounts of money to have high credit quality so that they are able to obtain a more advantageous interest rate and save money on the interest payments. The rates of interest on mortgages depend heavily on a host of different variables. Some of these are the nature of the lender, the credit history of the borrower, and the amount of the upfront down payment. Still, it is usually the creditworthiness that overwhelmingly determines the final interest rate which becomes applied to a loan such as a mortgage. This is because those borrowers who boast fantastic credit histories and scores come across as low risk for the creditor in question. It is why they enjoy the lowest of interest rates. As lower credit score-carrying borrowers prove to be considerably riskier for the creditors, they manage their risk by requiring a greater rate of interest in compensation. There are cases where a creditor will not obtain repayment. In such cases, they do have several options. Banks and official real credit issuing entities are allowed to repossess the underlying collateral. This would mean they have the ability to seize either the car or home which secured the loan. Where unsecured debts are concerned, it is more difficult to collect. They might sue the borrower for the unpaid debts in these cases. Courts could choose to issue orders attempting to force the borrower to pay them back. They might do this by seizing assets in their bank accounts or by garnishing their wages with their employers. Sometimes the borrowers will choose to file for bankruptcy. In these cases, the courts will be the ones to alert the creditor to the situation. There are cases where any non- necessary assets can be liquidated so

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that debts can be paid back. The order of priority will make unsecured creditors last in the receiving line.

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Currency Currency is also known as money that is accepted by businesses, the public, and the government as payment for goods and services. This includes paper notes and coins that a government issues and that circulate around a country and its economy. Internationally, currency can be used to pay for imports in the balance of payments. Since ancient times currency has always formed the medium of exchange for trade. Currency has evolved over the years from gold and silver coins to bills that represent them to paper money that is today backed only by faith and trust in the government that issues it. The U.S. currency has become the most heavily used reserve currency and medium for exchange around the globe. In the U.S., the BEP Bureau of Engraving and Printing creates currency in the form of the U.S. dollar. They produce literally billions of dollars of this currency every year and deliver them to the Federal Reserve System. These bills are known as Federal Reserve notes but are more commonly called dollars. The Federal Reserve states that there are around $1.4 trillion in these bills in circulation. Keeping up with this incredible demand for dollars currency is not easy. The BEP proves to be among the biggest such operations for printing currency in the globe. They maintain operations in both Washington, D.C. and Forth Worth, Texas. Times have changed considerably at the BEP from its humble origins in 1862. In those days, they produced this currency on a machine that the small group of operators cranked by hand. They did this in the Treasury building basement. Nowadays they utilize impressive technology that involves a cutting edged manufacturing process to produce the American paper money. The personnel doing this work are craftsmen who are extremely well trained and very skilled. They work with specific equipment and state of the art technology that utilizes the time tested historic techniques for printing. The production process involves a number of specific steps. Counterfeiting has created a challenge for the BEP. They redesigned the U.S. currency to defeat the criminals who counterfeit the dollar bills. Special background colors have been added to these new notes that ensures it is harder to counterfeit their more secure safeguards. Such improved designs are used on the $100, $50, $20, $10, and $5 bills. These were rolled out in stages, with the new $20s brought out in 2003. New $50s followed for 2004, $10s for 2006, $5s for 2008, and the all new $100s for 2013. The newly improved currency notes are the identical size as the prior issued notes. The images are historical with similar pictures to ensure that the bills appear and feel like other American dollars. Old security features are still utilized as well. This includes the watermark on the portraits that can be seen against a light, $5 special two number watermarks, a special security thread that can only be seen when placed to glow beneath an ultraviolet light, and better color shifting ink that shows different colors as notes are shifted. $100 notes still have the raised printing and 3 dimensions security ribbons as in the last re-design. Counterfeit notes are still a tiny percentage of the circulating currency in the U.S. Technology advances have made it easier for computers to create realistic looking counterfeit notes.

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Treasury has seen more of these computer generated fakes in recent years. This is why they chose to redesign the American paper currency so they could keep ahead of the technology empowered counterfeiters and their expanding methods for designing and printing the various dollar notes.

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Currency Intervention Currency intervention is also known as currency manipulation or forex intervention. These central bankpursued interventions happen as they buy or sell their own national currency on the global foreign exchange markets. They do this to raise or lower the value of their currency. Though these types of manipulations have occurred since the Great Depression, they are fairly new as a form of national monetary policy. Countries that have used this type of intervention heavily to limit the rise of their currencies in recent years are Japan, China, and Switzerland. In general, central banks use currency intervention as a tool to contain the rising value of their own money as compared to those of other countries. When currency values appreciate, a nation’s exports become more expensive and so are less competitive abroad. This happens because their goods cost more to buyers in their own foreign currencies. It explains why central banks prefer lower currency values which boost their nation’s exports and improve economic growth rates. The first significant use of currency intervention occurred on the side of the United States in the depths of the Great Depression. The American government counterbalanced imports of gold coming from Europe by selling off American dollars so that the gold standard would be upheld. Only when globalization had dramatically impacted economics did the large scale currency interventions of today become more commonplace. China has been a major perpetrator of currency intervention in recent decades. They have been constantly concerned with keeping their Chinese Yuan value down against the dollar so that their all important exports did not become more expensive to their biggest customer. They aggressively sold Yuan and bought assets denominated in American dollars such as Treasuries in order to keep up a peg against the dollar. The Swiss National Bank and Bank of Japan have also engaged in manipulation of the currency markets more recently to try to stem the over appreciation of their own national currencies. As the recipient of safe haven investment flows, these two countries find economic instability causes investors to seek their currencies the franc and yen for safety. They have responded by selling their own currencies and buying those of main trading partners, such as the euro and dollar. Switzerland made headlines in January of 2015 when it suddenly abandoned its interventionist Euro ceiling as unsustainable. The Swiss franc gyrated as much as 30 percent higher in value in hours before settling between 10 percent and 20 percent more against the euro and dollar. Currency interventions can be either sterilized or non sterilized. Sterilized interventions do not alter the money base of the country. Instead they offset foreign bond purchases or sales by performing the opposite transaction with its own currency bonds. Either means of intervening requires the central bank to sell or buy foreign currencies or bonds issued in such currencies. This allows them to decrease or increase their currency’s value in global forex markets. Central banks may also purchase and sell currency using transactions in forex spot or forward market

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instruments. They are literally buying or selling foreign currency with their own nation’s currency in these cases. They pursue such actions in order to impact the near term valuations of their currency. Economists question how effective such interventions really are. They generally agree that sterilized transactions cause little lasting effect. Spot and forward market purchases and sales tend to affect values short term but often do not last. Economists mostly concur that longer term currency interventions which are not sterilized can effectively impact exchange rates since they change the monetary base.

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Currency Pairs Currency pairs are two currencies expressed in terms of each other. They are price quoted in the forex market. One currency’s value is always expressed against another currency, such as with GBP/USD. This creates the values of currency comparisons against other currencies. In a currency pair, the first one listed is referred to as the base currency. Forex market brokers call the second currency in the pair the quote currency. The pairing explains the numbers of units of the quote currency investors need to buy a base currency unit. Forex trades always concern two of these pairs. When investors purchase a currency in the forex market they are buying the one and selling another at the same time. This does not change the fact that the currency pair is still one unit whether the trader buys it or sell it. When they buy the pair, they are actually purchasing the base currency by selling the quote currency. When they sell the pair, they are instead selling the base currency by buying the quote currency. Currency pair values are expressed by bid and ask prices. The bid is how much it will cost to buy a single unit of base currency in quote currency. The ask price is the selling price to obtain a single unit of the quote currency in terms of the base currency. As an example, consider the EUR/USD. When this pair is quoted as EUR/USD = 1.12, a buyer who purchases it receives one euro for $1.12 US. A seller of this pair would be trading 1 euro to obtain $1.12 US. These pairs can be quoted in reverse as well, as in USD/EUR. For example in this configuration the pair might list for .8975. Buying a single dollar would cost .8975 Euros with this example. Generally the more expensive currency is listed as the base currency for the pairs in forex markets. In fact the most commonly traded of the pairs is the EUR/USD. This pairing receives not only interest from people who wish to change dollars for Euros and vice versa. There is additional interest generated by other Euro cross pairs, such as with EUR/CHF against the Swiss Franc, EUR/GBP against the British Pound, and EUR/JPY against the Japanese Yen. The interest in these pairs is typically opposite the direction of the U.S. dollar. This means that when the market is negative on the U.S. dollar, the Euro will receive bids because of the general selling of USD. The other pairs against the dollar which are less liquid as in USD/CHF also are sold using the more liquid pairings. This would also create bids for Euros in the EUR/USD pair and market. The second most active pair of forex currencies is the USD/JPY. This pair has a history of having the greatest correlation to political relations between the U.S. and Japan. Many U.S. administrations have employed this currency pair in an attempt to influence trade with Japan. The Chinese have taken over the top trade tension place for the U.S. in Asia. USD/JPY still functions in its role as Chinese regional currency proxy. There are other major currency pairs that occupy the majority of trades in the Forex markets. The pairs that are considered among the major are the ones that trade against the other majors. Besides the Euro, the U.S. Dollar, and the Japanese Yen, these majors include the British pound, the Canadian Dollar, the Swiss Franc, the New Zealand Dollar, and the Australian Dollar.

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Currency Standards Currency standards are the typical means for fixing a currency at a set rate nowadays. A Currency Standard means that the value of a currency is pegged to a stronger, more internationally recognized currency, like the Euro or the Dollar. These Currency Standards are similarly known as reserve currency standards. Within the world reserve currency system, single national currencies actually assume the important standard, or role, that gold always carried for hundreds of years in the gold standard. Another way of putting this is that a nation would fix the rate of its proprietary currency to so many units against another country’s currency. As an example, Great Britain might choose to fix its British Pound Sterling currency to the Euro at a real exchange rate of one pound equals one point twenty-five Euros. In order to keep this fixed rate of exchange, Britain’s central bank, the Bank of England, would have to always be prepared to offer Euros for Pounds, or Pounds for Euros, upon demand for this set rate of exchange. The principal way that the Bank of England would affect this would be to keep Euros in its reserves against a day when a greater demand existed for Euros to be exchanged for Pounds on the world FOREX markets. These currency standards stand in contrast to the gold standard. Under the long held, incredibly stable period of the gold standard, central banks instead held gold to back up and exchange against their own currency. Using the reserve currency standard, the same central banks instead keep a stockpile of the chosen reserve currency on hand. In whichever case, the reserve currency will be the one to which a given nation fixes its own currency. The majority of nations that decide to fix their exchange rates will peg to one of two types of currencies. You might see them choose one of the main currencies utilized in international transactions for settlement. Alternatively, they could elect to fix their currencies to that of one of their major trading partners, which would also make sense for settlement purposes. Because of this, you see many countries around the world peg their national exchange rate to the United States dollar, since it still proves to be the currency that is most widely held and traded around the world. As another fixing choice, the Euro is increasingly utilized for pegs. Fourteen different African countries which had all been French colonies in the past had set up the CFA, or colonies of French Africa, Franc zone. When they did this, they fixed their new CFA Franc to the French Franc. After the French abandoned their Franc in favor of the newer continent wide Euro in 1999, the CFA Franc became pegged to the Euro. Another example is the Common Monetary Area of South Africa. Participating in this are Namibia, Swaziland, and Lesotho. These nations fix their currency against the South African Rand, the powerhouse currency of the South African continent, and their biggest trading partner by far.

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Currency Trading Currency trading is speculating on the largest financial market on earth. Despite the fact that this is the world’s largest, most liquid, and most impressive market, many individual traders do not know much about it. This is mostly because until Internet trading became popular, access to these markets was limited. Only the large banks, multinational businesses, and shadowy hedge funds were able to trade them. Today the currency markets trade 24 hours per day, 6 days per week. This several trillion dollar market trades on every continent. Trillions of dollars per day change hands in the foreign exchange marketplace. All of this combines to make currency trading markets the most easily accessed on earth. This speculative currency trading is not the main reason that the Forex, or Foreign Exchange, markets exist. They were set up to help big international companies change currencies from one kind to another. Many of these corporations need to trade currency constantly to pay for such costs as international goods and services payments, payroll, and acquisitions overseas. Despite the origins of these currency markets, only around 20% of the total market volume comes from these company trades. An incredible 80% of the daily trades in the currency markets are from speculative currency trading hedge funds, large banks, and individual investors who want to take a position on one of the major currency pairs. Currency traders are able to engage in these markets without many of the constraints that plague the stock markets. If individuals believe that the GBP/USD pair will drop dramatically, they are able to short sell as much of the currency pair as they desire. There are no uptick rules with currency trading. There are similarly no position size limits in currency trading. Traders could buy tens of billions of any currency pair if they had the money to cover the trade. There are also no rules on insider trading with this type of currency trading. It does not exist. Economic data in Europe is routinely leaked several days ahead of the official release date. Another way that currency markets are different from stock markets is that there are no commissions in foreign exchange markets. All currency companies are dealers. These dealers take on the counterparty currency in any trade. They earn their money with the spreads between the bid, the cost to buy the currency pair, and the ask, the cost to sell it. Currency trading is always done in pairs. When a trader enters such a trade, the person is long one currency in the pair and short the other currency. Selling 100,000 GBP/USD means that the trader has sold the British Pounds and bought the U.S. dollars. This means that the trader is long dollars and short pounds. Currency valuations are expressed in pips, or percentages in point. These pips prove to be the littlest trade increment in the foreign exchange pairs. This makes one pip equal to one-one hundredth of a percent. In all pairs except the Japanese Yen, these prices are quoted out to the fourth decimal point. This means that EUR/USD would be quoted in terms of 1.1595.

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There are many different minor currency pairs on the market. The majority of foreign exchange dealers only allow individuals to trade the most seven widely traded and liquid pairs. These include the four major pairs of Euro/Dollar, British Pound/Dollar, Dollar/Swiss Franc, and Dollar Japanese Yen. The other three pairs allowed are the three commodity currency pairs of New Zealand Dollar/Dollar, Australian Dollar/Dollar, and Dollar/Canadian Dollar. Currency trading is typically done in margin type accounts. The leverage is typically 100:1 on most of the major currency pairs. This means that currency traders are able to control 100,000 of a currency pair with only $1,000 of the base unit currency.

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Custodian Bank A custodian bank is a special financial institution that carries the responsibility for protecting the financial assets of individuals or companies. These institutions can also be called simply custodians. Such outfits serve as a third party check that protects the assets they are guarding against the fund managers and any illegal activities they may pursue. Congress established these custodian banks with the Investment Company Act of 1940 in order to protect investors. Thanks to this particular legislation, investment companies must adhere to specific stringent listing requirements and must be registered with the Securities and Exchange Commission. The custodian bank performs a number of activities in their primary function of watching over the financial assets of businesses and individuals. They settle sales and purchases of bonds and equities and physically protect the certificates of these assets. These institutions also gather information about and income from such assets. When the assets are stocks this means dividends. When the instruments are bonds, they collect the interest from the coupons. The custodians also disperse information they gather, pertaining to yearly general meetings and shareholder voting. They handle any foreign exchange transfers as necessary and manage all cash transactions. Finally, custodians deliver routine reports on their various activities to the customers. Custodians banks provide reports on every trade or deal which they transact on behalf of the clients. They must be consistently delivered. Along with these reports they furnish information on the companies whose assets they hold besides information on general meetings. When a custodian is holding foreign shares or bonds, they will also have to change currencies as necessary. This is the case when the fund manager buys or sells foreign currency assets. It is also necessary when companies pay out dividends or bonds receive interest with these overseas financial instruments. Custodian banks are a critical component of the modern investment environment. Without them to carry out these functions, all of the important financial record keeping and housekeeping items would be neglected. Not all custodian banks are national operations in the United States. A number of the major international financial institutions offer these services around the globe. These are called global custodians. Such international outfits use their own branches in the various countries in which they operate to manage the accounts and assets for their customers. In other cases, they may employ other custodians to assist them with these services. In these types of situations, the customer assets will be held by pension funds. There are also local custodian banks whose job is to handle the ADR American Depository Receipts. These stock certificates are from foreign based companies that wish to offer their securities to the American stock markets. There are a number of international and large national American banks that participate as these local custodians. Among them are BNP Paribas, PFPC (a subsidiary of PNC Financial Services Group), Brown Brothers Harriman and Company, Kaupthing Bank, Citigroup, Northern Trust, Credit Suisse, RBC Dexia, Societe Generale, State Street Corp., German Bank AG, Goldman Sachs, HSBC, The Bank of New York Mellon, UBS AG, Union Bank of California, JPMorgan Chase Bank, and TO Bank NV.

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Customer Base A customer base refers to a company’s prospective customers who the business might be serving. There are many individuals who believe this only pertains to the customers whom a business already counts. Still analysts tend to include in those customers who share common buying habits in the category. This is the case even when the customer has not come into the relevant store location or bought one of the company products yet. In this group of all potential customers is a narrower set of the customers who are loyal followers of the company products. Business analysts call this group of consumers repeat customers. Business strategies focus on the critical need to turn every one-time customer into a repeat customer. Every company is interested in this, even when not all companies are focused on growing their entire customer base. Theories on how to build up reliable and impressive customer bases abound. They run the gamut from offering periodic promotions to advertising the company products, brand, and services effectively to offering the highest possible customer service to clients. Any way a business manages to bring people into the store these are possible customers and could become a part of the reliable customer base. The hardest challenge is to bring them back to the store repeatedly. It is well known that repeat customers are always the most crucial component of any businesses customer base and ultimately company success. These are the ones who will repeatedly and consistently spend money buying the business’ products or services. They are also the best possible word of mouth advertising regarding the finest qualities of the company. It is interesting to realize that some customer bases do not preexist at all. This is because some businesses provide a unique service that establishes a new customer pool which was not around before they began offering the service to the community. It happens when a company comes up with an idea to provide a service to people that they did not even realize they needed. The trick for many businesses is to find a way to balance the differences between a company’s end goals and the needs of the customer which will change periodically. Businesses have to be capable of adapting their strategies to the shifting requirements of a consumer base. At the same time, the business can not be spread in all directions simply chasing consumer fads. The trick is to build up a loyal customer base which counts numerous repeat customers. When a business develops these types of customers, analysts call them an installed customer base. This refers to those clients of a company who are already utilizing the various products which the company produces. It is helpful to look at a tangible example to better understand this idea. A company might sell laptop computers, printers, and software. The installed customer base would be only the customers who count at least one of the business’ products working in their house. If they were interested in buying a laptop, they would be merely a member of the potential customer base for the business. It is always more costly to add new customers than it is to keep those which are already existing customers of a business. This is why so many companies today focus their primary efforts on customer

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service, retention, and relations with their current customers. It does not take much in the way of advertising to keep an existing customer base. The good news is they already know the products. This is why some promotions and occasional special pricing offers to loyal customers is enough to keep them coming back for more of the core business products. Companies often do this by maintaining as complete an existing customer mailing or emailing list as they possibly can. It is easy to send them promotions in the mail and even easier via emails.

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Cyclical Manipulation Cyclical manipulation refers to government interference in the natural economic cycles. This can lead to extreme booms and busts over the long run as governments attempt to prop up booms and forestall busts. Cyclical manipulation is mostly accomplished through the altering of government set interest rates. This is accomplished on a regular basis by the Federal Reserve Board in the United States. Economic cycles as a concept are occasionally referred to as Business Cycles. This idea is one that explores the alterations in economic activity that change over time. Elements contemplated in explaining economic cycles are comprised of GDP growth, employment rates, and household incomes. Within economic cycles, two main types emerge. These are booms and busts. Booms are commonly seen when a strong economy is operating. Busts, or recessions, are tied to economic growth that proves to be below trend. In the U.S., the NBER, or National Bureau of Economic Research, turns out to be the ultimate trusted source that gives out dates of troughs and peaks which actually make up economic cycles. The NBER is part of this cyclical manipulation in the United States. The first step of the manipulation is the way in which they refer to booms and busts. They euphemize them as expansion or contraction. When a few portions of the economic data are getting better, then this is expansion, and when these same indicators are declining, it is called contraction. Such definitions focus entirely on the data movement, versus the historical norms. Cyclical manipulation is accomplished principally through the changing of interest rates by the Federal Reserve. When the cycle is one of boom, or expansion, they attempt to cool the economy down to prevent inflation. They do this by raising the interest rates to slow down lending and spending. Unfortunately, as economic activity then slows, this leads to an economy that can then fall into bust, or contraction. At this point, the Federal Reserve begins cutting the interest rates, sometimes massively, in an effort to stimulate the economy once more. As the interest rates fall, businesses and consumers borrow and spend larger sums of money. This gets the economy going once again. The irony of this cyclical manipulation lies in the fact that the very effort of the government to keep the cycles from becoming extreme leads to changes in the cycles that the Fed wishes to prevent altogether. Economic Cycles Theory believes that even though these highs and lows average together to create an average trend economic rate of growth, this trending growth rate remains stable over time. The government through the Fed attempts to manipulate these cycles to keep the growth rate along these trend lines consistently. There has been no effort made in the Economic Cycles Theory to explain the economic activity levels in long running time frames of decline, but only in growth. This policy of only focusing on growth is yet another demonstration of the cyclical manipulation.

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Day Trading Day Trading is the stock market strategy of purchasing and selling a given stock all in the say day. This form of trading is completely different from long term investing or even momentum or swing trading, which involves time frames of several days to several weeks. Day traders often try to make money on small movements in the stock price. In these cases they are attempting to leverage bigger amounts of investment capital to capture these lesser price movements in indexes or stocks that are extremely liquid. Day trading can provide profits that allow individuals to make a living at it. It also can be an easy way for traders to lose money if they do not stick to a carefully designed strategy or if they have no experience in it. There are a variety of strategies that these day traders follow. These include selection, entry, and exit policies. Entry strategies are critical for day traders. These traders first have to find a stock which works well for the day trading concept. Stocks with both liquidity and volatility are the best candidates. When a stock has liquidity, it is easy to get in and get out of the stock with small spreads and little slippage. Spreads represent the distance between a stock’s bid and ask price. Slippage is the variance between a stock’s actual trading price and the anticipated trading price. Volatility proves to be the best way to measure the range of the daily price movements. It is in this daily volatility range that day traders work. For day traders, greater volatility can mean the chance to make higher profits or lose more money. After day traders pick out the right kind of stock, they have to learn the best ways to find good entry points into the stock. Three tools that they utilize in this task are Level II quotes, daily candlestick charts, and actual time news services. Level II quotes show the orders as they occur. Daily candlestick charts give traders price action analysis. Actual time news service is critical since these companies release it directly as the news happens. This kind of news makes stocks move. Daily and intraday candlestick charts provide a variety of useful information to day traders. They are able to see the volume of the stock and whether it is decreasing or increasing in picture form. The candlesticks can also form patterns like dojis and engulfing patterns that provide insight to these traders. Candlestick patterns may also provide useful elements of technical analysis such as triangle shapes and trend lines of a stock. The entry strategies that day traders utilize are based on the identical tools that longer term traders employ. A key difference surrounds the proper time to exit the trade. Day traders are looking for the point where the interest in the stock in question decreases. They see this using their Level II volume tools. Exit strategies are the other main component of a day trading policy. Traders using leverage trade on margin. Margin is borrowed money from the stock broker that multiplies potential gains and losses. Using margin means that a trader has a greater vulnerability to dramatic price movements in the stock than would a longer term trader not using margin. This is why day traders must use stop losses. These exit orders allow traders to sell out of a stock position and limit the losses.

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The two different types of stop losses that day traders employ are physical and mental. Physical stop losses are more precise and disciplined. Traders program them to sell the stock at a particular price level that fits the loss the trader is prepared to take. Mental stop losses are those points where the trader feels his or her reasons for entering have been invalidated. The trader would simply give a sell order at market price to close out of the position immediately. The problem with mental stop losses is that it is too easy for emotions to get involved and for the trader to continue to hold on to the position hoping that it will turn around. This can magnify losses when traders fall into this trap. Day traders should never risk more in a single than they can afford to lose both mentally and financially.

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Debasement When economists speak of debasement, they are referring to lowering the value of the money in an economy which is utilized to purchase goods and services. There are a number of ways that this can be done and has been accomplished throughout history. These include reducing the amount of precious metals in coins, eliminating the commodity backing, deficit spending, fractional reserve lending, and redenominating a currency. The practice of debasement by reducing the amount of precious metals in coins dates back to Roman times. The Imperial Roman government reduced both the amount of silver and the size of their denarius coins over time. They maintained the same denomination in the process. The silver coins began as nearly pure 4.5 gram pieces that finally had only two percent silver content left in them when they were replaced altogether. The U.S. engaged in this same practice after 1964. Half dollars, quarters, and dimes had all contained 90% silver through that year. They were altered to clad coins with copper cores and a nickel copper plating beginning in 1965. This means they ceased to be commodity money and became Fiat money with value only because of government decree. More recently, governments began debasing their currency by eliminating the currency’s commodity backing of silver and gold. The U.S. Congress abolished the silver certificate legislation in June of 1963 and stopped redeeming bills for silver as of June 24, 1968. The gold standard that had backed up U.S. paper bills died in 1971 when then President Richard Nixon abandoned the currency standard unilaterally. The U.S. and other developed nations have been using Fiat currencies completely since then. Deficit spending is another means of debasement. As governments print excess bills or issue debt to pay for their spending, the engage in this. The dangers of this practice are that as the money supply increases, so too does inflation. The U.S. money supply has been tripled using this means in the years of the Great Recession from 2007 to 2012. The runaway government spending has increased U.S. federal debt four fold from the years 2000 to 2016 (from $5 billion to around $20 billion total). Governments can also use banks in debasement. This practice is known as Fractional Reserve Lending. Banks are able to create money from thin air by loaning out significantly more money than they keep in reserves. Only a small percentage has to be kept on hand for the withdrawal of deposits. Money can be lent out versus kept on reserves to a factor of even ten to one. It leads to bank runs and bank panic if too many depositors attempt to withdraw all of their money at a time. Currencies can be re-dominated by a government replacing an older unit of currency for a newer one. They do this by changing the currency’s face value without allowing its foreign exchange rate to be altered. This re-dominating often causes hyperinflation. As bill values are changed by 10, 100, 1000, or even higher amounts, inflation can increase exponentially as well. When re-denominations became sufficiently high, the currency finally becomes worthless. This devastating result has transpired numerous times in history, most recently in Zimbabwe.

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Debasing the Currency Debasing the currency refers to the all too common historical process of lowering a currency’s actual value. In the past, this phrase commonly came to be associated with commodity money made principally from either silver or gold. Should the sum total of silver, gold, nickel, or copper be reduced, then the physical money is called debased. Even venerable institutions like the Roman Empire, with a thousand year history of growth and stability, have stooped to such debasing of the currency. Reasons that a government chooses to debase the currency in this way center around the financial benefits that the government is able to reap. These are done at the citizenry’s expense though. Governments that lowered the quantity of gold and silver in their coinage found that they could quietly mint more coins from a given fixed quantity of metal on hand. The downside to this for the general population centers on the inflation that this in turn causes. Such inflation is yet another benefit for the currency debasing government that then finds that it can pay off government debt or repudiate government bonds easier. The populace’s purchasing power is significantly reduced as a result of this, along with their then lowered standard of living. Debasing a currency lowers the value of the currency in question. Given enough time and abuse by the governing authorities, this debasing can even lead to a collapse in the existing currency that causes a newer currency or coinage to be created and launched for the nation or state. In present day times, debasing the currency is accomplished in more subtle means. Since currencies these days are made of only paper, involving no metal, debasing the currency simply involves printing additional paper dollars. With the advent of electronic banking, even this printing press operation is no longer required. The government simply creates money on a computer screen, literally conjuring it out of thin air. They are able to accomplish this in one of two ways. One way that they do this is via the Federal Reserve, which buys treasury securities by simply crediting the receivers’ bank accounts with electronically created money. The Federal Reserve then has tangible assets in Treasury bills that is it able to trade or sell when it wishes. Another way that this creation of money that debases the currency is able to be performed is through the Fractional Reserve Banking System. Since the Federal Reserve only requires banks to keep a ten percent reserve ratio of deposits on hand, these banks when they are credited funds from the Federal Reserve are able to loan this new money out in multiples that are equivalent to the leverage created by this ten percent only reserve ratio. In both of these ways, the Federal Reserve is able to create more money quietly and at will. This is how modern day debasing of the currency is effectively accomplished.

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Debit Card Debit cards are plastic cards that function like a check and are easily utilized like a credit card. Debit cards are commonly one of two types, either branded Visa or Master Card. When you use such a debit card to pay for a purchase, then this amount is deducted immediately from your checking account. Both convenience and security features are included in the use of a debit card. Debit cards provide tremendous convenience in their ease of use. No longer do you have to make sure that you are carrying enough money on you, or to take the time to write out a physical check while the long line waits impatiently behind you. Besides this ease of use, debit cards are accepted at literally millions of places around the country and the world. Nowadays, they can be used for almost any purchase, such as lunches or dinners at restaurants, monthly bill payments, merchandise in retail stores, groceries, prescriptions, gas, online purchases, over the phone orders, and even fast food. Debit cards’ spending is easy to keep track of as well. The majority of such transactions are both deducted and posted to a checking account in twenty-four hours or less. This allows for you to conveniently monitor your constantly updated transaction record and balance either over the phone or the bank or card issuer’s website. Besides this, debit cards also offer statements, much like credit cards, that outline all purchases made, with details on the name of the merchant, date, location, and amount of transaction. Debit cards offer another benefit in their security provisions. These cards include free fraud monitoring that helps to find and stop activity that is suspicious with your debit card. They also come with policies of zero liability that protect you from charges that you did not make or authorize. Fraudulently taken out funds are guaranteed to be returned to your account. The vast majority of debit cards also come with the security feature of three digit security codes that allow you to confirm your identity for both phone and Internet orders and purchases. Debit cards allow two ways for completing in person transactions. One of these is through swiping the card and then signing the receipt issued by the merchant representative. The other is via using a pad with your PIN, or personal identification code, after the card is swiped. A final benefit that you gain from a debit card is that most of them provide rewards that are earned simply by utilizing them. These are earned in one of two ways. With Visa Debit cards, you are able to receive discounts from some merchants who provide these special price breaks for the holders of Visa cards. Other debit cards provide extras rewards programs. These rewards programs pay you back with some type of reward for every purchase that you make. These can be cash rebates or more commonly awards that are earned through the collection of such points.

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Debt Ceiling The Debt Ceiling refers to an American budgetary and financial constraint which the nation self imposed beginning in 1917. Congress mandates this limit for the maximum amount of debt the Federal government may have at any point in time. Back on November 2nd of 2015, the U.S. Congress suspended the debt ceiling with the Bipartisan Budget Act of 2015. The ceiling remained suspended through March 15th of 2017, after the Presidential election. They did this deliberately to allow time for the new President (Trump) and his (Republican) Congress to establish themselves before they have to address the continuous debt crisis of the United States. The prior debt ceiling was a whopping $18.113 trillion. Because the country was about to surpass this level on March 15th of 2015, then American Treasury Secretary Jacob Lew ordered a suspension to the debt issuance of the U.S. He began engaging in what analysts call “extraordinary measures” in order to stop the debt from breaking through the artificially created limit. To do this, he quit paying Federal government staff as well as the retirement fund contributions for U.S. Post Office employees. He began to sell the investments which these funds held as well. The debt limit also covers a significant quantity of debt which the Federal government must repay itself. This includes the massive creditor the Social Security Trust Fund. Money owed to everyone outside of the U.S. government they call the American public debt. This amount represents approximately 70 percent of the aggregate Federal debt. It was actually the Second Liberty Bond Act of 1917 which first saw Congress establish the initial debt ceiling. This law permitted the U.S. Treasury Department to sell Liberty bonds in order to pay for the then-vast costs of the U.S. military involvement in the First World War. By such an action, Congress gained the upper hand in overseeing total government spending for the first moment in U.S. history. Up to this point, the Congress had only held authority to approve particular debts, such as short term notes or for the Panama Canal. By 1974, Congress found a way to gain absolute control over the budget process and effective spending in the United States. They called this new law the Budget Control Act of 1974. This new procedure for the budget envisioned Congress working closely in concert with the U.S. President to agree on what amount of money the country’s government will actually spend. This all made the debt ceiling need irrelevant, since all it does is permit the Federal government to borrow necessary funds to pay for spending it previously approved anyway. The reason this debt ceiling still matters is because Congress intentionally limits the amount of money which the U.S. Treasury may effectively borrow with it. If they do not continuously raise this artificially imposed limit, then the United States will default on its outstanding debt obligations. In general, the Congress has experienced no remorse for raising it. They raised it around ten times over the last decade, of which four of those times occurred in only 2008 and 2009. This debt ceiling becomes a crisis in the event that both Congress and the American President are unable to come to an agreement on the country’s fiscal policy. This has happened with alarmingly increasing frequency over the last few decades. It was an issue in 1985, 1995/1996, 2002, 2003, 2011, 2013, and

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2015. The ceiling and associated government spending becomes an issue when the debt versus GDP ratio becomes excessively high. The International Monetary Fund states that the maximum safe level for developed nations is 77 percent. After this point, holders of government debts then feel justifiable concerns that the nation will be unable to create sufficient revenues to repay the total debts.

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Debt Consolidation Debt consolidation is combining all of an individual’s personal debts into a single larger debt. When people go though debt consolidation, they obtain one loan which they then use to pay down all smaller loans or outstanding debts. The idea is that this provides consumers with only a single payment that they make once per month. This is supposed to be simpler for consumers to pay and manage. A main goal with debt consolidation is to obtain a lower interest rate. The monthly payment generally becomes lower through the process as well. Despite the fact that the payment is lower, the debt can be repaid faster. The lower interest rate makes this possible. Debt consolidation is different from debt settlement. In debt settlement, higher outstanding bills are negotiated to lower more manageable amounts. In debt consolidation, individuals fully pay off all of their bills. There are no bad impacts on credit history and reports as a result of the consolidation process. Consumers pursue debt consolidation through either an unsecured or a secured loan. An unsecured loan does not involve any collateral. This means that no personal assets back the loan. The lender extends the loan because the individual pledges to repay it. A credit card is a prime example of an unsecured loan. Many credit cards offer debt consolidation with a lower promotional interest rate to their customers. In general, the rates are higher on unsecured loans. This is because the risk is greater for the lender with an unsecured loan than with a secured loan. With a secured loan, individuals receive the debt consolidation funds because they pledge an asset. These assets that secure the loan are usually a car or a home. Car loans and mortgages are both secured forms of loans. The downside to a secured loan is that a lender can seize the asset if consumers fall behind on the loan. Debt consolidation with a secured loan happens through a variety of different types of loans. Among the more popular secured debt consolidation loans is a second mortgage home loan or a home equity line of credit. It is also possible to obtain a debt consolidation loan with a 401k. In this type of loan, retirement funds are the asset that underlies the loan. Insurance policies allow owners to take loans against the value in the policy as well. Annuities are another vehicle that can sometimes be borrowed against. A number of special financing companies also issue loans against lottery winnings or lawsuit claims. In each of these cases, the element in common is that the asset secures the debt consolidation loan. There are both pros and cons to consolidating bills with an unsecured loan. The biggest difficulty with these types of loans is obtaining them. Unsecured loans require fantastic credit in order to qualify. The interest rates are typically higher than those on secured loans as well. Still the rates are often lower than the ones charged by high interest credit cards. If these consolidation rates are not substantially lower than those of the bills on the debt consolidation loan, then it may not make a difference in the payments and payoff time-frame. Debt consolidation loans that rely on credit card balance transfers can present problems. It is important to

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be aware of what happens after the promotional balance expires. The new interest rate may be so high that the loan does not provide any benefits over the terms of the old debts. There are commonly transfer fees with these credit card balance transfers. These can eat up a part of the savings that the debt consolidation should provide.

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Debt Coverage Ratio (DCR) Debt coverage ratio has different meanings dependent on what entity is using it. In the world of corporate finance, it is the amount of cash flow that a company has to service its current debts. This ratio utilizes the net operating income divided by the debt payments due in a year or less. This includes principal, interest, lease payments, and the sinking fund. It has a different meaning with governments and individuals. For finances of a national government, debt coverage ratio refers to the export earnings required for the country to make its yearly principal and interest payments with the external debts of the nation. With individual finance, banks and their loan officers utilize this ratio to decide on income property loans. Debt coverage ratios must be higher than one in order for the government, company, or individual to prove enough income to satisfy its present debt obligations. With a DCR under 1, it lacks the means to do so. This ratio is determined by dividing Net Operating Income by the Total Debt Service. The net operating income turns out to be the revenue of a company less its operating expenses. This does not cover interest payments or taxes. The NOI can also equate to the EBIT Earnings Before Interest and Tax. Investors and lenders which are evaluating the creditworthiness of corporations and companies should use criteria that is consistent when they figure out the DCR. Total debt service is the term that concerns the present debt obligations. This will include principal, interest, lease payments, and sinking fund all owed in the next year. Balance sheets also include both the long term debt current portion and the short term debt. When a debt coverage ratio is lower than one, it says that the entity cash flow is negative. With a DCR of .90, the company would only possess sufficient NOI to handle 90% of their yearly debt payments. With personal finance this would mean that the borrower had to access some outside funds each month in order to cover the payments. Lenders usually discourage loans with negative cash flow. They may permit them when the borrower can show a strong outside income. Lenders almost always consider the debt coverage ratio of borrowers before they extend loans to them. They do not want to loan money to entities with lower than one. Such groups will have to draw on sources outside of their traditional income or borrow more in order to make their debt payments. When the DCR is dangerously close to one, then the borrower is considered to be vulnerable to a slowdown in income. Only a minor setback to its cash flow would mean it would not be able to service the debts. Some lenders will actually insist that the borrowers keep minimum levels of debt coverage ratios while they have a loan balance. In these cases, borrowers whose ratios decline below this minimum level are in technical default. Lenders can be more lenient on debt coverage ratios when the economy is booming. An expanding economy means that credit is available more easily. This often causes lenders to work with companies and individuals on their lower ratios. The problem is that borrowers which are under qualified can impact the stability of the economy.

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In the 2008 financial crisis, subprime borrowers received credit in the form of mortgages without proper consideration of their finances. As such borrowers defaulted in large numbers, the lenders that had made loans to them failed. The largest savings and loan institution Washington Mutual turned out to be the most egregious example of this scenario.

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Debt Relief Debt relief refers to the effective reorganizing of any form of debt so that the indebted party experiences at least some debt forgiveness. This could be complete or partial relief of debt from a large or even overwhelming burden. It is possible for it to take a wide range of scenarios. Relief might be offered in the form of lowering the aggregate principal in whole or in part. It might also be accomplished through lengthening the loan term or reducing the total interest rate and payments of loans which are due. Debt relief also relates to debt forgiveness in order to stop the growth of the principal or at least to slow it down. This can be done for groups ranging from individual people to companies or multinational corporations to entire nations. From the days of the ancient world up to the 1800s, it primarily pertained to individual and household debt. This especially meant freeing of slaves from indebtedness or forgiving agriculture debts. In the last years of the 1900s, the use of the phrase changed to cover mostly debt of the Third World. This began with the skyrocketing debt from the Latin American Debt Crisis that included such countries as Mexico and Argentina. By the early years of the 2000s, the phrase had greater application to individuals in wealthy countries that had been ravaged by housing and credit bubbles. Debt relief in the 20th century came to apply to nations after the devastating effects of the First World War. Those debt payments from the allies of the United states were suspended in the dark depths of the Great Depression from 1931. Finland was the only country to repay these debts in full. Germany also received debt relief of its war reparation burdens from the United States, Britain, and France with the Agreement on German External Debts in 1953. This represented one of the first large scale applications of debt relief on an international scale. By the 1990s, debt relief had become an urgent need for those under-developed nations which were heavily in debt. This became a mission in the 1990s for a number of Christian organizations, Non Governmental Organizations focused on development, and others partners who worked in an enormous coalition which called itself Jubilee 2000. As part of the campaign to push for debt forgiveness and relief, there were demonstrations at meetings like the G8 Summit in Birmingham, England in 1998. This helped the agenda for debt relief to reach the radar of international organizations like the World Bank and IMF International Monetary Fund as well as Western developed nations’ governments. It actually became public policy through an initiative called the HIPC Heavily Indebted Poor Countries program. This initiative started out in order to offer consistent help in the form of debt relief to those most impoverished nations of the world. It worked strenuously to make certain that the money donated went for reduction of poverty and did not get siphoned off to infrastructure or military buildup programs. This World Bank-supervised project involved conditions which were much like those accompanying loans from the World Bank and IMF International Monetary Fund. They mandated strict structural reforms that often involved privatizing public utilities including electricity and water. The prospective nations had to institute Poverty Reduction Strategies and demonstrate substantial macroeconomic stability for minimally a year.

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In order to cut inflation, there were nations goaded into reducing their expenditures on important sectors such as education and health. The World Bank may have deemed the HIPC protocols a triumph for the twin goals of poverty and debt reduction, but many scholars and analysts offered significant criticisms of the program. Despite critiques though, the HIPC became extended through the MDRI Multilateral Debt Relief Initiative. After the Gleneagles G8 meeting of 2005 in July, the wealthy creditor nations signed on to the MDRI. This provided full, complete elimination of all HIPC countries’ multilateral debts which they owed to the IMF, World Bank, and African Development Bank.

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Debt Restructuring Debt restructuring refers to a means which corporations or countries with overwhelming debt loads utilize to change the terms of their outstanding debt arrangements so they can gain advantage in repayment. Corporations will often utilize a form of debt restructuring so that they can sidestep defaulting on their already existing debt levels. They might also wish to gain the benefits of lower interest rates that may be available to them on the markets. One way that companies accomplish this is by issuing a series of callable bonds. These permit them to easily and rapidly restructure their new debts at a given point in the future. In this case, the firms’ existing debts will be called. They will then replace them with a newer issued debt for the lower, more advantageous interest rate. Another way that corporations are able to restructure their debt lies in changing the provisions and terms of the current debt issue. With corporate debt restructuring, a company will typically reorganize its actual obligations by lowering the debt burdens on their firm. They can do this by reducing the payable rates on the debt or by extending the amount of time they have until they repay the debt obligations. By doing either of these, the company ensures it is able to service its relevant debt burdens. There are other cases where the creditors will opt to forgive a part of the debt in exchange for obtaining an equity stake in the firm. A need for this type of corporate debt restructuring most often occurs when corporations or companies are experiencing financial difficulties. These make it most difficult to keep up with their full range of financial obligations. Sometimes such troubles can be sufficient to create a significant risk of the company declaring bankruptcy. In these cases, they have the ability to engage in a structured negotiation with the creditors to lower the burdens so that they can avoid entering bankruptcy-led defaults. Within the United States, there is a provision of the corporate bankruptcy code known as Chapter 11. These protocols permit corporations to obtain effective protection from their creditors so that they are able to try to rearrange the debt terms to continue on as a reorganized, ongoing, viable concern. Thanks to federal bankruptcy courts becoming involved in this process, even when the creditors refuse to accept such a settlement and reorganization, the courts can mandate that the creditors accept the plan if they deem it to be reasonable and fair. It is not only corporations and companies which can avail themselves of such debt restructuring. Governments also have needs for help with their debts when they finally become unsustainable. This is not a new phenomenon. It stretches back to the first historically recorded sovereign debt default of the fourth century B.C. At this time, ten different Greek city-states defaulted on loans they had taken from the sacred temple of Delos. Despite the fact that this has occurred for at least 2,300 years, today no clear and mutually understood rules exist to structure the process for what will occur if a sovereign state can not pay their debts. The most recent classic example of this dates back to the huge default by Argentina. Their enormous debt default in 2001 was among the largest in modern history. The rules are unclear as to who has jurisdiction and who can set restructuring terms. For years Argentina refused to negotiate terms with the eight percent of its bondholders who would not agree to the terms the country set in 2001. Then a court ruling from the

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U.S. Supreme Court confused the issue by ordering Argentina to settle with the remaining holdouts at full value plus interest before they could pay the agreed-upon settled amount to the other 92 percent of debt holders. Argentina then came back to the table for the eight percent of mostly opportunistic hedge funds which had bought their defaulted debt for pennies on the dollar. Grudgingly under duress they paid the hedge fund eight percent claimants. This was an unusual case study that only worked out because the debt had been issued under American debt law. In other cases and scenarios, it is only the IMF International Monetary Fund that is attempting to create some sort of rules on situations like these. Yet in the end, no one can force a country to pay its debts back to creditors short of going to war with them to seize their physical assets or by freezing assets of the offending country in the banks or vaults of the debt holders’ countries.

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Debt Service Debt service refers to the cash that is necessary to be paid over a certain period of time in order to repay both principal and interest on a given debt. For individuals, monthly mortgage payments, or credit card bill payments, prove to be good examples of personal debt service. For businesses, payments on lines of credit, business loans, or coupon payments of bonds represent samples of corporate debt service. Where businesses or personal debt service is concerned, this is used to calculate the DSCR, or debt service coverage ratio. This ratio is that of the cash that is on hand for servicing the debt’s principal, interest, and lease payments. This measurement is a much utilized benchmark that helps to determine a company or an individual’s capability of generating sufficient money to cover the payments on their debt. With a higher debt service coverage ratio, loans are easier to get for both companies and people. The commercial banking industry also employs this phrase. Here, it can refer to the minimally acceptable ratio that a given lender will accept. This might turn out to be a condition of making the entity such a loan in the end. When this type of a condition is part of the loan covenant, then violating the debt service coverage ratio can sometimes be considered an action of default. Debt service coverage ratios are similarly used in the world of corporate finance. Here, they describe the sum of available cash flow that is usable for covering yearly principal and interest payments on any and all debts. This includes payments for sinking funds. Commercial real estate finance similarly utilizes debt service and debt service coverage ratios as the main means of discovering if a given property is capable of maintaining its level of debt using only its own cash flow. In the past ten or so years, banks would look for a minimum debt service coverage ratio of minimally 1.2. Banks that proved to be more aggressive were willing to work with lower ratios. This practice led to greater risk in the system that helped to bring on the financial meltdown and resulting crisis that stretched from 2007 to 2010. When an entity has more than a ratio of one debt service coverage ratio, it is theoretically capable of covering its debt requirements with cash flow. Similarly, if this ratio is less than one, then the statistics claim that an insufficient amount of cash flow exists to meet the required loan payments.

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Deduction Deductions refer to any expenditure or other item which becomes subtracted from individuals’ total gross income. This deduction will naturally lower the aggregate total of income which must be subjected to annual income tax. Sometimes these are referred to as allowable deductions. As an example, any individuals who earn $50,000 and who are eligible to claim a $5,000 deduction would see their taxable income lowered to $45,000. In the United States, the IRS Internal Revenue Service allows for a wide range of permissible deductions. Taxpayers may decide to either itemize their own specific personal deductions or instead claim the government provided standard deduction. The IRS provides taxpayers with a standardized deduction amount of $6,300 for those who file as single, as of tax year 2016. Those who file as married filing jointly are entitled to a standard deduction of $12,600 instead. For those who file as head of household, the amount changes to $9,300 in that particular year. On any money earned under these income thresholds, the filers are not required to pay any income taxes. As an example, individuals who make $6,400 and who will claim the $6,300 standard deduction will only have $100 in income which is taxable. Rather than taking these standardized deductions, those filing their taxes may instead choose to go with itemizing their own deductions. It means they take all of their permissible deductions and add them up together. They then can take this sum as the deduction instead of employing the standard deductions for use on the income tax return. There are many popular itemized deductions. Among these are retirement account contributions, mortgage loans’ interest amounts, property taxes which individuals pay, educational expenses, child daycare expenses, and numerous others. For those who opt to take the standard deduction, a few itemized deductions may also be taken in concert with it. Some of these which are permissible include moving costs and interest on student loans which are eligible ones. Business expenses should not be confused with deductions, though they function in much the same way. Any individuals who incur costs while pursuing profits in a business endeavor may deduct these from their business income. All of the relevant business income will still have to be reported to the IRS on the appropriate business income tax forms. The business expenses can be subtracted from the overall gross revenue. What remains is the net income. This means that business expenses function much as do deductions since they are taken off of the business earnings. Yet despite this, they are still not considered to be deductions. Credits are similar to deductions in some ways. They also reduce the dollar amount of taxes which those filing have to pay. They do work differently however. Credits are instead subtracted from the aggregate taxes individuals owe instead of from the reported income. This is a critical difference that changes the amount of taxes which individuals must pay out directly. The IRS offers both nonrefundable and refundable credits to individuals and families. While nonrefundable credits cannot lead to a tax refund, refundable ones can do so.

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An example helps to clarify these somewhat confusing points. In this scenario, if individuals report their income and claim all appropriate deductions, they still owe $1,000 in income taxes. These people could be eligible for a $1,200 tax credit. Should the credit not be refundable, the tax bill would be erased, but the extra $200 would be simply lost. When the credits are refundable instead, the filers would receive $200 as a tax refund. This means that they are actually paying a negative income tax thanks to these refundable credits.

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Deed in Lieu of Foreclosure A deed in lieu of foreclosure represents an alternative option to a standard foreclosure on a house. In this deed in lieu arrangement, the owner of the property decides to hand over the property in question to the lender on a completely voluntary basis. In exchange for agreeing to this, the lender cancels out the mortgage loan. The deed to the house becomes transferred from the owner to the lender. As part of this conciliatory arrangement, the mortgage lender guarantees that it will not start the foreclosure process on the owner. If there are any foreclosure actions that have already begun, the lender will also terminate these. It is up to the lender to decide if they will forgive any extra balance that the sale of the home does not cover. There are some tax issues that can arise with a deed in lieu of foreclosure deal. One potential downside to this type of debt forgiveness involves the consequences of it with the IRS. Federal law in the United States requires creditors to file 1099C forms for tax purposes when they choose to forgive any loan balance that amounts to more than $600. This debt forgiveness is then considered to be income and it becomes a tax liability for the home owner. Fortunately for many home owners during the financial crisis, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007. This delivered tax relief on a number of loans that banks forgave in the years starting from 2007 till the end of 2013. The main issue and advantage that a deed in lieu of foreclosure offers centers around this excess balance debt forgiveness. Anyone who enters into such a voluntary agreement should carefully review the contract to learn how the deficiency balance topic will be addressed. Sometimes the documents are not clear on this point. In this case, the homeowner should take the deed in lieu document to a lawyer who specializes in property law. It is not inexpensive to have a lawyer review such a contract document. The money it can save the home owner in the future for signing a contract he or she does not understand and may suffer significantly from will make the fees seem reasonable by comparison. There are a number of requirements in order for a deed in lieu of foreclosure to be accepted. First the house would have to be on the seller market for a minimum number of days. Ninety days is usual. There also may not be any liens on the house. The property typically could not be in the process of foreclosure already. Finally, the deed in lieu offer has to be voluntary on the part of the home owner. Another option that can be pursued in place of this deed in lieu of foreclosure is a short sale. Short sales have the same requirements as do the deed in lieu arrangements with several additional stipulations. The home seller must be suffering from financial hardship. The home itself has to be offered at a reasonable price. In an alternative short sale, the mortgage lender will consent to receiving a lesser amount from the sale than the remaining mortgage balance that the owner still owes. It is up to the bank and the contract if any additional balance which exists will be forgiven or not. The same tax issues apply if the lender agrees to forgive more than $600.

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Defeasance Clause A defeasance clause refers to a mortgage contract. It is the statement in a mortgage loan that explains what will happen once a borrower has repaid all of the outstanding loan amounts. At that point, the lender usually will be required by law to hand over the title of the property to the owner. These defeasance clauses are not utilized in every part of the country. Instead they are a part of mortgages where they are not issued on a lien basis. When such liens are used instead, lenders keep their interest in the house. This gives them the right and ability to foreclose on the property in case the borrower does not make the payments according to the loan terms and agreement. When a loan contains a defeasance clause, borrowers should carefully read through it. They must be certain that the lender interest in the house will come to an end after the loan is fully paid off including principle, interest, and other costs. This is the standard and accepted practice in the industry. As mortgages are set up using a defeasance clause, lenders keep a special form of title called a defeasible title. These conditional titles may be revoked in specific scenarios. It is the defeasance clause itself found in the mortgage contract that determines when the lender will give up the title to the property after the borrower has fulfilled all of the loan obligations. The clause may also detail additional information. This can include penalties for prepayment should the loan come with them. After the home buyers have completely repaid their loan, they can redeem their property’s title. The one time borrower then becomes the home owner with title. Having the title is important for many reasons. It allows owners to refinance the home, sell it, rent it out, pledge it for a line of credit, or keep and live in it indefinitely. These titles are supposed to be free and clear after the interest of the lender terminates. An exception to this might be if the title had other issues hanging over it that had nothing to do with the mortgage loan with which the buyer purchased it. This might be from a tax lien or other problem. It is the paperwork associated with the mortgage which usually spells out such things as defeasance clauses. Such paperwork should come with terms and conditions that are spelled out in great detail. For example, this contract contains all of the relevant information that pertains to the forecast repayment date, total amount to be paid back throughout the loan, and other issues. Buyers should carefully review all of this for accuracy. If any of it does not appear to be as expected by the borrowers, then they need to talk with the lender before signing any contracts. There are several different ways that titles can be released by the lender. A defeasance clause may stipulate that the lender needs to release the title at once to the borrower after the loan has been completely paid. In other cases, the borrower might need to file paperwork for the release before the title comes back. The title should be cleared when the loan is paid off in full. Should any problems with this title arise, it can be a serious issue in the future when the owner wants to sell or refinance the house. Clearing up issues and mistakes on a title can take time, so these should be addressed as soon as possible.

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Deferred Maintenance Deferred maintenance proves to be the action of putting off maintenance procedures that are needed and routine on both personal property, such as machinery, or real estate property, such as infrastructure. This is done to save on expenses, to reassign money that is available in the budget, or to achieve the available levels of budget funding. The downside to this avoidance or delay of generally needed repairs is that it causes the deterioration of assets, and finally their total impairment, if continued for an extended period of time. Usually over time, the practice of constantly deferring your maintenance will end up with greater costs in the future, the eventual failure of assets, and from time to time with safety and health concerns resulting. Maintenance is one of the budgetary items that is forced to battle along side other needs’ and programs’ funding. Since the money is simply not always available for the category of maintenance’s use, it is often short changed. Other times, the money is available until it is directed by management to higher priority assignments and requirements later. Maintenance that is deferred is most usually not reported to the necessary parties right away. Many times, it is never even reported at all. Such deferred maintenance that goes on over a lack of funds appropriated to the cause will finally lead to a greater number of incidences of inefficient service for the public, possible safety dangers, operations that are inefficient and ineffective, and greater costs overall at a future point in time. Examples of personal deferred maintenance and business deferred maintenance cases abound. Deferred maintenance in a home would include delaying the car’s recommended one year inspection or tune up, or not having those repairs done that the mechanic recommended. As a result of this, the car will likely not operate as effectively or efficiently. It could also suffer mechanical or electrical failures or even become involved in an unnecessary crash over safety issues. This term of deferred maintenance is more commonly used with large corporations or governments though. A large corporation slashing its budget might result in the company’s plants and equipment not undergoing their annual cleaning and refurbishing. The firm might get away with this for a year or even two. In time though, problems will begin to show up in machinery break down, equipment misses and failure, and possible shut downs of the plant, if this practice of ignoring critical plant maintenance is put off much or for too long.

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Deficit Deficits are shortfalls in government revenues that result from them spending more money than they bring in from revenues. The deficit of a government is measurable by including or excluding the interest it pays for its debt. Primary deficit is simply the difference in all taxes and revenues less the present level of government outlays. Conversely, total deficits, usually simply referred to as the deficit, prove to be all spending along with payments on the interest of the debt less the revenues coming in from taxes. Such fiscal deficits also expand and contract as a result of changing trends in economics. As an example, higher amounts of economic activity in a nation give greater revenues in taxes to the Federal Government. At the same time, economic downturns generally cause a government to increase its levels of expenditures in order to boost spending on unemployment benefits and other types of social insurance programs. The amount of public debt is also impacted significantly by the amounts of social benefits funded, alterations in the tax code or tax rates, methods of enforcing tax policies, and various additional decisions made with government policies. In other countries that have tremendous energy natural resources such as oil and natural gas, including Saudi Arabia, Russia, Norway, and other nations who are a part of the OPEC, or Organization of Petroleum Exporting Countries, these incomes form the energy sources have an enormous impact on the national finances. Another impact on the real tangible value of a government deficit, or debt, comes from the amounts of inflation in a country. Over time, inflation lowers the real currency value of such debt. The downsides to inflation result in a government having to pay greater interest rate levels on its debts. This causes public coffers borrowing to become more expensive. Government deficits are comprised of two main parts. These are cyclical deficits and structural deficits. Cyclical deficits result from any and all extra borrowing that a government has to engage in during the low point of a business cycle. This comes from higher unemployment levels. As unemployment rises, tax receipts fall and expenditures on things like social security inversely rise. The implied definition of cyclical deficits is that they will be completely repaid in the next cyclical peak. This is because a surplus in revenues will exist as taxes rises and spending is lower. Structural deficits instead represent deficits that are constant regardless of the economic cycle. This results from the overall government expenditure levels being unsustainable in light of the current tax rates. The overall budget deficit is then figured by adding the structural deficit to the cyclical surplus or deficit that exists. Although this is the mainstream distinction between the types of deficits, there are economists who say that the differences between the structural and cyclical deficits are impossible to determine. They contend that cyclical deficits simply can not be measured properly.

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Deficit Spending Deficit spending is a generally unsustainable scenario where a greater number of resources are employed to secure purchases than are brought in to the organization through revenue generating means. When this is the case, the business or government outfit actually operates in a budget deficit. This simply means that not enough financial resources are being created by the organization in order to effectively fund the operating budget. As this occurs, the additional expenses are paid for by utilizing deferred payment plans that permit the organization to buy now and pay later, or alternatively with credit accounts. Even though such deficit spending can occur with consumers and businesses, it is generally discussed pertaining to governments and their operations. These days, governments are mostly incapable of running their operations without resorting to deficit spending. As the taxes that are collected generally are insufficient to cover all of the costs that are proposed by the annual budget, the shortfall is commonly covered by buying things with money that has been borrowed. In such a way, these governments run their activities in a deficit spending scenario. Not every government runs its affairs from a negative budget scenario all of the time. There are periods where governments can look forward to the revenues that come in from taxes and any investments surpassing the money that is required to cover the costs of budgetary items. In these moments, governments have the opposite of deficit spending situations. They are running on budget surpluses. Surpluses are used for a variety of different needs, such as infrastructure improvements, repayment of debt from past deficit spending, or savings for future budget deficits. Without a doubt, deficit spending proves to be all too common for governments. This does not make it a wise economic policy to pursue continuously over extended time frames. The reason for this is that deficit spending commonly requires borrowing funds that must be paid back with interest that accrues over time. In such a way, enormous amounts of government debt can be built up in short time frames. Because of this, a number of responsible governments attempt to intelligently manage their deficit spending in such a way that they only engage in it to keep up critical operations and services that the citizens need for their well being. Other less important programs they try to cut back on whenever possible. Companies may sometimes operate on a deficit spending basis. If they do this for long periods of time, then they are often unable to turn the failing trend around. The end result of this behavior leads to bankruptcy or being purchased by other, more fiscally responsible businesses. Consumers that engage in deficit spending for longer periods than only temporary time frames similarly discover that the scenario ends up in financial destruction. Outstanding assets may then be liquidated to satisfy the debts that result.

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Defined Benefit Plan A defined benefit plan is a pension plan that serves as a vehicle for retirement. These plans give owners who are retiring benefits that are already pre-determined when they are established. These plans turn out to be a win-win situation for all parties. Employees like the set benefit towards retirement that this provides. Employers also appreciate particular features of the plan. An employer is able to make larger contributions with this type of plan than with a defined contribution plan. Businesses can deduct the amounts they contribute from their tax liabilities. These types of plans are more complicated than the defined contribution plans. This is what sets the two types of plans apart. Defined benefit plans are more expensive to set up and to maintain than are alternative employee benefit plans. What makes these plans more helpful to employees is the contributor. Employers usually contribute the most to them. Cases exist where employees can make voluntary contributions of their own. Occasionally the plan requires employees to make contributions. Whoever contributes, the benefits delivered by the plan are limited. The IRS sets and changes these limits every few years. There are numerous distinctive features to these types of plans. An advantage to defined benefit plans is that plan participants can be allowed to take a loan against the value of the plan. Distributions before the participant reaches 62 are usually not allowed while the employee is still working for the company. The employees with the defined benefit plans are allowed to participate in other retirement plans. Businesses have certain requirements with these plans as well. Companies of all sizes can participate in one. They are able to offer other types of retirement plans as well. Participating companies need to have an actuary who is enrolled in the plan decide how much the funding levels should be. Businesses also may not decrease the plan benefits after they have set them. There are many advantages to defined benefit plans. Companies can confer significant retirement benefits on employees in a small amount of time. Employees can earn these benefits in a similarly short time frame. Even early retirement does not eliminate the ability to access these benefits. Employers appreciate that they can put more into these plans than with alternatives plans Employees love the predictable dollar benefits that the plans deliver. They also are happy to have a retirement account whose benefits do not depend on investment returns. The schedule for becoming vested in the money of this benefit account varies. It can be set up for immediate full vesting. Schedules for vesting can stretch to as long as seven years with defined benefit plans as well. Some employers use the flexibility with these accounts to provide an early retirement package. Offering special benefit packages for early retirement is achievable with defined benefit plans. There are also several downsides to these types of plans. They are the most complicated plan to administer and run. Defined benefit plans are also the most expensive kind of retirement benefit plan that a company can offer. The IRS penalizes companies that do not make their minimum contribution requirement for a year. They

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do this using an excise tax when the minimums are not met. Some companies may wish to make larger contributions to the plan than they need to do. They might be motivated by the larger tax breaks. If a company over contributes, than an excise tax also applies.

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Defined Contribution Plans Defined contribution plans turn out to be a specific type of retirement plan. In these, an employer’s yearly dollar amount contribution to the plan is spelled out clearly. Accounts are established on an individual basis for all employees participating. The amounts that are credited to such accounts include both the preset employer contributions, as well as any contributions coming from an employee. On top of this, earnings on investments are also accrued in defined contribution plan accounts. With defined contribution plans, solely the contributions from employers are pledged to the accounts. Future benefits are not assured. In such plans, the benefits in the future go up and down based on the results of earnings on investments held in the plans. Savings and thrift plans prove to be the most generally seen type of defined contribution plans. With this kind of a plan, employees put in to the account a pre arranged percentage of their typically pre taxed earnings. The monies go to the employee’s individual account. Part of the contributions, or all of them in some cases, are then matched up by the employee’s employer. Once these pre set contributions are credited to the individual employees’ accounts from both employees and employers, these contributions are subsequently invested. They might be invested in to the stock market, for example. The resulting investment returns are finally appointed to the account on an individual basis. This is the case whether the returns prove to be positive or negative. When retirement time arrives for an employee, the participant’s account then pays out benefits for retirement. This can occur through the account buying an annuity that will then assure a regular stream of income. In recent years, these defined contribution plans have expanded to be found in nearly all countries. For numerous nations, these are currently the main type of plan for the private sector retirement schemes. This growth in defined contribution plans has occurred at the expense of defined benefit plans, also known as pension plans, as employers seek to avoid the considerable expenses in funding and maintaining pension plans. Money that is put into these defined contribution plans may come from employer contributions or salary deferral of an employee. These plans over time have evolved to become fairly easily portable from one job and company to the next as an employee changes companies. This did not always turn out to be the case. One unique feature of defined contribution plans revolve around the rewards and risks of investments undertaken. Every employee is responsible for his or her own account’s performance, rather than the employer or sponsor of the plan. Besides this, employees are not made to buy annuities with the retirement savings. This means that they could theoretically live beyond their retirement assets, and they take on the risk of this possibility. In Great Britain, the law requires that the majority of the retirement funds be employed in buying an annuity so that this does not happen.

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Deflation Deflation is simply the prices of goods and services going down in a given time frame. Deflation is the opposite of inflation, which is the rising cost of goods and services over a period of time. This does not make deflation a good thing in the long run. Another way of defining deflation is the increasing value of money versus various economic goods over a span of time. With inflation, money is becoming less valuable versus goods over time. Deflation happens as a result of the interaction of four factors. On the one hand, the supply of money in circulation might decline. At the same time, supplies of available goods might increase. The need for goods could drop as well. Finally, the demand for money could go up. If any of these four things happen either separately or in concert, deflation is commonly the result. The easiest way for deflation to occur is as the supply of goods available on the market goes up at a more rapid pace than does the supply of money. The combination of these elements explains how some goods’ costs go up while the costs of others go down at the same time. Despite this, deflation can pose certain problems. The majority of economists today concur that deflation proves to be both a symptom of economic problems as well as a malaise in and of itself. Some buy into the concepts of good and bad deflation. Good deflation happens as companies are consistently capable of manufacturing goods for cheaper and lower prices because of gains in productivity and other ways of reducing costs. This type of deflation permits a strong and growing GDP growth, with lower unemployment, and rising profits. Bad deflation is more challenging to grasp. Bad deflation rises as a result of the central bank, or the Federal Reserve, choosing to revalue the country’s currency. Or, you could say that the supply of money declining results in this negative form of deflation. The actual problem that deflation causes is that it creates uncertainty for businesses and their relationships. As a rule, business thrives on confidence and falters on the unknown. Borrowers have to make loan payments that turn out to be greater and greater amounts of purchasing power in deflationary time periods. All the while, the value of the asset that you purchased with the loan is declining. In these circumstances, many borrowers elect to default on the loan and its payments. A declining spiral similarly exists in deflationary periods. Since businesses begin to enjoy fewer profits, they decide to reduce their employment roles. Individuals do not spend as much money as a result. Businesses then realize smaller profits and again cut back. This degenerates into a vicious cycle down before long, as it becomes self reinforcing. Consumers learn that larger ticket items such as houses and cars will actually cost less in the future and then delay their purchases. Though deflation has been discussed as a potential problem for the U.S. economy with the economic downturn, the reality is far different. At the same time, from 2006 to 2009, the Federal Reserve massively increased the money supply by more than three hundred percent. This argues not for deflation in the United States’ future, but for inflation instead.

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Demand Pull Inflation Demand-pull inflation is one of the two types of general inflation. It comes because of powerful consumer demand in an economy. When many different people choose to buy the identical product, this will result in a price increase. If this scenario transpires in an entire economy on all kinds of goods, then it becomes the demand-pull type of inflation. Keynesian economists utilize demand-pull inflation to explain the events when prices begin to go up from an imbalance of the relevant demand and the total available supply. When all around demand within the economy greatly overtakes the full supply, prices rise. Economists have colorfully called this type of inflation the unavoidable and unfortunate result of too many dollars chasing after an insufficient quantity of goods. This Keynesian theory describes what happens when there is an increase in employment. It subsequently results in a growth in total demand. Because demand is rising, companies engage additional employees to help them boost their total output. The more individuals businesses employ, the higher employment goes. Finally, business output is insufficient to keep up with their demand so the total cost of the good will increase to match demand. Demand-pull inflation should not be confused with the other kind of inflation referred to as cost-push inflation. In the cost-push variety, wages and prices go up together and transfer from one economic sector to another. The two types of inflation move in basically the same way yet work because of different causes. Demand-pull inflation demonstrates the way that rises in price begin. Cost-push explains how it is hard to stop inflation after it has started. The main concept behind demand-pull inflation centers on powerful consumer demand which exceeds total supply to substantially drive higher inflation. All markets are limited to a specific quantity of goods. When the demand for the finite goods becomes enormous, the costs of the goods must rise to be higher. Ultimately, demand-pull inflation results from five different causes. When spending increases from consumers, then businesses become confident enough to put on additional staff to keep up with demand. A second is when exports suddenly rise and this causes the relevant currencies to become undervalued. A third happens when government spending rises. Another is the expectation and prediction of inflation causes companies to raise their prices to keep pace with it. Finally, too rapid growth in the monetary supply can cause such demand-pull variety of inflation. When there is an overabundance of money within the economy then there will not be enough goods to go around without prices rising to compensate and reduce the demand. Oil refineries provide a solid example of demand-pull inflation. If they operate at full capacity, these refineries create this type of inflation. Regulatory issues from environmental concerns make it difficult for refineries to operate at full capacity. This limits the available supply of oil products. It is not that there is an insufficient amount of oil or companies producing it. Instead the problem results from artificially imposed legislation that keeps the market from receiving the ideal supply of finished goods that are in

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high demand. This causes the oil industry to be among the largest contributors to supply-demand inflation.

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Demutualization Demutualization is the decision undertaken by the members of a mutual corporation to convert their company into one which shareholders own instead. This means that the members and users of the mutual company give up their rights of use in exchange for stock shares in the new usually publically traded company. Such mutual companies were originally established in order to offer specific services to their members. They are able to provide said services for the least expensive price possible to their members. This is because they are not forced to earn profits, as with publically traded or for profit corporations. Instead, their goals are to remain at least financially stable and solvent, to offer member benefits, and to return any profits that remain after they pay expenses to their member owners. This has been a practice most common with insurance companies in recent years. A number of mutual insurers that could not earn sufficient returns on their investments, or which faced limited possibilities in acquisitions and mergers on their own, chose this path. They evolved into companies which were publically traded stock corporations. It has aided insurance companies in raising much-needed fresh capital. It also helped them to become more competitive in the domestic marketplace. The question remains is this a good strategy for the mutual insurance company owners? They already enjoy the rights to elect the members of the board of directors. They also have some voice in the way the firms operate. All premiums which the owners pay go towards the insurance company’s bottom line. If there is a profit, then a portion of those premiums are returned as dividends. This is not the case for those life insurance policy holders who own term life insurance only. The insurance companies pay out these dividends once they determine what money remains after key expenses. Among these costs they look at are policy expenses, mortality payouts, and administration costs. Interestingly enough, mutual companies do not have to disclose to their owners how they come up with their dividends. There are several important reasons why firms elect to pursue a demutualization. They are usually first and foremost interested in gaining greater access to additional capital. With this fresh infusion of substantial amounts of cash they can raise by selling shares, they are able to pursue mergers and acquisitions. The mutual insurance companies have found that laws which permit the mega banks and publically traded insurance companies to offer similar services have created huge amounts of pressure to compete effectively in the marketplace for financial services. At least on paper and on balance sheets, additional money a company obtains from its IPO initial public offering provides them with a healthier and more powerful firm. The process of demutualization can require in the range of 18 to 24 months. Before the insurer can affect conversion, they will invest significant amounts of time to fashion a draft proposal. This has to first be approved by the board of directors of the firm. Next this proposal has to be turned in to the state’s insurance department for review. The firm will also want to run meetings giving out information in the state where their head office is based. Policy holders must be informed with regards to their rights to vote yes or no on the final proposal.

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Those policy holders which have a right to participate in the process are usually allowed to choose one of three benefits. They can request shares of stock in the publically traded company, a cash payout, or an enhancement to their existing policy. Finally, after the policy holders approve the demutualization process, it is up to the department insurance of the state to review the plan. They must give final approval to the decision for demutualization to commence.

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Department of Justice The Department of Justice is the largest law office in the world. It is an executive department of the Federal government in the U.S. whose head is appointed by the President. This department holds responsibility for administering justice and enforcing the laws in the United States. This makes the department similar to other nations’ interior or justice ministries. Head of the department is the U.S. Attorney General. The President nominates this individual whom the Senate later reviews, vets, and confirms. The attorney general is also a cabinet member for the President. The mandate of the DOJ is to defend U.S interests with the law and to enforce the nation’s laws. They also are tasked with making sure the public is safeguarded from dangers that are either domestic or foreign. They set out policy for the federal government to help stop and control crime. DOJ also works to punish anyone who breaks the law and to make sure that all Americans receive unbiased, fair justice. The history of this department goes back to the early founding of the country. A single part time individual filled the federal Office of the Attorney General that the Judiciary Act of 1789 created. Originally the roles of this position were limited to prosecuting lawsuits in the Supreme Court and to advising the President and his department heads on any concerns. It did not take long for the work load to be too great for any single individual. At this point, the Attorney General hired a few assistants. Still the work expanded and the government chose to retain private attorneys to assist with the increasing number of cases. Finally following the end of the Civil War in 1870 Congress saw that they were wasting enormous amounts of money by retaining a huge quantity of private attorneys to help with the litigation concerning the U.S. from the war. The Congress then wrote and passed the Act to Establish the Department of Justice. This set up an executive level department of the Federal government. The Attorney General became its head. The act similarly provided the Attorney General with more help. It created an Office of the Solicitor General. This individual handles U.S. interests in front of the United States Supreme Court. The tasks of the Attorney General were specifically redirected to managing civil suits and criminal prosecutions where the U.S. had interests. The DOJ has continued to add to the department’s structure in ensuing years since the 1870 Act founded it. Today there are also the offices of Associate Attorney General and Deputy Attorney General. Besides this there are numerous offices, divisions, boards, and components that make up the department. From humble beginnings as a single part time position, the DOJ has become the main enforcer of all Federal Laws today and grown into the biggest law office in the globe. The Department of Justice has an important anti-trust division. This subdivision within the DOJ is responsible for enforcing the nation’s anti-trust laws. It also works with the Federal Trade Commission on civil types of anti-trust cases. Together they advise businesses in matters that pertain to offering regulatory forms of guidance.

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When businesses are considering buying out or merging with another, they may need to get approval from the anti-trust division. If the deal creates a large and powerful new entity within an industry and threatens the ongoing competition it is especially the case. This is because this group oversees fair competition in industries around the United States.

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Department of the Treasury The Department of the Treasury is an American Federal government department which is tasked with financing the spending of the United States. It bears the responsibility for raising funds by issuing and selling treasury bills, notes, and bonds to banks and investors. The treasury department has oversight for a number of other important government agencies. Beneath its umbrella and authority are the U.S. Mint, the Internal Revenue Service, the Secret Service, and the Bureau of Alcohol and Tobacco Tax. As such Treasury and its subsidiary government agencies wear many hats which include protecting both the President and Vice President of the U.S. The Treasury itself has a variety of functions which both it and the bureaus under it perform. Among these are printing postage, bills, and Federal Reserve notes. It also enforces the government tax laws, collects taxes (via the IRS), and manages the Federal government spending accounts and debts. Treasury also must oversee the various U.S. banks alongside the Federal Reserve. Besides this the U.S. Secretary of the Treasury carries the responsibilities for financial policy, international monetary policy, and intervention in the foreign exchange rate of the U.S. dollar. This cabinet level department in the United States was originally intended to encourage and facilitate economic security and growth in the country. The origins of the department itself go back to the United States First Congress that sat on March 4 of 1789 after the states ratified the Constitution. This makes it among the oldest and most important departments in the country. As a cabinet level post, the American President nominates the U.S. Secretary of the Treasury. It is the responsibility of the U.S. Senate to vet and confirm this nominee. Once the U.S. Constitution received ratification in 1789, a much stronger centralized Federal government arose. It became necessary for the new government to have a centralized Treasury Department to manage its expenses and income. The first Treasury Secretary proved to be Alexander Hamilton. He served the country well in this capacity until 1795. Hamilton accomplished numerous important achievements as secretary. He assumed American Revolution debts from the states to the Federal government. Hamilton made provision to pay off the war bonds the new country had issued during the war for independence. His greatest achievement probably lay in the new system he set up to collect Federal government taxes. The Treasury Department today finances an enormous and increasing portion of the United States’ spending by borrowing money. It does this constantly by issuing longer term Treasury Bonds and shorter time frame Treasury Bills. The bonds can take as many as 30 years to reach maturity. Treasury Bonds and Bills are guaranteed by the full faith and credit of the federal United States government. This makes them extremely popular around the globe. Other government central banks, individuals, corporations, commercial banks, and institutions alike all invest in these interest paying debt instruments. Government Treasury Bonds and Bills pay extremely low interest rates because they are considered by

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the major ratings agencies Moody’s, Standard & Poor’s, and Fitch to be guaranteed safe investments. These U.S. Federal debt issues traded in a world wide market estimated at $12.9 billion at the end of the year 2015. Once the Department of the Treasury issues these bonds and bills, it is up to the Federal Reserve Bank to work alongside them to manage them. The Federal Reserve Bank utilizes these government debt instruments by buying and selling them from banks. This way they are able to manage the money supply for the United States as they determine the interest rates for the country.

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Dependency Theory Dependency theory is the idea that resources move from the poor, less developed nations of the periphery to the nations which are wealthy and called the core. The theory states that the wealthier nations enrich themselves at the expense of the poor countries. The central idea of this theory believes that the rich countries become enriched while the poor ones become impoverished because of the way in which poor countries have been integrated within the world’s trade and financial system. The theory came about in response to modernization theory. This was an older developmental theory that stated every society moves through a variety of stages of development which are still similar to one another. Modernization theory claims all regions which are less developed are now in a situation similar to the one that today’s more developed regions once experienced long ago. It believes that the job of assisting the less developed areas in escaping from poverty lies in pushing them quicker along the common developmental path. World institutions can do this by using a variety of different policies and tools, like the transfer of technology, investment, and more common integration between the world markets and the under developed world. The dependency theory chose to reject this world view. It argued that the less developed nations are not simply more barbaric versions of the industrialized nations. Instead they contain one of a kind structures and features which are all their own. It acknowledges most importantly that these lands are in the unenviable position of being the weakest participants within the world’s market economy. This long held dependency theory does not have many followers as a principle argument any longer. There are a number of writers who make the case that it has a place because it is still relevant as a means to explain the present day global distribution of prosperity and wealth. Free market economists have harshly criticized dependency theory. Among the major critics of it are economists like Martin Wolf and Peter Bauer. They cite three different reasons that it is not a fair theory to utilize in international policy and developmental approaches. These include a lack of competition, problems with sustainability, and opportunity costs domestically. The lack of competition refers to the problems that arise from subsidizing industries which are within those under developed nations. Thanks to the prevention of imports from outside of the country, the domestic industries will not have motivation to improve the quality of their goods, to make their customers happy, to strive for greater efficiency in manufacturing and distribution, or to explore better innovations in research and development. Problems with sustainability relates to industries which are in fact dependent upon support from the government in the form of subsidies, tariffs, import quotas, and other measures. These firms and entire industries even can not continue in business for long without such government support. It is especially the case in nations which are poorer. They require huge amounts of foreign aid as compared to countries which are better developed. Opportunity costs domestically are those chances which the country loses by having to spend money

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supporting industries using its treasury. They might instead invest this money in spending on other projects. They could develop the nation’s internal infrastructure, provide welfare programs to the poor, or sponsor capital and technology projects. There are also problems from tariffs and import restrictions which lead to higher prices for the consumers. It forces consumers either do without such goods or to pay higher prices for them in lieu of purchasing other goods they might need or want. India is a classic argument against this dependency theory. Once the nation abandoned the state controlled model of its businesses and key industries, it instead migrated to freer open trade internationally. The economy improved dramatically following this decision.

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Dependent Development Dependent development is one of the principal ideas underlying dependency theory. This form of development has historically concerned the efforts to export primary resources from countries which are resource-rich but industry-poor. Instead of looking at the nations of the world and treating their economic labor equally, it makes the case that developed nations are able to force unequal exchanges on developing nations. This in effect stunts the economic growth and development of the nations which are dependent on the more industrial nations, which also happen to be more prosperous and economically advanced. This concept of dependent development is a product of nationalists and leftists who viewed globalization and supra-territoriality as positive trends. It has typically involved nations of the so-called “North” and “South.” The north nations are the economic powerhouses that mostly lie in the Northern Hemisphere. This includes countries of the G7 and their partners. The countries including the United States, Japan, Germany, United Kingdom of Great Britain and Northern Ireland, France, Italy, and Canada are all part of the north. These nations are wealthy, extremely literate and well educated, industrially developed, and sometimes less resource-rich. The south nations are the economically underdeveloped countries which coincidentally happen to lie mostly in the Southern hemisphere. This includes most of the nations of Africa, many Latin American countries, and most Pacific island and Caribbean island states. These countries are generally poor, less literate, industrially challenged, and often resource-rich lands whose peoples are typically ruled by brutal governments more interested in enriching themselves than the common welfare of their average citizens. Two notable exceptions to the nations of the south are both Australia and New Zealand. As countries which were more or less extensions of Imperial Britain and were heavily colonized by British people, they developed into north nations themselves even though they are geographically isolated and a part of the “south.” Under this theory, the nations of the north exploited the nations of the south in the era of colonialism. European and (eventually American) superpowers of the 1700s, 1800s, and 1900s formed colonies in far flung territories that included most of Africa, South and Central America, the Caribbean, the Pacific Islands, and large swaths of Asia. They created veritable factories for the extraction of resources which were shipped back to Europe (and eventually America). In exchange, these dominant nations sent back industrial products and finished goods which the local inhabitants could purchase. This built up the industrial bases and might of Imperial Britain and continental Europe while leaving the colonial lands as resource-rich production and exporting centers without industry of their own. Following the Second World War and the end of colonialism, the nations of the North kept this process going through clever manipulating of the institutions they established through the United Nations, the World Bank, and the International Monetary Fund. These institutions came up with development projects for the poor nations of the south and loaned them money to build them. The contractors of these projects were European and American companies which benefitted from the orders and work and so utilized them to become true multinational corporations. Meanwhile, the nations of the south were left saddled with enormous debts whose interest and principle

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payments they could not hope to repay. In order to cover these debt burdens, they were forced to sell their rich resources such as oil, coal, copper, iron, diamonds, silver, and gold on the international markets. In essence, this ingenuously crafted path of dependent development only ensured the same results as colonialism had in prior centuries. Brazil is a classic example of this dependent development. In the early 1970s, they were a nation which was rapidly industrializing thanks to investments from the large multinational corporations and their increasing demand for consumer durable products. Peru similarly embarked on an enormous series of World Bank and other internationally funded development projects. By the 1980’s, the debts of these and other primarily Latin American and African nations had erupted into a full blown crisis. It led to ongoing stagnation in both Latin America and Africa throughout the 1990s that caused many economists and policy makers to doubt the continued practicality and desirability of this dependent development.

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Depreciation Depreciation is the means of spreading out the price of a usable physical asset during the period of its practical life. Businesses engage in this process of depreciating assets for accounting and taxing purposes. Depreciation can also be the reduction of the value of an asset that poor market conditions create. Where accounting and taxing purposes are concerned, the process of depreciation demonstrates the portion of the value of the asset in question that has been utilized. Where taxes are concerned, the rules are stricter. The IRS sets out the regulations for taking depreciation of tangible assets. Businesses are permitted to deduct the expenses of the asset they buy as a business expense. They simply must abide by the IRS’ rules as far as when and how much of the deduction they are permitted to log. This all comes down to which category the asset falls in and the amount of time for which it is expected to last. In accounting, businesses attempt to correlate the cost of a particular asset with the amount of income that it practically earns the company. With regards to an item of equipment that costs them $1 million, it may have a practical life expectancy of 10 years. They would depreciate this asset over the course of ten years. The company would then expense out $100,000 of the asset value each accounting year. They would match up the income that the equipment generated the company every year as well. Accountants can use depreciation tricks to impact the company’s financial bottom line. This is because with enough depreciation, the income statement, cash flow statement, balance sheet, and statement of the owners’ equity will all be impacted significantly. It is true that certain depreciation assumptions can have significant impacts on both the long term asset values and the results of short term earnings. Other assets can see their value depreciated by unfortunate circumstances or poor conditions in the market. Two standout examples of this type include real estate and currencies. In the housing crisis of 2008, many home owners living in the most severely impacted markets like Las Vegas watched helplessly as their home values depreciated by even 50% of the value. The post Brexit vote results day saw the British pound plunge by over 10% in a single day. Generally accepted accounting principles affect depreciation figures. This is because a company might pay for a long life asset in cash, as with a tractor trailer that delivers its goods to customers. According to GAAP principles though, this expense would not be shown as a cost against income then and there. Rather than this, the expense is listed as an asset on the company balance sheet. The value of the asset is consistently and continuously reduced out during the in-service life of the asset in question. As the expense is reduced, this is a form of depreciating the asset. This is done because GAAP principles insist that all expenses must be recorded along with the accounting time-frame as are the revenues which they generate. In the example of the tractor trailer that costs $100,000 and lasts for approximately ten years, GAAP would look to see what the salvage value would be at the end of that time. Assuming it expected the trailer to be worth $10,000 at the end of the depreciating period, than the expense would be depreciated at a rate of $9,000 for each of the ten years (using the formula of cost – salvage value/number of years depreciating).

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With long term assets, the depreciating typically involves two lines. There would commonly be one that displayed the price of the assets and another that demonstrated the amount of depreciating that had been charged off against the assets’ value.

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Depression Depressions in economics are loosely defined as major declines in a country’s GDP, or gross domestic product. The gross domestic product is made up of four major components. These include money that consumers spend, government spending for goods and labor, investment affected by government agencies and individual companies, and the net sum of the country’s exported products. All of these elements are combined to come up with the country’s annual gross domestic product. Another simpler way of stating the GDP is in the counting of everything spent on services, goods, research, investments, and labor in the nation. Depressions are then commonly said to happen as the country’s GDP drops by minimally ten percent in only a year. There is not any consensus on the precise amount of decline in terms of percentage that must occur. Following the notorious stock market crash in 1929, the Great Depression that happened in the United States and throughout Europe demonstrated a sharp decline in GDP not only the first year but also over the following years. In the months that came after this market crash, the U.S. GDP fell by in excess of thirty percent. After that it rose for a while, though not nearly to the pre-crash levels seen earlier in the U.S. This demonstrates the difficulty in simply defining depressions simply by looking at GDP declines and increases. The Great Depression is mostly held to have continued until the very end of the 1930’s decade. Real recovery nationally then did not begin until the outbreak of World War II in 1939. The reason that this is the case is that additional factors besides simply GDP declines have to be considered in evaluating what is and is not truly a depression. The Great Depression had many negative characteristics besides simply falling GDP’s. With plummeting industrial output, major numbers of jobs disappeared. As significantly smaller amounts of money came into workers hands, a great deal less could be spent on consumer goods or business investments. Without this money circulating back to businesses, firms were unable to hire workers back. The numbers of people dependent on help from the public assistance funds were greater. Job recovery did not materialize as hoped. From time to time the Gross Domestic Product did rise in the 1930’s. It never returned to the normalcy seen before the beginning of the Great Depression until the United States became fully involved in the Second World War. Demands for military equipment and weapons for the war did many things to help the American economy. Young men found employment in the army, industry suddenly had rising demand for military products, and job openings were more than the able bodied people available to fill them. At this point, women began entering jobs in industry in the place of men for the first time. Nowadays, some respected economists worry that a depression like one not seen since the thirties could again be gripping the nation. This is because unemployment from the Great Recession remains stubbornly high, goods and services’ prices are rising at a faster pace than payrolls in the majority of industries, and requirements for public assistance are higher than they have been since the end of the Second World War. The biggest fear today is that many of the jobs that are disappearing, such as technology and

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manufacturing, will never return, as they are migrating overseas to countries where workers are paid significantly less.

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Derivative In the financial world, derivatives are agreements between two different parties that contain values that are dependent on the price movements of an asset, as anticipated in the future, to which they are linked. This asset, which might be a currency, stock price, or other element is referred to as the underlying. Derivatives are also alternative investments and financial instruments, of which they are numerous kinds. The most common forms of derivatives are futures, swaps, and options. Investors use derivatives for many different activities. These include for gaining leverage on an investment so that when a small movement occurs in the value of the underlying, they can realize a great gain in the derivative value. They may also be employed for speculation to profit from, assuming that the underlying asset value goes in the direction that they anticipate. Businesses might similarly hedge their risks in an underlying through opening a derivative contract that moves conversely to their position in the underlying, canceling all or part of the risk in the process. Investors similarly are capable of gaining exposure to an underlying that does not have a tradable instrument associated with it, like with a weather derivative. Investors can also utilize derivatives to give themselves the ability to create options in which the derivative value is associated with a particular event or condition being met. Derivatives principally remain a means of offering hedging insurance, allowing one party to lessen their risk exposure while the other reduces a different kind of risk exposure. Derivatives examples of transferring risk are helpful to consider. Millers and wheat farmers might create a derivative by signing a futures contract. This could specify a certain dollar value of money in exchange for a particular quantity of wheat to be exchanged at a future time. In this case, the two parties have actually diminished their risk for the future. The miller is not exposed to possible shortages of wheat, while the farmer is saved from the possible variances in price. Risk is not completely eliminated in this example since the derivative contract will not cover events that the contract does not mention in particular, like weather conditions. There is similarly a danger that one of the parties will default on their part of the contract. To mitigate these problems, clearing houses insure many futures contracts, although not every such derivative is insured for the risk of counter party default. Another way of looking at derivatives in this example is that while they reduce one form of risk, they actually present another one. The miller and farmer both pick up another risk by signing off on this contract. For the farmer, the danger lies in the fact that although he is saved from declines in the price of wheat, he is also exposed to the possibility that wheat prices will rise above the set amount in the contract, costing him extra income that he might have obtained. The miller also picks up a risk that the cost of wheat will drop below the amount that he has locked in with this contract.

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Deutsche Bank Deutsche Bank is the leading German bank in the world. It commands a substantial market share in Germany, a strong place in European banking, and an important presence in both the Asia Pacific and Americas regions. The group has grown from its founding in Berlin, Germany in 1870 to encompass strong operating bases in all of the major developed and emerging markets. This gives them a solid prospect for business expansion in the world’s rapidly growing markets, comprising Lain America, Central and Eastern Europe, and the Asia Pacific regions. Their important position in Europe provides the bank with a solid foundation from which to benefit not only from the resilient economic conditions in native market Germany, but also from rebounding strong corporate activity levels throughout the euro zone. From Deutsche Bank’s first international foray into Asia in 1872 on, the bank has always looked abroad for opportunities to expand. This has carried it into more than 70 nations around the world today. Of its 2,790 total branches, 1,827 are located in Germany and another 963 are found in other countries and markets beyond the bank’s home base. With the ongoing theme of continuous globalization in the international economy dominating, this puts the banking group in a strong position. It has more than adequate diversification throughout different regions of the world and significant revenue streams coming in from all the major areas around the globe. Deutsche Bank offers practical banking solutions and services to private individuals, medium and small businesses, corporations, institutional investors, and governments. They operate a number of businesses specifically focused on the needs of these client bases. The Corporate Finance Business group takes responsibility for M&A merger and acquisition activities. This includes equity and debt issues, advisory services, and coverage of capital markets for medium to large corporations. They deliver this complete range of financial services and products to the business clients via industry- and regional- specific teams. A subdivision of this is the CIB Corporate & Investment Banking business. It combines the expertise of Deutsche Bank’s corporate finance, commercial banking, and transaction banking under the direction of a single unified leadership team. It is made up of both the Corporate Finance and Global Transaction Banking businesses. The Deutsche Bank Private & Business Clients Corporate business offers in branch financial and banking services to self employed entrepreneurs, private clients, and medium to small businesses on an international scale. The bank’s Wealth Management business provides high quality and extremely personalized services to the ultra high and high net worth families and individuals along with certain institutions. These particular clients receive a complete package of wealth management services, philanthropic activity advisory services, and inheritance planning advice. The Asset Management business at Deutsche Bank delivers investment and mutual fund services and products to its retail clients around the world. The bank brands this franchise as the DWS Investments group. It also provides institutional clients of the bank like insurance companies and pension funds with a

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wide variety of services and products that range from traditional to alternative investments. Among these products and services are the DWS Funds, Deutsch Insurance Asset Management, DB Advisors Institutional Asset Management, and RREEF Real Estate Investment Management. Deutsche Bank also operates a large and important Asia Pacific division of the bank. The company’s history in Asia traces back to the first branches they opened in Shanghai, China and Yokohama, Japan which it founded in 1872. Nowadays the operation is quite a bit larger. The group maintains office presences in 16 national markets and employs 16,000 staff in Asia Pacific. The bank’s Asia Pacific division headquarters are located in Singapore.

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Devaluation Devaluation involves an intentional adjustment to the downside for the currency value of a country. This is done in comparison to a currency standard, basket of currencies, or a single currency. This practice turns out to be a monetary policy tool for those nations that are either using semi fixed exchange or fixed exchange rates, like with China. Sometimes individuals confuse this tool with deprecation. The opposite of devaluation proves to be revaluation. The government which issues the currency is the party that chooses to devalue it. Devaluations are always intentional, while depreciations instead result from activities beyond the scope of the government sector. A country has several motivations for devaluing its currency. The leaders might be attempting to fight against imbalances in their nation’s balance of trade. By devaluating, they make the national exports more affordable which helps them to compete more effectively in the global market place. It also makes their country’s imports more costly for the citizens. This helps domestic consumers to choose to buy goods offered by their own domestic businesses. It strengthens the national economy. It may seem like an appealing choice to devalue a currency. In reality, there are negative side effects to pursuing this option. When the leaders make the imports more costly, they protect their own native industry. These companies can then descend into inefficiency since they do not have much serious foreign competition any more. A greater number of exports as compared to imports also will increase the total demand. This often causes higher inflation at some point. There are a number of different examples of official devaluations in the world. It may happen because of a variety of different reasons, yet government choices always lead to it. Egypt is a classic example. The country has long struggled with continuous strain from the black market demanding USD American dollars. This black market rose to prominence because of a shortage in foreign currencies that discouraged domestic and foreign investments in the Egyptian economy and also negatively impacted national businesses. The Egyptian government chose to put down the black market deals by devaluing their own Egyptian pound against the US Dollar by 14 percent back in March of 2016. At first the Egyptian stock market delivered a favorable response after the currency devaluation. The black market reacted by depreciating the USD to Egyptian pound exchange rate. This caused the central bank to intervene. They were forced to announce a further devaluation of their currency again on July 12, 2016. China also began to quietly devalue their currency throughout 2016. They did this in preparation for the U.S. presidential election results of November. Since both American candidates Donald Trump and Hillary Clinton were speaking out against the relationship with China, the country figured this would give them the opportunity to revalue their currency following the election in a move that would make it seem to be cooperating with the new administration. This makes the Chinese complicit in two rounds of currency devaluation, one to set up for the later intended opposite devaluing action.

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Digital Currency A digital currency refers to an asset which possesses numerous interesting and groundbreaking characteristics. On the one hand, they are much like traditional forms of money that people spend and keep, such as cash and coins. On the other hand, such currencies are not physical. This means that they do not have literal physical representations or the associated physical limitations. This currency is kept in a digital wallet, which can have physical characteristics if it is a cold storage type of digital wallet. Digital currency in particular and electronic money in general is gradually becoming more significant as the world continuously evolves into a society that is more and more cashless. The amount of money supply which is expressed in digital format is constantly growing. Thanks to the rising popularity of such crypto-currencies as especially Bitcoin, there now exists the distinct possibility of migrating entirely away from traditional paper bills and coins at some point in the future. Such digital currency only can exist and function when secure transactions are guaranteed online. This makes these currencies both an occupant and hostage of digital environments. They are generally represented and depicted in the form of information. Bitcoin has become so popular that numerous companies currently accept this form of digital currency. PayPal even allows for the utilization of Bitcoin now. It is interesting to note that Bitcoin is not the only digital currency option available to individuals and businesses for transactions. A range of such currencies exist which can be used to pay for transactions. The next five most important after Bitcoin are Litecoin, Darkcoin, Peercoin, Dogecoin, and Primecoin. They have many advantages over traditional money. The first of these is the instant transfer ability. Individuals are no longer required to wait on a central clearinghouse somewhere to handle the transaction. The days of from one to five business days waits for transfers are long gone thanks to these digital currencies. Crypto-currencies are so popular precisely because the effect of such a transfer is instantaneous. The majority of these digital currencies also come with no fees. Whatever something costs in Bitcoin or another such digital currency, people simply pay with it at transaction cost and no hidden fees are applied. This is a stark difference from many credit card or even PayPal transactions. Individuals and businesses especially love the fact that these digital currencies come completely without borders. This means that a seller or buyer does not have to be concerned with exchange rates or foreign transaction fees (which are often exorbitant). Cross border transactions are simple and effective to put through, though people must still watch the exchange rate at which they are offered in the local currency into which they are paying. For the majority of applications and scenarios, these crypto-currencies also prove to be extremely secure. It is the digital wallet where the danger lies. The money is not being stored in a bank vault or even on a bank computer. The wallet must be backed up on a daily basis to prevent it from being lost. In order to ensure that it is secure, the only way to guarantee this is by utilizing cold storage.

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Cold storage takes the digital wallet completely offline and off network. It means that the “pin code” like authorization element will be stored on a small device that resembles a USB miniature drive device. The nature of these devices is that they do not accept software. This means that Trojan Horses and viruses which steal information can not be imprinted on them. They also are never online long enough to be hacked, as users only connect them to a computer long enough to digitally sign the transaction. These digital currencies have convincingly changed the rules of the financial transaction game. Their limits are two fold. The first is that a business must be willing to accept Bitcoin or rival currencies in order for a consumer to pay with it. The second is that digital currency regulation is inevitable. Central banks are jealous animals. They are already suspicious of their monopolized currency-printing functions being assumed in a non-regulated and more difficult to track environment by a non-centralized form of money.

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Digital Wallet A digital wallet is an electronic type of device which makes it possible for individuals to complete financial transactions electronically. They are also called e-wallets. There are several useful applications for using this technology. Consumers can utilize them to buy thing over the Internet with a computer or laptop. They might also employ them to buy an item or service in a store by using their smart phone to complete the transaction. These electronic wallets can be linked up directly to the person’s bank account as well. These phone versions of digital wallets could also contain a health card, driver’s license, loyalty memberships, and similar important identification documents. The technology permits these credentials to be transferred over to the terminal of the merchant wirelessly. The technology specifically is called NFC near field communication. More and more these days, these electronic wallets are being deployed to do more than conclude simple financial transactions. They also can verify the characteristics of the holder. As an example, a digital wallet can be used to verify the buyer’s age in the store when they are there buying alcohol or cigarettes. In Japan, such systems have become increasingly more popular. People there call the electronic wallets “wallet mobiles.” Another advantage to such digital wallets concerns their ability to remember more complicated passwords. The owners do not have to be worried about if they will be personally capable of remembering them when they need them. These wallets also have the advantage of cutting the need to have a physical wallet with them. Consumer data centers and companies love them because they make it easy for them to gather consumer data. Such information helps them to better understand the purchasing habits of customers. This makes it easier to appropriately market goods and services to them. Naturally consumers suffer a great breach of their privacy thanks to these e-wallets and the resulting consumer data collection practices. The advantage for consumers is that these e-wallets can save them having to fill in various order forms on different websites whenever they perform an online purchase. This is because that data is pre-stored on the wallet and auto entered (and updated) to the appropriate order fields on all merchant sites thanks to the technology of the digital wallet. Statistics shows that individuals will abandon online purchases fully 25 percent of the time because they become frustrated in filling out the forms. Both consumers and merchants each obtain advantages thanks to these e-wallets. Consumers gain the significant advantage of having all of their sensitive information electronically encrypted. This means that it is effectively protected utilizing a secret proprietary software code. Merchants obtain the advantage of gaining safety from fraud. Two great advantages to these digital wallets are that they are free for individuals and they are not difficult to get. Examples of this ease in obtaining them abound. Customers can complete a purchase on the site of a merchant that is developed to process server side e-wallets. All the customers have to do is to type in their names, shipping address, and payment information directly to the form provided by the merchant. When the purchase is complete, the consumer has the choice to sign on to an e-wallet which

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they select by simply typing in a password and user name for any future needs and purchases. Users can also obtain such a wallet at the vending web site for e-wallets. These wallets may be free for individuals to use, but the vendors make their money off of the merchants. There are vendors of these wallets which arrange deals with the various merchants to give the wallet vendor a certain set percentage on each purchase amount which runs through their wallets. There are other cases where the e-wallet vendors run the transactions between merchants who participate and cardholders. They do this in exchange for a flat fee.

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Discount Fee Discount fee refers to an upfront closing cost on a mortgage. This one time arrangement provides a mortgage borrower with the ability to enjoy lower mortgage rates than the general market offers. These discount points are often tax deductible. This is because the IRS counts these points as mortgage interest that is prepaid. The discount fee varies from one bank to another in how much it lowers the interest rate on the mortgage. Typically, a single discount point that a buyer pays in the closing will reduce the interest rate on the mortgage by 25 basis points, or .25%. Mortgage lenders commonly quote their own current mortgage rates as two parts. In the first part, they provide the official mortgage rate which they are offering. In the second part they reveal the amount of discount fee that the borrower will need to pay to reach that rate. Generally speaking, the more points the home buyer pays, the lower the quote on the mortgage rate will become. Ultimately the discount fee is a means of buying down the interest rate. This lowers the monthly payments. It is separate from origination points. These are costs that banks levy in order to prepare the mortgage loan. Settlement statements may label this discount fee under another name. They can be termed mortgage rate buy down or discount points. These points carry a cost of 1% of the total size of the loan. With a $300,000 loan, a single point would cost $3,000. Half a point would amount to $1,500. A quarter point would equal $750. The tax advantage of these discount points pertains to taxes a home buyer pays now. They are completely deductible in the year the borrower buys them. Individuals are not allowed to claim the full deduction on loans for home refinance. These must be spread out for the entire life of the refinance loan. This means that for a home owner who buys points for a 30 year refinance mortgage, he or she is able to claim 1/30 of the fees every year in tax deduction. For any borrower who decides to buy these points on a mortgage, it makes sense to discuss it with the tax advisor so that the deductions on federal income tax can be maximized. The other reason that a home buyer would be interested in buying points is because it can lower the monthly payments and the total amount of money paid during the life of the mortgage loan. On a $100,000 loan a standard discount point would reduce payments by $14 each month for every $1,000 spent. This leads to a breakeven time frame of 71 months. In order for buying points to make sense, the mortgage borrower has to decide how long he or she will likely hold the house or the mortgage. If the owner plans to sell the house in less than this amount of time, or he or she will refinance the loan sooner, then paying for points becomes a waste of money. If an owner will hold a mortgage for more than the six years in this example, then the savings over the remaining 24 years of the mortgage can be substantial. Freddie Mac keeps statistics on average mortgage loans and points. In the year 2015, the average fixed rate loan came with .6 discount points. With the average ARM adjustable rate mortgage, .5 discount points came in the contract. The exact amount of an interest rate break that a point carries depends on the

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bank in question. Some banks also do not give multiples of .25% interest rate breaks on each point the borrower purchases.

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Discount Mortgage Broker A discount mortgage broker is one who claims that the lender is paying his or her fees. These mortgage brokers shop for competitive loan deals on the behalf of consumers looking for mortgages. Upfront mortgage brokers by contrast are ones that spell out exactly the fees they will receive from the borrower. Their charges are part of the closing costs of the loan. The phrase discount mortgage broker gives the connotation that the individual is offering services for a reduced price. This is usually the opposite of what they do. Discount brokers usually charge higher fees. The borrower is not able to recognize this much of the time because the fees are buried in the higher interest rate which he or she will pay over the life of the loan. When the borrower pays in the rate, the payment becomes extended over years instead of a single upfront fee. Lenders do not ever truly pay the fees of mortgage brokers. Borrowers always front them in one of two ways. With upfront brokers, the borrower pays the costs upfront in cash when it is time for the mortgage loan to close. This makes the fee for the broker a part of the closing costs. The other way is for the borrower to pay a higher rate of interest to the lender. The lender then covers the broker cost during the closing in exchange for the higher interest rate. This means that the fee would not be a closing cost for the borrower. The borrower is still paying the fee. He or she is paying it instead each month of the loan in the form of a higher mortgage payment. A discount mortgage broker prefers to have the fee paid by the lender in the closing. The reason for this is that resistance from the borrower to the fees is considerably less when the borrower does not understand the way it works. Consumers are usually extremely focused on the cash which they must come up with at closing than they are on payments they will make in the future. The disclosure forms which are required do not clearly spell out rebates that the broker receives. The home buyers know all too well how much these fees are when they pay it personally at closing. They often have little idea of how much the broker is charging and receiving when they pay it from the interest rate. This is why a discount mortgage broker is always looking to receive its compensation completely in the form of rebates from the lender. There is nothing illegal or unethical when borrowers pay their brokers via a higher interest rate in lieu of a cash payment. Transparency would argue that a home buyer should at least be able to make the choice intentionally. Some borrowers can actually benefit from paying the discount mortgage broker through the rate and rebate. In the cases where the home buyers will not pay this greater rate for too long, then it can save them money over the upfront out of pocket mortgage broker fees. For individuals who will keep their mortgage a greater amount of time, it saves them money to pay the broker directly at closing. This is provided they have the cash available.

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Discount Points Discount points are also sometimes known as simply points. They represent a type of interest that is paid in advance. A single discount point is equivalent to one percent of the total loan amount. Through charging borrowers points, lenders boost their loan’s yield to a total that is higher than the expressed interest rate. Borrowers are able to give a bank or lender payment as a way of lowering the loan’s interest rates. The up front sum of money gives them a lower monthly payment. With every point that a borrower buys, their loan’s rate commonly falls by .125 percent. A buyer paying for points is not without risk. At some time within the life of the loan, the cost of the money given to lower the rate of interest will equal out to the money that you saved in being able to make lower amount loan payments because of the loan’s better interest rate. Should you refinance the loan or sell the house in advance of attaining this break even point, then you will actually take a loss on the transaction. On the other hand, if you hold on to the property and accompanying mortgage for a greater amount of time than the break even, then you will actually save money on the purchase. It goes without saying that the longer amount of time that you hold the property mortgage and financing with the bought discount points, the better this money used for the points actually rewards you. At the same time, a person who plans on purchasing the property and then selling it or refinancing it quickly will only lose money by not simply paying the higher rate of interest on the loan in lieu of buying points. Discount points can also be bought to help you qualify for loans. If the loan qualification basis is grounded in your monthly loan payment against your monthly income, then you may only be capable of getting approval by buying the discount points to lower the rate of interest which will result in the lower monthly payment that your approval requires. Discount points should not be confused with broker fees or origination fees. Discount points only serve to lower the interest rates. Origination fees are those that the lender charges for creating and closing the loan. They could sometimes be a different name for lowering the interest rate as well. Borrowers who will stay in the house for a longer period of time should definitely consider buying points. Lower interest rates will pay off in savings over time. Any changes in the fees and costs for the loan will be shown to you in the last good faith estimate that the lender provides. Sometimes when you buy points, you may be able to get a no closing cost loan. This usually happens when the bank is getting a premium interest rate. As their fee is made off of a higher starting interest rate on the note, it can be utilized to cover the closing costs.

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Discount Rate The term discount rate actually has several meanings. Where interest rates and banks are concerned, the discount rate proves to be the actual interest rate that central banks charge their member depositing institutions. When these banks choose to borrow funds from the central bank or the Federal Reserve as their lender of last resort, then this is the rate that they will be required to pay them as interest. Besides this, the discount rate can refer to the annual effective discount rate in investments. This rate turns out to be the yearly interest divided up by the capital that includes the interest. The rate provides a lower value than does the interest rate. The value following a year delay would be the nominal value in this case. The upfront value is this nominal value less a discount. This annual effective discount rate is commonly utilized for financial instruments that are like Treasury Bills. For businesses, the discount rate is important as they are making critical decisions regarding their profits and what to do with them. When it is time to contemplate whether to purchase new equipment pieces or to instead return the profits to the share holders, this discount rate is helpful. If all else is equal, then the company will only elect to purchase the equipment if it returns a greater profit to the share holders at a future point. The share holder discount rate would then be the dollar total that share holders expect to receive in the future so that they would rather have the company purchase the equipment now instead of return the profits to them now. Share price data is utilized to figure up the discount rate for estimating share holders’ preferences. This is called the capital asset pricing model. Businesses commonly use this discount rate when they make choices regarding buying equipment by using the net present value in the decision making process. This discount rate proves to be the weighted average cost of capital. It shows the cash flow risk. The discount rate can also be used by companies to show two different things. It demonstrates the time value that money has, or the risk free rate. Investors generally prefer cash now than cash that they must wait for, meaning that businesses have to compensate them by making them wait for it. The discount rate also establishes a risk premium. This proves to be the additional return that investors want as payment for the possibility that they might not ever see this money if the cash flow is not there in the future.

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Discover Discover Financial Services turns out to be a United States’ based global financial service outfit. They issue and service the Discover Card and Diners Club International Card and operate Pulse Networks. Their flagship card proves to be the third biggest brand of credit cards within the U.S. based on the number of cards in use. The company boasts almost 50 million different card holders nationally. Sears began the Discover legacy by introducing the card originally back in 1985. It launched the original credit card with cash rewards a year later in 1986. Stock broker Dean Witter acquired the card from Sears and then later merged its company with Morgan Stanley in 1997. The Discover Financial Services first acquired its independence with the spin off of the company in 2007. It became a publicly traded corporation headquartered in Riverwoods, Illinois, a Chicago suburb. The company is involved with both credit cards and banking. This business offers their proprietary brand credit cards, personal loans, private student loans, checking and savings accounts, home equity loans, money market accounts, and certificates of deposit to its clients. Their customers include both consumers and small businesses today who utilize their travel, cash, and gift cards throughout the U.S. and the world. Their two banking affiliates are Bank of New Castle and Discover Bank. Both are regulated and chartered through the FDIC and the Office of the Delaware State Bank Commissioner. The FDIC is both their insurer and federal regulator. Besides being among the largest credit card issuers in the country and a significant bank, the company also owns and operates the PULSE network. This is a national leading network of ATM/debit machines. For more than three decades they have provided this among the largest in the country networks. It offers services to over 4,500 credit unions, banks, and other financial institutions throughout the United States. Cardholders are linked up with POS payment terminals and ATM machines around the U.S. through their services. PULSE is technologically advanced in its offering of simultaneous transaction processing and settlement. They also own Diners Club International since 2008. This globally known brand provides financial payment services and credit for small businesses, corporations, and consumers. Launched in 1950, Diners Club International provided the world’s original multiple use credit cards. Its cards boast acceptance in over 185 countries via millions of cash access points and merchant locations across the globe today. Thanks to these combined operations, literally billions of different financial transactions go through their network of electronic payments every year. The Discover Network handles a complete line up of cards, including prepaid, debit, and credit cards. Their programs and tools were created to assist merchants, acquirers, and issues in growing their transactional volumes and operating their payment processing needs with effective and efficient operations. Internationally, the network relies on two different alliances that help to ensure the card is well accepted overseas. China UnionPay and JCB offer and receive reciprocal card acceptance throughout numerous nations around the globe. Discover prides itself on its long running customer satisfaction success. For three years in a row through

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2016, it has been ranked the “Highest in Customer Satisfaction with Credit Card Companies” by J.D. Power.

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Discretionary Expenses A discretionary expense refers to those business or home costs that are not considered to be critical for the entity to function or operate effectively. This is important, since both businesses and individuals often are required to pay for discretionary expenses using discretionary income. As an example, businesses might permit their staff to charge specific kinds of entertainment and meal expenses to the firm when they engage in these activities to build up business ties with clients, vendors, or potential customers. They might also cover meals and entertainment simply to foster better relations with their staff. A home would refer to discretionary expenses as those that they do not need, but instead want to have. Discretionary income refers to any funds which remain after businesses or individuals pay their taxes and mandatory costs. On an individual level, those persons who do not have any money left once they pay the bills do not have any discretionary income. In order for them to pay for a discretionary expenses, they will be forced to take on debt by obtaining a loan or utilizing credit cards. An example of using debt to pay for a discretionary expense is utilizing credit cards to pay for a family vacation. There are two kinds of expenses which consumer households incur. Some they are required to pay according to the law. This includes income and other taxes as well as health insurance (at least in tax years 2014 and 2015). Costs they have to pay out in order to make sure the family and household functions are also non-discretionary in nature. These include transportation costs, food, utilities, and rent or mortgage. The people making the money do not have a choice of whether or not to pay these costs every month without suffering sometimes-severe consequences. The other kind of cost qualifies as a discretionary expense. This would be luxury items such as fine clothing, watches, or expensive liquor and vacation related costs. These are simply those services and goods costs which an earner may choose to pay for according to their personal discretion. When economic conditions warrant, both businesses and households may find that they have to reduce their outlays as revenues and incomes go down. This is why it is important to have a thorough understanding of discretionary expenses before hand. When these are separately broken out on paper or a spreadsheet, then businesses and consumer decision makers can quickly and easily ascertain what expenses can be lowered or cut altogether. A helpful technique for budgeting lies in ranking those discretionary expenses by their order of relative importance. This could be done by putting the least important at the top of the list and continuing on down to most important. When business income reduction or a cut back in hours on the job occurs causing businesses or households to slash expenses, then it is easy for the spending decision makers to choose which expenses can and should be cut first. It is also to keep in mind that there are differences between what businesses and consumers consider to be discretionary in nature. Families which have two cars will likely have two car payments. They may think that the two cars are necessities and not discretionary. The truth is different. In an emergency, they could

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manage with only the one car in many cases. When times become hard and a job is lost, the family can decide the second car is actually discretionary and not essential. This way, they can sell the second vehicle to remove the second payment overhead from the family or household budget.

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Discretionary Income Discretionary income refers to the amount of income an individual or family possesses after they cover their personal expenses and taxes. Critical personal expenses include shelter, food, clothing, transportation, and medicines. The money which remains is available for savings, investing, or consumption spending. This means that a discretionary form of income would include such items as goods and services which were not necessary, restaurant meals out, vacations, and luxury items. It is a fact of life that this discretionary income decreases first when there are problems that lead to payroll reductions or losses of jobs. This is why those companies which sell discretionary types of good will be the ones which experience the greatest amount of pain in the periodic recessions, depressions, and economic downturns. When an economy is healthy and growing, then discretionary income represents a significant and critical part of it. Individuals and families are only able to spend their money for items such as electronics, vacations, and movies when they have the surplus resources to do it. When consumers employ their credit card resources to buy these discretionary items or goods, this does not represent income which is discretionary. Instead it is merely growing their personal debt levels. While many people tend to use disposable income and discretionary income as if they were interchangeable, they are in fact not the same. They represent different kinds of income. Discretionary forms of income come from disposable income. Income that is disposable equates to gross income, less taxes. This means that it is effectively the pay people take home after taxes which they can utilize for nonessential as well as essential costs. Discretionary income is instead the amount of income that remains from the original disposable income once the bill payer has covered mortgage or rent, food, transportation, insurance, utilities, and other unavoidable costs of living. Looking at an example helps to make this clearer. If individuals earn $5,000 each month (after taxes are taken out) in take home pay, they may have $2,500 in critical costs. This would leave them with $2,500 for the month in discretionary income. Should their checks become reduced to $4,000 per month, these earners would still have the ability to cover their essential expenses. Their extra income would be reduced to $1,500 as income that was discretionary. The amount of such income which is discretionary remains one of the crucial measurements of an economy’s health. Economists and analysts employ it and the related concept disposable income to come up with other critical economic ratios. Among these are the MPS Marginal Propensity to Save, MPC Marginal Propensity to Consume, and consumer leverage ratios. Consider the following example. In the year 2005, the personal savings rate of the United States turned negative and stayed this way for a full four months in a row. Once the consumers had covered all required expenses from their disposable income, they then spent the remainder of all their discretionary income and more. They utilized their credit cards, personal lines of credit, and home equity loans and home equity lines of credit to fund other discretionary purchases which they honestly simply could not afford.

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This was a dire warning about the upcoming economic problems which began to materialize the following year of 2006 as the subprime mortgage crisis unfolded. By 2007, the Great Recession and Global Financial Crisis had both begun in earnest. Though they technically ended officially in 2009, in many countries of the Western world including the United States, the income and prosperity levels have still never returned to those pre-crash levels even a full decade later. Most of the problems which surfaced were predictable by watching the ways that discretionary income was being used and abused. Negative savings rates which the consumers pursued in order to continue funding their discretionary lifestyles spelled financial doom eventually.

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Disposable Income Disposable income proves to be the remaining income after an individual has met all of his or her income tax obligations. It is utilized as a means of ascertaining the health of an entire society, as well as a person’s general economic condition. Disposable income also turns out to be among the main measurements for determining personal wealth. Although they are sometimes used interchangeably, disposable income should not be confused with discretionary income. Discretionary income is simply any income that remains following paying the taxes and other customary living expenses. This means that the value for disposable income is a greater amount than discretionary income proves to be in practically every case. Still disposable income does not really deal with the day to day costs of living that people encounter in their normal lives. For you as an American, disposable income typically proves to be anywhere from ten to fifteen percent of the personal income of an individual. All of the rest of the money goes into one of a number of different taxes. Naturally, this would be individually determined as a result of the amount of income that you have, the withholding allowances that you enjoy, and the state in which you reside. Similarly, for other countries, disposable income can be figured more or less by examining the typical tax rates. Disposable income commonly decreases in difficult economic times, such as recessions and depressions. This does not happen because of an increase in taxes. Instead, it is more a factor of the likelihood of it falling in challenging economic times as companies cut back on employee payrolls. Because of this, lower disposable income will mean that people have more difficult times in fulfilling their present obligations. This will make them far less likely to take on new financial responsibilities. When people do not make enough money to be taxed, then their disposable income may actually prove to be about the same as their total income is. This is similarly the case in nations that do not charge their citizens personal income taxes. In such cases, gross income and disposable income are identical. Besides being used for spending on needs and expenses, it can also be saved and invested. Through wisely purchasing cash flow investments with disposable income, the resulting disposable income in the future can actually be consistently higher as regular investment income comes in to the person’s account. Disposable income used for capital gains investments will commonly lead to one time gains on sales, which will only temporarily increase disposable income for one time.

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Distressed Assets Distressed assets are assets that a company or individual has been forced to place for sale at a significant discount to the acquired or actual value. This usually happens as the owner has no choice but to sell the asset to raise cash. Several different reasons might exist for why this is the case. These include excessive debt levels, bankruptcy, and regulatory requirements. Even debt can be put on sale at an amount that is lower than its face value. When this happens, it is known as distressed debt. Although there are various types of distressed assets offered for sale, among the most common in the wake of 2007-2010’s financial crisis and Great Recession are non performing loans on houses or foreclosures on mortgaged properties. Investors of all sizes are able to take advantage of such distressed assets in property by availing themselves of a homeowner’s lack of ability to meet the mandatory mortgage payments or of his or her critical requirements for cash. In situations like this, such homeowners will consent much of the time to selling the property for a substantial discount in order to achieve a fast sale. In the past, banks dealt with such distressed asset mortgages almost entirely themselves. As a result of the American banks still repairing their heavily damaged balance sheets from the countless write offs and over leveraging that they engaged in over the past five to ten years, they can not keep up any longer with the enormous number of foreclosures on their books. This leaves them with little choice but to have to sell some of their mortgage property asserts at massive discounts to actual value in order to be able to create quick cash flow. The end result is that distressed assets can present a potentially profitable investment opportunity for you. The still ongoing crisis in global liquidity and credit has banks selling mortgages to individual, as well as to large, investors at significant discounts. Such discounts to perceived value would never occur in the days of normalized conditions in the mortgage and credit market place. This means that investors are currently able to purchase distressed home assets with discounts amounting to as much as 72.5%. With as little as $100,000, smaller investors are able to get involved with this efficient and potentially lucrative investment strategy. Professional management teams are available to help small investors realize appropriate exit strategies whose goal is to generate an impressive 20% return on investment per year. Purchasing distressed assets such as homes in mortgage payment trouble can offer ethical options and benefits as well. Investors are able to restructure the debt and payments of the home owner in such a way that distressed home owners are able to afford the new payments. This lets the troubled home owners stay in their houses so long as the investor owns the mortgage and the home owner is able to work with the newly arranged payment schedule. Distressed assets of companies include many different types of assets. These might be commercial office buildings, commercial jets, and even factories and equipment sold at substantial discounts to real value. Many times, other corporations are able to acquire these distressed assets for their own uses at fantastic prices.

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Diversifying Diversifying refers to the means of effectively lowering your investing risk by putting your money into a wide range of various assets. A truly well diversified portfolio offers the benefits of lower amounts of risk than those that are simply invested into one or two asset classes or kinds of investments. Everyone should engage in some amount of diversification, even if the individual proves to be one who is tolerant of risk. Those individuals who really fear the present day economic uncertainties and very real amounts of risk in the market place will perform better forms of diversification into more asset groups. Mainstream diversification is always recommended by financial experts because of the common example of not placing all of your investment eggs into just a single basket. If you do have all eggs in the one basket and then drop the basket along the way, then they can all break. The idea is that by placing each egg into its own individual basket, the odds of breaking all of the eggs declines significantly, even if one or several of them do get broken themselves. Portfolios that have not engaged in diversifying might have only one or two corporations’ stocks in them. This proves to be a dangerous investment strategy, since no matter how good a company looks on paper, its stock could decline to as low as zero literally over night. The past few years of the financial collapse have taught many investors the extremely painful lesson that even once blue chip financial companies’ stock can decline to practically nothing as they spectacularly collapse. Any financial expert will confidently state that portfolios made up of a dozen or two dozen varying stocks will have far less chance of plummeting. This becomes even more the case when you pick out stocks from a variety of types, industries, and market capitalization sizes of corporations. Better diversifying in stocks would include some companies that are based in other countries. Diversifying does not simply stop with stocks. It steers investors into bonds, mutual funds, and money market funds as well. Though all of these different investments diversify you, they still leave you mostly exposed to the one currency of the U.S. dollar. More thorough diversifying will put at least a portion of your investments into assets whose values are not solely expressed in terms of only the American currency. This would include commodities, such as gold, silver, oil, and platinum in particular. Foreign currencies, such as the Euro, Pound, or Swiss Franc are another fantastic means of diversifying, and they can be acquired on the world FOREX exchange in currency accounts. Real estate, including commercial properties, residential properties, vacation homes, or even real estate investment funds, offers another way to diversify away from U.S. dollar based financial investments such as stocks, bonds, mutual funds, and money market accounts. The strongest diversifying advice is to have at least three to seven completely different investment class vehicles, preferably one or more of which is not denominated in only U.S. dollars.

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Dividend Dividends represent portions of a company’s earnings that are returned to the investors in the company’s stock. These are typically paid out in cash that is either deposited into the investors’ brokerage accounts or can be reinvested directly into the company’s stock. As an example of a dividend, every share of Phillip Morris pays around 4.5% dividends on the stock price each year. Investing in dividend paying stocks is a particular passive income investment strategy that is also a cash flow investment. This passive, or cash flow, income means that you collect income just from holding these stock investments. This kind of strategy entails building up a group of blue chip company stocks that pay large dividend yields which add money to your account usually four times per year, on a quarterly basis. Investors in dividends tremendously enjoy watching these routine deposits in cash arrive in either their bank account, brokerage account, or the mail. Dividend investors who understand this type of investment are looking for a number of different elements in the stocks that they buy. Such dividend stocks should include a high dividend yield. To qualify as high yields, most value investors prefer to see ones that pay more than do the interest rate yields on U.S. Treasuries. Dividend yields can be easily determined. All that you have to do is to take the amount of the dividend and divide it by the price of the stock. So a stock that offers a $2 dividend and costs $40 is paying a five percent dividend yield. Dividend paying stocks should also feature high dividend coverage. This coverage simply refers to the safety of a dividend, or how likely it is to be reduced or even eliminated. Companies that earn their profits from a large array of businesses are more likely to be able to continue paying their dividends than are companies that make all of their money off of a single business that could be threatened. A more tangible way of expressing the coverage lies in how many times the dividend total dollar amount is covered by the corporation’s total earnings. A company with fifty million dollars in profits that pays twenty million in dividends has its dividend covered by two and a half times. Should their profits drop by ten percent or more, they will have no trouble still paying the same dividend amount to shareholders. The dividend payout ratio is another way of measuring this. On the above example it would be forty percent. Dividend investors prefer to see no more than sixty percent of profits given out as dividends, as this could signify that the company lacks future opportunities for growth and expansion. Qualified dividends are a third element that dividend investors are looking for in their dividend paying stocks. This simply means that stocks that are kept for less than a year do not benefit from lower tax rates on dividends. Since the government is attempting to convince you to become a longer term investor, you should take advantage of these lower tax rates by only buying stocks with qualified dividends that you have held for a full year and more.

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Dividend Reinvestment Plans Dividend Reinvestment Plans are also known by their acronyms as DRIPs or even DRPs. These plans come from corporations and companies which permit their investors to take their cash dividends in the form of reinvesting options. Generally this amounts to the investors acquiring extra fractional shares or additional whole shares. It occurs on the payment date of the dividend. DRIPs are intelligent means of growing the actual value in an investment holding. The majority of these Dividend Reinvestment Plans allow their own investors to purchase these shares directly from the company. This provides them with a commission-free buy in usually offered at a substantial price discount to the present price of the shares on the stock market exchange. The majority of them will not accept reinvestments for under $10. These Dividend Reinvestment Plans allow their shareholders to continuously invest in differing amounts over the span of longer-term timeframe investments in publically traded companies. Stake holders are able to buy either whole shares or even fractional shares through such dividend reinvestments in the bestknown, most-famous public companies for only $10 or more at a single time. Choosing this option means that investors forego their quarterly dividend payment check. The DRIP operating entity could be a transfer agent, company itself, or brokerage company. They will utilize the money from the dividend check to buy extra shares on behalf of the investor in question in the relevant company. When the corporations directly operate their own Dividend Reinvestment Plans, they will appoint particular times throughout the year when they will permit the DRIP program buy in of additional shares from the company stakeholders. This is generally on a quarterly basis. The corporations in question never wade into secondary markets on exchanges to buy the shares then resell them to their investors. Instead the shares proffered through the DRIP come out of the companies’ treasury reserve shares. It is also important to note that such Dividend Reinvestment Plans shares issued directly by the company in question may not ever be resold on the stock market exchanges. Investors who wish to cash out of them will be forced to resell them back to the corporation which originally issued these for the present price on the stock market. When DRIPs run by brokerage companies are involved, the firm will just buy the shares for the investors who are acquiring them out of the secondary markets then tally such share into the brokerage account. In this case, these shares may be finally resold in the secondary market where they were originally acquired. For those companies which do not directly offer their own share holders Dividend Reinvestment Plans, these can simply be established via a brokerage company. This is because a great number of the stock brokers permit their customers to reinvest such dividend payments directly into the stock shares which they already hold within their accounts. It is important that though such dividends do not come directly to the shareholders bank accounts, the IRS still requires that they be reported on a tax return like taxable income. Many companies actually provide some significant incentives to take dividends from their DRIPs. They

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might provide a substantial discount of anywhere from one to ten percent from the present market share price. This can amount to a major savings when it is added to the lack of commissions on the trade. Longer term advantages center on the miracle of compounded reinvestments on the returns. As the dividends become higher, the stake holders will receive an ever higher amount for every share they possess. This will then allow them to buy a still greater quantity of additional shares at each dividend payment. In a longer time frame, this will significantly boost the aggregate returns of the stock investment. This can really work to the advantage of the investors if the share price goes down and they gain the ability to cost average down with their DRIP share purchases. It offers them the possibility of significant gains from their reduced cost basis. Companies like these DRIPs because they do not have to pay out as much capital when they are able to simply issue reserve shares from their treasury in lieu of cash dividend payouts. It also increases the loyalty of the shareholders, who will more likely hold on to the shares even when there are declines in the price of the share or the overall stock market.

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Dividend Yield Dividend yield refers to the payout of dividend price ratio on a given company’s stock. It is simply determined by taking the yearly dividend payment total and dividing it by the cost for each share. This dividend yield is commonly given out as a percentage. The reciprocal of dividend yield proves to be the price to dividend ratio. Dividend yields vary depending on whether a stock is a preferred stock or a common stock. With preferred shares, these dividend yields are outlined specifically in the stock’s prospectus. A company will generally call such a preferred class of stock by the name first given to it, which included the yield based on this initial price. This might be a five percent preferred share. Since the pricing of preferred stock shares go up and down with the dictates of the market, the current yield will vary with the changes in price. Preferred share holders have a variety of yields that they can figure up. These depend on the eventual disposition of their preferred share security. Besides the current yield formula of amount of dividend per price of preferred share, there are present value yields and a yield to maturity. These other yields only apply to those investors who purchase preferred stock shares after they have been issued or who choose to hold them until the reach the stated maturity date. Preferred share dividends are almost always higher than the dividend yields on common stock shares. Common stock shares have a dividend yield that differs entirely. With such common shares, the dividend amount is not guaranteed, and could vary from one quarter to the next. These dividends that are given to you, the common stock holder, are determined by the company’s management. As such, they depend on the earnings of the company for the given quarter. With common stocks, you can not be assured that dividends will be paid in the future that match dividends paid previously, or that these dividends will be paid period. Since it proves to be so challenging to correctly predict future dividends, the figures used in determining dividend yields are the present dividend yields. This means that the present dividend yield is always determined by dividing the most current full year’s dividend by the present share price. Dividend yields can have a major impact on how much money a stock makes for its owners over time. Dr. Jeremy Siegel is a well respected professor of investments who has determined conclusively with his research that ninety-nine percent of all after inflation gains that investors realize with stocks come from only dividends that are reinvested. Reinvestment of dividends means that the dividend yield amounts are simply taken and used to purchase more shares of the stock, instead of paying them out as cash to the share holder’s account. This allows for investors to compound the number of shares that they own in a company over time.

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Dodd-Frank Act The Dodd-Frank Act is fully entitled the Dodd-Frank Wall Street Reform and Consumer Protection Act. This enormous law served to reform the financial world following the financial crisis and Great Recession that began in 2008. President Obama’s administration passed it through congress in 2010. This Dodd-Frank Act legislation is literally thousands of pages long and contains numerous provisions. The regulations of this Dodd-Frank Act law are set for implementation over the course of a number of years. They were meant to reduce the obvious risks for failure in the American financial system. In order to oversee and carry out the numerous parts of the act it addresses, the controversial legislation created a range of new government agencies. The first of these new agencies is the Financial Stability Oversight Council and Orderly Liquidation Authority. This group is tasked with overseeing major financial firms whose continued financial stability is necessary for the proper and continuous functioning of the U.S. economy. These companies were negatively referred to as “too big to fail.” The agency also handles necessary restructurings or liquidations of such firms in an orderly fashion should they become too unstable. They are charged with preventing these firms from being propped up with tax dollars. This council has great authority. They can even break apart banks which they deem in their judgment to be so big that they pose a risk to the banking system. It may also order higher reserve requirements for such banks. Another new group the Federal Insurance Office is similarly tasked with identifying and overseeing insurance companies which are too important to fail. The CFPB Consumer Financial Protection Bureau was created to stop predatory forms of mortgage lending by the lenders. They are also responsible for increasing the simplicity of mortgage terms so that consumers can understand what they are signing before they complete the contracts. The group stops mortgage brokers from obtaining larger commissions when they close loans that have higher interest rates and fees. It states that originators of mortgages may not direct possible borrowers to loans which provide the largest payouts to the loan originators. This group also governs various other kinds of lending to consumers. Their domain includes debt and credit cards and consumer complaints. They insist that lenders provide information in a manner that is simplest for consumers to comprehend. Credit card application simplified terms are an example of their work. One potent rule that emerged from this Dodd-Frank Act legislation proved to be the so-called Volcker Rule. Named for the former Federal Reserve Chairman Paul Volcker, the rule was intended to reduce the amount of speculative trading, while simultaneously banning proprietary trading, by banking institutions. Banks have complained that these changes in the business model will make it more difficult to stay profitable. The rule addresses regulating the derivatives like the infamous credit default swaps that majorly contributed to the financial meltdown in 2008. This rule also limits the ability of financial companies to utilize derivatives. The goal is to stop the systemically critical institutions from building up enormous

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risks that could ruin the banking system and overall economy. The Dodd-Frank Act further created the new SEC Office of Credit Ratings. This group received the job of watching the credit agencies to ensure that the credit ratings they provide for various entities prove to be both dependable and reliable. Credit rating companies received a lot of blame for the financial crisis for falsely dispensing investment ratings that were misleading and overly positive. Critics of the Dodd-Frank Act legislation claim the law will hamper economic growth and lead to higher unemployment in the future. Fans of the act insist that over time it will reduce the chances of the economy suffering from another 2008 styled crisis all the while safeguarding consumers from the abuses that eventually led to the crisis.

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Dollar Standard The dollar standard came about as a result of the breakdown of the Bretton Woods agreement and international monetary system. In 1973 the U.S. (and then other developed countries) had abandoned the gold standard. The central bankers and finance ministers of the world could not reach agreement on a new standard for managing monetary relations and international trade. What emerged was a nameless new system that the nations did not officially consent to or sanction. This de facto dollar standard received its name as the world moved away from gold as its main reserve currency and into U.S. dollars. Gold had underpinned the Bretton Woods system along with the monetary systems of the 19th century. The decision to move away from it as the ultimate backer for paper currencies had major implications for the world economy and trade. The biggest result of the dollar standard was that it permitted the United States to finance unbelievably huge current account deficits and government spending simply by selling its trading partners and other countries its dollar denominated debt instruments. Under the previous Bretton Woods system and classical gold standards from past centuries, these additional imports that exceeded exports would have to be settled with gold. The positive effects of this dollar standard are that it brought about globalization on a scale never before seen. This happened as the nations of the world were able to sell their goods and services to the U.S. on credit. It permitted economic growth to accelerate far more rapidly than would have been possible otherwise. This was especially the case for major swaths of the developing countries. It also served to keep interest rates and consumer prices extremely low in the U.S. Inexpensive manufactured goods could be produced with cheap overseas labor and then brought into the U.S. in dramatically growing quantities. There are also three negative consequences of such a global dollar standard that may prove to be disastrous in the future. The first is that some international nations amassed enormous stockpiles of dollar reserves because of their financial account surpluses. This led to their economies overheating and their asset prices inflating enough to cause economic catastrophes. Asian Crisis nations and Japan are the most stunning examples of countries which suffered harm from these effects. These states escaped from the looming economic depressions thanks to their national governments taking on huge debt to bail out their banks which had gone bankrupt. A second major problem is that the flaws of this dollar system have led to massive asset price inflation in the U.S. This resulted from America’s creditors and trading partners choosing to reinvest their surplus dollars back into assets which were dollar denominated (especially stocks, company bonds, and real estate). This constant chasing of U.S. investible assets created bubbles in the American stock markets, pushed property prices throughout the U.S. to levels that were unnaturally high and not sustainable, and helped to misallocate corporate capital on an epic level. Finally, the dollar standard’s rapid creation of credit permitted nearly every industry to over invest. This has led to an overabundance of capacity and deflationary pressure which is reducing the profitability of companies throughout the globe.

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Thanks in large part to the excess this new monetary system permitted, the U.S. economy is struggling under historically unprecedented debt burdens in government, corporate, and consumer segments. The world which finds itself overly dependent on exporting to the U.S. on credit struggles with difficult choices. They can continue the process even though they are fearful of overexposure to dollars and dollar denominated assets. They might also change dollar surpluses back into their national currencies which would raise the value of these currencies and hurt exports and overall growth. Some like China are pursuing a third way by acquiring as much gold as they can with their dollars, albeit slowly enough not to cause a rush for the dollar exits.

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Dotcom Bubble The dotcom bubble inflated during the wild Internet and computer software heyday of the mid to late 1990s. It was epitomized by the dramatic and fast paced rise of equity markets which were powered by Internet-based firms and startup investments. In the midst of this bubble, the values and capitalizations of the stock markets rocketed up astronomically. The technology-heavy NASDAQ (the so-called “stock market for the 90s and beyond”) index roared from a mere 1,000 level to over 5,000 in the years from only 1995 to 2000. Incredible fortunes were then made and lost in the span of half a decade as the bubble violently exploded in a matter of months. It all began with the stocks of software firms which turned in excellent performances during the 1990s decade. As enthusiasm for this software industry was running at an all time high, many young just out of college and tech-savvy entrepreneurs decided to create their own tiny software startup outfits. Employees of these wiry college students and graduates were mostly paid in pizza and soft drinks, with a promise of stock share wealth to follow if they succeeded. Nearly all software startups of the day aspired to expand into the next Microsoft company. It made sense that finally a number of these ambitious startup companies would gain the coveted interest of the venture capital firms and funds that were eager to finance the new startups of the brave new frontier of the Internet. They hoped to and actually succeeded in taking a great number of them public before the crash, reaping eye-watering profits in the process. Startups saw the writing on the wall and started to pay their employees with company stock shares instead of money. The overwhelming majority of such software startup companies of the time arose in San Francisco area Silicon Valley. This became one of the great technology Meccas of the West. By the late 1990s decade, the NASDAQ technology index was running at a torrid pace, turning many investors concentrating on technology into overnight millionaires and billionaires. Investors continued to recklessly throw their money into these startups believing that they could not fail based solely on the strength of their prescient ideas. All thoughts to traditional measures of a company such as track record, balance sheets, profitability, and revenues versus expenses went out the proverbial window. Investors only cared for the chances of a company involved in technology possibly one day becoming profitable. The overwhelming majority of both venture capitalists and investors abandoned the traditional and time tested approach of analyzing companies out of a fear that they might miss out on the rapidly expanding omnipresence of the Internet and software. In retrospect, this radical increase in stock prices that defied logic could not simply go on forever. The nation had never before dreamed of such an impressive and rapid growth of capital as it was experiencing by the late 1990s. High technology solid companies such as Microsoft, Cisco, Intel, and Oracle all generated substantial sales, products, and profits and fueled the real growth which was occurring in the technology arena. The upstart miniscule dotcom bubble companies were the ones powering on the stock market surge from 1995 to 2000 though. Cheap money and the resulting easy to obtain capital provided by the Federal

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Reserve’s historically low interest rates also added proverbial fuel to the fire. This drove overconfidence in the markets and radical speculation pure and simple. Venture capitalists would throw money by the fistfuls at companies simply because they possessed a .com following their name. The values were based on profits and earnings that did not exist yet and never would unless the future business model actually performed according to optimistic scenario projections. Investors turned blind eyes to the traditional fundamentals and complete lack of track records. Firms which had never earned any revenues, turned any profits, or even produced an on-the-market product were taken public in IPOs which witnessed the never before seen tripling and quadrupling of their stock prices in a single frenzied market trading day. The dotcom bubble violently erupted after peaking on March 10, 2000 at 5,048. This lofty peak represented a doubling of the previous year’s point. It was actually the market leading giants in the high technology sector, including Cisco and Dell, which engaged in enormous sell orders on their own company shares at the market’s peak that caused the investor-driven panic selling to commence. Once this began in earnest, it needed only a few short weeks for the market to lose 10 percent of its entire value. Dotcom companies suddenly found their supply of financial blood rapidly drying up. Those whose market caps had run to hundred of millions of dollars were suddenly worthless in only months. By the close of 2001, the majority of publically-traded dotcom bubble firms had gone bankrupt. Literally trillions worth of investment capital had vanished with the popping of the greatest bubble the world had ever seen to this point.

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Dow Jones Dow Jones is an international and American news company based in the United States. Wall Street Journal co-editor Charles Dow and Edward Jones co-founded the company with fellow reporter Charles Bergstresser back in 1882. The independent history of Dow Jones & Company continued under the Bancroft Family from the 1920s all the way until 2007. At this point, an extensive takeover struggle ensued. In the end, News Corp. took over the company which it has owned and run as a subsidiary since 2007. The company had been most famous for its continuous publication of stock market indices such as the Dow Jones Industrial Average and the Dow Jones Transportation Average. Besides this, it publishes a number of important financial publications such as its flagship product The Wall Street Journal along with Market Watch, Barron’s, Financial News, and Factiva. It has run the Dow Jones Newswire service for decades. This is one of the biggest and most prestigious newswire services in the world. The Wall Street Journal continues to be a leading daily newspaper that the company publishes in both print and online editions. It covers financial, business, international, and national news and topics throughout the world. They started publishing this gold standard of newspapers on July 8th, 1889. Today there are 12 different versions of it they produce in nine separate languages. These include English, Japanese, Chinese, Spanish, German, Portuguese, Turkish, Korean, and Bahasa. The Journal has won 35 Pulitzer Prizes for its excellent and world leading journalism. In 2010, News Corp. sold off the Dow Jones Indexes subsidiary. The CME Group bought it and continues running it. Since then, the company has concentrated its efforts on its publications of financial news and on delivering information and financial news and tools to companies involved in finance. The company continues its efforts in the arena of publishing and data provision today. It calls itself the ultimate source for business data and news. The company boasts journalism that continues to be award winning, cutting edged technology, and sophisticated data capabilities. They combine these in order to provide news and financial tools and insights that move the world financial markets. Their efforts also help key players to make crucial decisions and major companies and individuals to run their businesses. The company has expanded from its humble roots as niche news agency provider in a basement on Wall Street to become the global powerhouse of information and news that it is now. It claims that the reason for its success and long lasting appeal comes from a combination of factors. These include their constant commitment to accuracy, innovation and depth, and years of experience. It helps them to keep their efforts firmly focused on their future endeavors. Dow Jones today calls itself the modern day portal to intelligence. They have state of the art data and information feeds. Their research is performed by experts in the field. The firm utilizes leading and creative technologies and solutions that are fully integrated. Their staff reporters practice journalism that consistently wins awards. The company’s delivery systems and apps can be fully customized to work on a variety of platforms.

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This helps them to get the important financial and news information gathered, written, and published. Thanks to their leading technologies, they can get it to their customers wherever they are and whenever they require it. The Dow indices continue to be benchmarks for the overall stock market as a whole. The DJIA includes the thirty leading companies that represent the major U.S. based enterprises. These are no longer primarily industrial in nature as they were when Charles Dow and Edward Jones put their names on them.

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Dow Jones Industrial Average (DJIA) The Dow Jones Industrial Average, commonly referred to by its acronym DJIA, is also many times called the Dow 30, the Dow Jones, the Dow, or even just the Industrial Average. It proves to be the second oldest stock market index in the Untied States after the Dow Jones Transportation Average. The Dow Jones Industrial Average came into being when Charles Dow, the co founder of Dow Jones and Company worked with a business colleague Edward Jones, a statistician, to come up with an index that monitors the industrial sector. This index demonstrates the daily stock market trading session progress of thirty of the largest companies that are publicly traded within the U.S. Ironically, most of the present day thirty companies listed in this index no longer have much or even anything to do with the historical definition of heavy industry. The components in the average are weighted by price and scaled in order to adjust for the impacts of stock splits and varying other forms of adjustments. This means that the total value that you see in the daily representation of the Dow Jones does not prove to be the true average of the different company stock prices. Instead, it is the total of such company prices that are added up and then divided by a special divisor. This divisor is a number that is adjusted any time one of the company stocks underlying it pays a dividend or engages in a stock split. In this way, the index presents a constant value that is not altered by the external factors of the component stocks. The Dow Jones Industrial Average remains one of the most heavily followed and carefully watched indices in the American stock market, along with peers the S&P 500 Index, the NASDAQ composite, and the Russell 2000 Index. The founder Dow intended for the index to monitor the American industrial sector’s actual performance. Even so, the index is constantly affected by much more than simply the economic and corporate reports issued. It responds to both foreign and domestic incidents and political episodes like terrorism and war, as well as any natural disasters that might cause economic damage. The Dow Jones Industrial Average’s thirty components simultaneously trade on either the New York Stock Exchange Euronext or the NASDAQ OMX, which are the two largest American stock market outfits. Derivatives based on Dow components trade via the Chicago Board Options Exchange, as well as with the Chicago Mercantile Exchange Group. The latter is the largest futures exchange outfit on earth, and it presently owns fully ninety percent of the Dow Jones founded indexing business, along with this Industrial Average. Investors who are interested in gaining the ability to track the progress of the Dow Jones Industrial average have several choices. There are index funds that buy the components of the index so that you do not have to own all thirty companies yourself. You might also invest in the Dow 30 by purchasing shares of the Exchange Traded Fund known as the Diamonds ETF. This trades under the AMEX exchange via the symbol DIA. Finally, you could by options and futures contracts based on the performance of the Dow Jones Average on the Chicago Board of Trade.

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Dow Theory Dow Theory is a method for picking successful stock trades. At over a hundred years old, it may be the oldest system for selecting stocks that is still utilized. This is why investors often refer to it as the grandfather of stock selection theory. Charles Dow created his Dow Theory in a series of Wall Street Journal editorials he wrote from 1900 to 1902. He laid down the basic fundamentals of his theory in these articles. They explained how the stock markets worked. Charles Dow also created two of the main indexes for the stock markets that the markets still use today. These are the Dow Jones Industrial Average and the precursor to the Dow Jones Transportation Index (the Dow Jones Rail Index). Charles died in 1902. His death left this work to be completed by other followers who published several books on the subject over the next sixty years. Dow Theory is still important to markets and investors today. People study the theory to understand how several of the main indexes work. Investors also have created a number of systems based on Dow Theory over the years as well. The principles of technical analysis are rooted in Dow Theory ideas. Technical analysis centers on reading charts. These technicians use information in the charts to predict future stock prices. Six basic ideas underpin Dow Theory. Some investors have attempted to discount these concepts over the years. Over time they generally prove to be true despite the skeptics. The first one states that the market considers all information with its price levels. This means that stock prices reflect past, present, and even future information. The market takes everything into account including inflation, interest rates, soon to be released earnings announcements, the emotions of investors, and even future event risk. The second idea says that three trends make up the market actions. These include primary trends, secondary trends, and minor trends. The primary trends usually last over a year. Secondary trends hold for several weeks to several months. They run counter to primary trends. Minor trends occupy less than three weeks. The third Dow Theory concept claims that three main phases make up the primary trends. The accumulate phase starts the market prices moving up. The mass participation phase is where average investors buy into the market and drive prices significantly higher. This is the longest lasting phase in any market. The excess phase is where the market becomes overbought. Bigger, more knowledgeable investors begin to sell their shares to new investors ahead of a downturn in this phase. A fourth idea states that two market indexes must agree on the trend change. It is not just any two indexes that have to concur. Bull markets and bear markets only switch when the Dow Industrial average and Dow Transports average agree together on the change in the trend. Dow Theory’s fifth tenet is that volume confirms the trend. Volume represents the number of shares that change hands. Without major volume appearing on any significant move against a trend, the trend is usually still intact. Volume should be greater when price is moving in the direction of the trend. When

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price goes against the trend, volume should be less. The final idea of Dow Theory claims that a trend continues until there is a clear reversal. It requires overwhelming evidence to convincingly reverse the trend. Trading against the trend will usually hurt investors. This makes the popular statement “the trend is your friend” more than just a catchy stock market slogan. It also proves to be a significant philosophy behind Dow Theory.

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Down Payment A down payment is an upfront amount that is given as a portion of the price on a purchase of large ticket items such as houses or cars. These are given in cash or by check when the contract is signed. The balance of the sum due is then given as a loan. Down payments are principally intended to make sure that the bank or other type of lending institution is capable of recovering the remaining balance that is owed on a loan should the borrower choose to default. In transactions of real estate, the underlying asset becomes collateral that secures the associated loan against potential default. Should the borrower not repay the loan as agreed, then the bank or institutional lender is allowed to sell this collateral asset and keep enough of the money received to pay off the rest of the loan along with the interest and fees included. In these cases, down payments decrease the exposure risk of the lender to an amount that is smaller than the collateral’s value. This increases the chance of the bank getting the entire principal loaned out back should the borrower default. The amount of such a down payment therefore impacts the lender’s exposure to the loan and protects against anything that might lessen the collateral’s value. This includes profits that are lost from the point of the final payment to the final collateral sale. The making of this down payment assures a lender that the borrower has capital available for long term investments, further proof that the finances of the borrower are able to afford the item in the first place. Should a borrower not successfully pay down the full loan amount, then he or she will lose the entire down payment. Down payments on houses bought in the United States typically range anywhere from 3.5% to 20% of the full purchase amount. The Federal Housing Administration helps first time borrowers to pay merely 3.5% as a down payment. In the excesses of the years leading up to the financial collapse of 2007, many banks were making loans with no down payments. On car purchases, these amounts of down payments might be in the range of from 3% to 13%.

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Dual Index Mortgage Dual Index Mortgages are products of Latin American countries. They are especially popular in places like Mexico that have experienced significant inflation levels historically. These kinds of mortgages permit borrowers to buy houses even when a substantial amount of inflation risk exists. They are not and have never been offered in the United States, though they have been compared to ARM Adjustable Rate Mortgages. Dual Index Mortgages do show some similarities to the American Adjustable Rate Mortgages. Such ARMs have always been in demand in places in the U.S. that are more expensive to buy houses. As with these types of loans, the dual index ones provide the borrower with lower early monthly payments that will cause negative amortization to occur. This means that the loan balances will rise for many months before they gradually begin to decline. With Dual Index Mortgages, the rate that the lender earns is indexed. This means that the rate becomes adjusted at periodically set time intervals. The banks are able to adjust the rate on the loan according to the market rate changes. The borrowers suffer from other aspects of the Dual Index Mortgages. On the positive side, the first payments are designed to be affordable for the borrowers to be able to make. The payments and the interest rates are not the same with these loans. This is where they are significantly different from American ARMs. The payment could be figured at 5% for example while the interest rate due to the lender is 25% or even higher. The substantial difference between these two rates becomes an add on to the loan balance in the form of negative amortization. This means that it may be a great number of years before the balance on this kind of loan starts to go down. The actual payment amount is determined based on a salaries and wages index. This amount will change each month. The reason the Dual Index Mortgages are dual is because the payments adjust with the income index at the same time as the interest rate adjust to the interest rate index. The hope with these mortgages is that the payment made by the borrower will one day reach the level where it more than covers the interest rate so that the loan balance can decline finally. The problem with this is that salaries and wages may not match inflation increases in Mexico and other Latin American countries. This would cause the borrower payments to not increase quickly enough for the loan principal to be paid down. In this case, there are remaining unpaid principal balances at the end of the loan terms. Some lenders in Mexico have been willing to underwrite Dual Index Mortgages where they take on this significant risk. The majority of them receive insurance from the government of Mexico. If there are unpaid remaining balances, the government will absorb the losses. Besides these Dual Index Mortgages, Mexico has also experimented with some other kinds of home loans. One of these is known as the PLAM, or Price Level Adjusted Mortgage. These are less common than the dual index types.

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Due Diligence The phrase due diligence is utilized to discuss a wide variety of legal obligations, assignments, investigations, and reports. These all are practiced in business, manufacturing and law. The most commonly used version of the phrase has to do with businesses. In business, the concept of due diligence pertains to the process gone through by venture capitalists in advance of pouring funding into a start up company. Also involved with this are investigations that continue later into the ways that the monies are being spent. Large companies similarly engage in such due diligence before making the decision to buy out a smaller company. Venture capitalists practice a particular brand of due diligence that involves researching the present and past players and structures of the firm that is looking for venture funding. Venture capitalists are careful about putting money into firms that do not feature principals who showcase either a track record that is well proven or at least impressive credentials. Such a due diligence investigation could be stricter or more relaxed based on the prevailing amount of caution held by the investment community at any given time. With most venture capitalist firms, there will be more than a dozen investigators employed who spend their time investigating particular information on the personal histories of the corporation’s personnel. This task has become far easier than ever before thanks to the rise of the Internet and all of the subsequent access to information that is now available. Looking into an individual’s experience and associations is now far quicker and more convenient. Due diligence is also used for background checks. When venture capitalist decision makers make up their mind concerning the prospective firm, they will order these done. Most of the time, such venture capitalist partners will want to give funds to individuals that they either feel confident can be trusted, or to whom they have disbursed funds before with other ventures. Despite the practice of due diligence, it does not guarantee that the investment will not fail. Companies that are comprised of successful proven people with tremendous educational backgrounds and practical experience still fail all of the time because of competition that no one foresaw coming, difficult conditions in the market, or even technical difficulties with products. Due diligence involves a different understanding from one company to the next firm. Within the business of manufacturing, some environmental protections have to be taken. These are checked out in the due diligence report having to do with environmental site assessments. Such a report contains specifications in a checklist, as well as available sections for commentary. Due diligence is also used by law firms concerning care that should be taken by companies or individuals in a particular scenario. An example of this might be a company making certain that their product was thoroughly checked out in advance of selling it and then finding out that it might be poisonous or harmful in strangling incidents. Should they not do this due diligence, then they may be charged with criminal negligence.

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Due Process Due Process refers to the requirements of the law that state a country has to respect its citizens’ legal rights. This right of man offsets the powers of the nation’s laws of the land. It safeguards individuals from them. As governments elect to harm or suppress a individual without proceeding according to the law’s proper course, experts call this a violation of the due process. Such violations transgress the sacred idea of the rule of law for which democratic societies are famous. The idea of Due Process limits both the power of the laws and the proceedings of courts and actions of law enforcement. It allows legislators, judges and others to guarantee and pass judgment on what constitutes liberty, justice, and fair play. This interpretation of the concept has been fraught with controversy over the centuries. This legal right is originally drawn from the Magna Carts (Great Charter) document of England. Ironically modern day British constitutional law does not specifically treat it with the same high regard as does the American ideas behind this Due Process. The American idea contains a number of ideas neither found in the original medieval or modern versions in England. This is to say that English common law and American law slowly diverged over the past more than two centuries. It has not been upheld in cases of English law, while it did become an important part of the United States’ Constitution. Due Process ideas originally came out of the 39th clause of the Magna Carta in England. It states that “No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgment of his equals or by the law of the land.” King John promised (then later rescinded) this pledge in the 1215 issued charter. Although he tried to nullify the document which he signed under pressure of an armed baronial revolt, the Magna Carta almost instantly became a core part of the common law of the land in England following his death. This law limited the authority of the kings in Clause 61 that created an elected body comprised of 25 different barons who would hold majority votes to decide what the King had to do to make good any offense he carried out “in any respect against any man.” This meant that the Magna Carta established early concepts of Due Process by insisting the monarch had to obey the same laws of the land as everyone else, by restricting the ways he could alter the land’s laws, and by insisting that he could not jail people on a whim without just and legal cause. Interestingly though the original provision mainly applied to land owners in England, it eventually evolved to include the other disenfranchised members of society. The actual phrase “due process” only finally appeared when English jurist Edward Coke wrote in his 1608 treatise extensively about the meanings of the ideas found in the Magna Carta. Coke stated that no man could be deprived except by the law of the land, “that is, by the common law, statute law, or custom of England… by the due course, and process of law…” Eventually English law diverged from its American legal counterpart in the 1700’s and 1800’s. England ultimately disavowed the concept of due process as less important that Parliamentary Supremacy. Meanwhile, the colonies drew upon their ideas from prior British legal traditions and the Magna Carta to articulate a unique due process in the new fledgling nation of the United States. Both the Fourteenth and Fifth Amendments to the Constitution of the United States come with Due Process clauses and

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protections not found in the same regard anywhere else in the world.

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Due Process Oversight Committee (DPOC) Within the structure and organization of the IFRS International Financial Reporting Standards, the trustees have various bodies that help them to perform their duties. The Due Process Oversight Committee is the one that carries the responsibility to monitor the procedures for effective due process. They also do this for the IASB International Accounting Standards Board and its Interpretations Committee. This Due Process Oversight Committee generally holds meetings four times per year on the sidelines of the usually quarterly IFRS Foundation trustees meeting. When they require additional meetings, the DPOC usually handles them via conference call. Each year, they select different international locations for their meeting places. One of their quarterly meetings is usually held in London. In May and June of 2016, the IFRC Trustees and DPOC met in Jakarta and London, respectively. The Trustees and committee met in Beijing in October of 2015, London in June of 2015, Toronto in of April 2015, and Zurich in February of 2015. There are a number of different responsibilities that the Due Process Oversight Committee carries out for the IFRS and the IASB. These are all spelled out within the Interpretations Committee Due Process Handbook of both the IFRS and the IASB. The first of these is to review the standard setting activities in which the IASB and staff of the IFRS Foundation engage. They do this review of due process activities routinely and with expediency as their mandate requires. The Due Process Oversight Committee is also responsible for reviewing the Due Process Handbook that governs the committee among other things. They are to suggest updates to it that are in order. These updates would pertain to developing new and reviewing old standards, their various interpretations, and the Taxonomy of the IFRS itself. They do this to make sure that the procedures of the IASB are the best practice possible. Besides this the Due Process Committee is tasked with reviewing the consultative groups of the IASB. They check who makes up the groups to ensure that the perspectives included are well balanced. They wish to have representation from the various relevant sub-disciplines. It is the committee’s aim to ensure that these consultative groups are effective in their duties. When outside parties request information on any due process issues, this Due Process Committee is the one that has to respond to them. They work with the technical staff of the Director for Trustee Activities to cohesively do so. The IFRS Foundation bodies are also monitored for effectiveness by the Due Process Oversight Committee. They check up on the activities that involve standard setting at both the Interpretations Committee and the IFRS Advisory Council. Other groups within the IFRS Foundation which address the setting of standards are also followed up on by this Due Process Committee. Finally, this important oversight committee is responsible for coming up with and issuing its recommendations to the IFRS Trustees about changing the committees. When the Due Process Oversight Committee determines that the makeup of these various committees that deal with due process needs to

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be changed, they let the Trustees know so that the committees can be appropriately re-balanced. The Due Process Oversight Committee issues summaries of all of its meetings. These and any other papers and reports which they author are all found on their websites which are sub-pages of the International Financial Reporting Standards and the International Accounting Standards Board.

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Dumping Dumping in economics refers to a country attempting to enforce its own firms’ predatory pricing on other nations in the context of international trade. It also happens if a company exports its goods to a rival nation for a price that is under the one it would charge in its own domestic market or at a lower cost than the expenses it incurs to produce the goods. The reason companies and nations do this is typically to build up their foreign national market share. Sometimes they engage in this despicable practice so they can drive away their competitors. The technical definition of dumping boils down to charging other countries cheaper prices for similar goods in their foreign markets than they do charge in their domestic market for the identical good. Many economists call this undercutting the nominal value in the act of international trade. Dumping has been officially condemned by the WTO World Trade Organization and an agreement which the member states all signed. This is especially the case when it inflicts material harm on a national industry within the nation who is importing. There can be no doubt that the term dumping comes with an extremely negative connotation. Free market capitalist proponents consider this to be a thinly veiled kind of protectionist policy. The advocates of labor maintain that businesses must be protected from these forms of predatory practice in order to reduce the more painful consequences of trade between unequally developed economies. International dumping has not been so successful except for in a few examples. One such case is the Chinese steel dumping dilemma. For years, the Chinese have sold steel at prices which are well below those any other nations’ steel producers can match. They sell it for less than their own cost. They are also sometimes selling their steel at lower prices than they do within China. The venerable steel industry in Great Britain has been all but destroyed because of this practice. Britain was once the world’s largest steel producer. Other European and American steel makers have similarly suffered from the illegal Chinese steel dumping practice. A more controversial case pertains to OPEC’s Saudi Arabian led efforts to drop the price of oil over the past several years. Because competition from American shale oil industry had become so intense and America and U.S. companies had massively increased their oil and natural gas outputs, Saudi Arabia became concerned by the excessive supplies of oil washing over the world energy markets. They decided to eliminate the U.S. shale oil company business through a covert form that might be considered dumping. Saudi Arabia had the ability to produce oil for a substantially lower cost per barrel than the more expensive fracking process that releases the shale oil in America (and Canada). They decided to force down the prices of oil within OPEC by making the other Persian Gulf (Iraq, Iran, Kuwait, Qatar, Bahrain, United Arab Emirates, Oman) and non Gulf (primarily Nigeria and Venezuela) countries sell their oil at a lower price. They manipulated these price levels for oil down to the point that oil traded in the low $40’s per barrel. At this point, the price of oil had declined to below the cost of production for several of the oil producers in the OPEC cartel, but not for Saudi Arabia. As the Saudi’s hoped, the American shale oil producers began to lay off workers and shut down

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production. Many of the firms in the U.S. shale industry shuttered their doors at least temporarily and some permanently. Saudi Arabia successfully dumped the Gulf and OPEC oil on world markets at prices lower than their rivals could conceivably match, permanently harming the domestic industry in the U.S. (and to a lesser degree Canada with their oil sands projects). The Saudis claim it was not dumping as they at least can produce oil for $20-$30 per barrel. So far, no action has been enforced by the World Trade Organization against either the OPEC oil cartel or Saudi Arabia for this underhanded ploy. There is still controversy regarding whether or not this particular case is technically dumping.

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Earned Income Earned income comes from involvement in a business or a trade. It is comprised of salary, wages, commissions, tips, and bonuses. Earned income proves to be the opposite of unearned income. Any money given to you for work that you have done is termed earned income. As an example of money that is not considered to be earned income, if your employer advanced you money against your upcoming pay check, this would be unearned income. This is because you have not yet performed the work that earns the income. It is generated in one of two different ways. You might work for a person or company that pays you for the work. Alternatively, you could work as a self employed person in a business that is yours. For taxing purposes, earned income is a broader category. It involves not only salary, wages, and tips, or alternatively self employment net earnings, in the calculations of the IRS. They also include benefits from union strikes and benefits for long term disability that are earned before a person achieves the minimum retirement age as unearned income. Combat pay for military personnel is not usually considered to be taxable earned income either. There are various forms of income that are considered to be unearned income, or not earned. These include investment returns, such as dividends, interest, and capital gains. Social security and unemployment benefits are also unearned income. Finally, pensions, child support, and alimony are all not considered to be earned income. It is not only used by the IRS to determine an individual’s tax liability for the current year. It is also employed to determine eligibility for the Earned Income Tax Credit, more commonly referred to by its acronym the EITC. This Earned Income Tax Credit proves to be a credit against taxes for individuals who work and receive low wages for their earned income. Tax credits such as this one commonly translate to additional numbers of earned income dollars staying in the person’s pocket, or a lower tax liability for the year than would otherwise be anticipated. Not only does this decrease the amount of tax that might be owed, but it could lead to a tax refund if the adjusted gross income results in negative income tax being due.

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Earned Income Tax Credit (EITC) The Earned Income Tax Credit, also known by its acronym EITC or EIC (for Earned Income Credit), is a benefit offered by the Internal Revenue Service to working people who only have lower to moderate levels of income. In order to qualify for it, prospective taxpayers have to measure up to specific requirements in a year in which they file their tax return. The IRS requires that they file even when they do not owe any taxes, or if they otherwise do not have to file a tax return. A key benefit of the EITC is that it not only lowers the amount in tax receipts these families owe the government, but it can also create a negative tax liability that translates into a personal income tax refund. Among the requirements necessary to qualify for this Earned Income Tax Credit, individuals have to receive at least some income while working as an employee for a person or business. Alternatively, they are able to qualify by owning or running either a farm or a business. There are also basic additional rules that involve having a qualifying child or children who meet each of the qualifying rules as set out by the IRS. The Earned Income Tax Credit is intended primarily to help those families who have children, though it can also apply to other couples and individuals who receive lower to moderate levels of income. The actual amount of the benefits from the EITC is based upon the specific income of the filers as well as the actual number of children they have. For those couples and individuals who claim children which qualify, they must be able to prove age, parental relationship, and shared residency. For the tax year 2013, the income levels that met IRS requirements had to be under $37,870 on up to under $51,567, which varied based on the numbers of children considered to be dependent in the family. Those workers who have no children yet who earn under $14,340 for an individual or $19,680 for married couples were eligible to get a tiny EITC amount in benefits. Those who do not have children which qualify are able to utilize U.S. tax forms including 1040, 1040A, or 1040EZ to apply. When qualifying children are involved, the head of household filer must utilize either the 1040 or 1040A forms alongside an attached Schedule EITC. In the tax year of 2013, the IRS had established maximum benefit levels which individuals, couple, and families with qualifying children could obtain. For those who had no children which qualified, the maximum was $487. With a single child who qualified, the maximum benefit rose to $3,250. Where there were two children, this amount grew to $5,372. Finally, with three or even more children who were qualified, the maximum amount increased to $6,044. Each year, these numbers are raised according to the inflation index. In tax year 2015, this reduced tax revenues owed to the U.S. federal government by a notinsignificant around $70 billion. It should not come as a surprise that these Earned Income Tax Credits have been and still remain a significant item for discussion in the ongoing political conversations within the United States. The debate has centered on the question of which approach would help the poor and lower middle class most. One idea is to raise the minimum wage significantly. The other is to boost the maximum amounts of the EITC. Back in the year 2000, The American Economic Association took a random survey of 1,000 of their

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members to learn their perspective. Over 75 percent of American economists agreed that it made sense to increase the program of the Earned Income Tax Credit.

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Earnings Per Share (EPS) Earnings per share refer to the given total of earnings that a company has for every share of the firm’s stock that is outstanding. There are several formulas for calculating earnings per share. These depend on which segment of earnings are being considered. The FASB, or Financial Accounting Standards Board, makes corporations report such earnings per share on their income statement for all of the major components of such statements including discontinued operations, continuing operations, extraordinary items, and net income. To figure up the basic net earnings per share formula, you only have to divide the profit for the year by the average number of common shares of stock. With discontinued operations, it is only a matter of taking the discontinued operations income and dividing it by the average number of common stock shares outstanding. Continuing operations earnings per share equal the continuing operations income over the average number of common shares. Extraordinary items works with the income from extraordinary items and divides it by the weighted average number of common shares. Besides the basic earnings per share numbers, there are three different types of earnings per share. Last year’s earning per share are the Trailing EPS. These are the only completely known earnings for a company. The Current earnings per share are the ones for this year. These are partially projections in the end until the last quarterly numbers are released. Finally, Forward earnings per share are earnings numbers for the future. These are entirely based on predictions. Earnings per share calculations do not take into account preferred dividends on categories besides net income and continued operations. Such continuing operations and even net income earnings per share calculations turn out to be more complex as preferred share dividends are taken off of the top of net income before the earnings per share is actually calculated. Since preferred stock shares have the right to income payments ahead of common stock payments, any money that is given out as preferred dividends is cash which can not be considered to be potentially available for giving out to every share of the commonly held stock. Preferred dividends for the present year are generally the only ones that are taken off of such income. There is a prevalent exception to this. If preferred shares prove to be cumulative then this means that dividends for the entire year are taken off, regardless of if they have been declared yet or not. Dividends that the company is behind on paying are not contemplated when the earnings per share is calculated. Earnings per share as a financial measuring stick for a company are extremely important. In theory, this forms the underlying basis for the value of the stock in question. Another critical measurement of stock price is price to earnings value, also known as the PE ratio. This PE ratio is determined by taking the earnings per share and dividing them into the price of the stock. Earnings per share are useful in measuring up one corporation against another one, if they are involved in the same business segment or industry. They do not tell you if the stock is a good buy or not. They also do not reveal what the overall market thinks about the company. This is where the PE ratio is more useful.

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Econometrics Econometrics refers to the utilization of math and statistics in the discipline of economics. Economists include these branches of study in order to test their hypotheses and theories. They attempt to predict future trends by employing it. The idea is to consider economic models and test and re-test them by using statistical trials. They finally contrast and compare the ultimate results against known real-world examples. This is why economists often divide up the study into the two groups of applied and theoretical. Economists work econometrics by merging math, economic theory, and statistical hunches. Through these combinations they are able to analyze various theories. They harness a variety of tools including probability, frequency distributions, regression analyses, statistical inference, times series methods, and simultaneous equations models. It is always helpful to consider a real life example to understand a difficult concept like Econometrics. Economists might choose to work this discipline in order to consider the idea of income effect. Many economists will theorize that individuals who boost their income will also expand their spending levels. The way they can test out such an economic hypothesis so that it becomes proven and accepted is with the tools of this discipline. These include multiple regression analysis and frequency distributions. The field of Econometrics became discovered and advanced by the three renowned economists Ragnar Frisch, Lawrence Klein, and Simon Kuznets. The lot of them received the Nobel Prize in economics for their achievements and work with this discipline of economics. Utilizing Econometrics in practice is not as difficult as it might at first seem. Step one is to consider a data set so as to come up with a particular hypothesis. This must give reasons for the shape and nature of the data. In such a first step, the variable which the employing economists will consider they must specifically define. Relationships between independent and dependent variables must also be detailed. It is this stage of the discipline which depends enormously on the economic theories to be tested for their usefulness as the study progresses. In the next step, the economists will have to select their particular statistical model or tool with which they will test out the economic hypothesis. For a model to be considered effective, it will have to outline particular relationships mathematically between the dependent variables and the variables which explain them in the given test. The most typical tool economists use is the multiple linear regression model. It is because they consider this to be the most practical tool in the discipline. The reason for this is that the relationships can be expressed in a linear fashion. It is appropriate to many situations since the most typical relationship between data sets proves to be linear. All that this means is that a change in one variable will lead to another positive correlation with the other variables. A third step revolves around entering in all of the data set information to a software program specifically created for econometrics. Such a program will utilize the economist chosen statistical model in order to tabulate the preliminary results. It employs the entered economic data to come up with these results. Finally they come to the most critical (and also coincidentally last) step for proving a hypothesis using

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Econometrics. The economists in question gather the program’s outputted results and prepare a realworld type of test. It is this test that gives the economist the knowledge regarding the validity of the model that was proposed and tested. For the model to be useful, it must deliver reliable and accurate predictions which can be back tested and so proven. When the economists uncover the results they anticipated, then they know that their hypothesis is in fact a theory. Should the results not be what they anticipated, additional inferences or other hypotheses will be required.

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Economic Commission for Latin America and the Caribbean The Economic Commission for Latin America and the Caribbean is a key United Nations body which is referred to by its various acronyms of UNECLAC, ECLAC, and the Spanish acronym CEPAL. This regional commission of the U.N. has a mandate to foster economic cooperation between the various member states. There are 45 member nations in total. This includes 13 in the Caribbean, 20 in Latin America, and 12 which lie outside the region. There are also 13 members who are associated but not full members. This is because they are territories which are not independent (such as the United States Virgin Islands), commonwealth of the Caribbean (such as the Cayman Islands), and associated island countries. The ECLAC produces a number of valuable statistics which cover the nations in the area. It also makes cooperative forms of agreements pairing up these nations and nonprofit organizations of the world. The Economic Commission for Latin America and the Caribbean arose in 1948 at the behest of the United Nations. It was originally called the UNECLA UN Economic Commission for Latin America. In the year 1984, they passed a resolution in the United Nations to bring in the nations of the Caribbean into the organization’s name. This commission is under the ESOSOC UN Economic and Social Council and reports to them. The current executive secretary of the Economic Commission for Latin America and the Caribbean as of 2017 is Alicia Barcena Ibarra of Mexico. She has served since July of 2008 in this head leadership role. There are several important locations of the Economic Commission for Latin America and the Caribbean. Its headquarters lie in Santiago, Chile. There are two sub-regional headquarters as well. These are the Central American head office in Mexico City, Mexico and the Caribbean head office in Port of Spain, the capital of Trinidad and Tobago. Other important country offices exist in four nations. These include Buenos Aires, Argentina; Montevideo, Uruguay; Brasilia, Brazil; and Bogota, Colombia. The organization also maintains a liaison office in Washington D.C. in the United States. The member states of the Economic Commission for Latin America and the Caribbean include Venezuela, Uruguay, the United States of America, the United Kingdom, Trinidad and Tobago, Suriname, Spain, South Korea, St. Vincent and the Grenadines, St. Lucia, St. Kitts and Nevis, Portugal, Peru, Paraguay, Panama, Norway, Nicaragua, the Netherlands, Mexico, Japan, Jamaica, Italy, Honduras, Haiti, Guyana, Guatemala, Grenada, Germany, France, El Salvador, Ecuador, the Dominican Republic, Dominica, Cuba, Costa Rica, Colombia, Chile, Canada, Brazil, Bolivia, Belize, Barbados, Bahamas, Argentina, and Antigua and Barbuda. The associated members of the Economic Commission for Latin America and the Caribbean are the United States Virgin Islands, the Turks and Caicos Islands, Sint Maarten, Puerto Rico, Montserrat, Martinique, Guadeloupe, Curacao, the Cayman Islands, The British Virgin Islands, Bermuda, Aruba, and Anguilla.

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It was the creation of this Economic Commission for Latin America and the Caribbean that became an instrumental part of the so-called “Big D development.” Economists and regional historians blame the founding of this ECLA and the subsequent policies it recommended for the ensuing problems including dependency and structuralism. This is because though the group was established in the period following the Second World War, its roots in fact date back to the era of colonialism which saw the European powers such as Britain, France, and Spain and the United States as economic overlords of much of South America. It was the League of Nations which came up with the idea for a need to economically restructure South and Central America and the Caribbean. Stanley Bruce drew up the document which he presented to the League of Nations in 1939. This had a major impact on the establishment of the United Nations Economic and Social Committee in the year 1944. At first the ECLA did not have effective policies for Latin America. In subsequent decades though, it dramatically altered the balance of economic power in the region as member nations became prisoners of the interest and principal repayments on loans for development projects. These were forced upon them by the World Bank, IMF, and the Economic Commission for Latin America and the Caribbean.

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Economic Embargo An Economic Embargo is a type of government-mandated order. They limit the exchange of goods and commerce to a country which they specify. Sometimes they affect only particular goods which represent a threat to the importing nation’s vital economic or security interests. Such embargoes are typically established because two nations find themselves in a political spat or economic disagreement or because of a combination of the two. The idea behind such an economic punishment and restriction is to economically isolate a nation. The enforcer hopes to make life difficult for the people and ultimately government of the nation so that it will have no choice but to carry out the desired actions of the embargo issuer. There are two different main forms of economic embargoes. A strategic embargo will stop the trade in any type of military hardware, equipment, or goods with the victim nation. Trade embargoes are far more restrictive. They stop any individual or company from exporting given goods (or sometimes all goods) to the nation which is targeted. In today’s world, a large number of countries depend on global trade to function and prosper. This is why an economic embargo can prove to be such a potent weapon to influence the behavior of a nation without having to go to war. A trade embargo may lead to severe negative consequences for the victim nation and its economy. The U.S. often relies on the mandates issued by the United Nations in deciding which countries to inflict economic and trade embargoes against. In many cases, allied nations will combine their collective economic and trade powers to issue joint economic embargoes. This restricts trade with the targeted countries in an effort to force them to make strategic changes for world peace or to engage in better humanitarian behaviors. The United States has become famous for its imposition of a few long-lasting economic embargoes against other sovereign states. Among these are ones which have been in place on nations that include Iran, North Korea, and Cuba. Back in the decade of the 80’s, a number of countries with the U.S. enforced a trade embargo against the once-prosperous nation of South Africa. They did this because of several issues the combined governments opposed, including apartheid (segregation and official discrimination against the native African black population by a ruling white minority) and a drive for nuclear technology and weapons capability within the country. America- enforced embargoes leveled against some of these and other nations particularly leave out the trade of certain goods, such as necessary items. In these cases, they focus more exclusively on weapons, ammunition, and weapon systems or luxury item goods. Other forms of trade they leave in place. Comprehensive forms of economic embargoes are more devastating to the victim nations since they stop all types of trade between the victim nation and the inflictors. After the terrorist attacks which began with September 11, 2001, American-led embargoes have increasingly tended to focus on threatening nations like the Sudan. This country and others such as Iran are well-known for their historic and present-day ties to terrorists and their funding around the globe. This makes them a direct threat to American national security interests and those of its allies and friends around the world.

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The U.S. has occasionally also been the recipient of such economic embargoes. During the 1970s, the American economy suffered great harm because of the infamous Arab Oil Embargo. The Organization of the Petroleum Exporting Countries, or OPEC, enforced this oil embargo and created misery through skyrocketing gas prices, fuel rationing, and even gasoline shortages at the pump. In the United States, it is the American President who has full authority to inflict embargoes in war times. This he can do under the existing Trading with the Enemy Act. Besides this, the President may also rely on the existing International Emergency Economic Powers Act to enforce national emergency based commercial restrictions. Such embargoes become administered by the Office of Foreign Assets Control within the U.S. This is a division of the Department of the Treasury that helps to find and freeze the ultimate sources of funds for both terrorist operations and drug businesses.

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Economic Globalization Economic globalization turns out to be an either hated or praised global phenomenon. It means that the economic picture and scenario for any given nation is dependent significantly upon the involvement of other often-time competing nations. A great number of countries who are friends supply resources to one another which the other countries simply lack. Such resources can include imported technology, products, raw materials, services, and individual labor. Many critics have astutely observed that this process will eventually lead to closer integration and finally a one-world government, as has been gradually occurring within the European Union. This idea entails a centralized single government for all countries under one flag. A popular engagement under the auspices of economic globalization is international trade. In this activity, countries exchange essential and luxury services and goods between one another. With countries that possess abundant natural resources, they rely on this system of trading to sell their unique resources so that they can improve their national economic situations. International trade such as this has gone on for many centuries. The Silk Road which connects Asia and Europe in ancient trade demonstrates this. A modern day example of such international trade proves to be the toy industry. In this business, numerous toys sold in the United States and Europe carry the phrase “Made in China” upon their surface. Economic globalization pertains to both economics and finances for countries, but it also impacts cultural identity and national politics as well. Tax treaties and trading policies are fashioned between various nations in order to protect either state from threats like terrorism or to control their trade. Multinationals can actually alter a nation’s appetite for foods. Corporations such as McDonald’s have managed to shift the eating preferences of consumers in Asian countries that believe rice should be the mainstay in their daily diets. European fashions from Paris, London, and Milan have managed to influence the styles and tastes of Asian and American consumers who import them to sell in their clothing shops. It is easy to view economic globalization through either advantageous or disadvantageous lenses, depending on the perspective of the person judging it. The positive side effects are that it provides additional job opportunities and sometimes offers greater salaries. This often leads to faster and more economic growth and eventually an increasing standard of living. Such international cooperation has also fostered greater and longer periods of international peace between countries. It has further led to better cultural exchange through understanding and awareness of other cultures and countries. Technology has played an outsized role in this capacity. Critics of economic globalization have much about which to vocalize their complaints as well. Many critics have successfully made the case that the disadvantages substantially outweigh the benefits. One negative issue is that it helps countries to burn through global natural resources on a larger and faster scale. This is a result of the higher demand for scarce raw materials which has grown with many developed and developing countries alike. A second downside is that it enables human rights violations. Numerous nations are able to more easily

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exploit labor of other countries’ populations when they are developing countries. Still other critics from the developing world point to how economic globalization is basically a disguised means of richer countries colonizing those which are poorer and less powerful. They do this by seizing control of the overall economic picture of the poorer countries. Regardless of how critics or fans view this economic globalization, neither camp is able to deny the amount of impact which it continuously has on the global development of today and for the foreseeable future.

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Economic Growth Economic growth represents a boost in an economy’s ability to create and produce services and goods. This is compared from one period of time against another. There are two ways to measure this phenomenon. It may be quantified either in real or nominal terms. When real terms are used, economists have to adjust them for the effects of inflation. Historically and routinely, total growth in an economy is determined and expressed in the form of either the old standard of GNP Gross National Product or the more recent standard of GDP Gross Domestic Product. There are also other infrequently utilized metrics for measuring growth in an economy. The simplest way to express such economic growth is by utilizing total productivity. Gains in productivity often correspond to an increase in the average marginal productivity. In other words, the typical worker within a specific economy becomes more productive as the economy is growing. Economies may also obtain growth even without such an average marginal productivity increase. This happens when there are more births than deaths (higher birthrate) or as additional immigrants come into an economy and begin to work. It can also result from technological revolutions. Examples of this are the Industrial Revolution, the computer revolution, or the Internet revolution. It is always true that economies experiencing economic growth will be able to produce a higher quantity of services and goods than they did before the growth transpired. Yet there are those services and goods which command a higher value than competing goods or services. Examples of this abound. Smart phones or laptops are considered to have a higher value economically than bottles of water or a shirt. This is why growth in an economy is effectively figured up by measuring the total value of goods and services which the economy produces instead of simply the quantity. An additional dilemma comes as different consumers put varying values on identical services and goods. For example, for residents of Alaska an effective heater would command a higher value than it would for residents of southern California. Similarly, in Florida efficient air conditioners have greater value than they do in Canada. Other individuals prefer fish to steak, or steak to fish. Value is always subjective. This is what makes measuring the value of all goods and services challenging. It is ultimately why the current fair market value is what economists employ to determine value for the purposes of measuring economic growth. Interestingly enough, only a few means exist to create growth economically. A relatively straightforward one is through the uncovering and exploitation of better or newly discovered physical economic resources. Before gasoline was discovered to have the ability to generate energy, petroleum had very little economic value. Gasoline and hence petroleum began to create economic growth once this discovery was made. This was true for those countries with an abundance of petroleum they could export as well as for countries that utilized the gasoline to more effectively move goods across their nations. A second means of producing economic growth is by increasing the size of the labor force. When every other factor is equal, a greater number of workers will produce additional services and goods. Much of the impressive economic growth in the United States through the 1800s came from a constant inflow of productive and inexpensive immigrant labor.

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The third means of creating such growth is by developing better capital goods or higher technology. Such capital growth and technological improvements are closely correlated to the level of business investment and savings. Both are needed for firms to pursue a significant amount of R&D, or research and development. The final method for boosting economic growth lies in better specialization of labor pools. In other words, the workers have to increase their skills at their crafts. This boosts productivity because of extra practice or through experimenting with new or improved methods. Investment, savings, and specialization are the easiest to control and most reliable means of increasing the growth in an economy.

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Economic Indicators Economic indicators are bits of economic data generally pertaining to the macroeconomic larger picture economy. Investors utilize them to decide on the investing climate as they consider the all around state of the economy. There are many different economic indicators which the government usually releases. Five of the most important are gross domestic product, consumer price index, employment indicators, PMI manufacturing and services, and central bank minutes. Gross Domestic Product is the dollar value of every good and service a country produces in a set amount of time. It can be delivered in real and nominal formats. Real GDP makes adjustments for changes in the value of money. This indicator is one of the most anticipated by financial markets for its importance. Increases in GDP indicate an economy that is growing. Declines in it demonstrate an economy that is slowing. National growth rates like this are often utilized to judge the affordability of a country’s sovereign debt. They also determine if companies operating in the country are likely to be profitable. Consumer Price Index is an inflationary figure. It looks at the household purchased goods and services and measures their changes over time. This statistical estimate is compiled by taking prices from a group of representative items. This CPI is often used to discern how much inflation is. Markets watch CPI figures to determine if inflation is getting too high. When there is higher inflation it causes interest rates to rise and lending to decline. Deflation causes more lending and better interest rates. Inflation reduces the relative value of a currency and is bad for savers. Employment determines the citizens’ wealth and economic success. This makes employment indicators like unemployment and payroll data, income trends (earning more or less), total labor force, and percentage employed telling. These numbers are particularly important in developed countries that see most of their national income created by consumer spending. Declines in consumer spending often lead to an increase in unemployment. This in turn feeds into lower GDP numbers. PMI manufacturing and services is part of the Purchasing Manager’s Index. Markit Group developed this with the Institute for Supply Management. They survey businesses every month to learn about business purchasing manager’s activities in acquiring input goods and services. The most crucial of these surveys are the PMI Services and PMI Manufacturing indices. These are considered to be important leading economic indicators. When demand for business products declines then companies will decrease their buying of raw materials instantly. This gives a picture of problems in an economy long before consumer spending or retail sales figures will. Central banks play such an important role in any nation’s economy that their releases are very important. Markets study every word that comes from central bankers to learn what is in store in the future. Central bank minutes prove to be the official information releases that give out useful commentary on the economy and signal what actions the central bank will take in the future. The United States has the Federal Reserve. It provides its well known beige book. In this book are economic conditions related anecdotally by each of the branches of the Federal Reserve Bank. These types of notes are also released by a great number of other central banks. Among these are the Bank of England, European Central Bank, and Bank of Japan. They are released publically on a routine schedule.

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Central bank minutes releases also give a clue as to when the group will raise or lower the national interest rates which affects everything from consumer and business lending activity to savings deposit rates.

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Economic Output Economic output refers to the amount of goods and services which a nation, industry, or company creates over a set time period. These might be utilized in later stages of production, traded, or otherwise consumed. The idea surrounding national economic output is a critical one in the world of economics. This is because economists opine that it is not enormous quantities of money which truly make nations wealthy, but rather their national output amount. Other phrases that analysts and economists often use interchangeably with economic output include output and gross output. This should not be confused with GDP Gross Domestic Product. Value which is added on a national scale is the definition of GDP ultimately. On a local level, this is often called gross regional product or even gross area product. While the two ideas of GDP and output bear some similarities, they are not identical. Both concepts do measure the productivity economically of a particular nation or region for a given time period. Economic output itself quantifies the total value for all services and goods. The problem with this idea is that it involves a double counting of all intermediate purchases. Looking at an example of this dilemma helps to clarify the issue at hand. If a furniture maker purchases its wood directly off of a saw mill at $150, they might then increase the value of it to $450 by creating an article of furniture. The output involved would be measured as $600. This represents all value in every sale involved for this particular chain of economic activity. The problem is that this method includes the wood value two times. It becomes doubly counted when it is the intermediate stage good and again in the final price or value for the article of furniture. GDP on the other hand concentrates on only the services’ and goods’ additionally added value. Another way of defining this lies in the economic output minus the intermediate inputs included. When economists take out the goods’ value which already came through the market once before, it allows for a more accurate assessment regarding the output. The strict GDP formula is then GDP equals the gross output minus the intermediate inputs. In the example above with furniture, the GDP equaled up to merely $450 because the formula takes out the $150 in wood inputs from the final sales price of $600. In the real world, the overwhelming numbers of companies produce products which they make utilizing many materials that go through a few different suppliers hands in the production process. Each supplier will add its own value. Only in the end would this value be tallied into the cost of the ultimate product. The important take away from this is that there is a significant difference between GDP gross domestic product and economic output. One of the great economic questions of all time that economists wrestle with pertains to why the national output for a given country will constantly fluctuate, sometimes dramatically. There is no one easy answer on which economists have consensus opinion unfortunately. Instead, economists generally concur that there are a variety of factors which cause output to rise and fall. With growth, the majority of economists can agree on there being three principal sources of economic growth. These are labor increases, factors of production efficiency increases, and capital increases. This is a twoedged sword though. Growth to the factors of production inputs can also be negative. In fact when any

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factor leads to a decrease in the efficiency of production, capital, or labor, then the growth rate will subsequently decline. This finally translates to a drop in economic output as well as in GDP.

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Economic Sanctions Economic sanctions turn out to be both financial and commercial penalties which a nation or several nations level against a targeted nation, organization, or individual. Such sanctions can cover different types of punishments. Among these are tariffs, trade barriers, or financial transacting restrictions. What is interesting about these is that they are not always applied thanks to an economic dispute. In fact they can be forced on other countries, organizations, or individuals because of several different types of military, political, or even social concerns. Such sanctions are often utilized to realize international and sometimes domestic policies or goals. These economic sanctions may be deployed as an extension of international foreign policy. They are typically forced on smaller and weaker nations by one or more larger and richer ones because of two different reasons. It might be the weaker nation is actually a threat to the greater nation’s security, as with Iran’s aggressive nuclear weapons program versus the United Nations. It might also be that the more powerful country feels the weaker state is practicing human rights violations on its own people, as with Syria versus much of the rest of the world’s countries. This is why economic sanctions might be employed as a means of forcing the stronger countries’ wills on the lesser one. Some of these policies pertain to achieving more open and fair free trade or for punishing and stopping violations of basic human freedoms and rights. In modern times, these forms of sanctions have often been utilized in lieu of waging actual military conflicts in order to reach desirable end results and outcomes without actual loss of human life. The problem with these sanctions according to many analysts and economists is that they mostly harm the ordinary citizens of a nation rather than its government or military-industrial complex. Besides this, these kinds of sanctions are not always effective in achieving their hoped for results. Regime change is a classic example of this type of foreign policy. Though it is the most common basis for such sanctions, it is rarely successful. Haufbauer et al. have studied these types of sanction policies and determined that in only 34 percent of the relevant instances did they work out successfully. An analysis of this study by Robert A. Pape ended with the conclusion that in only five out of the forty claimed successes did the results really stand out, which dropped the successful rate down to only four percent. The reason for this is governments have a wide range of choices for trading partners and even financial conduits which they may go through. Consider the case of Iran and its frightening nuclear weapons program. For most of a decade the democratic nations of the world united to force a range of restrictive economic sanctions via the United Nations on the Islamic Republic. The sanctions were never one hundred percent effective, as countries including North Korea, Cuba, and Venezuela still continued to trade freely and openly with Iran. Some multinational companies and even a few countries secretly conducted trade with Iran as well. The world’s largest international bank (according to balance sheet) British multinational giant HSBC is the best known example of a company cheating on these specific economic sanctions. The United States’

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justice department found the banking giant with significant operations in 71 countries and territories guilty of helping the Iranian government to circumvent the international sanctions regime. While HSBC received several billion dollars in penalties, this did not reverse the damage to the sanctions’ policy that they had already done. These economic sanctions similarly impact the national economy of the country which imposes them to a lesser degree. When they erect restrictions on imports, the country imposing them will find its consumers suffer from less selection of goods. As export restrictions occur, the companies from the imposing nation(s) lose their access to and investment opportunities in the victim country. Other rival companies from foreign nations will take over these opportunities instead.

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Economic Surplus Economic surplus relates to supply and demand. They are also referred to as total welfare. There can be two different types of such economic surplus, consumer surplus and producer surplus. A consumer surplus happens when a given product or service’s price proves to be less than the greatest price level consumers would be willing to pay. This is something like an auction. Buyers go in to an auction with a maximum price amount that they are willing to pay. Consumer surplus transpires when these buyers can obtain the product for a lesser price than their limit. This reflects a gain. Oil product prices are a real world example of potential consume surplus. When the costs for a gallon of gasoline decline to a lower amount that the consumers typically pay, the consumer realizes a profit in the form of an economic surplus. Alternatively, a producer surplus happens as companies are able to sell their goods for more than the lowest price at which they were willing to sell. Using the same example of an auction, the auctioneer or house might have a minimum reserve on an item where they begin the bidding. The house will not accept lower than this price. They would realize a producer surplus if the auctioneer obtains a higher price than the reserve limit for the product. This happens when the buyers keep bidding on the price of the item and thereby increase the price of the good until someone finally wins and buys it. The producer realizes more money than initially expected in this example of economic surplus. It is important to realize that producer and consumer surpluses are effectively zero sum gains. This means that the benefit of one is the loss to the other group. There are side effects from either type of economic surplus. With a consumer surplus, this will lead to an eventual shortage in the producer’s supply. This is because supply at that price simply can not stay abreast of the demand. People like to purchase additional quantities of any product available at an attractive price point. Alternatively, a producer surplus will result typically in an overabundance of supply. This is because prices are too high for consumers willingly to purchase much of the given product. Economic surpluses happen because of an atypical disconnect between demand and supply on a certain product. It could also result if some consumers are ready and able to pay a higher price for a good or service than are others. If instead prices were fixed on the product while all consumers anticipated paying the same price, then shortages and surpluses would not exist. In the real world this rarely occurs. This is because different businesses and consumers have various price points at which they are willing to sell and buy. In selling items, the competition is constant to produce the most and best product for the greatest value. With prices rising and falling because of demand and supply, surplus happens on the side of the producer or the consumer. When demand becomes too great for a given product, the vendor providing the cheapest price will sell out. This leads to general market price increases, or producer surpluses. Similarly, prices will decline if supply is high and demand is insufficient, leading to a consumer surplus. Surpluses commonly arise if the

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product price is set too high at first at more than consumers will pay.

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Efficient Market Hypothesis (EMH) The efficient market hypothesis is also known by its acronym EMH. It refers to an investment theory which claims that investors can not outperform the stock markets practically on a consistent basis. This is because the efficiencies created by the inner workings of the stock market mean present day share prices will always reflect and incorporate all relevant and practical information. The idea states that stocks will practically always sell for their true fair value on the various stock exchanges. This infers that the typical investor can not efficiently buy undervalued shares or sell them at overly high prices. This is why it is theoretically impossible for investors to better the ultimate return of the stock markets no matter how expertly they select stocks or how well they time the markets. Efficient market hypothesis claims that the only means of outperforming the markets is through buying investments with higher risk and therefore coming with accompanying better returns. Despite the fact that this efficient market hypothesis remains a foundation of modern day financial theories, it is still regarded with suspicion and controversy. Many investors and especially stock picking fund managers consistently defy it and try to select their own stocks. Those who concur with the EMH theory state that stock pickers are wasting their time in an effort to track down undervalued shares, or in predicting market trends, using either technical or fundamental analysis. Clearly the economists and other scholarly individuals can hold up a significant amount of evidence that supports the efficient market hypothesis. Despite this, a broad range and variety of arguments against it still exist. Legendary investing stock pickers like Warren Buffet have managed to outperform the markets year in and year out over many decades. This should not be consistently possible at all by the arguments and logic of the EMH. Other critics of the efficient market hypothesis hold up such Black Swan Events as the Black Monday 1987 crash in the stock markets. On this particular occasion, the DJIA Dow Jones Industrial Average plunged by in excess of 20 percent in only one day. This does raise a valid point about stock prices and how efficiently they are always valued when they can suddenly fall by a fifth of their value in only hours. Believers in this efficient market hypothesis argue that markets are both efficient and random. This means that investors should be able to make their best consistent returns by choosing to invest in low fee, unmanaged, broadly representative portfolios. Morningstar Inc., the famous market research firm has compiled a great amount of data to support this assertion. They compiled the returns of active fund managers in every category. Then they held these up versus an index of relevant funds or ETF exchange traded funds. The study concluded that for any year to year period, there were merely two different groups of active fund managers who managed to consistently outperform the passively held funds over half the time. The two that outperformed were the diversified emerging markets funds and the small growth funds. As far as all of the remaining categories such as U.S. large value, U.S. large blend, and U.S large growth (and most others), those who invested in either ETFs or lower cost index funds would have made higher returns. It is true that a small percentage of the active fund managers do manage to realize superior performances versus the passively managed funds at times and points. The problem that this presents for

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individual investors lies in predicting which fund managers will do this. Fewer than a quarter of the best performing active fund managers can outperform their passive manager benchmark funds consistently. Certainly Warren Buffet counts as one of those most successful few. It helps to explain his enduring popularity and success with investors for decades now.

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Egalitarianism Egalitarianism refers to a philosophy that believes in some type of equality. The main idea behind it is that all individuals should be regarded and dealt with as equals, at least pertaining to political, religious, social, economic, or cultural equality. The tenets of egalitarianism hold that every human being has an equal moral value or basic worth. It can be used as a political philosophy that claims that everyone ought to be treated as an equal, provided with the identical economic, political, civil, and social rights. It could alternatively be a social philosophy that pushes for the decentralizing of power and the breaking down of economic barriers between different people. Some individuals believe that this egalitarianism is the natural form of society. Egalitarianism deals with the studies pertaining to social inequality. Unequal societies lead to many of the world’s great social problems. Among these are infant mortality, homicide, teenage pregnancy, obesity, incarceration rates, and depression. A comprehensive type of study that was performed on the major economies of the world showed that a strong connection exists between all of these challenges in society and issues of social inequality. Egalitarianism exists in numerous different forms. The most typical basis for it arises from political, religious, or philosophical backgrounds. Political precedents of egalitarianism date back to the Age of Enlightenment in the 1700’s. At this time, modern government founders referenced egalitarian principals of morality that they lived by, such as the American concept of certain inalienable rights endowed to them by their Creator. These were laid into the modern framework of countries like the United States and France. Religious egalitarianism is heavily rooted in Christianity. This Christian egalitarian world view states that the Bible is the basis for the common equality of men and women, as well as every economic, racial, ethnic, and age group. This comes from Jesus Christ’s example and teachings, as well as other lessons taught throughout the Bible. In philosophy, egalitarian ideas grew in substance and practice over the last two hundred years. Various sub-philosophies have arisen from this general philosophy, including communism, socialism, progressivism, and anarchism. Each of these concepts favored political, economic, and legal versions of egalitarianism. Some of these egalitarian philosophies have gained significant and wide standing support with both the general population as well as the intellectuals in numerous countries. This does not mean that such ideas are actually put into universal effect though. On the other hand, democracy does involve many ideas of egalitarianism, at least in the political sphere. Representative democracy proves to be the ultimate realization of such political egalitarianism. Critics of this idea say that even though votes are given out on a one vote per one person basis, the actual power still rests with the ruling class and not the common people.

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Elastic Demand Elastic Demand refers to a factor of demand which is affected by the price. When the quantity of a good demanded responds substantially based on a change in the price or another factor inherent in demand, then the demand for the good in question is said to be elastic. When prices for a good or service decline even a little, consumers will often purchase a significantly greater quantity of the particular item. When prices instead go up a little, the consumers will typically cut back on their purchases while they wait on the prices of the good or service to return to the prior level. When services and goods feature elastic demand, this describes items which the consumers are happy to comparison shop around for a more attractively priced substitute. The reason for this truth is that the buyers are not desperately in need of having the given item. This could be because they do not require it each day, or because there are many similar comparable choices which may be offered at more advantageous prices. It is actually the laws of demand which lead the correlation between quantity purchased and price per item. This law claims that the price of an item is inversely related to the amount which consumers will purchase. As prices go higher, it is human nature for individuals to purchase fewer items. Elasticity of demand describes by how much the item quantity they purchase will drop as the price rises. Where goods and services are concerned, there are actually two more kinds of elastic demand. Both of these quantify how the numbers purchased will specifically change as the price declines. These are inelastic demand and unit elastic demand. Inelastic demand simply means that the amount of the goods or services which consumers demand will change less radically than the associated price will. Conversely, unit elastic demand means that the amount of a given good or service which individuals demand will alter at the same percentage rate by which the price varies. To figure out the elastic demand formula, one simply takes the quantity demanded percentage change and divides this figure by the price percentage change. Demand is said to be elastic as the percentage change of the quantity which consumers demand is greater than the associated price change percentage. This would mean the ratio is higher than one. As an example, if demanded quantity increased by 10 percent as the price declined by an associated fiver percent, then the ratio would be .10 divided by .05 for a total demand elasticity result of 2.00. It would mean that the demand was highly elastic. Another scenario which may result is called perfectly elastic demand. This happens if and when the demanded quantity increases to infinity as the price declines by any percentage amount. Of course in the real world this is not possible. It does serve to illustrate the point that elastic demand possesses a ratio higher than one. Conversely, inelastic demand is present as the demanded quantity increases by a smaller percentage than does the drop in price. Consider this example. When the quantity demanded increased by two percent as the associated price dropped by five percent, then the ratio proves to be .02 divided by .05. The result is .40 demand elasticity, which is under one. This means the demand is inelastic, and the item can not be easily substituted or replaced by the markets.

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Unit elastic demand is present as the demanded quantity varies by exactly the same percentage amount as the price change does. This would mean the ratio proved to be exactly one. The example with this base case is easy to understand. If the demanded quantity rose by five percent as a result of an associated five percent decline in the price, then the .05 divided by .05 would yield a result of one.

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Embargo In its most straight forward form, an embargo represents a ban on trading. The word is derived from the Spanish word “embargo” which means obstruction or hindrance. Such trading bans are either entire or partial prohibitions on both trade and commerce on either one specific nation or several of them. These actions are intended to be intense diplomatic penalties which are deliberately imposed in order to garner a particular national interest result out of the nation which is the victim of the embargo. These acts are like economic sanctions in their effects and comprise legal barriers to free trade. They should never be confused with a physical blockade, which is an actual act of war. With embargoes, nations are able to ban altogether or partially limit imports or exports, impose specific tolls or taxes, develop quotas for limitations of goods, seize or freeze freight, assets, and bank accounts, make illegal transport vehicles or freight, and restrict the transportation of a certain product or technology when it is considered to be a strategic or high technology. An embargo proves to be a government order which limits commerce and the exchange of goods or services with a particular nation or for particular goods. It is typically because of a negative economic or political climate between two countries that it occurs. The idea behind such a restriction is to isolate the offending nation and therefore cause hardships for its governments so that it will address the issue which underlies the dispute. Strategic embargoes stop a nation for dealing in or receiving any kinds of military goods or advanced technology with military applications. General trade embargoes keep any individual within a nation from exporting to the receiving country. The embargo has become a potent tool, still short of outright war, for impacting the policies and behaviors of a state. This is more and more the case since a great number of nations depend on international trade to prosper in the post modern age. Such trade restrictions can cause massive negative results for the afflicted economy. When allied nations get together to sign joint embargo deals in order to restrict trade benefits for particular pariah nations, they often do this to cause positive humanitarian changes or to lessen perceived dangers to the peace of the globe. The United States has utilized a few long lasting embargoes against other nations. These have included such rogue states as Iran, North Korea, and Cuba. South Africa also endured an extended embargo period from not only the U.S. but also Britain and much of the European Union because of these countries’ collective opposition to the government-mandated policy of apartheid. These American led embargo restrictions leveled against particular pariah states allow basic humanitarian goods to trade but prohibit military and technological hardware and luxury goods from arriving. When an embargo is comprehensive, it is more punishing still since it cuts off all trade for that receivingend nation. Since the 9/11/2001 terrorist attacks on the twin towers, the American embargo tool has been more often focused against nations like Sudan that possess obvious connections with terrorists and their financing and those who pose a danger to national and international security policies. The street is not always one sided even for the United States. The U.S. has also been targeted by

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vindictive embargoes over the years. The decade of the 1970s saw the American economy suffer grave harm because of the infamous oil embargo. The OPEC Organization of the Petroleum Exporting Countries’ member states imposed this set of trade restrictions that led to rationing, fuel shortages, and roaring higher gas costs in the U.S. It is actually the POTUS President of the United States who has full authority to level trade and strategic embargo weapons against other states in wartime, under the auspices of the Trading With the Enemy Act. The International Emergency Economic Powers Act also provides the President with the powers he needs to create and enforce restrictions relating to commerce in times of national emergencies. The Office of Foreign Assets Control actually handles the specific arrangements and details pertaining to an embargo within the U.S. This Department of the Treasury division engages in a mission critical role to find and freeze any funding sources for drug smuggling and terrorism as it relates to the internal borders and international interests of the United States.

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Embezzlement Embezzlement is a type of crime that is considered to be white collar. It is usually committed by well educated and employed individuals. In this type of economic crime, the individual takes or misallocates the assets or funds with which he or she has been entrusted. With this kind of fraud, the perpetrator does not steal the money in the first place. The individual concerned obtains it legally and even is rightfully entitled to hold them. The crime comes when these assets or funds are utilized in a way they are not allowed or intended. This is why the crime of embezzlement is breaking the legal and financial responsibilities with which someone entrusted a person. It is entirely possible for embezzlement to involve a large or a small amount. If a clerk in a store puts money from the register in his pocket, this is a minor case of embezzling money. The term generally refers to larger scale instances. An example of this is when major corporate executives illegally expense off even million of company dollars. They would then transfer such money into their own bank accounts. Authorities punish embezzlement on larger scales with huge fines and significant jail time. Among the largest cases of embezzlement ever recorded was Bernie Madoff and his enormous Ponzi scheme. The man received a 150 year prison sentence for operating the biggest fraud in the history of the United States. Thousands of investors had entrusted him with billions of dollars to manage on their behalf. He promised to make them significant outsized profits for this trust. Authorities eventually caught up with him in December of 2008. In the trial that followed, they charged the man with eleven different counts of money laundering, fraud, theft, and perjury. When authorities examined what remained of his lavish assets such as foreign homes, boats, and planes, it became clear he had used much of the funds legally entrusted to him for his own personal ends. Very few of the Madoff victims every recovered much in the way of their losses. Madoff’s particular embezzlement and Ponzi scheme allowed him to cheat his numerous investors out of $65 billion. He kept this a secret for several decades. He would take in money from newer investors and use this to pay off promised returns of his older ones or those who requested redemptions from his hedge fund. Meanwhile, he used much of the money from the older investors to fund his high flying lifestyle around the globe for decades. Madoff’s financial crime started out as a legitimate business until he began to lose control of the operation. When he took losses, he felt he had no choice but to keep older investors in the fund. He promised them greater amounts of money if they remained. His investing strategies were kept secret in order to protect the hedge fund and business. Madoff’s operation produced statements of accounts showing balances that no longer existed as he continued to lose money and live large with the funds. In his case, Madoff was able to keep the fraud going far longer than is typical of people who have embezzled funds or run a fraudulent scheme. This was because he had been a former chairman of the NASDAQ. He was also a well respected investor for years before he began his crimes. No one bothered to look into the consistent outperformance his fund claimed to have because owner and operator was

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Bernie Madoff. His crimes only became clear when investors demanded $7 billion in redemption at a point when he only had $200 to $300 million in funds on hand. At this point, he confessed what he had done to one of his sons who turned him over to the police.

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Emerging Markets Emerging markets prove to be those countries of the world that possess business and development activities that stand in the midst of fast paced industrialization and growth. Today, twenty-eight different emerging markets are considered to exist around the globe. By far and away the largest of these are China and India. The largest regional emerging market today is the ASEAN-China Free Trade Area that began operating on the first of January in 2010. The concept of emerging markets dates back to the 1970’s, when the term used to refer to these particular markets was LEDC’s, or less economically developed countries. The comparison alluded to their levels of economic development as compared to the U.S., Western Europe, and Japan. Such emerging markets were supposed to offer higher risk levels for investors as well as the opportunity to make greater profits. As this term had a slightly negative connotation, the phrase emerging markets replaced it. Some have claimed that this newer term is deceptive, since no one can be assured that a given country will actually migrate from less developed to a more substantially developed one. This has generally proven to be the case, but there are exceptions. Argentina has occasionally digressed from more to less developed. Numerous examples of these types of emerging market economies exist, since twenty-eight different ones are labeled. These include countries that are grouped in more advanced emerging economies, such as Brazil, Mexico, Taiwan, South Africa, Poland, and Hungary. The secondary emerging economies are as follows: China, India, Chile, Colombia, Egypt, the Czech Republic, Indonesia, Morocco, Malaysia, Peru, Pakistan, Russia, the Philippines, Turkey, Thailand, and the United Arab Emirates. This list is compiled and occasionally updated by the FTSE group based in London, Great Britain. In the last few years, several competing terms have arisen to challenge the emerging markets phrase. One of these is that of rapidly developing economies that refers to emerging markets like Chile, Malaysia, and the United Arab Emirates. All of these nations are experiencing torrid paces of growth. The biggest of the emerging markets have earned their own acronyms in the past several years as well. Chief among these are BRIC, signifying Brazil, Russia, India, and China. BRICS includes the above four nations along with South Africa. BRICM is the original four BRIC nations and Mexico. BRICET signifies the first four BRIC members plus Turkey and Eastern Europe. BRICK includes the original four nations of the BRICK along with South Korea. Finally, CIVETS is comprised of Columbia, Indonesia, Vietnam, Egypt, Turkey, and also South Africa. Although none of these countries are particularly aligned by policy or ideology, they are currently gaining a more important role within the overall world economy, as well as in international politics. For an investor who wishes to invest in these economies, there are several different investment vehicles available to them. Among these are both Exchange Traded Funds and Mutual Funds. One of these is the iShares sponsored MSCI Emerging Markets Index ETF with a symbol of EEM. Another is the iShares run MSCI EAFE Index ETF that has a symbol of EFA. Though these funds’ prices can be up spectacularly in good years, they can also experience precipitous declines in periods of instability, such as during the worldwide financial crisis of 2007-2010.

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Employee Stock Option (ESO) Employee stock options are call options that are awarded privately rather than publicly. They turn out to be the most common form of equity compensation provided to employees of a business. Companies give out these options to their employees to provide them with an incentive to build up the market value of the company. These options may not be sold on the open markets. An ESO provides the receiving employees with the right but not obligation to buy a preset quantity of shares of the company. The contract specifies a time frame within which these must be acquired before they expire worthless. The price they employees can buy them at is the current price which becomes the strike price. These time limits for using them are generally ten years. Companies spell all of these terms out in the options agreement. These options are only valuable to the employee if the price of the company stock increases during the exercise time-frame. This is because the employees then are able to purchase the discounted shares at the same time as they sell them for the greater price on the market. The difference between the two prices represents their profit. If the share price of the company declines, they are unable to use them and will see them eventually expire worthless. This is why companies utilize employee stock options instead of large salaries to encourage their employees. This provides the companies with great incentive to build up the value of the company. Three principle types of ESO exist in the form of non statutory, incentive, and reload employee stock options. Non statutory employee stock options are also called non-qualified. These prove to be the normal kinds of ESOs. In such a contract, employees are not permitted to use these options during the vesting period. This vesting timeframe ranges from one to three years. When they are sold, the employee makes the spread between current price and strike price times the number of shares he or she sells. These types of ESOs become taxable at the employee’s regular income tax level. Graduated vesting in these options allows the employees to sell a percentage of the options such as maybe 10% in the first year. Each year another 10% would become available until the full 100% level is achieved by year ten. Incentive stock options are set up to lower taxes as much as possible. Employees can not exercise the option to buy the stock until after a year. They can not actually sell the stock until another year after buying it. This type of option creates a risk that the stock price may decline over the year long holding time frame. The advantage to the employee is that these ISOs receive far better tax treatment. The tax rate defaults to the long term capital gains rate instead of the traditional full income tax rate. Upper level management are usually the ones who receive such tax advantageous ISOs from their companies. The third type of employee stock options are called Reload ESOs. These begin their contract lives as nonstatutory ESOs. The employees engage in their first exercise of the contract where they make money on the transaction. At this point, the employees who exercise are given a special reload of the employee stock option. In this process the company issues new options to the employee. The present market price at

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time of issue becomes the new strike price for the reloaded options. This way the employee is constantly re-incentivized to perform for the company.

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Employee Stock Ownership Plan (ESOP) An Employee Stock Ownership Plan refers to a type of retirement plan. They are also called by their acronym ESOP. These plans permit employing companies to either provide cash or stock shares directly to the employee benefits plan. These plans hold one account for every employee who participates in them. The stock shares that the employers contribute become vested over a pre-determined period of years. Once they are partially or fully vested, employees are able to access them. It is important to note that with these ESOPs, employees never actually hold or purchase the shares of the stock directly when they are employees of the firm. Once the employee becomes retired, fired, disabled, or deceased, the stock shares become distributed. One should never confuse an Employee Ownership Stock Plan with an employee stock option plan. These stock option plans are not really retirement plans. Rather they only provide the right to purchase the company stock for a given, pre-determined price in a certain time period. One benefit that makes these Employee Stock Ownership Plans popular with providers and participants alike is their tax advantaged status. The reason they are considered to be qualified is because the company participating, the shareholder who sells, and the participants are each able to enjoy varying tax benefits. This is why these ESOPs are typically utilized by companies as part of their corporate financial strategy at the same time they are employed to encourage the employees to be sympathetic to the company stakeholders and their interests. Without a doubt, the Employee Stock Ownership Plan is part and parcel of the compensation that employees enjoy from their company. This is why they are utilized to keep the employees working for the overall good of the company as a whole. They have a stake in the stock share price rising over time since they are part owners in the company stock. These benefits from the Employee Stock Ownership Plan accrue to the employees at no upfront cost. The shares are kept for the receiving employees in a trust to ensure they grow safely to the point where the employee resigns or retires (or is fired). These companies are actually employee-owned to some degree. Employee-owned corporations are those that have a majority of their shares in the hands of the company employees. This makes them cooperatives but for the fact that the firm’s capital is unevenly distributed. Much of the time, such employee-owned corporations do not provide voting rights to all of the shareholders. Besides this, the senior-most employees and management will always have the distinct advantage of receiving a greater number of shares than the newer employees. There are several other competing forms of employee ownership benefits. Among these are stock options, direct purchase plans, phantom stock, restricted stock, and stock appreciation rights. Stock options give their employees the chance to purchase shares of company stock for a set price in a fixed amount of time. A direct purchase plan permits employees to buy their shares in the company using their own after tax dollars.

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Phantom stock delivers special cash bonuses in reward for superior employee results. The bonus amounts equal to the sale price of a certain quantity of stock shares. Restricted stock provides employees the ability to obtain shares either in the form of gift or by buying them, once they have met certain minimum employment period benchmarks. Stock appreciation rights provide employees with the ability to increase the value of a pre-assigned quantity of shares. Such shares typically become actually payable in the form of cash.

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Employees Employees are individuals who work in the service of a business endeavor or trade. They do this by contributing their expertise, abilities, and labor to another individual’s small business, a corporation, for the government, or in their own self employed business. Employees are also a critical component of the factors of production that include land, capital, and labor. In this capacity, they contribute the labor to a business enterprise. In particular, an employee proves to be an individual who is engaged by some employer in order to perform a specific job or task. Within the majority of advanced nations and their economies, this word pertains to a specifically spelled out relationship that is established between companies and individual persons. This relationship is markedly different from that of a client or customer. Attaining the status of employee generally results from undergoing a job interview with a certain business or corporation. Assuming that the person in question matches up well with the organization and their position, then she or he is made a formal employment offer for a given initial salary and place in the company. Such a person then attains all of the privileges, responsibilities, and rights as other employees. These commonly include vacation days and medical insurance benefits. Human Resource departments typically manage the actual relationships between such employees and major companies. This department works with new employees’ coming on board and integrating into the organization, as well as handling the set up of their new benefits to which they are entitled. HR departments also commonly resolve any problems or grievances that employees experience. Employees may group themselves into labor unions that can come to represent the positions and demands of the majority of an organization’s work force. These labor unions are then capable of bargaining as a whole on behalf of the employees with a company’s management. They do this to make demands for the members concerning payroll, benefits, and working conditions. Employers are quick to point out that these offers of employment never assure employment for any future specified amount of time. Either the employer or the employee is capable of ending this particular relationship whenever it suits them. This capability is known as at will employment. Many professions expect a two week notice when an individual employee quits his or her job. This is a customary courtesy that the law does not require. It may be necessary in order to obtain a satisfactory job reference for future employment opportunities.

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Energy Commodities The term energy commodities refers to a variety of coal, oil, and gasoline derived products. These include such energy sources as coal, Brent Sea Oil, gasoline, heating oil, and natural gas. These energy resources prove to be essential in daily life. This makes consumers most aware of such commodities. Besides being among the most heavily used, they are also typically among those which are most widely traded. These energy commodities find use in so many industrial applications that they maintain a strong investment appeal. Their prices have the ability to rise substantially over shorter time frames when demand picks up or supply drops. Energy is also a major component in inflation indices around the world, which makes investments in energy an effective hedge against rising prices. Higher oil and gasoline costs translate to higher prices in general throughout the U.S. and world economies. Investors who are interested in investing in these different types of energy commodities have a variety of choices of investment vehicle and commodities. There are Exchange Traded Funds and Notes (ETFs and ETNs), futures and options contracts, and energy sector company stocks from which to choose. Brent Sea Oil turns out to be the major oil benchmark in the world. It is the one to which around two-third of worldwide oil trade is tied and is especially relied upon in the EMEA region (Europe, Middle East, and Africa). This indicator represents a sweet form of crude oil, though it is not as sweet as the American benchmark WTI (West Texas Intermediate) crude oil. Brent oil is used to produce gasoline and mid purity distillates like diesel and kerosene. Crude oil finds applications in a wide range or consumer products that underpin modern day life, including plastics. Crude must first be refined in order to be turned into most useful products like gasoline or heating oil. Coal is responsible for providing the energy for half of all the electricity generated on earth. It is usually obtained through open pit mining or via underground shaft mining. Major coal deposits exist in the Midwestern and Eastern United States as well as regions of Russia and China. Coal is principally utilized in generating electricity. Almost 40% of all energy production in the world comes from coal. In the last few years, coal has become less important in developed countries and more critical in developing nations like China who need cheap fuel. It is also useful for steel production because of the incredibly hot temperatures it produces which are critical for creating the purest steel. Gasoline proves to be among the most critical of the energy commodities, especially for the American transportation industry. The American market makes up over 40% of all demand for gasoline. Emerging markets are utilizing an increasingly larger share of this energy resource. Heating Oil finds its main uses in boilers and furnaces as the fuel source for warming businesses and homes. It is most heavily employed in places in the Northeastern United States and the United Kingdom and Ireland. Natural gas can be hard to access in some of these markets or too expensive to use in places where it is very cold. Natural Gas is among the most important fuels for generating power. It is particularly popular in the cooling and heating systems throughout the United States. Natural gas powers either steam or gas turbines to create electricity. It is increasingly preferred over oil and coal as it is a much cleaner energy source that

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produces fewer greenhouse gas emissions. It has been made more practical for transporting thanks to LNG Liquid Natural Gas terminals that work with a CNG Compressed Natural Gas form.

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Enron Bankruptcy The Enron bankruptcy turned out to be among the largest corporate failures in American history. When the company filed for protection from its creditors, it showed assets amounting to $49.8 billion and debts that equaled $31.2 billion. These debt totals left out a number of items that were not properly listed on the company’s financial statements. The Enron bankruptcy was subsequently massively eclipsed by Lehman Brothers and it’s over $600 billion in assets and bad debts when it filed. At the time Enron failed, it represented the seventh largest company in America by revenues. The failure cost around 20,000 employees their jobs and made worthless the company share retirement holdings of many employees and the stock holdings of countless investors. The Enron corporation arose in 1985 because of a merger of Houston Natural Gas and InterNorth. The two were regional American corporations that were fairly small. Before the Enron bankruptcy happened, the company grew by 2001 to become the largest energy trader in the world which stood as among the biggest natural gas, electricity, paper and pulp, and communications companies on earth. It permanently changed the way that companies bought and sold electricity, energy, and natural gas. The company’s revenues for the year 2000 were almost $111 billion. Fortune had awarded the company the prestigious designation of “America’s Most Innovative Company” for six years in a row. In the end of December 2001, the ugly truth emerged. The company had sustained its existence through cleverly disguised accounting fraud. This creatively orchestrated and systemic corruption became known as the Enron scandal. One of the major five accounting firms in the U.S., Arthur Andersen, became dissolved as a result of its complicit role in auditing the company books. Enron’s stock went from $90 per share to worthless in a period of under a year. The scandal significantly rocked the business and political world. A great number of corporations around the U.S. had their business activities and accounting practices questioned as a result of the attention Enron brought to bear. It encouraged Congress to pass the Sarbanes-Oxley Act of 2002. Before the company failed, Houston based Dynegy attempted to rescue it from imminent bankruptcy. Negotiations broke down as Dynegy backed out after uncovering the extent of the misrepresentations and deterioration of Enron. The company sued Dynegy for taking control of its largest and most lucrative natural gas pipeline when the deal collapsed. Enron also attempted to secure $1 billion in loans and the financial backstopping of JP Morgan Chase and Citibank, but this fell through as well. The complexity of the company ensured that the Enron bankruptcy would be a long, drawn out process. Weil, Gotshal, & Manges served as bankruptcy attorneys for the company’s Southern District of New York court filing at the end of 2001. The bankruptcy did not end until November of 2004, nearly three years later. The court sanctioned a reorganization plan to distribute assets to creditors. The new board of directors altered the company’s name from Enron. They changed it to Enron Creditors Recovery Corp. The main endeavors of the new outfit were restricted to regrouping and selling off assets and operations the company had held before it went into bankruptcy.

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With pipelines and 12 business units, this process went on for another two years. It was not until September 7 in 2006 that the company sold its last energy business. Ashmore Energy International Limited (AEI) acquired Enron’s Prisma Energy International and ended the saga of one of America’s most spectacular business collapses.

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Entrepreneurs Entrepreneurs are individuals who have new business ventures, enterprises, and concepts. They take on substantial responsibility for both risks inherent in these as well as their end results. As such, entrepreneurs prove to be unique people for many reasons. For one, entrepreneurs have trouble working for other people, even though they do work on behalf of clients. They will put all of their assets and money at risk because they have a driving passion to watch their endeavor expand. As a result of this, they occasionally have a couple of failures to their credit along the way. These individuals enjoy putting in the extra time and effort in the procedures of strategizing, modifying, amending, and adjusting their businesses. They are not afraid of long hours and constantly working when everyone else has given up and gone home for the day. Entrepreneurs must have vision and foresight. They are required to see their enterprise not only as it is now, but also as it will look in a year from now, and two years, three years, and even five years to ten years in the future. This involves understanding what the process of the business will tangibly look like, not necessarily the employees who change from time to time. This is essential for any entrepreneurs to be successful in reaching their end goals. Entrepreneurs are loners in a very real sense. They stand by themselves with their vision that only they can see so clearly. They are also alone in having the drive and passion to see their endeavor through. They understand that no one else in the business will care about it like they do, since no one else possesses the dream. Very few people are entrepreneurs. It takes a hardy individual to be one. This is evident when you consider that the number of new businesses that go down in only the first year is fully seventy-five percent, mostly a result of insufficient commitment from the founder. Ninety percent of such businesses have folded by the conclusion of the second year for a variety of reasons including funding difficulties, family problems from working all of the time, and challenges in dealing with employees. Entrepreneurs are capable of overcoming these types of problems using their determination and energy. Entrepreneurs are also those who invest money and have the risk of losing it. Many times they will act as venture capitalists and pour money into firms that have not long been operating. When you purchase items cheaply and sell them dearly, this makes you an entrepreneur on a smaller scale too. In the end, entrepreneurs are those who are willing and able to utilize their money in order to make more money. Similarly, entrepreneurs are born leaders. They know what they want, and understand what to do in order to achieve it. They dream big dreams, form important ideas, and come up with concepts and opportunities. These leaders who are willing to engage in financial risks are true entrepreneurs.

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Environmental Impact Statement (EIS) The Environmental Impact Statement (EIS) analyzes and succinctly describes any potential proposed actions and the substantial effects these may cause for the environment where they will take place. Such an EIS is always made available to members of the public who wish to learn more about or comment on them. There are five components that every EIS has to contain per the rules. The opening element to an Environmental Impact Statement is the description of the intended action. This portion will detail why it is needed and what are the benefits it offers. As a second item, they must also contain detailed information describing the setting of the environment and any areas that will be impacted by the action the document proposes. The third part and substance of the Environmental Impact Statement surrounds a detailed analysis. This analysis has to consider all of the effects on the environment that the action will cause. As a fourth part of the EIS, it must also contain another analysis. This must suggest any practical alternatives to the intended action in question. Each of these alternate actions must be addressed for why they are not superior. Finally, the EIS has to contain an outline of the means for lessoning the negative impacts on the environment. If possible, it should spell out a way to avoid these harmful effects altogether. The reason that companies, organizations, or federal agencies prepare an Environmental Impact Statement is to learn what the consequences of their actions will be for the environment and how they can mitigate them. In this case, the word environment refers to the physical and natural environment. It also pertains to the mutual relationship between the environment and individuals. EIS definitions for the word environment involve many different components. These include water, land, air, life forms, structures, site environmental values. They also cover the aspects of culture, social concerns, and the economy. Impacts from a proposed action are not always negative. They can be positive or sometimes both positive and negative. The idea is to find ways to lesson the impacts, especially the harmful ones. Sometimes the effects can not be effectively lessened. This is why the EIS will also go into detail on any alternatives to the proposed action which might involve fewer negative effects on the environment. There are a variety of national regulations and federal laws that the American federal government has passed so that impacts on the environment can be calculated. These also mandate that alternative actions must be considered. The statute that stipulates when such an Environmental Impact Statement has to be created is known as NEPA the National Environmental Policy Act of 1969. This centerpiece legislation was established primarily to govern federal agencies in their actions on the environment. It also relates to company or organizational efforts that will impact the environment. It means that these agencies or parties have to not only detail what the potential action will do. They must also outline what they might reasonably do as an alternative to the suggested course of action. These laws also require that enough information has to be included so that the Environmental Protection Agency or other reviewing group is able to adequately consider the pros and cons of every alternative action. The group that bears responsibility for the content and format of these Environmental Impact

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Statements is the CEQ Council for Environmental Quality. It is usually the Federal Environmental Protection Agency or a state’s Department of Environmental Conservation that will require such a statement to be put together on a project.

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Environmental Protection Agency (EPA) The Environmental Protection Agency is the United States’ environmental enforcement group. It is not a cabinet level department, though its Administrator typically receives cabinet status and rank. The president appoints the administrator after the individual is approved by the Congress. The EPA is headquartered in Washington, D.C. It also operates ten regional offices and 27 laboratories throughout the U.S. President Richard Nixon originally proposed the EPA and created it by signing an executive order. It started operating December 2nd of 1970. President Nixon’s order received ratification from Congress via committee hearings in the Senate and the House of Representatives. The mission of the Environmental Protection Agency lies in protecting human health and the environment. To do this, it engages in research and environmental assessments. The group also promotes education. It carries the responsibility for enforcing environmental standards as provided in the national laws. The EPA does this by consulting with the federal, state, local, and tribal governments. Some of this enforcement, monitoring, and permitting it delegates out to the fifty states and the recognized Indian tribes. The powers of the EPA allow it to issue sanctions and levy fines. Whenever possible it works with the government and industries to prevent pollution voluntarily. It also promotes efforts to conserve energy throughout the country. The Environmental Protection Agency has a number of priorities in its mission. First and foremost it is interested in protecting Americans from substantial risks to their health as well as the environment in which they work, live, and learn. To do this, they carry out the best scientific research so that environmental risk can be effectively reduced on a national level. They also work to enforce the federal laws which safeguard the environment and health fairly and efficiently. The EPA feels that every individual and group in society should be able to access correct information for taking care of environmental risks and health. This includes businesses, people, communities, and local, state, and tribal governments. They want to see environmental protection treated as a critical priority in all American policies. Energy, economic growth, natural resources, transportation, health, industry, agriculture, and foreign trade should all be taken into consideration when making environmental policy. Making the protection of the environment help with sustainable and economically productive development is another concern of the Environmental Protection Agency. They make it their business to ensure that the U.S. is leading other nations in protecting the world’s environment as well. The EPA carries out a number of activities in order to see through their mission and goals. The primary one is to develop and enforce the environmental regulations. Congress passes laws that the EPA puts into effect by writing regulations. They set national standards for state and tribal governments to enforce on their own. They also help these groups if they can not achieve the national standards. Enforcing such regulations becomes necessary if they are not able to convince offenders voluntarily.

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The EPA gives many grants out to educational groups, state programs, not for profits, and others. Almost half of their budget is devoted to this. These finance everything from cleaning up communities to paying for scientific studies. They also sponsor dozens of partnerships as part of this. Some of these help to recycle solid waste, lower greenhouse emissions, and conserve energy and water. The group spends a lot of time and effort studying environmental issues. In their over two dozen labs around the country, they find and attempt to solve these problems. They also share the findings with academic circles, the private sector, other government agencies, and foreign countries. The Environmental Protection Agency publishes online and written materials regarding what they learn and their various activities.

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Equal Credit Opportunity Act (ECOA) The Equal Credit Opportunity Act is also known as the ECOA. Congress created this regulation in order to provide all legal American residents with a fair and reasonable opportunity to obtain loans from banks or other financial institutions that make loans. The act clearly states that such organizations may not discriminate against individual people for any reason that does not directly pertain to their credit history and file. It makes it illegal for lenders and creditors alike to take into consideration such factors as the consumer’s color, race, ethnicity, nation of origin, religion, sex, or marital status when they are determining whether or not they will accept the credit or loan application. Besides this, the law prohibits denying any credit application because of the age of the applicant. This assumes that the person applying has attained the legal minimum age and demonstrates the mental abilities necessary to execute such a contract. Finally, companies making loans may not reject an applicant because he or she receives public assistance funds from the government. The governmental agency responsible for enforcing this Equal Credit Opportunity Act turns out to be the FTC Federal Trade Commission. As the consumer protection agency for the country, the FTC monitors lending organizations to make sure that they are not in violation of any of these discriminatory rules. Creditors are allowed to ask applicants for such information as their color, race, religion, sex, ethnicity, nation of origin, age, or marital status. They are not allowed to consider any of these factors when determining whether or not to extend credit or even when deciding the terms of the credit which they are offering. The fact remains that not all people applying for credit will receive it or will obtain it on equal terms. Many factors are taken into consideration by lenders in ascertaining a person’s creditworthiness, such as expenses, income, credit history, and levels of debts. This Equal Credit Opportunity Act specifically protects consumers when they transact with investors or organizations that routinely offer credit. This includes loan and finance companies, banks, department or retail stores, credit unions, and credit card companies. Every party who is a part of the credit granting or terms setting decisions has to abide by the rules of the ECOA. This includes even the finance arrangers such as real estate brokers. As a person applies for a mortgage, lenders will routinely inquire about some of the elements of information that are forbidden to be considered in the ultimate application decision. Because of this, applicants do not have to respond to these questions. The only considerations which they are allowed to employ in judging the merits of the individual must be information that is financially relevant, like the person’s income, credit score, and present debt levels. The Equal Credit Opportunity Act will not allow lenders to make approval decisions because of an individual’s present or past marital status. They will require that applicants inform them of any child support or alimony payments which they are making. Persons receiving such substantial payments as part of their income should also disclose this so that they can obtain the loan. Companies may refuse to

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provide a loan because the individual’s financial obligations along with child support payments are too high to pay back the loan under the required terms. This does not mean that a person can be turned down for a loan because he or she is or has been divorced. The penalties for violating the Equal Credit Opportunity Act are severe. Class action lawsuits can be brought against them. Organizations found guilty of ignoring this act can be made to pay damages that amount to either $500,000 or a percent of the applicant’s net worth, whichever is less.

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Equifax Equifax today is an agency that reports consumer credit within the U.S. Analysts number it among the big three American credit bureau agencies alongside rivals Trans Union and Experian. The company proves to be the oldest of the three main credit bureaus in the country as it became established back in 1899. The firm gathers and keeps information on more than 800 million consumers and over 88 million businesses around the globe. They are headquartered in Atlanta, Georgia and remain a worldwide data services provider that has annual revenues of $2.7 billion. They have over 7,000 staff operating in 14 different countries. The company is listed on the NYSE New York Stock Exchange. One of their many divisions (Equifax Workforce Solutions) is among the 55 national contractors which the United States Department of Health and Human Services hired to help develop the federal government’s HealthCare.gov website. The original company which later became Equifax was Retail Credit Company founded in 1899. The firm rapidly expanded and already counted offices around both the United States and Canada by 1920. In the 1960s, this Retail Credit Company represented among the largest of the credit bureaus. It contained files for millions of American and Canadian citizens. While the firm engaged in some credit reporting at the time, the main part of their business came from providing reports to the many insurance companies throughout the U.S. and Canada as consumers applied for insurance policies such as auto, life, medical, and fire insurance lines. Back in the day, every one of the significant insurance firms relied on Retail Credit Company to gather their information on health, morals, habits, finances, and the utilization of cars and vehicles. Besides this, the firm investigated various insurance claims and also gave employment reports out to companies as consumers sought new jobs. The majority of their credit reporting work at that time they delegated to a subsidiary company called Retailers Commercial Agency. In 1975, the company changed its name to be Equifax because of image problems they had earned by keeping shady and intimate personal details on all American’s lives and selling them to anyone willing to pay. It was after this that the new company Equifax expanded its operations into commercial credit reporting on firms located in the United States, the United Kingdom, and Canada. Here it engaged in competition against such firms as Experian and Dun & Bradstreet. In the 1990s, they began to phase out their insurance reporting operations and spun off their division which gathered and sold specialist credit information to insurance companies. Among this was the CLUE Comprehensive Loss Underwriting Exchange database they had developed, which they included in the Choice Point spinoff back in 1997. Throughout the vast majority of its company history, the firm engaged mostly in the B2B sector. They sold insurance and consumer credit reports and associated analytics to businesses which operated in a variety of industries and segments. Among these were insurance firms, retailers, utilities, healthcare providers, banks, credit unions, government agencies, specialty finance companies, personal finance operations, and various other kinds of financial institutions. Since they divested from their insurance reporting primary operation, the company sells information which includes business credit and consumer credit reports, demographic information, analytics, and

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software. Their credit reports offer a wide and detailed profile on the payment history and personal creditworthiness of individuals and businesses. This reveals how well these groups have honored their various financial obligations, including paying back loans and bills. Starting in 1999, Equifax started offering its vast services into the consumer credit sector. They also began consumer operations with such important services as protection from identity theft and from credit fraud. The company along with its other two main rivals is required to offer American residents a single free credit file report once per year. The data from the U.S. Equifax credit records becomes incorporated into the Annual Credit Report.com website.

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Equities Equities are another name for stocks and similar types of investments. Stocks turn out to be financial instruments that represent ownership, or equity position, within a given corporation. As such, they give an owner a stake in a representative share of the company’s profits and assets. Such ownership in a given firm is determined by taking the total numbers of shares in the company’s equities that the individual owns, and dividing it by the actual number of shares that exist. The majority of these equities similarly give voting rights that provide representative votes in some decisions that the company makes. Not every company issues equities; only corporations engage in the practice, while limited partnerships and sole proprietorships do not. Equities can be further divided into smaller categories based on the market capitalization, or size, of the company in question. Because they often yield greater returns over significant periods of time, they are typically characterized by higher amounts of risk than are bonds and money market funds. Because of these unique potential returns and associated risks, equities are generally considered to be their own class of assets that are utilized to a degree in putting together investment portfolios with proper diversification. Many different kinds of equities exist, including domestic equities, emerging market equities, developed market equities, and Real Estate Investment Trusts. Domestic Equities prove to be those stocks for the publicly traded corporations that principally conduct their business in the same country in which the investor lives. When a person holds such equities, they receive their share of dividends that the corporation pays. Equities come with a higher degree of risk than do bonds, as bond holders have a greater claim on a corporation’s assets should liquidation follow bankruptcy. Equity holders are commonly wiped out in such liquidation. Emerging Market Equities are equities in corporations that are based in countries that are still developing their economies. Included in these are China, Brazil, and India. These nations feature economies that are commonly volatile and lack many protections for investors, like auditing and laws or monitoring of securities that are found in the industrialized countries. Developed Market Equities are equities in firms that work primarily outside of an investor’s home country but still in an industrialized country. For Americans, this mostly translates to European country companies, as well as those in places such as Japan, Australia, and New Zealand. Such companies and economies in these nations prove to be more stable than those in developing countries. Real Estate Investment Trusts, also known as REIT’s, are equity funds that invest in residential and commercial real estate. Because they receive lease and rent payments off of their investments, these typically pay greater percentage returns in dividends. These higher distributions mean that REIT’s are much like a combination of fixed income and typical equity investments. This means that they commonly feature greater risk along with better anticipated returns than do the majority of fixed income investments.

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Equity Equity represents the homeowner’s total dollar amount of ownership in their property. Determining equity is a simple calculation. It is found by taking the home’s assumed fair market value and subtracting out the balances of liens and debts secured by the property along with the mortgage balance that is still unpaid. As a home owner pays down the mortgage, reducing the outstanding principal balance, the equity of a home owner goes up. It similarly increases as the property gains in value. To obtain one hundred percent equity in their property, home owners have to pay down both any outstanding debts that are secured by the property and the full mortgage. Associated with the equity value of a home is the LTV, or loan to value ratio. This loan to value ratio proves to be a means of stating the property’s value as against the total dollar amount of your actual loan. The loan to value ratio is simply figured up by taking the amount of your loan and dividing it by your property value. Alternatively, you could divide the amount of your loan by the purchase price or selling price, whichever of the two is the lower amount. An example helps to illustrate the concept. If you were to purchase a $300,000 house, you might put down a $60,000 down payment using your money. The remaining $240,000 would be covered by taking out a mortgage. Dividing the $60,000 amount by the $300,000 home value yields equity of twenty percent. If you divide the $240,000 by the $300,000 home value, then you will get the loan to value ratio that amounts to eighty percent. Should you determine later that you will sell this house, then the equity that you have will be concretely and accurately figured up for you. This will simply prove to be the fair market value of your house minus the loan that you still owe the bank on the house. Using the example from the paragraph above, consider what would happen if you lived in and made payments on your house for five years following the purchase. In this time frame, your monthly mortgage payments lower the balance that remains on the loan to the tune of $10,000, diminishing it from $240,000 to $230,000. Besides this, over those five years, your home value goes up. This allows you to realize a selling price of $330,000. Since the balance that you owed is still $230,000, then your equity is simply figured by taking the $330,000 selling price and subtracting the $230,000 from it. This leaves you with a final equity value of $100,000. Once all selling costs and realty commissions are figured up and taken out, you would be able to utilize the $100,000 equity in order to invest or to put down the down payment on the next house that you purchase. Naturally, this home value can cut both ways. Should the value on the home drop from $300,00 to $250,000 in the time that you own it, then your remaining equity would be only $50,000, less than the original $60,000 that you put into it upfront.

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Equity of Redemption Equity of redemption refers to a property owner’s legal rights. This term represents the right of a home owner to reclaim his or her property which a mortgage loan secures. Such a right pertains to the period before the bank or lender has foreclosed on the home when the home owner is in default on the mortgage payments that include principle and interest. As a home owner gets behind on his or her monthly mortgage payments, the lender has the right to accelerate the loan. They will generally not do this until they have attempted to work with the owner to help them get caught up on the mortgage. It is everyone’s best interest for the home owner to remain in the home. Banks often lose money on houses which they sell through foreclosure. Accelerating the loan means that the bank demands payment in full. It is still possible that the lender may be willing to let the behind home owner catch up on the mortgage payments which are in arrears at this point. Otherwise, if the owner does not meet this demand or make full payment, then foreclosure on the property begins in earnest. In order to meet this order for full payment, home owners are permitted to find an alternative source of funds to pay off the original mortgage principle, interest, and late fees. If they are able to secure such a funding source, then the equity of redemption gives them the rights to keep the house. The problem for most home owners is that if they are in financial trouble and can not pay their mortgage, then they probably will be unable to secure another loan with which to pay off the first one. This equity of redemption right only lasts until the home has been foreclosed upon and sold. The equity of redemption is also considered to be a valuable interest in the property and a legal estate in and of itself. This means that the home owner can sell or even transfer away this right to another individual or a company. Equity of redemption should never be mixed up with the statutory right of redemption. The right of redemption is a separate legal right that is not universal throughout the United States. Some of the states allow for this separate right of redemption which gives home owners significantly greater maneuvering room and legal avenues. In fact a right of redemption means that for an amount of time determined by state law, the owner is able to redeem his or her house and property simply by paying all principle, interest, costs, and fees. This right is for the period after foreclosure or seizure for unpaid taxes has already occurred. By paying the amounts demanded, the right of redemption means that the owner is able to reclaim his or her home, even if it has already been sold. How long the statutory right of redemption period lasts depends on the state in question. This amount of time could be for several months. In other states and scenarios, it could stretch on for several years after the foreclosure has been completed. Investors who buy houses in states with this legal right must be aware of the repercussions. Those who buy seized or foreclosed upon houses could run into a situation where the original owner

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comes up with the money to pay off the entire original obligation on the house. In this case, the original owner would receive back his or her home. The investor would be left to work out compensation for the lost property with the lender from whom they had purchased it.

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Equity Securities Equity securities prove to be those asset classes which feature shares of stock in a given corporation. Investors hold these as reported by a company’s official balance sheet. Corporations issue such securities in an effort to raise business capital via the financial markets. They use this money for significant company life events, such as for product development, merger and acquisition activity, or internal expansion. The funds are seldom for daily operating needs. When investors buy equity securities, they gain a partial stake in the underlying firm. This is a primary alternative to turning to the bond markets to borrow money in taking on debt via the publicly traded bond markets. When a company first issues such equity securities, this is called an IPO initial public offering. Companies often raise enormous amounts of cash in this means, since investors are always hunting for new stock issues that will enable them to possess a part of a new and exciting opportunity. The total number of shares that an IPO released varies wildly. It comes down to the amounts which the companies obtain permission to issue in their financial documents which they file with the regulatory overseer for their area. Corporations are allowed to sell a specific amount of stock shares in a given price range on the actual IPO day. After these shares have been dealt out to the public via the financial markets, the price of their equity will go up and down on the stock markets every trading day. This movement all depends on the perception of investors and the accompanying demand for the shares on any given day. It is not common for such a firm to issue its entire inventory of available stock shares in a single offering. Rather than do this, they commonly reserve a certain quantity of shares to be issued at a later date in a second offering. This is called a follow on offering or secondary offering. The management of a company would elect to do this as they know they will likely need to raise fresh additional capital in the future in order to pay for hoped for expansionary plans. When corporations continue to issue out their equity securities via the financial exchanges there is a downside for the existing shareholders and company investors. As additional shares are available to be bought, the pre-existing stake holders have their equity stake diluted as a percentage of the total. As an example, a major share holder could possess a huge quantity of shares that equate to fully 10 percent of all outstanding company shares which can be traded. Should the company choose to boost the total number of shares which are tradable, the equity of the shareholders will immediately drop in terms of the percentage ownership of all available shares. The main alternative to issuing equity securities lies in issuing debt securities These publicly issued bonds offered via the bond markets by a company (or even government) raise money by taking on debt which must be repaid one day, known as the maturity date. Investors who buy debt instruments like these become de facto creditors of the bond issuing entities. The main disadvantage to such issuance in debt is that the company issuing has to provide continuous interest payments to the bond holders throughout the life of the bond contract. The company is able to maintain its ownership in itself in exchange for this trade off of interest payments.

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ERISA ERISA is the acronym for The Employment Retirement Income Security Act that was enacted in 1974. This ERISA legislation set up a basic level of standards for health, retirement, and various additional types of plans for welfare benefits. These include disability insurance, life insurance, and apprenticeship plans. This Employment Retirement Income Security Act is both overseen and run by the EBSA, which turns out to be the acronym for Employee Benefits Security Administration. This EBSA operates as a division under the United States DOL, or Department of Labor. If you have any questions about the act, concerns that you are not being treated according to the law, or complaints regarding treatment as the ERISA laws relate to you, then you should contact your area ERISA office for help and clarification. It is important to note that these protecting regulations mandated by ERISA only pertain to non government, private employers who choose to provide benefits plans and health insurance that is employer sponsored for their employees. ERISA does not force such employers to provide such these plans for employees. Rather, it only lays out regulations for the employee offered benefits that such employers make available. It is also significant that the rules and regulations set up by ERISA do not pertain to those benefits or insurance policies that are purchased by an individual privately. ERISA does establish the requirements and standards for a number of different related elements. Reporting and accountability is required to be detailed and made available to the U.S. Federal government. The conduct for HMO’s and other managed care, as well as for other people who have financial responsibility for the administration of the plan, is strictly regulated by the ERISA rules. ERISA also pertains to safeguards and procedures. Written policies have to be set up to determine the way that claims have to be filed, along with the claims’ appeals process in writing for any claims that are denied. ERISA further stipulates that these appeals should be decided in a reasonably timed and fair way. ERISA also proves to be a protection that insures that all plans are both offered, safeguarded, and funded in the ways that most appropriately favor the members and their best interests. ERISA does not permit discrimination in the ways that benefits in the plan are gathered and collected for those members who are qualified. Finally, ERISA insists that a variety of disclosures be made to the participants in the plan. These include a plan summary that specifically lists out the provided benefits, the associated rules for obtaining such benefits, any limitations of the plans, and other matters including getting referrals before doctor and surgeon visits.

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Escrow Escrow is a concept that relates to a sum of money that is kept by an uninvolved third party for the two parties involved in a given transaction. In the U.S., this escrow is most commonly involved where real estate mortgages are concerned. Here is it utilized for the payment of insurance and property tax during the mortgage’s life. When you place your money into such an escrow account, an escrow agent who is a neutral third party holds it. This agent works on behalf of both the borrower and home lender. The escrow agent’s job in the transaction is to act as the principal parties instruct him or her. As all transaction terms are fulfilled, the money is then released. These escrow accounts may be a part of transactions ranging from small purchases affected on online auction sites to building projects that total in the multiple millions of dollars. Escrow is utilized in these property transactions when it is time for your mortgage to close. At this point, the borrower’s lender will commonly insist that you establish an escrow account for paying for both home owner’s insurance and property taxes. You are required to make a first deposit to the account. After this, you make payments into the account each month. Typically, these are simply a part of your monthly mortgage payments. When it is time for your insurance premiums and taxes to be paid, your escrow agent then releases the funds. The concept behind this escrow is to give your lender peace of mind and protection that your insurance and taxes are both paid in a timely manner. Should you not pay your property taxes, the city might place a lien on this house, making it hard for the bank to sell it if they needed to. Similarly, if a fire burned down the house and the insurance premiums had not been paid, the bank would not have any underlying collateral for the mortgage anymore. You the borrower also benefit from this escrow account. It allows you to stretch out your taxes and insurance costs over the course of the entire year’s twelve payments. As an example, your annual property taxes might prove to be $3,000, with a yearly insurance cost of $600. This would mean that when spread out over twelve even payments, the escrow costs would amount to only $300 each month. The nice thing about escrow accounts and payments is that they come with an included safeguard built in. Should you miss a single payment, then the responsible lender is still capable of paying the accounts in a timely manner. The U.S. Federal law actually stops these lenders from storing up in excess of two months’ worth of payments in escrow. As insurance and tax amounts will vary a little from one year to the next, the lender will have to examine and make adjustments to your annual escrow payments.

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ESOP An ESOP stands for the Employee Stock Ownership Plan. These are not exactly retirement savings accounts in the traditional sense. They are critical investment vehicles with tax advantages. With these types of accounts, employers establish a trust fund for the employee. The employer is then able to transfer shares of its own stock to this fund. They might alternatively allocate cash with which the employees’ account can purchase already existing shares of stock. These ESOPs prove to be the most typical means for employees gaining part ownership in their company within the United States. Every company has its own unique formulas for allocating shares to its participating employees. The shares come out of the company trust account and transfer over to the appropriate individual employee accounts. As with other benefits for employees that are employer sponsored, vesting rules apply. Gaining full vesting in stock option accounts requires the employee to reach a minimum number of years at the company. Once this seniority level and vesting is obtained, the employee fully owns the shares and may sell them at will. When employees part with the company, the vested shares of stock have to be purchased from them at the full market price. There are also tax benefits to these stock option plans. Companies that issue them accrue the advantages of tax deductions for the stock value. Employees do not have to pay any taxes on employer offered contributions. They are also able to transfer the distributions to IRAs or other qualified retirement vehicles. This will help them to avoid realizing capital gains or income taxes. These stock option plans do have limitations and rules pertaining to rollovers and withdrawals. Distribution rules can be different from one employer to the next. In general the distributions are allowed to be rolled over to other retirement plans which are qualified. Any person with an ESOP will find the distribution rules detailed in the Summary Plan Description section. As with 401(k)s and other types of retirement vehicles, penalties for early withdrawals do apply. An employee must be 59 ½ to begin receiving non penalized distributions. These distributions become mandatory on the April 1st that follows the year the employee reaches 70 ½. Companies have the choices of making these account distributions with cash, stocks, or a combination of the two. Regardless of the way they give them out, employees are always allowed to sell back vested stock shares. The proceeds from these sold shares can be transferred into self directed or traditional IRAs to defer taxes. They may also roll or transfer their distributions to a different company’s qualified retirement savings vehicle. The money will only become taxable at ordinary income tax rates once it is withdrawn later. Participants in these stock option plans are not able to purchase any types of gold investments with the distributions. The only exceptions are when an employee has obtained diversification rights from his or her employer. Normally only employees of gold mining companies would be able to acquire either paper or physical gold in such a retirement savings account.

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Because of these limitations, rolling over distributions from a stock option account to a self directed IRA makes sense. Once the funds are in a self directed account, the holders will be able to choose where they invest these funds. They will then have a variety of tax free alternative investments such as gold and other precious metals. There are a few downsides to the employer established and funded profits sharing plans. Investment choices are as limited as can be imagined. The account owner also has to complete the company’s vesting schedule. This means that the employees can only access their funds once the vesting period of years has elapsed. ESOP’s also carry risks specific to the employee’s company. Should the employer go bankrupt, the plan may become closed. An employee might no longer be allowed to contribute to the plan or account at this point.

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EUREX Exchange EUREX is a state of the art options and futures exchange which Deutsche Borse of Germany jointly operated with SWX the Swiss Exchange until 2012. At this point, Deutsche Borse acquired the remaining shares of the EUREX exchange from SWX. The exchange operates offices in nine global locations including in Frankfurt, London, Chicago, Zurich, and Paris. This international exchange specializes in providing trading on derivatives based in Europe. As such, it turns out to be the biggest European options and futures market. Products across nine asset classes trade on the exchange. These range from Swiss and German debt instruments to individual stock and stock indexes of European companies and exchanges. EUREX clearing handles the clearing of every transaction carried out on the exchange. In this way, it serves as a multi asset class clearing central counterparty for the considerable product range. It also clears products that trade over the counter. The exchange itself has become enormous. The Futures Industry Association said in its 2015 annual survey that the EUREX exchange holds the position of third biggest derivatives exchange based on the volume of contracts it trades. Its headquarters is located in Eschborn, Germany near Frankfurt, the financial capital of Germany. The operators of the exchange are the EUREX Frankfurt AG and EUREX Zürich AG. Both publicly traded companies are now entirely owned by Deutsche Börse, the German stock exchange operator. The EUREX Exchange offered something almost unique when it began functioning in 1998. In both the United States and Great Britain, open outcry trading still dominated markets. EUREX came along as among the first exchanges in the world to provide a trading platform which was completely electronic instead of the more traditional pit or open outcry trading so prevalent at that time. Using this method of trading, buyers and sellers perform transactions via remote locations that are connected by the electronic network and trading platform. The exchange launched its present day platform the T7 trading architecture in 2013. This system advanced the electronic trading of derivatives significantly. Deutsche Börse Group developed it. Using this dependable system, over 7,700 different traders operating in more than 35 countries are connected so that they can trade in excess of seven million contracts each market day. The EUREX Exchange won several major impressive awards for 2016. Global Capital presented it with the “European Exchange of the Year” honor for the second year in a row. It received this nod for its broad range of products that hedge risk throughout nine alternative and traditional asset classes, as well as for its impressive offerings of equity index products and volatility derivatives. Financial News also honored EUREX with the 2016 Best Derivatives Trading Platform. This is also its second consecutive year to win this award. EUREX gradually enabled Deutsche Börse to wrest control of the Bund German bonds futures trading away from London. Up till the late 1990s, the London Financial Futures Exchange dominated trading in this segment. This back and forth struggle for control of this important market became known as the

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“Battle of the Bund.”

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Euro The Euro proves to be the one currency that fully 19 of the member countries of the European Union share. These nations are said to belong to the Euro area, or Euro zone. This currency became introduced in 1999 and marked a major milestone in the attempted integration of the member countries in the European continent. The currency today remains among its greatest of successes, though it has suffered from problems in the European Sovereign Debt Crisis. Over 337.5 million citizens of the European Union use this shared currency in 19 nations. Though most of the EU countries enjoy the benefits a single currency conveys, not all have chosen to use it. Several of the member nations in the Euro zone have not met the necessary criteria to switch currencies, such as with Hungary, Romania, and Bulgaria. Sweden has not yet voluntarily moved to adopt the currency. Two other nations have opt-out exemption rights from the currency in their individual treaties. These are the United Kingdom (which is in the process of leaving the European Union after its pro Brexit referendum vote) and Denmark. The actual introduction of the world’s second reserve currency began in 1999 when the initial Euro zone nations rolled it out as accounting entries, or “book money.” Physical coins and notes appeared in 2002. Proponents of the European Union project call it among their greatest of accomplishments. These notes and coins are an everyday commercial presence in the lives of the various different peoples that make up these 19 individual countries. It required a number of years of preparation and planning to come up with the final design of the Euros themselves. The monetary authorities wanted to strike the right balance of security features, appearance, and practical aspects when they created them. In January of 2002, the European Central Bank and various national central banks had eight coins and seven bank notes created for the official launch. The notes carry the identical designs for all nations in the Euro zone. The coins are unique to each country. One side of the coins features a common design. The other side is specific to each individual nation. Every country designed its own national side. Common sides include one of three varying maps of the continent of Europe and have a background that features the 12 stars representing the European Union. In 2007, the mints modified common side designs so that they showed the 2004 enlargement of the European Union. This affected all coins including the 1 and 2 Euros coins and the 50, 20, and 10 cent pieces. The design became mandatory in future coin production beginning in 2008. Though each nation has its own central bank, it is the ECB European Central Bank that reserves the exclusive privilege of authorizing creation of additional Euro banknotes via the different national central banks. Production and circulation of these notes is a shared responsibility of all of the countries’ central banks. National mints produce the coins according to volumes that the ECB approves every year. In 2013, the central banks began introducing their new and improved Europa series of bank notes. This began with the new five Euros bill introduced on May 2, 2013. Improved technology allowed for better security features to fight against the increasingly common practice of counterfeiting these notes. As part of the revision, the bank notes were modified so that they had an updated appearance.

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Euro Stoxx 50 Index The Euro Stoxx 50 Index proves to be the leading European Blue-chip like index that comprises securities of mega companies from the Euro Zone. This index offers investors and financial institutions a vehicle for following and investing in the Blue chip type of sector leaders for the zone. It includes 50 stocks (as the name implies) drawn from 11 different Euro Zone member nations. These are economically important zone nations Spain, Portugal, the Netherlands, Luxembourg, Italy, Ireland, Germany, France, Finland, Belgium, and Austria. This Euro Stoxx 50 Index has been licensed out to a wide range of financial institutions to be the basis of a great variety of investment products like ETF Exchange Traded Funds, Options on futures, Futures contracts, and structured products around the globe. Besides this master index of the Euro Stoxx 50 Index, it is subdivided into other indices. These include the following: Euro Stoxx 50 Subindex France, Euro Stoxx 50 Subindex Italy, and Euro Stoxx 50 subindex Spain which covers the national big 50 companies by market capitalization in each off the economic powerhouse countries of France, Italy, and Spain, respectively. The operator of this important pan-Euro Zone Euro Stoxx 50 Index and business is the company STOXX Limited on behalf of Deutsche Boerse Group. They also offer international tradable and creative index concepts on other indices to numerous countries throughout the world. As of the end of June 2016, STOXX 50 and DAX have worked with iShares to create and offer two new exchange traded funds traded in Hong Kong. iShares exchange traded funds family are both managed and marketed by the BlackRock investment firm. They started trading these two new Euro STOXX 50 Index ETFs on the Hong Kong Stock Exchange at the conclusion of June 2016. The components in the Euro Stoxx 50 Index are updated several times a year as appropriate to changing market capitalizations. As of the end of December 2016, the components included French firms oil and gas producer Total, health care and pharmaceuticals maker Sanofi, European and Global banking giant BNP Paribas, international insurance titan AXA, luxury personal household goods maker LVMH Moet, cosmetics international leader L’Oreal, chemical maker Air Liquide, industrial goods and services maker Schneider Electric, banking giant GRP Societe Generale, food and largest yogurt maker Danone Group, aircraft maker Airbus, construction materials producer Vinci, telecommunications provider Orange, industrial goods and services producer Safran, health care company Essilor International, construction and materials producer Saint Gobain, Real Estate company Unibail-Rodamco, Utilties giant Engie, and international media conglomerate Vivendi. German components of the index were electronics and industrial goods giant Siemens, chemicals and pharmaceutical titan Bayer, leading technology firm SAP, chemicals international leader BASF, reinsurance leader Allianz, luxury car maker Daimler, telecommunications leader Deutsche Telekom, industrial goods and services provider Deutsche Post, healthcare leader Fresenius, luxury car maker BMW, insurance firm Muenchener Rueck, internationally known shoe and clothing manufacturer Adidas, utilities giant E.On, world’s largest auto maker Volkswagen, and largest German financial institution Deutsche Bank. Spanish components in the index were international banking conglomerates BCO Santander and BCO

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Bilbao Vizcaya Argentaria, telecommunications international behemoth Telefonica, utilities leader Iberdrola, and retailer Industria de Diseno Textil SA. Dutch companies in the index include electronics and industrial goods maker Philips, Anglo-Dutch consumer products giant UniLever, financial services investment leader ING, technology leader ASML Holdings, and retailer Ahold Delhaize. Italian components of the index were oil and gas producer and distributor ENI, largest Italian bank Intesa SanPaolo, and national utility company ENEL. The Irish component is construction and materials maker CRH. The Belgian component is alcohol and food giant Anheuser-Busch InBev. The Finish component is technology and cell phone maker manufacturer Nokia.

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Euro-skeptics Euro-skeptics are the front line forces of the anti European Union political doctrine in favor of disengaging and stepping back from the political and economic consolidation taking place within the EU. There are now numerous political parties in existence throughout Europe which ascribe to the ideas of tougher controls on immigration (in defiance of the EU guiding principle of freedom of movement of peoples), a vastly reduced bureaucratic structure for the EU, more recognition of nationalism, and a greater response to their populist support. The rise of supranational organizations such as the ESCS European Coal and Steel Community laid the groundwork for the eventual EEC European Economic Community, a true free trade block which the Treaty of Rome envisioned back in 1957. In the following decades, membership within this EEC doubled from six to 12 nations as trade under the auspices of the customs union exponentially increased apace. The rise of such Euro-skeptics evolved over decades of frustration from the national publics who felt their wishes were being tramped upon with every subsequent EU agreement and move towards political and economic integration. Whenever national referendums were held asking citizens if they approved of further and closer integration, they either failed or barely passed muster. The Euro-skeptics first flexed their muscles with the Danish rejection of the EU founding Maastricht Treaty that occurred in June of 1992. Only a few months after this crushing blow from Denmark, voters of founding EEC member France only barely passed the treaty with 51 percent of the electorate voting to ratify it. This result very clearly demonstrated that the political environment of Western Europe had dramatically shifted against the aims of the European project. With the EU undergoing its initial round of member state expansion in 1994, a round of national referenda occurred in all of the candidate prospective member states. Voters in Norway outright rejected accession. They remain outside of the EU to this day. Such electoral upsets in Northern Europe and almost in France were warning tolls that the rising tide of Euro-skeptical groups and outright resistance to the aims of the European Union should not be ignored. Political parties affiliated with this Euro-skeptic viewpoint began to grow in size, power, and performance subsequently when EU leaders turned a deaf ear to their appeals. The rise of various Euro-skeptic parties resulted form this cold shoulder approach from Brussels. There are two types of these movements, either classified as “hard” or “soft” Euro-skeptics. Hard skeptics avow complete separation and dissolution of the European project and wish to completely withdraw from the EU as in the shockingly successful pro Brexit movement in the U.K. Soft skeptics ascribe to reforming the European Union integration along lines involving a range of geographic, ethnic, ideological, or political divisions. It was the UKIP United Kingdom Independence Party which grew most successfully and rapidly throughout the decades which followed its initial founding back in 1993. It has clearly emerged as the most victorious of the various national Euro-skeptic parties by virtue of achieving its stated aims of winning the referendum to withdraw from the EU entirely. This started with the rise in Britain of the United Kingdom Independence Party. Thanks to its nationally popular anti-immigration platform and support of British departure from the European Union, the UKIP notched a series of important election

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results in the early years of the 21st century. They won over a dozen seats in the European Parliament in 2009. They followed this up by securing over 100 local council seats in Great Britain in the 2013 elections. Though the hard line Euro-skeptical ideas of the UKIP are still considered to be without the national political mainstream in the UK, they have gained many supporters in the ruling Conservative Party in Britain. British Prime Minister David Cameron sealed the fate of Britain in the EU with his promise to hold a national “in or out” vote as a referendum on British membership in the EU. His famous last words and subsequent loss of the vote toppled his government and began the successful run of Euro-skeptics that has been seen increasingly around Europe since July of 2016. Other soft and hard Euro-skeptic parties now abound throughout peripheral European states especially. In Italy these are the Northern League led by Lega Nord and competing party the Five Star Movement of Beppe Grillo, both of which advocate the return of the Italian lira at the expense of the common shared currency the euro. France has its second party in the country the National Front led by Marine Le Pen, while the Netherland’s Party for Freedom championed by Geert Wilders is also rising quickly. Hungary now has its Jobbik Far Right Party and Greece’s ruling party is the softly Euro-skeptical Syriza Coalition for the Radical Left. The result of these several polls ushering the Euro-skeptics into power in various capitals and parliaments throughout Europe has marked a watershed moment in European Union history. The once-indomitable idea of inevitable movement in closer European integration is no longer seen as the foregone conclusion for all European countries. It is being completely reversed and undone in Britain, so far the only country to be given the chance to vote to reclaim its complete independence. Polls show that similar results may occur in 2017 in third largest Euro Zone member Italy as well.

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European Central Bank (ECB) The European Central Bank is responsible for the European Union’s monetary system and for maintaining the euro currency. The EU created this central bank of European central banks in June of 1998. It works alongside the various national banks of the EU member states to come up with unified monetary policy. This policy is intended to help achieve price stability throughout the countries in the EU. The ECB became responsible for the EU’s monetary police on January 1 of 1999. This was the point in time when the euro currency became adopted by the various EU nations. This landmark event was the culmination of 20 years of steps towards a currency union. In 1979, eight of the EU nations created the EMS European Monetary System. It effectively fixed the exchange rates between the eight participating nations. By 2002, the ECB had become more entrenched. Twelve EU nations signed on to a common monetary policy and formed the European Economic and Monetary Union that year. The European Central Bank is independent of political groups in the various institutions of the EU such as the European Commission, European Parliament, and European Council. It handles all EU monetary issues and policies. Maintaining price stability is the first goal of the central bank. It also sets the important interest rates for the Eurozone and area. Besides creating monetary policy for the Eurozone block, the ECB also engages in foreign exchange, holds reserve currencies, and authorizes euro bank note issues. Euro currency is actually created, printed, and maintained by the European System of Central Banks, also known as the ESCB. The ECB has become involved in some controversial activities which were beyond the scope of its original role. It has further expanded its mandate in recent years by buying up bonds of financial companies like banks and also sovereign countries whose bonds are not finding enough interested subscribers at competitive low rates. They have been practicing this quantitative easing and injecting money into euro area economies in an effort to encourage growth and to increase financial liquidity in the banking system. Keeping the interest rates down on sovereign national bonds also improves the budgets and balance sheets of the euro area countries which are struggling. The result of these activities has led to negative real interest rates in Europe. Individual EU countries collect their own taxes. They also determine their own national budgets. The ECB has nothing to do with these activities. National governments work together at the EU level to come up with uniform rules on public finances. This helps them to cooperate better on policies for employment, growth, and financial stability. The financial crisis that broke out around the globe in 2008 hit some European countries especially hard. It created a need for the ECB to work closely with the European Commission and the national governments of the EU and Eurozone members in a series of coordinated, sustained actions.

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These groups are continuing to strive together to promote employment and growth, keep credit flowing to consumers and businesses at affordable prices, safeguard savings, and to guarantee inter-European financial stability. This has led to the accusation of critics of the European institutions that they only work effective when there are crises, as in a management by crisis style. Despite these ongoing and best efforts of the ECB and other European institutions, severe imbalances and problems remain in several Eurozone countries. As of 2016, unemployment in Spain still sat at over 25% and Greece teetered on the brink of yet another recession and potential insolvency.

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European Debt Crisis The European Debt Crisis refers to the ongoing European sovereign government struggle to repay various national debts the countries ran up over the past several decades. There were five of the peripheral EU states in particular that were unable to create sufficient economic growth in order to make possible their repaying of the national bondholders as they promised to originally. These countries included especially Greece, Portugal, and Ireland, but also enmeshed were Spain and Italy to one degree or another. Though only these five nations showed signs of potential default during the crisis peak in the years 2010 to 2011, the crisis had broad and dangerous consequences that impacted not only the rest of the European Union, but also the world in general. The governor of the Bank of England called this the “most serious financial crisis at least since the 1930s, if not ever,” back in October of 2011. The European Debt Crisis did not suddenly appear overnight, but was years and even decades in the making. Slower growth from the time of the American based financial crisis and Great Recession from 2007 to 2009 demonstrated that many spending policies in Europe and the world at large were truly unsustainable any more. Greece became the poster child for the effects of reckless overspending in the following years. The Greeks had spent with great largesse for seemingly endless years and avoided painful but urgently needed financial and fiscal reforms. They were the first to feel the negative effects of weaker ongoing growth as it so happened. As growth slows down, tax revenues also decrease apace. This means that greater budget deficits become impossible to sustain. The Greeks had been hiding the amounts of their large and increasing national deficits for years, but by the end of 2009, it was no longer possible to keep them from world markets and the enraged Greek populace any longer. The Greek debts had become so vast that they substantially exceeded the entire economy of the smaller nation. Investors in their sovereign debt naturally retaliated by insisting on larger yields on their Greek national bonds. The unfortunate side effect of this action was that the interest payments on the Greek debt also skyrocketed, causing their debt burden to become so onerous that they could not manage it any longer. The EU and European Central Bank had to come riding to the rescue of the Greek government and economy in consequence. This did not stop investors and markets from pushing up the yields of bonds in other similarly indebted nations throughout Europe, where they expected similar crises and potential collapse as had already tragically occurred in Greece. The vicious cycle of higher demand yields leading to greater borrowing costs for the nations in crisis led to greater fiscal strain which caused investors to require still higher interest yields on the troubled European sovereign bonds. This gradual erosion of investor confidence did not stay focused on Greece, but impacted the other shaky economies of Portugal, Ireland, Cyprus, Spain, and even G7 trillion-plus dollar economy Italy. This became known as financial crisis contagion. Portugal, Ireland, Cyprus, and Spain were forced to seek out bailouts either for their embattled sovereign government finances, their national primary banks, or in the cases of Portugal and Ireland, both. The problems were exacerbated by the fact that the European Union moved so slowly to address the severe problems. This is because their actions required the approval of all 28 countries in the economic

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and political union. Bailouts were offered to the troubled governments via the European Stabilization Mechanism or ESM. The European Central Bank acted in a substitute capacity by cutting interest rates and providing unlimited loans to European national banks which were in trouble in exchange for assets (which were highly questionable at best) as collateral. The problems of the European Debt Crisis are far from over fully five long years later. Italy’s banks have not yet addressed their over $360 billion in bad loans to this day. Their third largest and oldest bank Monte Dei Paschi Di Sienna has 28 billion Euros in bad debts it has been trying unsuccessfully to offload as it sought out 5 billion Euros in fresh capital from skeptical investors. Greece is on its third consecutive bailout program from the EU so far in only five years. Portugal, Ireland, and Cyprus have all emerged successfully from their bailout and bank recapitalization programs, while Spain is on the right track and making measurable and material progress in escaping from theirs.

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European Investment Bank (EIB) The European Investment Bank proves to be the bank of the European Union. As such it is the one and only bank which is both representing the EU member states’ interests and also owned by the same member countries. This EIB works hand in glove with the other institutions of the European Union in order to carry out the common EU policies. This European Investment Bank turns out to be the biggest multilateral lender and borrower on the planet. It delivers finance via loans and joint ventures as well as expertise to support projects of sustainable investments. While over 90 percent of the bank’s projects remain in Europe, they are still a substantially large investor throughout the globe. The European Investment Bank betters the quality of life for individuals within and without the continent of Europe by offering expertise and finance on projects which encourage SME’s (small to medium enterprises), infrastructure, innovation, and climate action. Their enormous and far flung enterprises in areas of lending, blending, and advisory services work for the good of EU residents and citizens, along with residents of numerous countries which are not a part of the European Union. Lending is the overwhelming center of activity for the European Investment Bank. By far the greatest share of the bank’s financing occurs via loans. They do also provide microfinance, guarantees, and equity investment, among other types of financing. The bank is able to harness their vast financial resources in order to borrow money on the world markets at extremely competitive rates. They then deliver these cost savings to those projects which they deem to be economically practical and which foster the objectives of EU policy. Lending accounts for nearly 90 percent of all their financial commitments. The European Investment Bank actually lends money to clients of all sizes and purposes in order to encourage jobs and sustainable growth. The support of this well-regarded institution tends to attract other investors to the projects. Such projects must be over 25 million Euros in order to qualify for a loan. They also facilitate intermediated loans through local area banks. With their venture capital program, they assist fund managers to invest capital in growth area SME’s and high technology companies. Microfinance they offer for both fund and equity investments as well. Blending is the tool whereby the European Investment Bank helps to release funding from other financial sources by collaborating on a project. This support especially comes out of the EU budget. When blended along with loans, it helps to ensure a fully financed package of investment in a given project. The EIB offers structured finance to give support to high priority projects. Guarantees ensure that a good project will be able to bring in sufficient new investment from other partners. Project bonds help to unlock funding for infrastructure projects. The InnovFin initiative delivers innovators EU based finance. The bank also partners with donors in trust funds. They support transport infrastructure and the JEREMIE project which delivers financial engineering and flexible finance to SME enterprises. Other blending programs include ESIF Financial Instruments, the JESSICA program which supports

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urban development, the Private Finance for Energy Efficiency (PF4EE) program, and the Mutual Reliance Initiative offering efficient partnerships for development and growth. Blending programs also include the Natural Capital Financing Facility to combine the bank’s financing with that of the European Commission as part of the LIFE Program to assist climate and environmental actions. An interesting last blending program proves to be the Risk Capital Facility for the Southern Neighborhood. This gives access to debt and equity financing for SMEs found throughout the Mediterranean regions. Its goal is to foster growth which is inclusive, job creation in the private sector, and development in the private sector. Advising services provide technical assistance and expertise in the form of project and administrative management capabilities. This helps to bring in other investment. Both pubic authorities and private companies are able to rely on the technical and financial experience of the European Investment Advisory Hub to make sure the entity obtains the best people needed for a given project.

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European Monetary System (EMS) In 1979 a few European nations linked their currencies together in an arrangement and system to stabilize exchange rates called the European Monetary System. This system endured until the EMU European Economic and Monetary Union succeeded it. As an important institution within the European Union, the EMU established the euro. The origin of the EMS lay in an effort to reduce significant changes in exchange rates between the European nations and to reign in inflation. It led to the creation of the European Central Bank in June of 1998 and the euro in January of 1999. After the failure of the defunct Bretton Woods Agreement in 1972, the Europeans wanted to create a new exchange rate system of their own to help encourage political and economic unity throughout the EU. They came up with the EMS in 1979 as a means of moving towards the common currency of the future. The EMS eventually formed its successor the European Currency Unit. With the ECU, exchange rates could be formulated by methods that were official. In the first year of the EMS, currency values proved to be uneven. Adjustments had to be made to lower weaker currencies while increasing the stronger currency values. In 1986 they came up with a more stable system of altering national interest rates instead. Crisis broke out in the EMS in the early years of the 1990s. Germany’s reunification created political and economic conditions that made the exchange rate bands less workable. Britain withdrew permanently from EMS in 1992. They became more independent from the central EU this way and banded together with Denmark and Sweden in refusing to become members of the eurozone. This did not stop other nations within the EU from continuing to push for closer economic integration and a common currency. They formed the European Monetary Institute in 1994 to set up an orderly transition to the ECB that arose in 1998. The main tasks of the new ECB were to come up with one interest rate and monetary policy by laboring alongside the national central banks. The ECB was not given the role originally of lending money to governments in financial crises or increasing employment rates like the majority of central banks. This would later cause delays and problems in bailing out struggling countries in the financial crisis that began in earnest in 2008. The end of 1998 saw the majority of nations in the EU cut their interest rates at the same time to encourage economic growth while preparing to implement the Euro currency. This is when they established the EMU to succeed the EMS as the primary economic policy mechanism in the European Union. The adoption and subsequent circulation of the euro by the eurozone countries proved to be a significant step towards the aimed for European political unity. The EMU has helped member nations attempt to work toward lower inflation, less public spending, and lesser government debts. Hidden weaknesses in the European Monetary System became obvious during the global financial crisis of 2008 and the following years. Member nations like Greece, Portugal, Spain, Ireland, and Cyprus ran up high deficits that later erupted in the European sovereign debt crisis.

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Because these countries did not have national currencies to devalue, they could not increase their exports. The EMU forbade them from spending additional money and running higher deficits to help increase employment. EMS policies had expressly forbidden eurozone bailouts to any countries whose economies were in trouble. After months of arguments from the larger economy members such as Germany and France, the EMU at last came up with bailout policies that allowed aid to be dispensed to peripheral members who were struggling. They set up the European Stability Mechanism as a permanent pool of money to help out economies of struggling EU member states in 2012. This allowed a few of the countries in trouble like Spain, Portugal, and Ireland to make some progress on recoveries.

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European Sovereign Debt Crisis The European sovereign debt crisis threatened to overthrow financial institutions, sovereign countries’ bonds, and even the Euro currency at several points. This crisis erupted in 2008 when Iceland saw its entire banking system collapse. From here it spread to other peripheral European nations including Greece, Portugal, and Ireland throughout the subsequent year 2009. A number of peripheral EU countries like Spain and their financial institutions faced default as government debt and sovereign bond yields rose dangerously. The ensuing crisis in debt created a cascading confidence crisis for European economies, businesses, and consumers. In the end it took financial backstop guarantees from European Union countries and the IMF International Monetary Fund to bring the crisis under control. EU member states became concerned that financial contagion would spread enough that even the Euro itself might collapse. While the crisis raged, a few of the Eurozone countries suffered from repeated agency downgrading of their sovereign debt. Greece in particular experienced a debt rating of junk status at the low point of its crisis. Bailouts were issued to a number of the countries on the EU periphery, including Greece, Spain, Portugal, Cyprus, and Ireland. These loan deals involved austerity measures that were intended to reduce the growing public debts of the countries. The sovereign debt crisis in Europe reached its climax in 2009-2010. At this point, nations ranging from Greece, Ireland, and Spain to Portugal and Cyprus could no longer pay their debt payments, refinance government debts, or save their struggling banks without recourse to third party help. At this point, these countries turned to international financial institutions such as the International Monetary Fund, the European Central Bank, and the EFSF European Financial Stability Facility to provide financial assistance. The Eurozone 17 member countries created the EFSF itself in 2010 to combat the problems created by the sovereign debt crisis. Other situations combined to contribute to this long lasting sovereign debt crisis. The financial crisis of 2007 and 2008, ensuing Great Recession of 2008 to 2012, and several nations’ real estate crises all worked together to exacerbate the situation. A few EU members had also violated their government budget deficit limits and created a more serious crisis of confidence. In 2009 Greece revealed that its prior government had intentionally under-stated its budget deficits. This violated policies of the European Union and led to fears that the Euro itself might collapse because of the ensuing financial contagion. Suspicions mounted that both the amounts of debt and financial positions of a variety of Eurozone countries were drastically and unsustainably overextended. By 2010 this agitated level of fear of too much sovereign debt caused the lenders to insist on greater interest rates from the countries in the EZ that possessed both high deficit and debt amounts. This meant that such nations were struggling to finance their deficits because they suffered from a small level of economic growth.

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Portugal and Ireland joined Greece in having their sovereign debt cut to humiliating junk levels by the major credit ratings agencies. Ireland had to obtain a bailout by November of 2010 while Portugal required one by May of 2011. Even Spain and also Cyprus needed help to save their ailing banking sectors by June of 2012. In or by 2014 Ireland, Spain, and Portugal had made enough progress in financial reforms and undergone sufficient austerity to successfully complete their bailout programs. Most of their banks have been recapitalized and saved. Cyprus is also recovering well. As of 2016, Greece continues to struggle and limp along with additional aid payments from its Troika of lenders the EU, ECB, and IMF.

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European Stability Mechanism (ESM) The European Stability Mechanism is a significant part of the financial stability and safeguard mechanisms in the Euro Zone area. It replaced the EFSF European Financial Stability Facility in 2013. This original EFSF was never intended to be permanent. Instead it was designed as a temporary solution to financial problems within the EU. The European Stability Mechanism that took over for it was better established to deliver financial help to those Eurozone member countries that found themselves either threatened by or actually experiencing financial difficulties. These two financial facilities ran concurrently from October of 2012 through June of 2013. Beginning in July of 2013 the EFSF could no longer begin new programs for financial support or help. The program still exists to manage and collect repayments of debts that are outstanding. Once all of the existing loans that the EFSF program made have been repaid and all funding instruments and guarantors have received full payment for their contributions, then the EFSF will cease to exist entirely. This makes the replacing ESM the only and ongoing internal means for delivering aid in response to new calls for financial assistance from Eurozone member nations. The European Stability Mechanism proves to be the principal means of resolving crises for nations which participate in the Euro. It obtains its money by issuing debt obligations. This permits it to fund financial aid and loans to the member countries of the Euro area. The European Council actually created the ESM in December of 2010. Participating Euro member states came together and signed a treaty between the governments on February 2 of 2012. October 8 of 2012 was the day they inaugurated the new ESM. This ESM has great flexibility in funding its distressed member states. As various conditions are met, it is able to deliver loans as part of a program for macroeconomic adjustment. The mechanism is also able to buy member countries’ debt in either the secondary or primary markets. It can help to recapitalize banks of member states by loaning the governments money for this purpose. It can also deliver credit lines as a means of providing financial help as a precaution. In worst case and last resort conditions, the facility is allowed to recapitalize banks and other financial institutions directly. This is limited to times when resolution funds and bail ins are not enough to make the bank financially viable again. The resources of the ESM are considerable. It has a capital base that has been subscribed in the amount of €704.8 billion. Of this amount, €80.5 billion has been paid in to the facility. The remaining €624.3 billion is classified as callable capital when it is needed. The fund is able to loan out a maximum total of €500 billion. The ESM is based in Luxembourg. It is governed by public international law as an intergovernmental organization. It has only government shareholders making up its ownership. These are the 19 member countries that make up the Euro area. In 2016, 153 staff members worked under the direction of Klaus Regling the managing director.

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European countries which are in trouble have other outside recourses for help besides the ESM. The principal other provider of assistance is the International Monetary Fund. The EU has supported having its own ESM, along with the predecessors the EFSF and the European Financial Stabilization Mechanism because it feared the consequences of some of its member states’ problems with debt. Not all of the EZ countries suffered from debt issues. One EZ country failing could have contagious effects and widespread repercussions on the other national economies’ health.

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European Union The European Union proves to be both an economic and political cooperation and block. It is made up of 28 independent European countries. There are several common representative institutions that bind the nations together. The European Council is a body that represents the various national governments. The citizens are represented by the European Parliament. The common interests of the Europeans are represented by an independent group called the European Commission. These three bodies democratically legislate particular issues of mutual interest to the countries that belong. Most of the countries in Europe participate in the European Union in some form. Three countries that have opted not to are still associated members of the European Economic Area. This includes Norway, Iceland, and Liechtenstein. Several European countries established the EU following the Second World War and its devastation. They wanted to encourage better economic cooperation and ties. The philosophy behind this was that countries which traded more closely shared an economic interdependence. This would make them less likely to engage in future wars and conflicts. The group they created out of this philosophy in 1958 became the EEC European Economic Community. France, Belgium, Luxembourg, the Netherlands, Germany, and Italy were founding members that pledged to work towards closer economic cooperation and ties. Over the years since then, more and more nations joined to form an enormous common market. The original economic union has increased its powers and scope to become a political union as well. As a result of this, they changed the name from European Economic Community to European Union in 1993. These areas of political cooperation include security and external diplomatic relations, migration policies and justice, health, climate, and the environment. All aspects of this political and economic cooperation stem from the rule of law. Every action the EU takes is authorized by treaties that are democratically and voluntarily agreed on by the member nations. This is evident for member states in the institutions the Council of the EU and the European Council. Citizens themselves have their representation at the European Parliament. The EU is able to boast of some significant accomplishments. It has ensured over fifty years of peace, prosperity, and stability on the continent. The organization has increased living standards throughout Europe, though not uniformly. Countries in the north and center have seen greater economic benefits and improvements than those on the periphery. The EU also successfully launched the world’s second most important reserve currency the Euro. These achievements received official recognition in the year 2012. That year the EU received the Nobel Peace Prize for its work in moving forward the democracy, reconciliation, peace, and human rights throughout the continent. Benefits that EU citizens receive in the group have to do with freedom of movement. Removing the border controls between EU countries ensured individuals were able to travel without restrictions around

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the vast majority of Europe. They are allowed to work and live in the other EU countries as well. This benefit extends to not only people, but also to goods, services, and money which are allowed to move freely back and forth as well. This has been a main economic advantage that the EU provided for decades. The EU also is working to come up with common cooperation in knowledge, energy, and capital markets to provide the optimal benefits from these to the various EU citizens. The United States provided a diplomatic Mission to the EU since 1961. Both the EU and U.S. maintain close strategic ties and work together extensively. These issues extend from global problems like nuclear non proliferation to counter terrorism efforts. The EU has major investment and trade relations with the United States as well.

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Eurozone The Eurozone is the economic and physical geographical area that covers all countries which have completely adopted the euro for their national currency. All Eurozone countries are in the European Union, but not all EU countries participate in the Eurozone. The ones that are a part of the Euro are also members of the European Central Bank. This Eurozone group proves to be among the biggest and most important economic regions of the globe. The euro currency has some of the greatest liquidity on earth as well. Its position is second only to the U.S. dollar. As the currency has continued to grow and build larger followings, it has become the second reserve currency in the world. A great number of central banks count the euro among their main or significant reserves. The euro is considered to be the official currency for the member states of the EU. This is true even though around a third of the European Union countries do not use the Euro at all. The EU introduced the euro to the financial world in 1999 and created the Eurozone at the same time. For the first three years, it did not have a physical currency representation and could only be utilized in cashless payments or for accounting uses. In 2002 the Eurozone introduced the first Euro notes and coins. The ESCB European System of Central Banks prints and manages the euro currency bank notes and coins. The nations that adopted it make up the Eurozone. As of 2016 these include Spain, Slovenia, Slovakia, Portugal, the Netherlands, Malta, Luxembourg, Lithuania, Latvia, Italy, Ireland, Greece, Germany, France, Finland, Estonia, Cyprus, Belgium, and Austria. This represents 339 million people who utilize the euro on a daily basis. Both Denmark and the United Kingdom have opt outs and are not required to use the Euro as their national currencies at any point going forward. Other countries in the EU are supposed to work towards adopting the euro at some point in the future. In 2016 these countries include Sweden, Romania, Poland, Hungary, the Czech Republic, Croatia, and Bulgaria. The idea behind the euro is that it is supposed to eventually be a national currency in common of all individual EU nations that do not have opt outs. There are several benefits for a country in having and using the euro. It takes away the risk of moving exchange rates for banks and businesses that are working in multiple Eurozone countries. It is easier for non-EZ businesses to operate in these countries as well. It makes travel for individuals simpler. Not everyone in these nations is a fan of the euro as a currency though. Euro critics have a few valid complaints. They make the case that it has created negative consequences for some countries. Monetary policy in these Eurozone countries is now set by the European Central Bank. This means that member states of the EU who are part of the euro currency union have lost their individual ability to put into place monetary policies that are specifically tailored for their own particular needs. Instead they are a prisoner of monetary policy that has been set to work for the whole of the euro area. This is the case even when local monetary needs are significantly different for some countries than for the whole of the Eurozone.

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Periphery countries like Greece and Portugal that suffered from the European sovereign debt crisis badly needed to be able to devalue their currencies to make their exports more competitive and attempt to boost economic growth. Because they did not have their own currencies and independent central banks, they could not do this.

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Eurozone Crisis The Eurozone Crisis proved to be the gravest threat facing the world back in 2011, per a warning issued by the OECD. The situation became even more perilous as it worsened in 2012. The crisis erupted seemingly from nowhere back in 2009. This was the point when the world finally woke up to the headlines that Greece could completely default on its massive debt load. Over the next tumultuous three years, the crisis grew and magnified to the point that it presented the serious possibilities for national sovereign debt defaults from neighboring European nations Spain, Italy, Ireland, and Portugal. The European Union under the leadership of Germany and France struggled to contain the crisis by supporting the ailing peripheral economies. They did this through bailouts they began issuing from the European Central Bank and the International Monetary Fund. Despite these strenuous efforts to bottle the crisis back up, many critics (even within the EU) began to question the validity of the euro common currency itself. This tragic Eurozone Crisis arose from a number of complicated causes. It began because the rules set out by the Maastricht Treaty which ultimately governed the percentages of debt to GDP levels in member states were simply ignored. Penalties for violators simply did not exist in any enforceable fashion. Even economic leaders and supposed role models Germany and France overspent their own imposed limits. This stripped them of the ability to criticize the other nations while their own financial houses were in proverbial disarray. The sanctions for breaking the rules lacked teeth, save for the ultimate penalty to expel offenders from the eurozone itself. That would have only weakened the block and the single currency had it been rigorously enforced. Nations of the Eurozone at first were benefiting from the historically low interest rates which led to higher investment capital all made conceivable thanks to the strength of the euro common currency. The vast majority of these capital flow went from Germany and France down to the southern peripheral nations like Greece, Portugal, and Spain. While this boosted liquidity and increased prices and wages in the receiving countries, it also made southern nations’ exports far less competitive abroad. Being on the euro currency and under the ECB limitations, these nations had no ability to raise their interest rates or devalue their currencies in order to cool inflation. As public spending rose, tax revenues declined, making it increasingly difficult in the Eurozone Crisis and recession that ensued for the national governments to cover their safety net benefits such as unemployment payments. A third cause of the Eurozone Crisis came from the austerity Germany mandated to those who received initial bailouts. This caused slower economic growth in the nations like Greece that desperately required higher growth. Austerity did manage to increase the Greek exports, but all this came at the expense of slashed public expenditures, a far weaker economy and lowered output, and massively cut pensions for retirees. As a result of bowing to the requirements of its bailout creditors, Greece received forgiveness for half of its simply unsustainable debt load. The measures also served to raise unemployment, decrease the capital available for lending, and slash consumer spending dramatically. Ultimately, a six point plan solution was presented by German leader Chancellor Angela Merkel to stem the Eurozone Crisis. It launched rapidly starting programs to foster more business start ups. It lessened

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protections against employees being wrongfully fired. It created mini jobs through lower taxes. It targeted the stratospheric youth unemployment with vocational education and apprenticeship program combinations. It developed special tax benefits and funds to help privatize the still state owned enterprises as in Greece. It set up special economic zones as China already utilized. Finally it made significant investments in renewable energy. This plan had worked in the integration of East and West Germany at the conclusion of the Cold War. Merkel believed that a devotion to austerity would increase the whole Eurozone’s competitiveness ultimately. The plan followed along the lines of the approved intergovernmental treaty of December 8th 2011. This treaty performed three actions. It began to concretely enforce the restrictions on budgets which the Maastricht Treaty had mandated. It also assured the bank lenders of the EU that the EU and ECB would guarantee its members and their sovereign debts. Finally it permitted the EU as a whole to work in a more unified, structured, and cohesive unit. It followed on the heels of a May 2010 bailout fund which the EU set up with 720 billion Euros ($928 billion US dollars at the time, called the “Big Bazooka”) worth of euro bonds, which was intended to stop any other type of Wall Street styled collapse from occurring. This bailout ultimately rebuilt faith in the shaken euro and created a potentially dangerous new rival for the American Treasury bonds.

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Eviction Eviction involves the forced removal of a rental tenant from a landlord’s rental property. Other terms that convey the same or a similar meaning include repossession, summary possession, and ejection. Eviction proves to be the term most commonly utilized in landlord and tenant communications. Evictions can not simply happen without going through a legal process that could include an eviction lawsuit. A notice must first be given to the tenant by the landlord. This is most often referred to as the notice to vacate or notice to quit. It has to be delivered to a tenant in advance of beginning official legal eviction procedures. In most cases, the tenant will then receive somewhere from three to ten days to address the issue causing eviction. These offenses likely are caused by either a failure to pay the rent in a timely manner or contractual breach of the lease for something like have a pet. Should the tenant refuse to leave the property in question after the expiration of the notice to quit, then the landlord next provides the tenant with a complaint. These complaints mandate that the tenant in question will have to go to court. If the tenant refuses to appear at the court date or does not provide an answer to the complaint, then the landlord is able to seek a default judgment, in which he or she automatically wins the case. A tenant response should include his or her side of the story as well as defense that could include the tenant not being provided with repairs that the lease stipulates. Following an appropriate answer, trial dates are determined. With the issues being dependent on time, these cases are commonly hurried through the system. Should a judge back up a tenant, then the tenant is allowed to stay, although he or she would have to pay back due rent. Should the landlord be victorious, then the tenant receives a little window to move out of the property before being forcefully evicted. This is commonly only a week, though with a stay of execution, the tenant could be given more time. Some jurisdictions permit a tenant to have a right to redemption in the eviction process. This would allow a tenant to cancel a pending eviction and to stay in the rented property by catching up immediately on the back rent along with other appropriate fees. These rights become waived should the tenant constantly be late in paying the rent. Finally, after a tenant has lost his or her eviction lawsuit, the tenant is commonly given a particular number of days in which to abandon the property. This has to be done before other repercussions occur. Sometimes the tenant will be told to leave immediately. Landlords are given writs of possession by the court after the tenant has lost the lawsuit and still refused to leave. These writs of possession are then turned over to a law enforcement officer. Such an officer would then put up an official notice for a tenant to depart the property before the date on which the officer will return to forcibly remove the tenant. If the tenant is not gone when the officer returns, he is permitted to take the tenant and anyone else on the property and remove them. They will be allowed to take away their possessions or place them in storage before the property is given back to the landlord.

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Excess Reserves Excess reserves represent a capital reserve which financial institutions such as banks hold. They keep more than what their overseeing regulators, internal control mechanisms, or creditors require. This is especially important for commercial banks. The reason is because the central banking authority within their jurisdiction sets their additional reserves by establishing a standard in reserve requirements. Such reserve ratios as these determine the least amounts of liquid deposits which the banks must hold in reserve. This could be cash or similar to cash instruments like Treasuries. When the banks hold more than the reserve ratio reserves require of them, it becomes excess reserves. Financial companies may choose to hold excess reserves because it provides them with an additional safety measure. This comes in handy if there is plethora of cash withdrawals from the banks’ customers or an unanticipated loan loss which the bank must book in the form of write downs. This additional cushion boosts the security in the banking system. It is particularly crucial when economic uncertainty hits. It is also possible to improve the credit rating of a financial company when it voluntarily increases the amounts of its extra reserves. The credit ratings agencies such as Standard & Poor’s’, Moody’s, and Fitch Ratings all like to see higher reserves from financial institutions. The United States’ Federal Reserve is the central bank for the U.S. They possess a number of tools in their toolkit for monetary normalization. The first of these is the ability to establish the fed funds rate. Besides this, they can alter the interest rate which banks receive for their required reserves and excess reserves. Interest on reserves is known by its acronym IOR, while interest on excess reserves is called by the acronym IOER. Before October 1st of 2008, the U.S. banks did not receive any interest on their reserves. It was actually the Financial Services Regulatory Relief Act of 2006 which permitted the Federal Reserve to give an interest rate and interest to banks in this the first American instance of it. The rule originally had been set to take effect for October 1st of 2011. Because of the outbreak of the Great Recession, the government made the decision to move up the implementation timetable with the Emergency Economic Stabilization Act of 2008. This meant that for the first time ever, without warning, banks were required to keep excess reserves with the Federal Reserve. By August of 2014, excess reserves had reached a record amount of $2.7 trillion because of the funds released by the quantitative easing program. The receipts from this program increased the reserves from $2.3 trillion as of the middle of June 2016. These QE funds came to the commercial banks from the Federal Reserve. They gave them out as reserves instead of cash. Yet the interest which the Fed doled out for the reserves became payable in cash. It also registered as an interest income to the banks that received it. This interest which the banks received in cash from the Federal Reserve would otherwise have accrued to the United States Treasury coffers. From a historical perspective, this fed funds rate was the one for which banks would loan out money to each other. It is typically utilized as the benchmark rate for all loans based on variable rates as well. The two interest rates mentioned above, IOER and IOR, are each decided by the Federal Reserve. It is the FOMC Federal Open Market Committee which sets them. Because of these rules and laws, banks have both an incentive and an obligation to inventory excess reserves now. This is particularly the case when

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the market rates are under the fed funds rate. It also means that the interest rates payable on extra reserves now work as proxy for the future fed funds rate. It is only the Federal Reserve with the authority to alter this interest rate level.

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Exchange Rate In finance and business, exchange rates are also known as Forex Rates, foreign exchange rates, or FX rates. These exchange rates are the rates that are valid between two currencies. They are stated in terms of one currency’s value in the other currency. Such an exchange rate is also the foreign nation’s currency value as stated in the currency of the home nation. There are various distinctions within the category of exchange rates. Present day exchange rates are termed spot exchange rates. Exchange rates which are quoted to you and traded today but available for payment and delivery in the future on a particular date are called forward exchange rates. It is instructive to look at some examples. If the GBP/USD rate is 1.60, then it means that the exchange rate of the British Pound garners $1.60 in US dollars. Alternatively, a USD/CHF rate of .97 would mean that only .97 of a Swiss Franc will buy one U.S. dollar. Exchange rates are determined on the foreign exchange market. This is the largest single market on the whole planet, trading literally trillions of dollars in currency values every single day. It is estimated that this market exceeds three trillion dollars in U.S. valued currencies on a given trading day. This market trades six days a week, and is only closed from Friday at 5PM New York time until Sunday afternoon at 3PM New York Time. Exchange rates can be freely trading on the world exchange markets. Some countries choose to instead peg the value of their currency to another proven, more responsible, and reliable currency, such as the Euro or the dollar. In these cases, the exchange rates are constant against those that they peg to, and only fluctuate against other currencies on the market at the same pace as the currency that they are pegged to does. Exchange rates on FOREX can be pursued for hedging purposes or for investment opportunities. Businesses that have operations in two or more countries are often interested in locking in their exchange rate in order to protect themselves from possibly violent currency swings. By buying forward exchange rates, they can lock these in for any given day that suits their needs. Alternatively, they can take on FOREX spot positions in the currency totals that they anticipate needing, so that as the price rises and falls, it will be canceled out as they repatriate their foreign currency back into home currency. Investors can participate in the exchange rate markets for investment opportunities. Besides buying these spot currency positions or forward positions, they can purchase options contracts on these pairs. The advantage and disadvantage to these markets is the leverage that they provide, which is commonly one hundred to one. This signifies that an individual investor is able to control one hundred thousand Euros against the dollar with only a thousand dollar account value. Major gains, as well as substantial losses, become possible with only small moves, since every ten cent price change in this case represents a hundred dollars literally gained or lost.

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Exchange Rate Mechanism (ERM) Exchange Rate Mechanisms are systems that were established to maintain a certain range of exchange for currencies as measured against other currencies. These ERMs can be run in three different ways. On one extreme they can float freely. This permits the systems to trade without the central banks and governments intervening. The fixed Exchange rate mechanisms will do whatever it takes to maintain rates pegged at a specific value. In between these two extremes are the managed ERMs. The best known example of one of these is the European Exchange Rate Mechanism known as ERM II. It is in use today for those countries who wish to become a part of the EU monetary union. The European Economic Community formally introduced the European ERM system to the world on March 13, 1979. It was a part of the EMS European Monetary System. The goal of this new system centered on attaining monetary stability throughout Europe by reducing the variable exchange rates. This was set up to prepare the way for the Economic and Monetary Union. It also paved the way for the Euro single currency introduction that formally occurred on January 1, 1999. The Europeans changed their system once the Euro became adopted. They introduced ERM II as a way to link together those EU countries who were not a part of the eurozone with the euro. They did this to boost extra eurozone currencies’ stability. A second goal was to create a means of evaluating the countries who wished to join the eurozone. In 2016 only a single currency uses the ERM II. This is the Danish krone. The European ERM ceased to exist in 1999. This was the point after the eurozone country European Currency Units exchange rates became frozen and the Euro began trading against them. ERM II then replaced the initial ERM. At first the Greek drachma remained in the ERM II alongside the Danish currency. This changed when Greece adopted the Euro in 2001. Currencies within the newer system may float in a fairly tight range of plus or minus 15% of their central exchange rate versus the euro. Denmark does better than this. Its Danmarks Nationalbank maintains a 2.25% range versus the central rate of DKK 7.46038. In order for other countries that wish to join the Euro to participate, they are required to be a part of the ERM II system for minimally two years before they can become members of the eurozone. This means that at some point, a number of currencies for member states that joined the EU will have to be in the system. This includes the Swedish krona, Polish zloty, Hungarian forint, Czech Republic koruna, the Romanian leu, Bulgarian lev, and Croatian kuna. Each of these is supposed to join the system according to their individual treaties of accession. In the case of Sweden, the situation is more complicated. The country held a referendum on becoming a part of the mechanism to which the citizens voted no. The European Central Bank still expects that Sweden will join the system and eventually adopt the euro. This is because they did not negotiate for an opt out of the currency as did the U.K. and Denmark. The Maastricht Treaty requires that EU member states all eventually join the exchange rate mechanism. Britain participated in the mechanism from 1990 until September of 1992. On September 16, 1992 the

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British famously crashed out of the system on what became known as Black Wednesday because of manipulation of the pound by currency speculators led by Hedge Fund Billionaire George Soros.

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Exchange Traded Funds (ETF) These ETF’s prove to be stock market exchange traded investment funds that work very much like stocks. Exchange Traded Funds contain instruments like commodities, stocks, and bonds. They trade for around the identical net asset value as the assets that they contain throughout the course of a day. The majority of ETF’s actually follow the value of an index like the Dow Jones Industrial or the S&P 500. Since their creation in 1993, ETF’s have evolved into the most beloved kind of exchange traded instruments. The first Exchange Traded Fund particular to countries proved to be a joint venture of MSCI, Funds Distributor, and BGI. This first product finally turned into the iShares name that is accepted and recognized all over earth today. In the first fifteen years, such ETF’s were index funds that simply followed indexes. The United States Securities and Exchange Commission began allowing firms to establish actively managed ETF’s back in 2008. Exchange Traded Funds provide a number of terrific advantages for smaller investors. Among these are elements like simple and effective diversification, index funds tax practicality, and expense ratios that remain very low. While doing all of this, they also offer the appeal of familiarity for you who trade stocks. This includes such comfortable and helpful options as limit orders, options, and short selling the ETF’s. Since it is so inexpensive to purchase, hold, and sell these ETF’s, many investors in ETF shares choose to keep them over a longer time frame for purposes of diversification and asset allocation. Still other investors trade in and out of these instruments regularly in order to participate in their strategies for market timing investing. Exchange Traded Funds boast of many advantages. On the one hand, they provide great flexibility in buying and selling. It is easy for you to sell and buy them at the actual market price any time during a trading day, in contrast to mutual funds that you can only acquire at a trading day’s conclusion. Since they are companies that trade like stocks, you can buy them in margin accounts and sell them short, meaning that they can be used for hedging purposes too. ETF’s also allow limit orders and stop loss orders, which are helpful for assuring entry prices and protecting profits or safeguarding from losses. ETF’s also provide lower costs for traders. This results from the majority of ETF’s not being actively managed. Also, ETF’s do not spend large amounts of money on distribution, marketing, and accounting costs. The majority of them do not have the fees associated with most mutual funds either. ETF’s are among the greatest vehicles for diversifying portfolios quickly and easily. As an example, with only one set of shares, you can “own” the entire S&P 500 index. ETF’s will give you exposure to country specific indexes, international markets, commodities, and even bond indexes. ETF’s have two other advantages. They are both transparent and tax efficient. Transparent in this regard means that they are clear in their portfolio holdings and are priced all day long. They are tax efficient as they do not create many capital gains, since they are not in the business of buying and selling their underlying indexes. They also are not required to sell their holding in order to meet redemptions of investors.

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Expense Ratio Expense ratio relates to the costs that a mutual fund incurs as it trades and does normal business. Typical mutual fund expense ratios include a number of different costs. Among these are management fees, transaction costs, custody costs, marketing fees, legal expenses, and transfer agent fees. Management fees comprise those charges that the fund pays to the company which handles the portfolio management. They invest the fund’s money as per the direction of the mutual fund board of directors. Management costs are typically the largest single portion of the mutual fund’s expenses. These fees commonly range from as little as .5% to as much as 2%. Lower fees are usually more advantageous for investors. This is because every dollar that goes to the management of the fund is not increasing the share holders’ wealth. Some mutual fund types charge a higher amount in fees. International or global mutual funds will usually cost more than simple domestic market mutual funds. They justify these greater charges by the difficulty of managing an international portfolio. Transaction costs include the fees that the fund pays to stock brokers. These are negotiated to extremely low rates such as a penny per share or even lower thanks to the enormous volumes that mutual funds trade. Those funds that are constantly purchasing and selling investments create significantly greater transacting costs for themselves and their investors. Higher turnover rates like this also can lead to larger capital gains taxes and other costs. The investment holdings of a mutual fund must be kept by a custodian bank. This creates custody costs where these banks register the bonds, stocks, and other investments for the fund. Some of the banks do this electronically and others keep actual stock certificates in their vault storage. Custodian banks also collect interest and dividend payments, maintain accounting for the various positions so gain/loss info is readily available to management, and handle stock splits and other transaction issues. These custodian costs prove to be a less significant percentage of expense ratios for the mutual funds. Marketing fees for mutual funds come out of the money that the investors pool. This money is utilized to advertise the fund so they can raise additional investment dollars. More money in the fund means more management fees for the portfolio managers. These 12b-1 marketing fees are money that does not benefit an investor after the fund exceeds $100 million in net assets. A very small number of brokers actually refund such fees to their investors. There are some legal expenses that mutual funds must incur in the course of normal operating business. These include for paperwork they are required by law to file for regulators like the SEC, specific licenses, incorporation, and other legal procedures. The majority of funds count such costs as a small amount of their overall expense ratio. Transfer agent costs cover the expenses that arise when a shareholder cashes out or buys into the fund. Transfer agents must handle various account statements, paperwork, and money in the process. These agents take care of all the mundane daily paperwork for purchases, redemptions, and processing which

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keep the fund and other capital markets working. There are various other costs that are not included in the mutual fund expense ratio but many experts feel should be. These include mutual fund sales loads. These fees are simply commissions that go into the pocket of the institution, company, or stockbroker that persuaded you to buy the mutual fund in the first place. Because of these and other high costs of many mutual fund expense ratios, some people prefer low cost index funds that involve very low management costs.

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Experian Experian is one of the three main credit reporting bureaus in the United States. As such it maintains a credit report, history, and FICO score on all adult Americans. The company does so much more than this most commonly understood function. The company is also an international leader for global business and consumer credit reporting as well as marketing services. Experian is headquartered in Dublin, Ireland and is based on the London Stock Exchange where it is a member of Britain’s FTSE 100 stock index. The company has customers in over 80 countries of the world and maintains offices and employees in 37 countries. Besides its Dublin base, Experian has operations headquarters found in Nottingham in the United Kingdom, California in the United States, and Sao Paulo in Brazil. Experian serves as the corporate leader in global information services. The company received the 2015 honor of “World’s Most Innovative Companies” from Forbes magazine for being among the leaders in driving improvements and change. They deliver analytical tools and data to their clients found all over the world. The company helps businesses to prevent fraud, to manage their credit risk, to automate functions of decision making, and to specifically target marketing offers. Experian also assists individuals with information and security needs. They aid individuals in checking out their credit reports and credit scores through copies that they can purchase and download directly over the Internet. They help people to safeguard themselves against the very real dangers of identity theft with credit report monitoring services. The company also provides a great source of information for education that is both hands on and interactive. This education helps both marketing personnel and credit professionals along with individual consumers. Experian prides itself on its analytic and data services. They are in the business of assisting businesses and individuals with managing, protecting, and optimally using their data. They offer a number of different services to help people to do this effectively. Their Experian Credit Tracker product gives consumers their FICO score, Experian credit report, and a credit monitoring service that comes with fraud alerts. They also staff a dedicated support team for fraud resolution when individuals become victims of identity theft. Help with identity theft or credit fraud is an area that is critical to consumers when they become victims. Consumers can also choose from their higher level Experian Protect My ID service. This gives individuals an Experian credit report, 3 bureau credit monitoring services and alerts, daily checking of ID via Internet scanning, and access to their dedicated support for fraud resolution. Experian provides a higher level view of individuals’ credit reports and scores also. Their 3 Bureau Credit Report and FICO Scores service delivers copies of the person’s credit report and FICO score for Experian, TransUnion, and Equifax. They also sell just their own credit report and FICO score for a lower price.

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Experian offers even more services to its big business customers. Among their business product offerings are customer acquisition, customer management, fraud management, risk management, debt recovery, consulting services, regulatory compliance, and thought leadership. In customer acquisition, the company offers direct mail tools and big data analytics. For risk management they verify applicants’ identities and backgrounds. Experian can manage data breaches and prevent money laundering as part of their fraud management offerings. Debt recovery services include locating debtors and managing collection efforts. Among their consulting services are strategy, product, and fraud consulting areas. Small business customers also have a variety of services offered to them by Experian. These include help with business and consumer credit, marketing and managing the business, and collecting debt.

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Export The word export refers to a good or service that is sold and shipped out of a country. In business and economics terms, an export can be any kind of commodity or other good that is utilized in trade and transported out of one nation into another nation. These must be done in legal ways to qualify as exports. The opposite of the word export is the word import. The word export is originally taken from the idea of shipping such services and goods out of the port of a given country. This made it an item that was sent literally “ex” port. This term came from the time when practically all international trade proved to be conducted via shipping. Sellers of services and goods are known as exporters. These individuals are based in the exporting nation. The party who receives the goods or services in the overseas country is known as an importer. In the realm of international trade, exports means vending goods and services that are manufactured in the producing home nation to markets in other countries. Once these goods are received by the importer in the foreign country, they are offered to the consumers in the foreign country by distributors and domestic producers. When a person or company wishes to become involved in exporting commercial amounts of goods, then they will have to become engaged with the customs entities in both the exporting home country and the importing receiving country. Smaller quantities of goods are exempt from such customs departments, particularly when they are of low individual value. This is why the rise of auction sites and other online retailers vending to international customers, such as e-Bay and Amazon, have managed to side step the customs departments in the majority of countries. This does not exempt small value export items from the legal rules and restrictions that are applied by the exporting nation. A nation’s exports can be many different things in practice. Resource rich countries like Australia or South Africa will commonly export big ticket natural resource items like gold, oil, natural gas, uranium, or diamonds. Agricultural countries such as the Philippines and Honduras export rice and bananas to other countries in the world. The main exports of industrial countries such as Germany and Japan are instead final manufactured product goods like cars and machinery. Some items may not simply be exported to every nation. They are subjected to export control. Export control involves Federal laws and rules that forbid the exporting of some information and commodities without a license. This is done to protect certain trades or because of sensitive issues related to national security. Specifically, the government might be worried about the final destination country or group that will receive the goods, such as Iran or North Korea. They may fear what the actual use of the export will be, such as equipment for enriching uranium. Sometimes, exports have capabilities that will allow them to be used for possible military applications that the government wishes to control and supervise, like with missile technology.

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Export Quotas Export quotas represent a specific limit which a nation or block of nations establishes on the quantity of goods which may be legally exported in a given amount of time. They are also referred to as export controls. The main reason why a nation would set such a quota on its exports centers on optimizing the domestically available supply. This aids in controlling prices in the country and helps to ensure they remain lower. This practice is undoubtedly good for consumers, but it is not really beneficial for the national producers. In some cases it can have dramatic consequences on other countries, international buyers and producers, and multinational corporations. Another way to define such export quotas is that they are restrictions on general or specific exports. Countries might choose to set exporting controls on nuclear materials or arms for the overall good of the country’s security. During a time of famine in the land, the state could impose controls on wheat, corn, or rice in order to stave off shortages of food. These export quotas limit the numbers of exports for particular goods and technology. They do this by establishing a maximum possible value denomination or literal quantity of goods permitted in that particular export. There are various kinds of such quotas. These include bilateral quotas, global quotas, seasonal time frame quotas, quotas set according to the purchases of national goods, quotas which are linked up to the performance of exports, politically motivated quotas, and quotas or controls of important and secretive technologies and products. India and China are two examples of nations which have historically (and in the case of China still very much do) impose export quotas. India has many times implemented maximum exports on textiles (including acrylic yarn, knitted fabrics, and cotton fabrics) and clothing (including sweaters, T-shirts, and gloves) which might be exported away to the European Union, Canada, and the United States. China similarly employs such export quotas concerning its oil and rare earth metals production. For example, the country elected to reduce its 2017 first round of licenses for exports by 40 percent on the national four oil majors, Reuters reported. Traders were expecting the overseas oil allowances to be as high or higher than this past year’s record- high levels. The Ministry of Commerce along with the General Administration of Customs sets these export quotas. They determined that the four major state oil producers would only be permitted to sell 12.4 million tons (or about 91 million barrels) of jet fuel, oil, and gasoline abroad. This was reduced from 20.5 million tons for the identical export licensing first round of 2016. In the appropriately named rare earth metals, China is jealous and aggressive with its export quotas. This is all the more dangerous because China mines over 95 percent of all rare earth metals in the globe. These critical metals are necessary to make electric cars, smart phones, numerous components of computers, and a variety of military armaments which are highly technology intensive. China also controls and produces over 99 percent of the rarest of the rare earth metals, known as heavy rare earths. These may only be deployed in tiny amounts for electronics and clean energy uses, yet they are still necessary for the production of these goods and technologies nonetheless. There are consequences to these export quotas, in particular on the rare earth elements markets which

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have no alternative suppliers to turn to for their many important needs. Manufacturers of high-tech goods find themselves in dire straights when they can not obtain affordable supplies, or even supplies at any price, no matter how high. Beijing has tremendous power over the world technology manufacturers and producing nations thanks to these export quotas. They are able to simply stop the global supply of the rare earth metals whenever it suits their national agendas, goals, or international policies.

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Extendable Commercial Paper (XCP) Extendable Commercial Paper, also known by its acronym XCP, represents a promissory note that is unsecured and comes with a set maturity date which can not be longer than 270 days. This paper is also a money market form of security that major corporations issue and sell to raise funds for their short term needs, such as payroll obligations. The paper is backed by a corporate promise to pay back the face value on date of maturity, which the note itself specifies. Alternatively it could be secured by the bank which issues it. Because these instruments do not carry any collateral backing, it is only those companies that boast of phenomenal credit ratings from at least one of the principal credit ratings agencies which are able to sell such extendable commercial paper for a reasonable rate. Companies commonly sell this debt instrument at a face value discount. It usually comes with a lesser interest rate than would a comparable bond. This is because of the lesser maturity dates inherent with the rules surrounding commercial paper (they must all be under 270 days in maturity to be extendable commercial paper). In general, the greater amount of time till maturity on any given note, the greater the interest rate will be required of the institution. Though such interest rates do go up and down according to conditions in the market, they are usually less than the rates which banks pay. Such extendable commercial paper is called extendable simply because it is issued in an open ended fashion within the United States as part of American companies’ ongoing rolling programs. In Europe by contrast, these programs are typically a predetermined and set number of years in length. By the end of the year 2009, over 1,700 different firms within the U.S. were issuing extendable commercial paper. As of month-ending October in 2008, the American Federal Reserve announced that the end of 2007 seasonally adjusted figures demonstrated that a total of $1.78 trillion worth of all forms of commercial paper existed. Of this amount, $979.4 billion of it did not have any assets backing it as extendable commercial paper. Financial companies were issuing $816.7 billion worth of it while $162.7 billion was from non-financial entities. In the rest of the world outside of the U.S., the next most significant commercial paper market is the EuroCommercial Paper Market. This market boasts more than $500 billion worth of outstanding paper. These instruments are mostly denominated in Euros, pound sterling, and U.S. dollars. The history of commercial paper and credit dates back over a century. Promissory notes from companies and corporations have been around since at least the 1800s. In that century, now legendary Goldman Sachs founder Marcus Goldman began his career in trading commercial paper in 1869 in the city of New York. The whole point of extendable commercial paper is that it does not have to be monitored by the Securities Exchange Commission because the maturities on these obligations are under their targeted 270 days. Companies get around this by using continuous commercial paper arrangements. These renew and replace the maturing commercial paper for as many times as necessary to provide for the corporate obligations. Otherwise, the companies would be forced to file registration statements of the instruments with the SEC.

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This would cause higher costs for the offerings and lead to lengthy delays. Two methods exist for extending this commercial paper into markets. Issuers are able to sell the securities right to money market funds and other buy and hold investors. Besides this, they can offload the paper to a commercial paper dealer who will then sell the paper on to the market on their behalf. Dealer fees typically run five basis points, which amounts to $50,000 in fees for every $100 million they issue.

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Face Value Face Value represents the dollar value of a given security as the issuer states it officially. It is also otherwise known as the nominal value. Where stocks are concerned, this is the certificate-displayed original value of the stock. With bonds, this amounts to the dollar amount which will be paid back to the bond holder when the bond matures. This amount for bonds is usually $1,000 par value. Where bonds are concerned, this value is also called par value or sometimes only “par.” Par value is very important with bonds, while it means little to stock investors. Par value is two completely different concepts when dealing with bonds versus stocks. With bonds, this refers to the full amount which the company will return to the bondholder at the time of maturity. This assumes that the issuer does not default on its bond principal. Despite this set face value to be returned at maturity, bonds which trade on the secondary market have market values which fluctuate every trading day based largely on the prevailing interest rates. As an example, when interest rates prove to be greater than the coupon rate on the bond, the issue will be sold on the secondary market at a discount to par value. This means that the price will be lower than the par. At the same time, when interest rates turn out to be lower than the coupon rate of the bond, the bond sells for a premium, at higher than par. The par value still guarantees a fixed principal return in any case. Yet this value is considered to be a bad indicator of the current worth for the bond, given the fact that very few bonds actually trade for par on the secondary market. Bond holders can make additional profits over their fixed interest rate. This opportunity lies in buying the bond at below face value, then holding it to receive the par at maturity date. This gap between sub-par purchase price on the secondary market and the par value at maturity becomes pure profit to the bond holder if they hold the bond until that eventual date is reached. The face value where stocks are concerned is quite different from that par with bonds. The importance of stock shares’ par value as stated on their shares pertains to the legal amount of capital which the business must maintain. It is a fact that only cash the company has in excess of this total amount (number of shares times the share par value) may be paid out in the form of dividends to the investors. In practice this means that the face value of the shares serves as a type of corporate cash reserve. The law does not mandate how much the stated par value has to be when it is issued. Businesses could sidestep the reserve requirement effect by applying laughably low values to the share certificates. Examples of two prominent companies illustrate this strategy well. AT&T shares have only $1 per common share listed as their par value. Stock giant Apple shares trading at hundreds of dollars apiece list a par value of merely $0.00001 per share, a ridiculous face value amount in practice. This is why a stock or even bond’s face value rarely if ever determines the true market value of the relevant issue, especially with stocks. The market value is only based upon the market forces of supply and demand. This is decided in practice by how much investors will willingly pay for buying and selling shares on a given security at a particular snap shot moment in time. If market conditions are right, the par value and actual market value at any given moment may have little or nothing to do with each other.

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With bonds and their markets, it is all about the prevailing interest rates and how they correlate to the coupon rate of the bond. This will generally decide whether the bond sells at, above, or below its par value. With zero coupon bonds, investors do not receive any interest besides buying the bond for less than its face value. These are sold for less than par as the sole means for investors to realize any profits in this case.

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Fair Credit Billing Act Congress passed the Fair Credit Billing act back in 1975. They enacted this national law in order to safeguard consumers from unfair or prejudiced billing actions. It created mechanisms for dealing with billing errors that affect credit accounts which are open ended. This includes credit cards and charge card accounts. There are many different and all too common types of billing errors that the Fair Credit Billing Act specifies and protects against in its statute. Charges which are an incorrect amount are one. It also covers charges showing up on a bill that the consumer did not process. These are often known as unauthorized charges. Consumers can never be responsible for more than $50 of these. The act also covers the costs of any goods that did not come as they were supposed to when the consumer bought them, as well as for those goods that the consumer never received. Consumers are similarly protected by the Fair Credit Billing Act from errors in calculation. They can not be held responsible for billing statements which the companies send out to the wrong address. Changes of address are required to be submitted by the account holder in writing and received by the creditor more than 19 days before the billing period ends. Consumers are similarly protected against any charges which they request proof of or clarification for on a statement. They may also not be held liable for a creditor improperly showing payments or charges to their credit accounts. Customers are able to avail themselves of the protections spelled out in the Fair Credit Billing Act. To do so, they have to begin the process by writing the creditor at their business address specified for billing inquiries. They must include their name and address, account numbers, and any information on the billing dispute in question. The letter must be received by the creditor within 60 days or less of the original bill mailing date. Such a letter should be dispatched by certified mail with return receipt so that the consumer has conclusive proof of when the creditor received it. All relevant copies of receipts and supporting documents need to be included with the letter. The creditor concerned is required by law to acknowledge that they have received the letter of complaint in 30 days or less after they receive it. The creditor then has up to 90 days (as in two billing cycles) to research and resolve the dispute per the terms of the Fair Credit Billing Act. The Fair Credit Billing Act also governs what happens when a bill is placed in dispute by a consumer. The person is allowed to not make payments on any charges pertaining to the disputed amount in question. Such a period of withholding only applies throughout the time frame in which the investigation is ongoing. All remaining portions of the bill and relevant interest amounts have to be paid as per the governing credit agreement and terms. The creditor may not engage in any legal action or collection activity against the borrower so long as the investigation phase is ongoing. The account of the borrower is not permitted to be closed or restricted in this phase. The creditor is also forbidden to make threats against the borrowers’ credit ratings when charges are under investigation and in dispute. The dispute itself can be reported to the credit ratings agencies. Creditors are not allowed to discriminate by withholding credit approval from any consumer who uses his

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or her rights to dispute a credit charge. This means in practice that consumers may not be refused credit because they have filed disputes against charges on a bill.

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Fair Housing Act The Fair Housing Act of 1968 is officially known as Title VIII from the Civil Rights Act of 1968. It makes it illegal to discriminate with regards to renting, selling, or financing homes or apartments. No one may consider color, race, sex, religion, or national origin in these activities. Congress amended the Fair Housing Act of 1968 with the Fair Housing Amendments Act in 1988. These amendments expanded the rulings of the original act in a number of important ways. No one was permitted to discriminate with housing because of an individual’s disability or based on their family status. This meant that home sellers or renters could not disallow families with pregnant women or who had children less than 18 years of age living with them. To prevent disability discrimination, the act included construction and design accessibility rules for some multifamily homes. Those that were to be occupied initially after March 13, 1991 had to comply with the accessibility provisions for disabled people. The amendments also created new means of enforcing and administering the rules. HUD Housing and Urban Development attorneys were now able to take cases to administrative law judges for victims of such housing discrimination. The jurisdiction of the Justice Department became expanded and revised in such a way that it could file suits in Federal district courts for discrimination victims. HUD has been tasked with the principal responsible to administer the Fair Housing Act of 1968 since the government adopted it. Thanks to the amendments in 1988, the department has become substantially more involved in enforcing the provisions. This is because the newly protected families and disabled brought many new complaints. The department also had to move beyond investigating and conciliating. They were tasked with mandatory enforcing the rules. Any complaint regarding the Fair Housing Act of 1968 that individuals file with HUD becomes investigated. The FHEO Fair Housing and Equal Opportunity office handles this responsibility. When complaints can not be resolved voluntarily, the FHEO decides if there is sufficient evidence for a reasonable case of discrimination in housing practices. If they find reasonable cause, then HUD issues a Determination and Charge of Discrimination to the complaint parties. Hearings are next scheduled in front of a law judge for the HUD administration. Either the complaining party or the accused can terminate this procedure to instead have the matter resolved in Federal courts. At this point, the Department of Justice assumes HUD’s responsibility for the aggrieved party’s complaints. They act as counsel that seeks to resolve the charges. The matter then becomes a civil case. In either the case of the HUD law judge hearing or the civil action held in the courts, the U.S. Court of Appeals can review the outcome. The Fair Housing Act of 1968 proved to be historic as the final major act in the civil rights movement legislation. Despite this, housing remained segregated throughout much of the United States for decades. During the thirty years from 1950 through 1980, America’s urban centers’ black population grew from 6.1 million up to 15.3 million people.

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At the same time, white Americans continuously abandoned the cities in favor of the suburbs. With them went a great number of the jobs that the black population needed to communities where they did not find welcome. The result of this ongoing trend caused urban America to be filled with ghettos. These are the communities inside the American inner cities where many minority populations live. They have been dogged by consistently high crime, unemployment, drug use, and other social problems.

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Fannie Mae Fannie Mae is the acronym for the FNMA Federal National Mortgage Association. This entity is a GSE Government Sponsored Enterprise along with brother organization Freddie Mac. It became a publicly traded company in 1968. This home lending giant proves to be the largest mortgage financing provider anywhere in the United States. As such, it funds significantly more mortgages than any competing company or entity. It ensures that homebuyers, homeowners, and renters around the U.S. all can obtain financing options which they can afford. As the GSE became established in 1938, it has provided funding for the housing market of the country for over 75 years. Franklin D. Roosevelt’s New Deal established the company in the midst of the Great Depression. This is why the mission of the company is to aid individuals in purchasing, renting, or refinancing a home whether economic times in the country are good or bad. The company’s explicit purpose is to boost the size of the secondary mortgage market. They do this when they securitize mortgages and package them into MBS mortgage backed securities. This process returns the mortgage loaned money to lenders who are then able to reinvest this money into additional lending. It also acts to grow the numbers of lending institutions who are issuing mortgages. This ensures that there are more than just savings and loan associations making local loans for housing. The model worked well until between 2003 and 2004. At this point the subprime mortgages crisis started. It began when the mortgage market turned away from the GSEs like Freddie Mac and Fannie Mae and began to migrate rapidly to unregulated MBS Mortgage Backed Securities that major investment banks put together. This shift to private MBSs caused the GSEs to lose their control over and ability to monitor mortgages in the country. Increased competition between the investment banks and the GSEs reduced the power and market share of the government mortgage backers further and boosted the mortgage lenders at their expense. This radical change in the way mortgages were overseen and made caused the underwriting standards for mortgages to dangerously decline. It turned out to be one of the major reasons for the ensuing mortgage and financial crises. The situation became so severe at Fannie Mae by 2008 that the FHFA Federal Housing Finance Agency had to get directly involved. FHFA Director James Lockhart on September 7, 2008 placed both this organization and Freddie Mac under FHFA conservatorship. This proved to be among the most dramatic and far reaching government involvements in free enterprise financial markets for literally decades. Among Lockhart’s first actions, he fired both companies’ boards of directors and CEOs. He then made the companies issue a new class of common stock warrants and senior preferred stock to Treasury for 79.9% of both GSEs. Those who had been holding either preferred or common stock in either entity before the conservatorship began saw the value of their shares massively decrease. All prior shares’ dividends became suspended to try to hold up the mortgage backed securities’ and company debt values. FHFA pledged that it had no intentions of liquidating the GSEs. Since 2009, Fannie Mae has made great strides in its business of helping make housing work better for

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individuals and families. They have injected trillions of dollars into the mortgage markets in lending liquidity. This has gone a long way to helping the housing markets and overall economy to recover. The company has also gone back to high quality eligibility and underwriting standards. In the first quarter of 2016, they have extended $115 billion in mortgage credit that has allowed for 210,000 homes to be purchased and 256,000 mortgages to be refinanced. They also financed the construction of 161,000 multifamily rental units.

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Federal Debt The federal debt is also known as the national debt. This represents the entire dollar value of the money which the U.S. federal government has borrowed from its various creditors over the years. Creditors to the government are made up of all governments, businesses, individuals, and other national and international entities which own the debt instruments of the U.S. government. This national debt has resulted from numerous government deficit budgets where they spent more than they earned in revenues. It is important to realize that this federal debt never includes any of the money owed by municipal or state governments, companies, or individuals. Instead it is the total of all federal government outstanding obligations. This figure contains not just the money the federal government originally borrowed. It is also made up by the interest amounts that it has to pay back with the borrowed funds. Governments fall into debt when they are not able to bring in sufficient revenues to pay for their expenses on a variety of government programs. This includes military spending and domestic programs such as retirement benefits, Medicare, welfare, and constructing bridges and roads. Revenues are derived from a number of sources. These are made up of personal income and corporate taxes as well as government fees on things like passports, cigarettes and alcohol, and national park admissions fees. For 2016, the national debt had risen to an enormous amount of greater than $19 trillion. As a percentage of GDP this is over 105%. It has rapidly increased from the years 2006 to 2016, as in 2006 the debt came in at less than half as much at $8.4 trillion. This represented only 66% of the national GDP at the time. Because of this dramatic and ongoing increase, the debate is always heated regarding what should be done with the national debt. Many individuals and observers like the Congressional Budget Office feel that the debt needs to be paid down. Others argue that the debt proves to be a needed catalyst to keep up economic growth. The debt has come from successive increases in the federal government’s annual budget deficit. These annual deficits represent the amount of additional money the government spends over what they take in for receipts. All of these deficits combined together plus interest paid equal the national debt. When investors see the debt grow higher and anticipate that there will be greater levels of inflation, they become concerned about the value of their debt holdings. Some economists have conjectured that the government only intends to inflate away the value of the debt over time. This is why debt holders can ask for higher interest rates when they make future loans to governments they suspect of inflating away their debts. Federal surpluses can be used to pay down the federal debt. This has happened on rare occasions. Since World War II, the federal government has only managed to run less than 10 such surpluses. President Harry Truman was the first to turn the government finances around after President Franklin Roosevelt’s years of deficits. President Truman had surpluses in 1947, 1948, and 1951. President Dwight Eisenhower also managed to run smaller surpluses in 1957 and 1958. There was not another government surplus for more than forty years until 1998 when President Bill Clinton signed a

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deal with Congress that achieved an $87.9 billion surplus. This surplus grew to $290 billion by 2000. The last surplus came under President George W. Bush who had a $154 billion carryover surplus in 2001. On these rare occasions, the Federal government was able to pay down the federal debt temporarily. These surpluses were followed by half a trillion to trillion dollar deficits per year for most of the next decade.

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Federal Deposit Insurance Corporation (FDIC) The U.S. government started The Federal Deposit Insurance Corporation back in 1933. They created it because of the literally thousands of failed banks that went down in the 1920s and 1930s. The FDIC began insuring bank accounts at the beginning of 1934. Since then, no depositors have lost any insured bank account money despite a consistent number of banks failing every year. The first role of the FDIC is to insure and to increase the public’s confidence in the American banking system. They do this in several ways. The FDIC insures minimally $250,000 in bank and thrift accounts. They watch for and take action on any risks to the deposit insurance funds. They also stop the spread of any bank failures when one of the banks does fail. The Federal Deposit Insurance Corporation only insures deposits. This means that it does not cover mutual funds, stocks, or any other investments that some banks offer to their customers. They offer a standard $250,000 amount for each depositor’s account. This single limit amount does not apply to other types of account ownerships and accounts at other banks. To help individuals understand if the insurance provided is enough to cover their various kinds of account, the FDIC provides its Electronic Deposit Insurance Estimator. Another important role of the FDIC lies in its supervisory position. The outfit oversees over 4,500 different savings and commercial banks to make sure that they are operationally safe and sound. This represents more than half of the banks. Those banks that are set up as state banks may choose to become a member of either the Federal Reserve System or the FDIC. Any banks that are not overseen by the Federal Reserve System are watched over by the FDIC. Another job of the FDIC is to check on the various banks to make sure they abide by the government’s consumer protection laws. These laws include The Fair Credit Reporting Act, the Fair Credit Billing Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act. Lastly, the FDIC checks banks to make sure the different institutions are abiding by their responsibilities under the Community Reinvestment Act. This law ensures that banks help the communities where they were started to achieve their needs for credit. Despite all of these roles, the only one that members of the public really encounter on a personal basis is the FDIC protecting insured depositors. When a bank or thrift goes down, the FDIC immediately reacts to the situation. They come in fast with the group that chartered the bank to close it down. The charter group could be the Office of the Comptroller of the Currency or the state regulator. The next step is for the FDIC to wind up the failed bank. In their preferred method, they sell both the loans and the deposits of the bank to another banking institution. Customers rarely feel the transition in the majority of the cases. This is the FDIC’s goal, to make sure that people do not lose access to their accounts and money. The FDIC carries out its several mandates through six regional branches. It has more than 7,000 staff members that help it to carry out these goals. The organization is based in its headquarters in the capital

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Washington, D.C. Besides these locations, they also have various field offices throughout the nation. The leadership of the FDIC is supplied by the Federal Government. The President appoints the board which the Senate confirms. There are five members of their Board of Directors. No more than three of them may belong to one political party to ensure bipartisanship in the decisions.

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Federal Housing Finance Agency (FHFA) The Federal Housing Finance Agency is a government regulating agency. They are independent and responsible for overseeing several agencies within the secondary mortgage market. These include Freddie Mac, Fannie Mae, and the Federal Home Loan Banks. They work to keep these critical government sponsored organizations, along with the entire American housing financial system, in good health. As such, the FHFA labors constantly to build up and safeguard the secondary mortgage markets in the United States. They do this through their leadership in and delivering excellent research, dependable data, strong supervision, and pertinent policies. The three government sponsored entities of Freddie Mac, Fannie Mae, and the Federal Home Loan Bank system together deliver over $5.5 trillion in financial institutions and mortgage markets funding throughout the United States. The FHFA helps to keep this all possible by providing their independent regulation and careful oversight of these vital mortgage markets. Besides this, they are also the conservator of both Freddie Mac and Fannie Mae since the financial crisis and Great Recession that began in 2007-2008 wreaked havoc on the two giant government sponsored agencies along with the housing market they guaranteed. The Federal Housing Finance Agency is concerned with creating a better market of secondary mortgages for the country’s future. To this effect, they are working on a sequence of strategies and initiatives to boost the housing financial system in the future. Among these new ideas is the construction of a new and improved database called the Common Securitization Platform. This will have dual roles. It will take the presently outdated infrastructures and modernize them. It will also allow for the possibilities of other players in the market choosing to utilize this same infrastructure. The FHFA considers itself to be in a partnership. They strive alongside the entities they regulate to keep home ownership alive and affordable through a variety of programs. These include the HARP Home Affordable Refinance Program and the HAMP Home Affordable Modification Program. The two programs deliver significant and tangible aid to both communities and their homeowners. So far such programs have assisted literally millions of home owning Americans to keep or stay in their houses. The FHFA does not have a long history. It is a new organization that grew out of the housing market collapse and Great Recession. President Obama signed the Housing and Economic Recovery Act of 2008 to create the Federal Housing Finance Agency back on July 30, 2008. The ongoing mission of the FHFA is to make certain that the government sponsored enterprises for housing function in a manner that is both economically viable and safe. This is so that they can continue to provide a dependable source of both funds and liquidity for investment in communities and the financing of home purchases. As part of this, they envision a housing financial system that is stable, dependable, and liquid for both the present and the future. The FHFA values four virtues. They prize excellence in all areas of their work. The organization appreciates respect for their team members, resources, and the information they collect. They value integrity and commit themselves to the greatest possible professional and moral standards. The group also encourages diversity in all of their business dealings and employment arrangements, as well as in the

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entities which they regulate and for whom they are the conservator. FHFA is also an important member group of the Financial Stability Oversight Council. Chief among their tasks is to identify financial stability risks in the U.S., to respond to rising threats to the American financial system, and to encourage discipline in the market. They serve on this council with fellow members that include The Federal Reserve governors, CFTC, FDIC, Comptroller of the Currency, SEC, and Treasury Department.

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Federal Open Market Committee The Federal Open Market Committee is a group within the Federal Reserve, the central bank for the United States. This central bank is more commonly known as the Fed. They carry out actions of monetary policy. This impacts the cost and readily available quantity of money and credit. The Fed uses these tools to foster the country’s economic goals. Thanks to the Federal Reserve Act of 1913, the Fed gained the authority to set the national monetary policy. Under the mantle of the Federal Reserve are three different monetary policy tools. These are reserve requirements, the discount rate, and open market operations. It is the Federal Reserve System Board of Governors that carries out the task of setting the reserve requirements and the discount rate. The Federal Open Market Committee handles the Fed’s open market operations. With these three different tools, the Fed is able to influence the supply of and demand for balances that the financial institutions keep inside the Federal Reserve Banks. This is how it affects the federal funds rate. This is the interest rate that banks and other financial institutions are willing to loan money from their Federal Reserve accounts to other such institutions on an overnight basis. When the federal funds rate changes, this sets off events which impact foreign exchange rates, other types of shorter term interest rates, longer term interest rates, and the quantity of money and credit in the economy. Eventually this affects a number of important economic indicators like economic output, employment, and the costs for goods and services. Open market operations are the main tool that the Federal Reserve uses to carry out American monetary policy. Specifically they buy and sell government securities like Treasuries and T-Bills. They do this in the open market so that they can contract or expand the quantity of money that exists in the banking system. When they buy securities, it puts money into the banking system. This boosts growth in the economy. When they sell their securities, they withdraw money from the system. This shrinks the economy. Ultimately it is the federal funds rate the Federal Open Market Committee is trying to adjust with these operations. The Federal Open Market Committee is made up of twelve members in total. These are comprised of the Federal Reserve System Board of Governors’ seven members, the Federal Reserve Bank of New York President, and four of the other eleven Presidents of the Reserve Banks. These other Reserve Bank Presidents rotate in and out serving one year terms. Rotating seats have a special order in which they are filled. There are four groups of Banks which each contribute a Bank President to the voting Federal Open Market Committee. The groups are Richmond, Philadelphia, and Boston; Chicago and Cleveland; Dallas, Atlanta, and St. Louis; and San Francisco, Kansas City, and Minneapolis. Those Reserve Bank Presidents who are not voting members of the committee in a given year still attend all of the committee meetings, make their contributions to the economy and policy choices assessments, and take part in all discussions. Every year the Federal Open Market Committee engages in eight routinely scheduled meetings. In these meetings, the committee does a number of important activities. It reviews national financial and economic

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conditions, considers the risks to maintainable economic growth and long term price stability, and decides on its monetary policy appropriate stance. The FOMC legally is authorized to set its own internal organization. They have a tradition of electing the Board of Governors Chair to be the Chair of the FOMC and selecting the New York Federal Reserve Bank President to be the vice chair. The eight annual meetings occur in Washington D.C.

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Federal Reserve The Federal Reserve, also known as the Fed, or the Federal Reserve Board, proves to be the United States’ central banking system. This central bank came about in 1913 as a result of Congress passing the Federal Reserve Act. Congress created the organization because of a number of serious financial panics that culminated in the severe panic of 1907. With time, the Federal Reserve’s roles and areas of responsibility have grown as the organization has expanded. Economic events such as the Great Depression have only served to encourage this. The Federal Reserve today counts among its duties many responsibilities. Among these are regulating and overseeing the country’s banks, managing the country’s monetary policy and supply, assuring the financial systems’ continuance and stability, and offering a variety of financial services to depositing banks, foreign central banks, and the United States government. The Federal Reserve’s structure is made up of a number of different components. Among these are the Federal Reserve Board of Governors, all of whom are appointed by the President. The Federal Open Market Committee, also known by its acronym of FOMC, sets the monetary policy, like the interest rates, for the nation. There are also Federal Reserve Banks, which are twelve regional institutions that are found in the biggest area cities around America. They offer physical currency to member banks when demand proves to be unusually high. Several councils that advise it are a part of The Federal Reserve, as are technically the member banks throughout the country. The FOMC component of the Federal Reserve is actually comprised of all of these seven Board of Governors members along with the presidents of the twelve regional banks. Only five of these presidents are voting members at a time. Together, they review the state of the U.S. national economy in order to determine what fiscal policies need to be pursued. When the economic growth is slowing, or a recession is occurring, they cut the national interest rates. When inflation is appearing or the economy is overheating, they raise these interest rates. The Federal Reserve proves to be a unique entity among the major central banks. This is because it divides up the various responsibilities into some public and some private parts of the institution. The Federal Reserve furthermore serves to create the currency used for the country, the U.S. dollar. The fact that it is both a public and private institution, with so many varied and vast powers, makes it one of a kind. Because the U.S. dollar is still the reserve currency of the world, the Federal Reserve’s powers are far greater than simply managing the U.S. economy. In actual practice, they also are the custodians and managers of the world’s reserve currency. This gives them considerable power and influence throughout the entire world economy, since they are able to create not only dollars for the U.S. economy, but also for other central banks use in foreign countries. As a result of this, more than half of the physically printed U.S. dollars are found outside of the United States.

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Federal Reserve Act of 1913 The Federal Reserve Act of 1913 created the Federal Reserve Bank. This proved to be the Act of Congress that set up the Federal Reserve System. This system became the Central Bank organization for the United States. As part of the act, the Federal Reserve acquired the powers to issue the nation’s legal tender currency. President Woodrow Wilson actually signed this act, making it law in 1913. The leadership of the country felt the need to create such a central bank for several reasons. The United States had operated without a central bank going back to the expiration of the Second Bank of the United States’ charter. This meant that for about eighty years, the country had existed without any form of central bank. In time, a number of financial panics had ensued without any central bank to intervene in them. The one that really galvanized congressional and public opinion for having a central bank proved to be the serious financial panic of 1907. As a result of these factors, a number of Americans decided that the nation required serious currency and banking reforms that could handle such panics by offering an available liquid assets’ reserve. They also figured such an institution might be capable of managing a consistent expansion and contraction of credit and currency from time to time as appropriate. The original Federal Reserve Act plan recommended an establishment of an unusual combined public and private entity system. They suggested that minimally eight and as many as twelve regional private Federal Reserve banks should be created. All of them were to have their own boards of directors, regional boundary lines, and branches. This new entity would be led by a Federal Reserve Board comprised of seven members and made up of public officials that the President appointed and the Senate would confirm. An advisory committee known as the Federal Advisory Committee would be created, along with a brand new U.S. currency that would alone be accepted nationally, the Federal Reserve Note. In the final version of the bill, twelve regional Federal Reserve Banks were actually created. The rest of the above provisions became law and subsequently a part of the newly created Federal Reserve System. Another important decision that Congress settled on with the Federal Reserve Act revolved around the private banks throughout the U.S. Every nationally chartered bank had to join the Federal Reserve System as a part of this act. They were made to buy stock that could not be transferred in their own area’s Federal Reserve Bank. It furthermore required that a set dollar total of reserves that did not pay interest had to be deposited to their own regional Federal Reserve Bank. Banks that are only state chartered have the choice, but not the obligation, of joining this system and being regulated by the Fed. Finally, the act allowed the member banks to receive loans at a discounted rate from the discount windows of their own regional Federal Reserve Bank. They were promised a six percent yearly dividend on their Federal Reserve stock and provided with additional services. The act also gave the Federal Reserve Banks the authority to assume the role of U.S. government fiscal agents.

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Federal Reserve Bank Twelve different Federal Reserve Banks make up the Federal Reserve System that functions as the central bank for the U.S. Federal reserve banks are also utilized to sub-divide up the country into the twelve Federal Reserve Districts. Every Federal Reserve Bank bears the responsibility for individually regulating the various commercial banks that are found in such a bank’s geographical district. Ensuring the continuation of the financial system and all of the member banks is among the primary responsibilities of the Federal Reserve System. Each Federal Reserve Bank also issues its own stock shares that can only be acquired by participating member banks. The banks are required to obtain these shares by law. While the shares may not be traded, pledged as a loan security, or sold, they do pay dividends that run as high as six percent each year. American banks are required by law to keep certain fractional reserves of their actual deposits. These are mostly held by the regional Federal Reserve Banks. Although in years past, the Federal Reserve did not pay member banks interest on these funds kept on reserve, as of 2008 Congress passed the EESA that permits them to pay the participating banks interest. The twelve Federal Reserve Banks and districts are found geographically spread out around the nation. They include the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The largest and still most important of the individual Federal Reserve Banks proves to be the Federal Reserve Bank of New York. Not only does this bank have the greatest asset base of all the twelve branches, valued at over a trillion dollars and representing four times the asset base of the next largest Federal Reserve Bank, but it also boasts the biggest gold depository on earth, valued at in excess of $25 billion. The gold kept in the New York Federal Reserve Bank vaults belongs to other nations who store it there for safe keeping. Saudi Arabia and Kuwait both keep their significant holdings here. Among the various states that have Federal Reserve Banks headquartered there, a few of them contain more than one branch within their state. California, Missouri, and Tennessee are the ones that make this claim. Tennessee actually contains two branches from two different districts within its state boundaries. The only state that has two Federal Reserve Banks headquartered within it is Missouri. For the largest geographical areas covered by the districts, San Francisco is the largest, Kansas City is second biggest, and Minneapolis is the third largest.

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Federal Reserve Bank Notes Federal Reserve Bank Notes were the bank notes in the United States that were issued from 1915 to 1934. They are legal tender and acceptable in transactions in the United States. They exist alongside other historical anomalies of American paper notes, including U.S. silver certificates, United States Notes, National Bank Notes, Gold Certificates, and Federal Reserve Notes. Federal Reserve Bank Notes possessed the exact same value as other types of notes with identical face value. These bank notes from the Federal Reserve are different from traditional Federal Reserve Notes because they are actually specifically backed up by one of the branches of the twelve regional Federal Reserve Banks instead of all of them in common. They also had the backing of U.S. bonds as with National Bank Notes. The difference is that the Federal Reserve Banks were the ones to issue them instead of the chartered National Banks. These Federal Reserve Bank Notes ceased to be issued in 1934 and are not available in circulation any longer. Since 1971, there are only the Federal Reserve Notes of the various United States bank notes that are produced and released. It was in the year 1915 that the first larger sized Federal Reserve Bank Notes appeared. These were printed with denominations of $20, $10, and $5. They possessed a design with common elements relevant to the Federal Reserve Notes and the National Bank Notes of that day and age. By 1918, they had begun issuing $50, $2, and $1 denominations as well. Smaller sized Federal Reserve Bank Notes appeared in 1933 in the form of a special emergency issue. They utilized the identical paper stock to the National Bank Notes. These came in denominations of from $100 down to $5 notes. A distinctive feature of such National Bank Notes was their line for the signature of the National Bank President. These smaller Federal Reserve Bank Notes contained a bar above the label for the line because Federal Reserve Banks were headed up not by presidents, but by governors. They also changed the wording to read “Secured by United States bonds deposited with the Treasurer of the United States of America Or by like deposit of other securities.” Besides this, the twelve regional Federal Reserve Districts appear as black sequenced letters on the bills from “A” through “L.” This system is still utilized today on the $2 and $1 bills. The smaller series had been emergency issued because of the American public hoarding cash. They did this as a result of so many different banks failing in that day. Because of the bank failures, the National Banks were limited in their abilities to issue their own notes. In the year 1934, the Federal Reserve Bank Notes smaller size was eliminated and not offered by banks anymore from 1945. The small size notes contain both serial numbers and brown seals. This is like the National Bank Notes of the time. Although they both look similar and each says “National Currency” on the obverse top, their issuers remained different. This is why they are deemed separate kinds of bills. These Federal Reserve Bank Notes are never to be confused with the Federal Reserve Notes, which are the bills utilized as American dollars today. Federal Reserve Notes are produced by the Bureau of Engraving and Printing and issued by the Federal Reserve Bank via the Federal Reserve System in the United States. They are printed on a special paper which only Crane & Company of Dalton,

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Massachusetts produces uniquely for them. It is up to each of the regional Federal Reserve Banks to adequately distribute these Federal Reserve Notes to the various commercial banks throughout each of their respective territories today.

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Federal Reserve System The Federal Reserve System is the United States’ central banking system. It is made up of the Federal Open Market Committee, the Federal Reserve Board, 12 regional Federal Reserve Banks, and state and national member banks. Seven members make up the Board of Governors. These the President appoints to 14 year terms upon approval by the Senate. The reason this system became established was to manage the movement of credit and money in the U.S. Congress set up this system in 1913. The U.S. had experienced a variety of central banks since 1791. The country needed a more stable banking system to help encourage a stronger economy. Practically every bank in the U.S. participates in the Federal Reserve System. The program requires these institutions to keep a set amount of their assets deposited with their area Federal Reserve Bank. The Board of Governors determines how much these reserve requirements will be. The Board of Governors changes these required reserves in order to significantly influence the money supply that is circulating in the economy. This Federal Reserve System provides a few different functions to the country. It is a bank for all the banks. A great number of interbank transactions go through this system. Banks may also borrow money from the Federal Reserve if they can not get credit from anywhere else. The system only gives them credit in emergencies or as it is unavailable on the open markets. The Federal Reserve also functions like the bank of the government. The inbound and outbound payments of the tax system process via a checking account at the bank. The Fed further supplies the currency of the United States even though they do not produce it. They also purchase and sell government securities like Treasury Bills and Bonds. Among the more important functions of this system is its purpose as a regulatory agency. They act as policeman to the banking sector to protect consumers’ rights and to ensure smooth functions. They are also the main resource for banks and the public in times of financial crises or a panic surrounding the banks. National banks have to be members of the system. In order to qualify, they are made to deposit the reserve requirements from their customer checking and savings accounts in their regional Federal Reserve bank. They must also keep mandatory reserve levels with this bank. Every nationally chartered bank has to be a member of the system. State chartered banks are also encouraged to join as members of the system. The need for this Federal Reserve System became apparent after several failed attempts at establishing a uniform banking system in the United States. The first central bank was the First Bank that existed from 1791 to 1811. The Second Bank took over this role from 1816 to 1836. These two outfits proved to be the U.S. Treasury Department’s only official representatives. This meant that they were the only organizations issuing and promoting the official U.S. currency.

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Every other bank in the country ran under private auspices or as a state chartered organization. Each bank had its own bank notes which competed against the two U.S. banks as currency that could be redeemed for face value. The first National Bank Act that Congress passed in 1863 allowed for a regimen of National Banks that would be supervised. Banks had to abide by certain operating practices, rules for making and issuing loans, and capital amount minimums kept in the banks. The Act effectively killed the non national individual bank currencies by creating a 10% tax on all state level banknotes.

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Federal Trade Commission (FTC) The FTC Federal Trade Commission proves to be the agency responsible for protecting the American consumers. They strive to stop tricky, fraudulent, and unfair practices in business in the nation’s marketplaces. They also disburse valuable information to consumers that helps them to recognize, stop, and sidestep these frauds. The FTC accepts consumer complaints by phone, email, their website, and through the mail. They take these complaints and enter them into a database that is called the Consumer Sentinel Network. This secure online tool is utilized for investigation purposes by literally hundreds of criminal and civil agencies for law enforcement throughout the United States and overseas. What the FTC would like to do is to stop these types of deceptive and non-competitive business dealings before they hurt consumers. They are also attempting to improve consumer opportunities so that they are better informed about and comprehend the nature of competition. The agency attempts to perform all of these tasks without putting too many burdens and restrictions on businesses activities that are legitimate. Congress created the FTC back in 1914. Originally its mandate lay in stopping unfair means of competition in trade and business caused by the trusts. They were a part of the government’s stated goal to bust up these trusts. Congress has given them more authority to monitor and fight practices that were against fair competition over the years by passing other laws. The government enacted another law in 1938 that was broadly addressed to stop any deceptive or unfair practices and acts. They have continued to receive direction and discretion to govern a number of other laws that protect consumers over the subsequent years. Among these are the Pay Per Call Rule, the Telemarketing Sales Rule, and the Equal Credit Opportunity Act. Congress passed another law in 1975 that gave the Federal Trade Commission the ability to come up with rules that regulated trade throughout the industries. The FTC has a vision for the American economy. They want to see one that has healthy competition between producers. They also desire to see consumers able to obtain correct information. Ultimately the government agency looks for all of this to create low priced and superior quality goods. They encourage innovation, efficiency in business, and choice for consumers. This agency carries out its vision with three strategic goals. It starts with them protecting consumers by heading off trickery and deception in the business and consumer marketplace. They desire to keep competition going strong. In this role, they stop mergers and business dealings that they believe are against competition. They also work to increase their own performance with consistently improving and excellent managerial, individual, and organizational efforts. All of these goals and efforts combine to make the FTC one of the government agencies that most impacts each American citizen’s economic and personal life. They are the only government entity that possesses a mandate for both competition jurisdiction and consumer protection in large segments of the U.S. economy. They go after aggressive and effectual enforcement of the laws.

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The FTC shares its knowledge with international, state, and federal groups and agencies. The group creates research tools at a variety of conferences, workshops, and hearings every year. They also develop and distribute easy to understand educational materials for business and consumer needs in the transforming technological and global market. The FTC carries out its work through its Bureaus of Economics, Competition, and Consumer Protection. They receive assistance from the Office of General Counsel. Seven regional offices around the country help them to carry out their mandate.

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Fedwire Fedwire represents an RTGS, or real time gross settlement system. This settling system pertains to central and commercial bank funds which are utilized within the United States. The Federal Reserve Banks employ it to electronically settle all of their final payments between the various member institutions. All final payment settlement is performed exclusively within U.S. dollars. Fedwire is actually operated and owned by all 12 of the American Federal Reserve Banks. This networked system of payments and electronic processing works exclusively between the member of the Federal Reserve system banks and the regional 12 Reserve Banks. The participants in the system, which are Fedwire member banks, can also use it between each other as well. Fedwire members include two groups. The first of these are the financial institutions of the U.S. which are depository banks. Besides this, American branches of many approved foreign financial institutions and also allowed government groups are members. They must keep an active account with one of the Federal Reserve Banks to maintain their membership as either foreign or domestic entities. The actual Fedwire system has been newly designed in recent years. Now this national clearing system works in high technology and automated real time for all of the businesses which are involved in the Federal Reserve financial network. This includes nearly 10,000 banks. The system allows a single bank to wire funds over to a fellow domestic bank practically instantly. The Federal Reserve has its own uses for the system of course. They deploy its cutting-edged technology in order to ascertain credit. They also orchestrate the effective movement of capital throughout the nation with it. Many people think of the Federal Reserve as a branch of the U.S. government, yet this is not truly the case. It is a private company which delivers the centralized banking system to the United States. As the directors and board members are appointed by the President though, this makes it more like a GSE government sponsored enterprise. Many critics have complained about the private nature of the United States central bank over the years. The ones who are closest to it refute these objections by declaring it to be a one of a kind mixture that is at once private and public administration which no single private entity owns and controls. The 12 regional Federal Reserve Banks serve a vital function for the nation in helping to oversee and implement the financial policy of America. All of the commercial banks which are federally chartered financial institutions are required to hold stock in the various Federal Reserve banks. Thanks to the new Fedwire setup, banks can count on a true real time gross settlement of their funding transfers. It means that the automated financial transfers are not only seamless, but they complete rapidly. There are many effective uses to the impressive system. Financial institutions are able to effect payments to the SEC Securities Exchange Commission using it. Since banks and other financial institutions have to regularly remit fees to the SEC for its oversight of Wall Street and the stock market, this is a convenient means of transferring payments to them. Many of the banks choose to use the system for just such a purpose.

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The member banks utilize various protocols and “tags” to ensure that they are creating standard transactions on the electronic network. Part of what makes this system so technologically advanced is it even searches out problems in resulting syntax which might delay a transaction between member banks or with the 12 regional Federal Reserve Banks in the system. This electronic funds settling system of the Federal Reserve proves to be much like those deployed in other nations around the world. A number of countries already had their own financial networks like this. Still others are in the process of being created, designed, and developed. Such financial settlement systems drag antiquated financial regimes into the current century. This is appropriate since a huge amount of wealth and cash are already handled by automated and digital electronic systems and technologies worldwide.

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Fiat Dollars Fiat dollars refer to dollars that do not possess any sort of intrinsic value. They are not backed up by gold or any other tangible asset, only by the full faith and trust in the United States government. Since the United States abandoned the venerable and stable gold standard back in 1971, the U.S. currency has been one of only fiat dollars. Fiat actually refers to the Latin for “let it be done.” Dollars that are fiat dollars are valued based on the decree of the government. They are not redeemable for anything else. Until 1971, the dollar proved to be convertible into a certain set quantity of gold. This had been the case along with all other major currencies around the world for nearly two hundred years. Gold backed dollars and other currency proved to be extremely stable and constantly valued for huge spans of time stretching from forty to sixty years before some turbulence like the Civil War would impact their value for a few years. This resulted in part from governments only being able to print as many dollars and other currency as they had gold. Since the U.S. currency became one of fiat dollars, its stability has vanished, along with its former constant value. One ounce of gold only represented $38.90 valued U.S. dollars at the end of 1970. Today the same ounce of gold equates to $1,350. Another way of putting this is that one 1970 gold backed dollar is equal to nearly $35 fiat dollars in 2010. You might also say that the Fiat dollar has declined by more than ninety-seven percent in the time span of almost forty years since it began its life as a Fiat dollar. This says several important things about Fiat dollars. They are at the mercy of the international markets, since they are not backed up by any tangible value. They are also able to be printed or electronically multiplied in infinite quantities, since they are not restricted by a given fixed amount of gold. It also means that they are unstable in their values and can collapse fairly easily and quickly, since their real worth is only one of perceived value as determined by the confidence of buyers and sellers. Fiat dollars are not the only currency that has been decoupled from real valued backing like gold. Euros, Japanese Yen, British Pounds, and practically all major currencies of the world are similarly only based on the faith and trust of their respective governments. The only currency among the major developed economies that might be considered to be non fiat is the Swiss Franc. The Swiss constitution requires that the government holds a full quarter of the number of Swiss Francs in existence in gold in their vaults. This would give them a twenty-five percent gold backing to their currency. The truth is that since the Swiss value their gold reserves at $250 per ounce, and gold is trading consistently well over $1,200 per ounce to even $1,350 per ounce, at over five times the Swiss value of their gold, this means that they actually have their currency covered by in excess of one hundred percent of actual valued gold holdings, since five times their twenty-five percent gold reserve amounts to one hundred and twenty-five percent.

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Fiat Money Fiat Money proves to be money that has no real intrinsic, or actual, value. It instead derives its worth from governments accepting it as legal tender. The concept of fiat money on a large scale is a relatively new one. Throughout practically all of history, the majority of currencies around the world derived their value from silver or gold. Fiat money is instead entirely based on trust and faith in the issuing monetary authority. The problem with fiat money lies in the ability of the governments to inflate its value away. They can do this by over printing it. Since fiat currencies are not restricted by a requirement of hard reserve assets, they can be created in any quantity that the issuing government desires. As the supply continues to rise while the demand remains constant, its purchasing power will fall. When the supply is drastically increased, then hyperinflation will result. Fiat money that falls by hundreds of percent in value is deemed to be a victim of hyperinflation. The other disadvantage is that only peoples’ trust in it ultimately gives it practical value. It suffers from inflation and finally hyperinflation, then the confidence in it becomes shaken. Fiat money that lacks the confidence of its citizens will finally collapse in value and then no longer be of any trading use for daily transactions. When it fails, people either return to barter systems, or the government establishes a currency based on hard assets once again. The history of money has proven on a number of occasions that governments debase currency to the point of fiat money when it suits them. They do this because it allows them to print as much as they need to pay for things. While this creates inflation for their citizens, it gives the money issuing government the ability to repay their debts with cheaper fiat money. Finally, as a society has had enough of the devalued money and currency instability, they force the government to return to asset backed money. This has happened before, and some monetary experts say that you are starting to see this happen again nowadays.

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Fiduciary A fiduciary is an organization or individual which owes its trust and good faith to another person or group. It means that one party takes on the most serious legal responsibility to the other party. Fiduciaries are ethically and legally required to carry out their activities in the best interest of the other person or organization. This could involve another’s well being, but it usually revolves around finances. People who manage another individual’s assets or finances are good examples of fiduciaries. This means that a fiduciary could be a board member, banker, accountant, money manager, estate executor, or corporate officer. The responsibilities and duties of a fiduciary turn out to be not only ethical but also legal. After a group or individual willingly takes on such duties for another, they must carry out the tasks with the very best interests of that party at heart. This means fiduciaries have to manage any assets for the benefit of those individuals instead of to benefit themselves or realize personal gain. This level of responsibility is called a prudent person standard of care that came out of court ruling in 1830. This prudent person rule means that the individual functioning in the fiduciary’s role must always carry out the duties with the beneficiaries’ needs foremost. Conflicts of interest are not allowed to arise between the principal and fiduciary. Per an English High Court ruling on the case of Keech versus Sandford in 1726, fiduciaries are not allowed to profit from holding such a position of trust. Because of this, the only exceptions are when the beneficiary grants specific consent when the relationship starts. When the principal gives such approval, fiduciaries are allowed to enjoy any benefits received, whether they are monetary in nature or opportunities. Where business relationships are concerned, there are many different kinds of fiduciary duties. The most typical of these occur between trustees and their beneficiaries. There are also a number of other kinds of relationships where this can occur. Some of these are between executors and legatees, company board of directors and shareholders, stock promoters and stock subscribers, guardians and wards, investment corporations and investors, and attorneys and clients. As the trustee and beneficiary relationship is the most common for fiduciaries, it is important to understand. Trustees handle arrangements for estates and also implement trusts. The beneficiary is the one whom they are serving. The fiduciary in this case is the person who will be the estate trustee or the trust. The beneficiary is also the principal. In this type of arrangement, the trustee commands legal possession of the assets and/or property. The trustee is fully empowered to manage assets in the trust’s name. Because the beneficiary has equitable title of the property or asset, the trustee has to engage in best interest decisions. Such a relationship as trustee and beneficiary is critical in effective and all inclusive estate planning. This is why the trustee should be chosen with great care and thought. Blind trusts are those where the trustee who has authority over the investment does not allow the beneficiary to be aware of the way the assets are being invested. The trustee still has the legal duty to use the prudent person conduct standard, especially because the beneficiary is unaware of what is happening.

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Politicians and other public figures create such blind trusts so that they can stay away from scandals involving conflicts of interest.

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Financial Contagion Financial contagion generally refers to the transferable characteristics of the shock of one nation’s asset market to translate to asset prices in a different (but at least somewhat related) independent nation’s financial markets. It is important to realize that this is possible at all because of several different kinds of shocks. Among the most accepted, important, and common of these are information shocks and liquidity shocks. Information shocks transpire when those investors who are especially well informed, or informed investors, obtain information which they are able to rapidly and effectively utilize in picking out the best possible investment portfolios. Liquidity shocks on the other hand happen as liquidity traders transact in order to attain the necessary inventory for themselves and their client’s immediate liquidity concerns. Both of these kinds of financial contagion shocks operate in a few different ways, impacting the relevant and affected markets. The chief affected segments are in expectations and portfolio balance components of the changing price. As far as expectations components go, the price change occurs because those investors who are not well informed, or the uninformed investors, catch up their individual asset value and price anticipation to the trades which the informed investors have already executed and had filled. Portfolio balance components in price change quantifies the asset price changes which occur because portfolios are being naturally rebalanced by the uninformed investors as they understand that the prices of the various assets in question do not accurately or adequately reflect the new information which concerns these said assets. The so-called information effect happens as either liquidity trading or informed investors’ informational advantage reverberates throughout a range of international markets. This can rapidly lead to price changes from a single market reflecting information on assets in various other markets and other countries’ markets. As the informed investors’ knowledge travels to correlated interdependent yet fully independent markets, the uninformed investors from one market see the prices changing in other separate markets and then accordingly rush to place trades in their own national markets. As liquidity trading reverberates throughout different markets, the price changes of a single market will also impact the assessment of uninformed investors regarding asset prices in other markets. It does not even require that financial markets between different individual sovereign countries be closely or directly linked via the macroeconomic fundamentals for the shocks to effectively transmit from one national market to the other. It may take some time for this to actually happen, but eventually it only requires the indirect sharing of macroeconomic variables in order for such financial contagion transmission to effectively occur. This goes a long way to explain how financial contagion has so easily transferred between those diverse markets which are even weakly connected in the past, as with Asian markets, European markets, and Latin American national markets. The biggest lesson and warning message from financial contagion analysis proves to be that the inequality of information possessed by informed versus uninformed investors magnifies the effects of international market contagion.

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Financial Crisis A financial crisis refers to a period where the value of assets and/or financial institutions declines quickly. Such a crisis is commonly connected with runs on the banks or at the least fear and panic. In these difficult and dangerous economic periods, investors will fire sell any assets they can to pull back their cash out of investment and savings accounts. They do this hoping to repatriate their funds home before they decline or vanish altogether at the financial institution. Such a financial crisis happens because of assets and banks becoming overly valued. They are typically made far worse because of the inexplicable behavior of mass groups of investors. Often times, a rapid-fire domino effect of selling leads to still lower prices of the associated assets in the crisis and even more bank account withdrawals. If the crisis does not become resolved relatively quickly, it can lead an economy and nation into a deep and painful recession or even a lasting and devastating depression. The sad part of finance is that it is not only prone to numerous incidents like these, but it is also shaped by financial crisis. There have been many such significant financial crises over the past three hundred years. These included the 1720 South Sea Bubble crisis, the Panic of 1792, the Latin American Crisis of 1825, the Cotton Crisis of 1837, the Railroad Crisis of 1857, the Long Depression of 1873, the Knickerbockers Crisis of 1907, Black Monday and the Wall Street Crash of 1929, the 1973-1974 Arab Oil Crisis, 1987 Black Monday, the Asian Crisis of 1997, and the Dotcom Crash of 2001. The most recent financial crisis which rocked the international world was the Global Financial Crisis of 2008. Economists have determined that this proved to be the most devastating economic disaster for the world since the 1929 Great Depression which lasted nearly a decade. It led to what has become known as the Great Recession. Strangely enough, while the other financial crises which preceded it could be pinpointed to a main reason or singular event, the Global Financial Crisis could not be. Instead this economic disaster resulted from a chain of events. Each of these had their own trigger. The crisis was so severe that it nearly caused a complete failure of the American and global banking systems. Economists have made the case that the crisis’ roots dated back to the decade of the 1970s. The Community Development Act proved to be responsible for developing the market for the one-day toxic subprime mortgages. It was this act that mandated banks had to relax their credit standards for those minorities who were lower income earners. It turned out to be these quasi-government agency guaranteed subprime mortgage debts that expanded dangerously through the early years of the 2000s. Both the primary government sponsored entities Fannie Mae and Freddie Mac were guaranteeing the toxic mortgages. As these loans were booming, the Federal Reserve (American Central Bank) was drastically slashing interest rates after the dotcom crash of 2001 to stave off a national recession from the stock market collapse. In the end, these dual scenarios of cheap money fueled by dramatically lower interest rates and loosened credit requirements brought on by the Community Development Act worked together to create a housing bubble. The ensuing speculation and positive feedback only encouraged home prices to rise still further. At the same time, the wily investment banks were seeking easy money gains after the 2001 recession and dotcom bust. They invented the fanciful CDOs collateralized debt obligations from mortgages they

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bought up on the secondary market. By bundling both prime and subprime mortgages together into single instrument investments, they deceived unknowing investors into purchasing highly risky CDO products. As the CDO market really took off, the housing bubble started bursting. Along with falling home prices, the subprime borrowers started defaulting on their loans en masse. They either could not or would not make payments any longer on those loans that then turned out to be higher than the value of the homes. This only exacerbated the home price decline situation. Investors next realized that the CDOs they had bought in droves were declining to near worthless. This resulted from the toxic mortgage debt that underlay them. Investors attempted to offload the paper, but they found the market had disappeared. This then led to a perilous wave of subprime lending institution failures. It caused a dry up in liquidity and a subsequent contagion which filtered through to the highest echelons of the banking world and system. Thanks to their huge exposure to the subprime mortgages and CDO debt obligations, the two enormous investment banks Bear Stearns and Lehman Brothers collapsed without warning. Over 450 other banks then subsequently failed throughout the following five years. Had it not been for a governmentadministered and taxpayer-funded bank bailout, a few of the mega banks would have failed as well alongside those that did, including such national venerable institutions as Washington Mutual, Wachovia, and Merrill Lynch.

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Financial Industry Regulatory Authority (FINRA) The Financial Industry Regulatory Authority is a congressionally authorized independent and non profit outfit. Congress established them to safeguard the investors of America by ensuring that the stock market industry runs honestly and fairly for all participants. FINRA is not an agency of the government, even though they have broad disciplinary and enforcement powers. The organization tirelessly works to ensure the integrity of the market and protection for investors by regulating the securities business. FINRA carries out these duties in a variety of ways. They investigate brokerage firms to make sure they abide by the rules. The not for profit creates and then enforces these rules that govern the actions of more than 3,941 securities companies who have over 641,157 brokers on staff. FINRA also encourages transparency in markets and settles disputes. The group does all of this without taxpayers having to support them via taxes. The authority works every day to make sure individuals selling securities are tested and licensed. They ensure all advertisements for securities utilized to sell the products are clear and truthful. FINRA holds companies to a high standard for only selling suitable investments to individuals that are appropriate to their needs. They ensure that every investor obtains full disclosure about their investment before they buy it. The independent agency carried out 1,512 disciplinary actions on registered firms and brokers in 2015. This allowed them to collect fines of over $95 million. They mandated that $96.6 million be given back to investors who where harmed in these and other actions. The group handed over 800 different insider trading or fraud cases to other agencies like the SEC for settling or prosecuting the same year. Ultimately FINRA’s goals are to deter misconduct in the industry. They do this by enforcing rules for everyone. This is not only the rules that they create. The group also enforces the Municipal Securities Rulemaking Board’s regulations and federal securities laws as well. They make the qualifying exams and require brokers to come to continuing education classes. The organization puts hundreds of their own financial examiners in the field to check on the way these brokers carry out their business. Their main concern is for the investors and risks to the markets. They follow up on complaints filed by investors and other suspicious activities. They also review all advertisements, brochures, websites, and communications to be certain brokers are fairly presenting their products. This amounts to approximately 100,000 different communications and advertisements they examine and approve between broker firms and their investors. FINRA also disciplines rule breakers. They use their authority, technology, and professional experts to rapidly react to wrongs. The organization has the authority to fine brokers, suspend them, or expel them from the business. The independent agency also possesses technology that is potent enough for them to be able to review

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various markets and pick up on possible fraud. They are able to gather data in such a way to keep tabs on insider trading or other practices that give broker firms advantages that are unfair. To this effect they process anywhere from 42 billion to 75 billion transactions daily to have a full picture of U.S. market trading. The group is also involved in resolving disputes in the securities’ business. This pertains to problems between investors and brokers. FINRA handles almost 100% of all mediations and arbitrations that are related to securities. They hear these disputes in 70 different locations. This includes one hearing center in every state, Puerto Rico, and London.

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Financial Mentor A financial mentor is a trusted guide or counselor that helps a person in the arena of business, personal finance and investments. Mentors can be many different people, but they typically have several characteristics in common. They are all loyal advisers who have the person’s best interests at heart. Mentoring is most widely used in business. Other settings that use it include medical fields and educational settings. Business experts will tell you that among the most useful, helpful, and valuable career assets that you can have in your business career is a helpful and experienced mentor. Financial mentors are commonly older individuals who have more wisdom and experience to share with the individual than he or she already possesses. Though they do not have to be older in every single case, they must always have more experience than the person whom they are mentoring. These mentors both guide financial development and assist the person with their overall financial and business goals. They do not engage in this process with the expressed intent of making money or benefiting financially from the arrangement usually. With financial mentors, you as the person being mentored have some preparation that you can do. You should listen carefully to the mentor and what he or she has to tell you. This is most easily accomplished by coming to the meeting with the financial mentor with some sort of recording means prepared. This might be a voice recorder, PDA, laptop, or even pen and paper. If a mentor made specific recommendations in the prior discussions, then you should have both noted and tried to apply them. Be ready to review any steps that you have taken specifically with the mentor. You should also allow a mentor to be a part of your big picture goals and plans, and not only the particular details. The overall goals for you who are being mentored should be set together, in conjunction with the mentor. They should talk not only about present challenges and difficulties, but also concentrate on long term and short term goals together. Good financial mentors will also do more than simply hold official meetings. They will take the time to get to know you. This does not have to be extensive amounts of time, but it should be quality time spent. This might involve a fifteen minute friendly chat over coffee or a quick bite to eat out some night. The key is not to take up too much of the financial mentor’s time until you get to know him or her better. Then as the relationship broadens out into a friendship, more opportunities to get together will naturally arise. Financial mentors can help out with many areas of your life. They can make helpful suggestions for getting out of debt. They can guide you with good concepts for practical and smart investing. They can share personal, actual experience for navigating through difficulties with a business that you own. They might suggest advice to assist you in your career development. Whatever help that you specifically request from a mentor, you should always remember to be appreciative and take the time to write thank you notes.

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Financial Stability Oversight Council The Financial Stability Oversight Council is an organization that was created by the Dodd-Frank Act following the financial crisis of 2008. It possesses a clear legal mandate that provides an accountability to look for risks and respond to perceived upcoming threats to the United States’ financial stability. This is the first time that a single organization has held such important responsibility. The group is actually headed by the Secretary of the Treasury. It combines the various experience and knowledge of state regulators, an insurance expert who is both independent and Presidentially appointed, and federal financial regulators. The Financial Stability Oversight Council was granted first time powers by Congress to restrain and head off dangerous risks within the financial system. This Council can select a financial firm that is not a bank and mark it for intense supervision so that the firm can not threaten to blow up the financial system and its stability. As an aid in determining what qualifies potential risk to the country’s financial stability, this FSOC is allowed to obtain information and analysis from and supply information to the recently established OFR Office of Financial Research that is headquartered in the Treasury building. Before the financial crisis erupted, the financial regulation in the United States focused exclusively on specific markets and institutions. This permitted gaps in supervision to expand amidst inconsistencies in the regulation. Standards weakened as a result. There was no one regulator responsible for watching over and dealing with the various risks to American financial stability. The threats often revolved around various financial firms which functioned at once in numerous interrelated markets. Because of this, critical portions of the financial system remained unregulated. The Dodd-Frank Act dealt with these failures by creating the Financial Stability Oversight Council. The Financial Stability Oversight Council has many roles. It facilitates and coordinates regulation. They are tasked with sharing information and coordinating action with the agencies involved to deal with examining, making rules, developing policy, reporting, and enforcing their actions. They are also to encourage gathering and sharing information among their various member organizations. If they are unable to gather enough information, they are to turn to the OFR to obtain information from individual companies they need to evaluate. Gathering and evaluating such information is supposed to eliminate blind spots in the financial system. By doing this they are fostering a more stable and less dangerous overall financial system in the United States. The Financial Stability Oversight Council is also to select nonbank financial entities that need to be consolidated. Dodd-Frank identified companies that did not receive appropriate supervision and then led to the outbreak of the financial crisis back in 2008. The act provides the Financial Stability Oversight Council the authority which it needs to force supervision on such companies at entirely its own discretion. The council also has the power to make recommendations for harsher standards for those firms they deem to be the biggest and most interconnected operations which provide increased risks to the system. This includes both banks and non bank financial organizations. As the Council learns about activities and practices that are threatening financial stability in the country, they are able to recommend tougher

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standards to the appropriate financial regulators. The extensive powers of this Financial Stability Oversight Council are most clearly shown in their ability to choose to break up companies at will which they perceive to represent a clear and present danger to the nation’s financial stability. They can decide if action should be followed to break up these kinds of firms which they deem to be a grave threat to the United States and its financial stability.

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Financial Statement Financial statements are official records of a business’ or personal financial activity. With businesses, financial statements present any and all pertinent financial activity as usable information. They do this in a clear, organized, and simple to comprehend way. Financial statements are commonly comprised of four different types of financial accounts that come with an analysis and discussion provided by the company’s management. The Balance sheet is the first of these. It is known by several other names, including statement of financial condition, or statement of financial position. The balance sheet details will outline a corporation’s ownership equity, liabilities, and assets on a particular date. This will give a good picture of the general strength and position of the company. Financial statements similarly include income statements. These can also be called Profit and Loss statements too. They outline numerous important pieces of company information, such as corporate expenses, income, and profits made in a certain time period. This statement explains all of the relevant financial details to the business’ operation. Sales and all associated expenses are included under this category. This section of the financial statement proves to be the nuts and bolts of the whole document. It provides a snap shot of the company’s ability to generate sales and turn profits. A statement of cash flow is also a part of a complete financial statement. As its name implies, this section will share all of the details regarding the company’s activities pertaining to cash flow. The most important ones that will be outlined include operating cash flow, financing, and investing endeavors. The last element of a financial statement includes the statement of retained earnings. This section of the document makes good on its name to detail any changes to a corporation’s actual retained earnings for the period that is being reported. These four sections of a financial statement are all combined together to make the consolidated financial statement, once they are combined with the analysis and discussion of management. With large multinational types of corporations, such financial statements are typically large and complicated, making them challenging to read and understand. To assist with readability, they may also come with a group of notes for the financial statement that also covers management’s analysis and discussion. Such notes will go through all items listed on the four parts of the financial statement in more thorough detail. For many companies, these notes for financial statements have come to be deemed a critical component of good and complete financial statements. Financial statements are used by several different groups of people who are looking at a company. Investors use them in order to determine if the company and its stocks or bonds make a sound investment with a chance of providing good returns on investments and profits in exchange for limited risks. Banks utilize these financial statements to decide if a company is a good credit risk for their loan dollars. Institutions and other groups that may be considering a cash infusion or buyout of the company use such financial statements to decide if the company is a viable investment or acquisition target.

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Financial Times Stock Exchange (FTSE) The Financial Times Stock Exchange represents an enormous group of indices owned by the London Stock Exchange. The acronym originated in the days when it was half owned by the Financial Times newspaper and the LSE. Now this group is an entirely owned subsidiary of only the London Stock Exchange. When individuals use the word FTSE, they are most commonly referring to the most important benchmark index of the group the FTSE 100. These 100 companies are the hundred largest British companies which the London Stock Exchange lists. As such the Blue Chip companies of the British economy represent the biggest companies by market capitalization in the U.K. Besides this FTSE 100 index, the group produces the FTSE 250, the 350, the Small Cap, and the All-Share. The FTSE 250 companies are those next 250 largest companies after the FTSE 100. Combining the 250 and the 100 yields the 350 index. Merging the 350 and Small Cap provides the All Share Index. London Stock Exchange launched the FTSE 100 on January 3, 1984. The companies in the index are calculated for size based on their market capitalization, or number of existing shares times the price per share. The group recalculates the indices every quarter to adjust for any of the companies in the 250 index that have moved up to the 100 index and those in the 100 group that have dropped to the 250 group. Besides this, they have to remove companies that have been taken over or merged with others. The index must also be updated for name changes, as happened with British Gas becoming BG Group and Centrica, Midland Bank becoming HSBC, and Commercial Union Assurance becoming Aviva. Name changes, mergers, and takeovers are changed as soon as they become effective. FTSE 100 updates its composite companies based on those which rise to a position in the top 90 largest companies on the London Stock Exchange. Those which fall to the 111th position or lower are dropped. They maintain this overlapping band so that there will not be too much change in the index in any given quarter. The group is concerned about the stability of the index and the rate of change because it forces investment companies and funds to rebalance when the benchmark 100 index changes. This is an expensive process for the large investors that the group tries to mitigate. The 100 index and other benchmark indices are calculated up every 15 seconds throughout the trading days. The values are published in real time all day. The indices are open from 8am to 4:30pm on all weekdays that are not market holidays. FTSE 100 is considered to be a good barometer for geopolitical and economic events throughout the world. When the major global markets soar, it does as well. When they plummet, it falls in sympathy. The largest single point drop for the 100 index happened on the day following Black Monday in the U.S. on October 20th of 1987. On this occasion, the 100 index fell 12.22% in a single trading session. FTSE is not only a series of British stock indices. The group also produces and compiles every day more than 100,000 additional indices around the globe. Among these are the Global Equity, Italy’s MIB, the China A50 and 50, the Portugal 20, and the TWSE Taiwan. In 2015 the group merged with Russell to

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become the FTSE Russell Group. This gave it reach into a number of American stock market indices like the Russell 2000.

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Financing Terms There are two different financing terms available for businesses. These are short term financing and long term financing. In today’s economic environment following the financial collapse and Great Recession, many businesses require both types. The two types of financing involve more differences than only the time frames. Short term financing is commonly utilized for the daily business operations’ funding and needs. This is also known as working capital. The financing terms for these short term facilities commonly require the short term loans to be paid back in a year or less. Long term financing is more often utilized for the upkeep or purchase of fixed asset types. This might include a building or machinery that a firm owns. The financing terms for long term loans are for periods of time that are greater than a year. Among the short term financing means are bank loans, bank overdrafts, trade credit, and leasing. For individuals, bank overdrafts prove to be the most common means of short term finance, since their finance terms permit an individual to draw out a greater amount of money that the person has in the bank, up to a predetermined amount. Trade credit is useful for small businesses who may require the ability to buy goods and services or supplies before they receive payments and incoming receipts. With such trade credit facilities, the finance terms are commonly from thirty to ninety days to pay the full balance. Long term financing might also involve bank loans, as well as corporate bonds or mortgages. With corporate bonds, a company is borrowing money from investors and members of the public. The financing terms of these types of instruments commonly require periodic interest payments that are known as coupon payments. The principal is then repaid on the agreed upon day. Many corporate bonds also feature a recall option that allows a company to pay off its long term debts early. This might be of interest to such a firm if they feel that they can borrow the funds for less money elsewhere or with lower interest rates. Mortgages are extremely long term financing options made available to individuals or consumers for the purchase of a house or commercial property. These financing terms commonly run to thirty years or longer. Mortgages involve complex calculations for figuring out payments that often involve property taxes, mortgage insurance, and loan repayments. Financing terms can also relate to the specifics of a particular loan, mortgage, or credit facility. They would spell out the interest rate, due dates of payments, and number of payments anticipated. In many cases, they would also specify the amount of interest that would be paid over the course of the loan or credit facility, as well as the penalties for not making the payments on time.

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Fire Sale A fire sale is a phrase with a variety of interesting meanings. The term originated in reference to the reduced sales price for goods which were damaged in a fire of a shop or business. Since then, it has come to refer to any event which forces a business to move its assets or inventory goods for prices that are substantially discounted. The reason the business would be forced to engage in such a practice is because they are in a bind through some type of serious and often-times fatal financial distress. Where financial markets are concerned, the phrase fire sale also refers to any securities (stocks, bonds, or other financial instruments and investments) which trade at a deep discount to their intrinsic value. This could occur in extended and painful bear market phases in the equities markets. There are a number of examples which help to clarify the several different meanings of this concept of a fire sale. Take a department store as a prime example. When the department store company has to close its doors because of a bankruptcy event, the store might offer such a sale. In this specific scenario, the department store will offer its inventory of goods at what would normally be considered ridiculously low prices. They do this so that they can liquidate the entirety of their in stock inventory. Since the store is closing up for good, they must be rid of each item in the store’s inventory. The only means of effectively accomplishing this lies in providing prices so drastically reduced that bargain hunters will be lured in to purchase the stock. When the prices offered on the merchandise are so good as to be irresistible, then this qualifies as a fire sale. Where securities are concerned, there are always examples of a fire sale of a given stock issue. Any time a particular equity security sells for far less than the value it is perceived to be worth, this qualifies as such a sale. Look at a clear example to consider. When the Dow Jones Industrial Average cratered by a full thousand points within the day, Proctor and Gamble (ticker symbol PG) crashed and burned by a quarter of its value on a temporary basis. This led investors and analysts to declare that there had been a real fire sale on the share of Proctor and Gamble that particular day. In this particular scenario, the phrase for this kind of a sale signifies that the asset in question possesses significantly greater value than the price for which its owner is suddenly willing to sell it. These stock or bond securities which appear to be offered for this dramatic sale often provide an appealing risk to reward payoff possibility for the types of buyers known as value investors. This is because the asset is not likely to experience significantly further deterioration in valuation, yet the profit potential to the upside could possible prove to be impressive. The truth is that there is no single set of metrics for valuing whether or not a particular stock is actually selling for a ridiculously low price. One factor that many analysts can agree on is that if a stock is being valued at multiple year lows in the price, then it is generally considered to be a huge bargain. As an example, stocks which are trading continuously for 14 times earning multiples would likely be fire sales when they trade for a far lower multiple of earnings of a mere seven. For this to be true in all scenarios though, the fundamentals for the given company and its stock must remain more or less unchanged. In other words, they can not simply have deteriorated appreciably in the meanwhile.

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Fiscal Policy Fiscal policy is a government policy for managing the economy. In these actions, a government changes its tax rates and spending amounts. They do this to influence the national economy in a certain way. Fiscal policy’s sister strategy is called monetary policy. In this complementary series of government actions the central bank adjusts the country’s money supply. They do this to pursue the national economic goals. Governments adjust their fiscal policy by altering the government spending and tax levels. They do this to impact the amount of economic activity in the country. It is an attempt to change the aggregate demand to boost consumer and business spending. Aggregate demand proves to be the complete amount of spending in the economy. This is the total combination of consumer spending, business spending, and government spending. There are a number of reasons that a government uses fiscal policy. They are to affect growth and inflation rates. Fiscal policy can effectively boost and encourage economic growth when the economy is suffering in a recession. It can also be used keep inflation under control at a targeted level. This is accomplished by cutting government spending levels. Ultimately the purpose of this type of policy is to stabilize the nation’s economic growth. Governments hope to avoid the common boom and bust cycles in the economy this way. Many times governments will use this fiscal policy alongside monetary policy. Much of the time governments prefer to utilize monetary policy in their efforts to stabilize the economy. Monetary policy is easier to change. It also makes less of a dramatic and potentially disruptive impact on an economy. Expansionary fiscal policy is the type a government employs when the economy slows down. This is also known as loose fiscal policy. To engage in it the government must increase the aggregate demand. They will do this by one of three methods. They may increase the government spending to create more demand and jobs. They can cut taxes to put more money in consumer’s and business’ hands. This will increase consumer spending as they effectively receive a greater amount of disposable income. In some cases governments may choose to both boost spending and reduce taxes. There are side effects of this expansionary policy. The government budget shortfall, or deficit, will worsen. As a result, the government must increase the amount of money it will borrow to finance the spending. Deflationary fiscal policy is the opposite of expansionary policy. In deflationary policy the government becomes concerned about how fast the economy is growing. They attempt to slow it down. This is also known as tight fiscal policy. For a government to pursue this policy they must reduce the amount of aggregate demand. They will do this in one of three ways. They might reduce the government spending. Governments could also raise taxes. A higher level of taxes forces consumers to reduce their spending. The government might also both cut its spending and raise taxes in conjunction. While this slows economic growth, it does have a positive side effect. The government budget deficit improves as a result of cutting government spending and raising taxes. The government can choose to

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reduce borrowing and pay down national debt. Fiscal policy arose from the economic theory of John Maynard Keynes the British economist. He argued that government is able to affect change on macroeconomic levels of productivity. They could do this by raising or lowering public spending amounts and tax levels. According to Keynes, they are able to reduce inflation, keep the currency value healthy, and boost employment with this tool. These ideas are also called Keynesian economics in honor of his work.

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Fiscal Year The fiscal year refers to an accounting period which governments or companies choose to use for their own accounting and in developing financial statements. Fiscal years are not necessarily the same as the calendar years. The U.S. government employs a different starting and finishing point for its own fiscal year. The IRS Internal Revenue Service permits companies to choose whether they will use calendar years or fiscal years in their tax computations. When individuals or companies discuss budgets, they often invoke fiscal years. They prove to be a useful reference point when contrasting corporate or government financial results over the medium to long term. The IRS has its own definition of fiscal year. To them these are comprised of 12 contiguous months that conclude on the final day in any month besides December. This means that where tax reports are concerned, a fiscal year could run February 1st to January 31st. American taxpayers also have the opportunity to utilize either 52 or 53 weeks long fiscal years instead of a 12 month one. In the case of the weeks’ version, the years will rotate back and forth between 52 and 53 weeks in length. Because the IRS automatically uses a calendar year system, those who employ fiscal years will need to adjust their own deadlines for turning in specific forms and getting in different payments. The biggest difference concerns the tax filing deadline. For the majority of American households and businesses, this will be no later than April 15th after the year in question for which they file. Those taxpayers working with the fiscal year system instead must file no later than the 15th day in the fourth month that comes after the conclusion of their fiscal period. This means that a business choosing to have fiscal years that span from May 1st to April 30th will need to turn in all tax returns no later than August 15th. The U.S. tax code makes it relatively easy for companies to use fiscal years in their income tax reporting efforts. All that they are required to do is to turn in on time their tax return which covers that particular fiscal period. The companies also have the right to opt back to using calendar years whenever it suits them. To make the change from fiscal back to calendar years, they need to obtain individual permission by asking the IRS. Otherwise, they will have to measure up to the criteria that they outline in their Form 1128 called the Application to Adopt, Change, or Retain a Tax Year. These fiscal years have a particular way of being addressed. Individuals who are discussing them reference them either by the end date or alternatively the end year. This means that one would refer to the American federal government fiscal year that starts on October 1st and ends on September 30th by saying the government fiscal year which ends on September 30th, 2016. If instead they were referencing spending by the government that happened in November of 2015, they would have to call this expenditure one that occurred in the 2016 fiscal year.

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Fitch Group The Fitch Group is the parent of four subsidiary companies. The original composite member of the group is Fitch Ratings. As the smallest of the Big Three agencies for credit ratings, Fitch has larger, more pervasive rivals in Standard & Poor’s and Moody’s. The United States SEC Securities and Exchange Commission set out its list of the three nationally accepted statistical ratings organizations, or NRSRO’s, back in 1975. The Fitch Group is headquartered jointly in New York City in the United States and in London, Great Britain. The company is majority held by the Hearst Corporation, which controls 80 percent of the group since it acquired an additional 30 percent interest in the worldwide ratings agency back on December 12th of 2014. This transaction equated to $1.965 billion. Hearst had controlled half of the group before this once acquired its original stake back in 2006. The balance 20 percent of the Fitch Group is held by French company FIMALAC, which still controls 50 percent of all board voting rights through 2020. The company became founded on December 24th of 1914 by John Knowles Fitch in New York City when he named it the Fitch Publishing Company. Over 80 years later, the smallest of the big three credit ratings agencies merged with IBCA of London in December of 1997. Fitch Group expanded still more when it made two additional acquisitions in the year 2000 - Thomson Financial Bank Watch in December and Duff & Phelps Credit Rating Co. in April. Thanks to acquisitions such as these, the company has been able to finally position itself in the role of a tie breaker between the varying ratings of Moody’s and Standard & Poor’s, which sometimes have unequal but similar-scaled ratings. Today’s Fitch Group proves to be a worldwide leader of services in financial information that boasts impressive operations spanning over 30 different nations. The group is made up of four divisions including Fitch Ratings, Fitch Solutions, BMI Research, and Fitch Learning. Fitch Ratings is the original core component of the company which evolved from the earliest incarnation of the company Fitch Publishing. It is a leader around the world in credit research and ratings. The division is committed to delivering more than only independent perspectives on its opinions of credit. Fitch Ratings also provides truly international points of view based on its credit market experience and local expertise. Over a century of industry-leading growth for investors who sought out the company’s professional and trusted opinion has been the result. The group provides comprehensive ratings on emerging markets, corporate finance, financial institutions, insurance, project and infrastructure finance, sovereign debt ratings, public finances, and structured financial product offerings. Fitch Solutions turns out to be an industry leader in the provision of credit market data, risk services, and analytical tools for the worldwide financial industry. The company delivers its own market-centric content as well as acting as distributing agent for its sister group Fitch Ratings in a range of inventive platforms. It specializes in fundamental financial data, ratings & research, the proprietary Fitch Connect service, and analytics. BMI Research is the group’s entirely independently based creator and distributor of both industry and nation analysis. This involves a unique holistic approach that combines analysis of industry, macroeconomic trends, and financial markets together. They concentrate their specialty on frontier and

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emerging markets in what they call Total Analysis. BMI maintains offices and operations in New York, South Africa, and Singapore. They deliver information on 200 international markets across 24 different industries. This includes specializations in country risk, industry reports, and the financial markets. Fitch Learning is the group’s professional and training operation. They provide regulatory training, financial training classes, specifically tailored training, and qualifications in CISI, CQF, and CFA for their own employees and those of other corporations around the globe. This arm of the group has important centers in London, New York, Hong Kong, Singapore, and Dubai.

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Five Year Plans Five year plans are economic and social roadmaps that China began issuing in 1953. These were based upon the old Soviet central planning procedures. The Soviet Union collapsed in the early 1990s. Its plans are now a historical footnote. China continues to implement these plans every five years like a clock. They consistently show the world what China is attempting to focus on and accomplish. China has a history of meeting many if not most of its five year plan goals. The government drafts and implements its plans on many levels. These include the district, local, provincial, and central government sectors. Industry regulators are also a part of the process. Most of these government divisions have their own five year plans as well. The NDRC National Development and Reform Commission draft the central government’s plan. In these are detailed economic goals that include GDP growth rates. Social development focuses on improvements in other important areas like education and healthcare. They come up with these specific targets after consulting with a variety of ministries and experts in industry and academia. Chinese regulators on all levels utilize these targets as they work through the implementing the period of the plan. China spends years preparing these plans. They started talking about the goals of the 13th five year plan to run from 2016 to 2020 back in April of 2013. These plans set directions for the government priorities and policies. China met the majority of both economic and social goals they set out in the 12th FYP that concluded at the end of 2015. These attained goals included average growth rates of seven percent, GDP services share at four percentage points higher, and seven percent annual increase to rural and urban incomes. Areas they struggled in were reducing carbon targets, raising non fossil fuels energy production, and increasing energy efficiency. China relaxed its 35 year old one child policy as the biggest change in its current 13th FYP. This showed how the government is concerned about maintaining economic growth in the future as its population ages. For main economic targets, they set a GDP growth rate of average 6.5% per year. They also want to raise disposable income per capita by 6.5% each year. The leadership felt that this would make them into a “moderately prosperous society.” The plan also continues on its path of reforms. Markets will have more influence and the state owned industries will be retooled. They will shift the economy to services from heavy industry. Services will represent a greater contributor towards GDP. The goal is for them to contribute 56% of the total GDP by 2020. China has also committed to lessen the state interventions into everything from account interest rates to gas prices. They aim to increase the capacity of nuclear power to 58 gigawatts and the high speed rail network to 30,000 kilometers or 18,600 miles. The country is to build minimally 50 new airports for civilians. The government wants to develop a new 50 million urban area jobs. In support of this they want to see their urban residency rise to 60% of the whole population by the year 2020.

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For other social changes China intends to significantly address the pollution problems of the past. They hope to limit energy consumption to less than five billion tons of coal equivalent. They also want to reduce their total energy consumption by 15 percent and cut carbon dioxide emissions by 18%. All of this working together is supposed to improve their sometimes horribly polluted air. The goal for city air quality is to see it rated at a minimally good rating for 80% of the time.

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Fixed Income Fixed Income refers to the kind of budgeting and investing style that delivers periodic income and actual returns back to the owners of the investments. This income goes out in generally predictable amounts in frequent and anticipated intervals. The investors who flock to fixed income investments are usually retirees. They count on such periodic returns from investments to give them a stable and regular stream of income. Thanks to the dependable returns they provide, this type of investment is heavily preferred by the demographic of older investors. Fixed income also defines a style of investing whose goal is to provide a general stream of stable and fixed income. Where individual lifestyles are concerned, it also relates to the income of a specific household or a particular individual. Mutual funds can be of this type of investing strategy. This portion of the funds will be invested in vehicles that provide low risk and which pay out interest or dividends. Bonds or mutual funds containing bonds are classic examples of these kinds of investments. It is true that fixed income is most popular with retirees for a good reason. At this point in these investors’ lives, they need to count on both predictable and stable returns and regular income. It is the income sources such as investment returns, pensions, Social Security payouts, annuities, and other funds that generate the more or less same level of income retired individuals find necessary to sustain a given lifestyle from year to year. This is the reason that retirees are also a good explanation of the phrase fixed income. Their income is fixed, so they can not absorb additional costs and increases in living expenses. Because the point of overall fixed income investment strategy is for guaranteeing a dependable stream of income, these investment fund advisors generally favor dividend yielding mutual funds, bonds, certificates of deposit, differing kinds of annuities, and money market funds. Bonds still remain among the most common and popular of these fixed income investments today. Large corporations, local governments like municipalities and counties, state and provincial governments, and national governments all issue such bonds of different types. These investments provide a nice income for not only retirees but also other investors who are on the lookout for a diversified portfolio. The percentages of a portfolio dedicated to fixed income will vary depending on the individual investor’s needs and preference (or tolerance) for risk. As an example, an investor could allocate a portfolio to the following fixed income categories. They might choose 50 percent to investment grade bonds, 20 percent to high yield bonds, 15 percent to Treasuries, and 15 percent to international bonds. Those products which are considered to be riskier, like longer maturity instruments and junk rated bonds, should always be a small percentage of the total portfolio in question. Naturally bonds which are riskier will pay a higher amount of interest or coupon rate since there is a greater chance of risk. Besides bond yields, investors who are seeking income that is fixed have other choices for returns. There are interest paying investments like CDs and money market funds available. Examples of concerns that affect fixed income instruments are important to consider. Borrowers can default on bonds, even those these are generally considered to be safe investments (though junk bonds are

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usually not). There are also exchange rate risks involved with international bonds. Longer maturity date fixed investments are also subject to a risk of interest rates going up over time, which could reduce the asset value of the underlying instrument. This is because where bonds are concerned interest rates and values are inversely correlated.

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Fixed Rate Mortgage Fixed Rate Mortgages are products for mortgage loans that the FHA, or Federal Housing Administration, first created. In this type of mortgage, the interest rates in effect on the mortgage note stay at the same level during the entire life of the loan. This stands in stark contrast to loans where the interest rates are adjustable, or floating. There are also hybrid types of loans that involve fixed rates for a portion of the loan’s life. Fixed rate mortgages will have monthly payments that must be made to keep current on the mortgage. Besides the monthly payment there are property taxes and property insurance costs. These are typically set up in escrow accounts. With such escrow amounts, these are likely to change every so often. Still, the main share of the payments, which are associated with interest and principal on the mortgage, will stay the same. Figuring up the monthly payments with fixed rate mortgages is relatively easy. You will have to acquire three pieces of data to do so. These are the interest rate with compounding of interest period, mortgage term, and amount of loan. Fixed rate mortgages are also known by their nickname of plain vanilla mortgages. They have this moniker because of how simple they are for borrowers to understand. Such fixed rate mortgages do not entail the many risks and perils associated with adjustable rate mortgages that include pre set teasing rates or Adjustable Rate Mortgages. As such, Fixed rate mortgage default rates and foreclosure rates are commonly far lower than are these more experimental and risky mortgage products. Several terms are commonly associated with Fixed Rate Mortgages. These include the fully indexed rate and the term. Fully indexed rates are the interest rate index plus the margin charged by the lender. Such a fully indexed rate proves to be the actual interest rate for the loan’s entire life. The term represents the amount of time that the fixed rate loan covers. This is not the same thing as the number of payments. Thirty year terms might have thirty payments if you were on an annual payment plan, or it might alternatively have 360 payments on a more usual monthly payment plan The most popular and proven form of home loans and mortgage products within the United States are undoubtedly these fixed rate mortgages. Among the various mortgage terms that can be acquired, the most prevalent ones are either thirty year or fifteen year mortgages. Both shorter and longer time frames can be had with fixed rate mortgages. These days, even forty and fifty year mortgages are presently offered. They are especially utilized in places with housing prices that are exceptionally high, as thirty year mortgage terms do not prove to be affordable for the average income family in such scenarios. In contrast to fixed rate mortgages are various other types. These include graduated payment mortgages, balloon payment mortgages, and interest only mortgages. These unusual other types of mortgages commonly get borrowers into trouble, which is why they are not nearly so popular as are the fixed rate mortgages.

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Fixer-Upper Fixer-Upper is a term that is commonly associated with real estate property, such as houses, that need some significant repair and renovation work. Although these kinds of houses might be lived in despite their present condition, they usually want redesign, reconstruction, or redecoration of some form. Depending on how much repair or renovation work they require, fixer-upper’s can be major projects that require significant investments of time and money. Fixer-Upper’s commonly result from houses that have not been taken care of or properly maintained. Because of this, they tend to possess market values that are lower than comparable houses found in the same locale. Fixer-Upper’s can be discovered in the majority of communities, even in neighborhoods whose housing prices are not depressed. Fixer-Upper’s commonly prove to be very popular with buyers who act as investors in houses. They want to acquire the property cheaply so that they can repair it and increase its likely real estate value in order to acquire a nice profit on the investment. These projects as investments have gained greatly in popularity as a result of various do it yourself types of renovation shows that are all about home improvement. Many times in downturns in the real estate market, such as the one that has been ongoing since 2007, the interest in fixer-upper’s declines. There is a danger with Fixer-upper’s for many buyers who think to improve and then flip them, or resell the house for profits. This is simply that they do not realize how much time and money will be required of them in repairing the house in question. Making a house salable will require addressing not only relatively simple cosmetic issues, but also potentially structural or service problems. When the plumbing or foundation is in need of major repairs or replacing, the work involved commonly turns out to be very expensive and needs professional contractors. This is why determining if a Fixer-upper is a viable and worthy investment requires some experience and work. First, you will have to determine for how much the typical house in the neighborhood is selling. It is also wise to know what makes the most desirable houses in the neighborhood so in demand and how much they cost. Real estate agents can be helpful in this respect. If you decide to pursue buying a Fixer-upper, then you should be watching for the truly cosmetic Fixerupper’s. These only require more basic improvements such as wallpaper, paint, new appliances, some landscape work, and possibly new window and floor coverings. Houses that look run down and require substantial structural repairs can be very dangerous and should be avoided. Houses that are priced too reasonably usually have a reason for this. Intelligent buyers should learn why this is the case before they commit their money. The best strategy is to find the house that is the least wanted in the best neighborhood possible. The house and estimated repair cost must both be within your budget. Once at full fair market value, such a property should pay you back handsomely.

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Flash Crash The Flash Crash has also been called the 2010 Flash Crash and the Crash of 2:45. It occurred on May 6 in 2010. This stock market collapse occurred in the United States and caused a trillion dollars of equity to be temporarily wiped out. It began officially at 2:32 EST. The crash happened over only the next 36 minutes. During this crash, major stock indices including the Dow Jones Industrial Average, the S&P 500, and the NASDAQ composite fell apart and then rebounded with unparalleled speed and volatility. At one moment, the DJIA set its largest point drop within a single day to that time. It fell 998.5 points representing over 9% of its value. Most of this drop happened in only minutes. The index then went on to recover a substantial portion of the drop a little later. Up to this point, this represented the second biggest point swing in a single day at 1010 points. Trading volume exploded briefly as volatility increased. The prices of stock indices, individual stocks, futures on the indices, options, and ETF exchange traded funds were all over the board. In 2014, the CFTC Commodities Futures Trading Commission released a report that called this just over thirty minute crash among the most chaotic points in all of the history of global financial markets. The government responded by putting a number of new regulations into play after the 2010 Flash Crash. Despite this fact, they were insufficient to stop another such rapid crash on August 24, 2015. During this second episode, bids on literally dozens of stocks and ETFs plunged to as little as a single penny per share as ETFs decoupled from their underlying value, per the Wall Street Journal article of December 6, 2015. As a result of this second incident, regulators placed ETFs under additional scrutiny. This also led to the analysts at Morningstar stating that legislation from the Depression era was governing the digital age technology of ETFs. It took the Department of Justice almost five years to charge an individual with criminal misconduct that contributed massively to the original flash crash. They charged the trader Navinder Singh Sarao with 22 counts of market manipulation and fraud. Apparently he had utilized spoofing algorithms to trick the exchanges. Immediately before the crash unfolded, Sarao had put in orders for thousands of the stock index futures contracts known as E-mini S&P 500 contracts. These orders constituted $200 million in bets that the markets would then decline. Before the orders were cancelled by his algorithm, it modified or replaced them 19,000 times. Thanks to this individual action, the government and regulators banned front running, layering, and the spoofing of orders. In the investigation that the CFTC conducted, they came to the conclusion that Sarao bore substantial responsibility for the imbalances of the orders in derivatives markets. These impacted the stock markets and made the crash so much more severe. The small time trader Sarao was operating from his parent’s house in the suburban part of west London when he carried out these actions. He had started manipulating the markets back in 2009 when he purchased and modified trading software that would permit him to quickly and automatically place and cancel his orders.

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A later CFTC report in May 2014 determined that the high frequency traders who were assigned much of the blame for the flash crash did not cause it themselves. They did contribute to the severity of it as their orders were taken before those of other participants in the market.

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Floating Exchange Rate A floating exchange rate is one where the price of the currency in question is set by the free forex market. This market sets the values of currencies using available supply and relevant demand as measured against other currency pairs. This is the opposite of a fixed exchange rate, where a national government mainly or entirely sets the rate for the country’s currency. Most of the major economy currencies in the world have been free floating since the Bretton Woods exchange system irreparably broke down in 1971. With a free floating exchange rate system in place, there will be countless short term movements in a currency value that result from investor and trader speculation and disasters or even rumors which are man made or naturally occurring. The longer term movements in these floating currencies occur because of the differentials in between interest rates and economic strength as relative to nations’ peers. There can also be wild short term moves that happen because of central bank direct intervention in the currency markets, even while the system is still a free floating exchange rate environment. The soon to be victors of World War II met in Bretton Woods Resort in New Hampshire in July of 1944 to hold the famed Bretton Woods Conference. The 44 nations at this key conference created the World Bank and International Monetary Fund. They also laid out specific guidelines to set up an exchange rate system that was fixed. The scenario they established laid out a $35 per ounce gold price that all countries pegged up to alongside the dollar. The range of adjustment was limited to only plus or minus one percent at the time. This conference enshrined the U.S. dollar as the world’s reserve currency. Central banks were able to engage in interventions by selling or buying dollars in order to stabilize or tweak exchange rates. The system worked well until 1967 when fractures began to appear. That year, there was a gold run as well as an attack on the value of the British pound. This resulted in a shocking 14.3% sterling devaluation. Four years later, as numerous countries around the world watched the U.S. print limitless new paper dollars they began cashing in their dollars for gold in record numbers. Faced with an impending shortage of American gold reserves in 1971, then-President Richard Nixon felt like he had no choice but to remove the United States from the gold standard. Only two years later, the Bretton Woods currency system had totally collapsed. Those currencies which had participated in the system morphed over to a floating exchange rate system instead. Central banks are able to purchase and sell their own currency in a free floating exchange rate system. They do this to influence the rate of exchange for one of several reasons. They might want to calm down a volatile currency market. They could also wish to cut the currency exchange rate dramatically in order to stimulate exports to other countries. The world’s most important central banks often work in concert to affect the desired results. This includes the G-7 countries of the United States, the United Kingdom, Japan, Italy, Germany, France, and Canada. By working together, they are able to magnify their individual impacts on the currency markets. These interventions do not always prove to be successful and are usually only short term in duration.

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Sometimes central banks choose to indirectly interfere in the markets by lowering or raising their interest rates instead to change the quantity of investor funds moving into their nation.

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Forced Liquidation Forced liquidation involves a business or other organization selling its securities or assets in order to produce liquidity because of a deteriorating financial position and scenario. It is also referred to as forced selling. This activity is commonly pursued involuntarily, as a response to a series of economic or financially devastating events, business regulations, or court imposed legal orders. Where stock securities and investments are concerned, this type of forced liquidation can happen if an investor possesses a margin trading account. Should the investor be negative with the account balance and refuse or be unable to raise the account value back over the mandatory margin requirements once a margin call has been issued, then the broker has the rights to begin forced selling of the account securities and positions. Typically, the brokerage will provide one or more warnings that an under-minimum margin situation has occurred before pursuing this drastic option. If the holder of the account refuses to respond to the repeated calls for margin leveling, then the broker can simply force sell off all positions. It is helpful to consider a few real world examples in order to better understand this forced selling in a brokerage margin trading account. This could be the case with stocks, bonds, commodities, or futures holdings. Assume that brokerage Jean Paul Brokers enforces a minimum margin level requirement of $1,000 for all of its account holders. Gwen’s personal margin trading account had a stock portfolio originally valued at $1,500. Meanwhile, Jean Paul Brokers adjusted their margin requirements up to $2,000. They begin to issue margin calls to Gwen. She is instructed to either sell some stocks or deposit additional funds to raise her account value up to the new margin amount of $2,000. If Gwen refuses or ignores the order for the margin call, Jean Paul Brokers has the legal authority to force sell off at least $500 of her account position stocks. In another scenario with the same account, Gwen has her account net value at $1,500 while the margin requirement remains at the original $1,000. Her stocks begin to plunge in value and are now only worth $800 all together. Jean Paul Brokerage will now send her a margin call demanding that she raise the account value by depositing an additional $200 cash to reach $1,000 in the account. Should Gwen not react by raising the now- delinquent account to this amount so that it is in good standing, then Jean Paul Brokerage will force liquidate her stock positions and shares so that it is able to decrease the amount of leveraged risk to which is it ultimately exposed as the broker responsible for the positions. There is also an opposite of forced liquidation in such margin accounts. This is called forced buy-in. It happens in the event that the short sold shares of a margin account of a short selling trader are recalled by the broker or holder from whose account they were originally borrowed. In the unusual event when this triggers, the brokerage will buy back the shares to return them to the original owner and thus force close out the short position in the account. In such a case, the brokerage is not required to notify the account holder before performing such an account action. They must alert the account holder once they have done this. With hedge funds and mutual funds, portfolio managers sometimes run into unanticipated financial crises. In this case, they may be required to sell off some of their holdings in order to cut their losses and free up cash. A real world example of this is Valeant Pharmaceuticals International. In May of 2016, the drug maker experienced a 90 percent stock price crash from its prior 2015 high. A number of hedge funds had

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poured in literally hundreds of millions of dollars into the pharmaceutical firm stock. They force liquidated their long holdings of the stock in order to salvage what remained of the investment and to safeguard their funds and clients from any further deterioration in the underlying share price.

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Foreclosure Foreclosures represent houses or commercial properties that have been seized by a bank or other mortgage lender. These properties are then sold to recoup mortgage loan losses after an owner and borrower has not made the payments as promised in the mortgage agreement. Foreclosure is also the legal procedure in which the lender gets a court order for the termination of the mortgagor’s right of redemption. This is the case since most lenders have security interests in the house from the borrower. The borrower will secure the mortgage using the house as the collateral. Borrowers fall into home foreclosure for several reasons, most of which could not be predicted in advance. Owner might have been let go from their job or forced to take a job transfer to another state. They might have suffered from medical problems that prevented them from working. They might have gone through a divorce and split up assets. They could have been overwhelmed by too many bills. Whatever the reason, they are no longer able to make their promised monthly mortgage payments. Foreclosures represent potential opportunities for investors. They may be purchased directly with a seller in advance of a bank completing foreclosure proceedings. Many investors who concentrate on foreclosures prefer to deal with the owners directly. They have to be aware of many laws pertaining to foreclosures, which are different in every state. For example, while in some states home owners can stay in their properties for a full year after defaulting on payments, while in others, they have fewer than four months in advance of the trustee sale. Practically all states also allow a redemption period for the delinquent homeowner. This simply means that a seller possesses an irrevocable ability to catch up on back payments and interest in order to retain ownership of the house. The owner will likely be required to pay any foreclosure costs experienced by the bank up to that point. Another means of purchasing a foreclosure home is to buy it at the Trustee’s Sale. When this means is pursued, it is better to bid on a house that allows you to look it over in advance of putting up an offer. This is helpful so that you can determine how many repairs will be needed to make it salable and even possibly habitable. It is also worth knowing if the occupants are still living in the house and will have to be forcefully evicted. The process of going through an eviction can be both expensive and time consuming. Many Trustee Sales will have certain rules in common that have to be followed for a foreclosure house to be purchased. They may demand sealed bids. They could require you to demonstrate your proof of financial qualifications. They might similarly insist on you putting up a significant earnest money deposit. Many of them will state that the property is being purchased in its present condition, or as is.

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Foreign Exchange Foreign exchange involves converting the currency of one nation into another nation’s currency. Foreign exchange rates can be set in several different ways determined by the country’s government. Free market economies allow their currency to float freely most of the time. The value of the money is determined by the markets according to supply and demand factors. Other nations choose to peg the value of their money to a stronger and more stable currency like the U.S. dollar or the Euro. They might also choose to use a basket of currencies for such a peg. A third alternative is for a country’s government to fix the value of their money at a set rate. The majority of nations choose to allow their foreign exchange rates to float freely versus the ones of other nations. This causes them to fluctuate up and down constantly throughout the day. Sometimes nations which allow the value of their money to float freely will choose to intervene in foreign exchange markets to devalue their exchange rate. They might feel that their money’s value has risen too fast and is hurting the competitiveness of their exports. As their exchange rate rises, the cost of their goods becomes more expensive to customers in foreign markets. In such a case, the country may announce that they are buying their own money at a lower rate or they may sell it off in Forex markets. Interventions like this tend to be less common except in volatile exchange environments. Currency values are usually set by the forces of the market and are based on a number of national and international elements. These include trade and investment, flows of tourism, and geo political event risk. Trade and investment requires that the companies or nations purchase the host nation’s money for the transaction. Investors may also want to purchase investments in another country. They would need that nation’s money in order to make such investments. When tourists come to visit a nation, they require the local money. They will exchange their own country’s money for that of the one which they are visiting. Every one of these transactions constantly requires foreign exchange. This explains why the forex markets are the largest financial marketplaces in the world by far. Banks handle this foreign exchange between each other on an international level. This creates a forex market that operates 24 hours per day and six days a week. The major centers of foreign exchange are disbursed around the world. These trades and transactions mostly occur in eight major forex centers. These are London, New York City, Tokyo, Singapore, Switzerland (Zurich and Geneva), Hong Kong, Sydney, and Paris. Each of the transactions comes under the regulation of the Bank of International Settlements. Floating exchange rates are set by the supply and demand of all of these trades. More demand for a currency against a stable supply will increase the value of it against another. The rates are also impacted by numerous economic reports and geopolitical events. Some of the better known and followed ones are unemployment rates, interest rate levels and decisions, manufacturing data, gross domestic product changes, and inflation reports. For countries that choose to go the route of pegged exchange, their governments must artificially set and

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maintain their exchange rates. These rates do not change up and down throughout the day. Instead the government will reset its value on reevaluation dates. Emerging market countries often find this a useful means of managing their foreign exchange rates in order to ensure that they are stable. They will be required to maintain large reserves of their pegged currency so that they can manage the inevitable supply and demand changes that affect their own foreign exchange.

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Foreign Exchange Reserves Foreign exchange reserves are comprised of any currency which is foreign to the central bank holding it. If the American Federal Reserve held British pounds, this would be an example of such reserves. These exchange reserves can include bank deposits, foreign banknotes, bonds, treasury bills, and various other kinds of government securities. The phrase also includes IMF SDR special drawing rights’ units and gold reserves. Such foreign exchange reserves can be utilized for a range of purposes. The main one is to provide the central government with necessary resilience and flexibility in any sort of currency crisis. If several currencies were to crash or become severely undervalued, these central bank vaults contain assets in other currencies which they can fall back on in order to outlast temporary market fluctuations and currency crises. Practically every nation on earth, irrespective of their economy’s relative size and strength, chooses to inventory substantial foreign exchange reserves. Over half of all such foreign reserves in the globe exist in the form of U.S. dollars. This is because dollars represent the most heavily traded global currency in the world. Other commonly found forms of foreign exchange currency reserves include the Euro zone’s euro (EUR), the British pound sterling (GBP), the Japanese yen (JPY), the Swiss Franc (CHF), and ever increasingly the Chinese yuan (CNY). The euro is hands down the second largest form of such international exchange reserves. The yuan is the fastest growing component of foreign reserves today. A number of economists and currency analysts concur that it makes the most sense to keep significant foreign exchange reserves in currencies which are not closely related to the ones of the nation in question. This helps to hedge the central bank from possible currency shocks and devaluations. It has become an increasingly Herculaneum task to do so since the majority of currencies are now closely correlated. These days the People’s Republic of China contains the most impressive array of international exchange reserves. This is due to their over 3.5 trillion dollars in foreign assets denominated in foreign currencies. The majority of these are based in the dollar and treasury securities proffered overseas by the U.S. Treasury. Foreign exchange reserves serve the most common purpose of backing up the domestic currency of any country. This is necessary as currency by itself is inherently of no value. It is only an IOU from the government which issued it in the first place. The only assurance a receiver of this currency has that the currency value itself will be maintained is the good faith, trust in, and credit of the government and nation. This gives such foreign reserves great importance as a form of concretely backing up such assurance. Liquidity and security are critically important in defining what makes a reliable currency reserve investment. Foreign exchange reserves are also utilized as an instrument in the tool kit of monetary policy these days. This is especially important for any country that is determined to use a fixed exchange rate. This helps a central bank to exercise control over its own currency value on the open market when they have other currencies to push into the markets against their own. Nations have opted to build up larger storehouses of foreign reserves since the untimely demise of the Bretton Woods system in 1971 over 45 years ago.

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For example, China maintains simply enormous foreign exchange reserves so that it can control the exchange rates of its own currency the yuan. This helps it to foster beneficial international trading arrangements for its country and economy. They also keep such large dollar reserves because of the requirements of international trade which still mostly settles in U.S. dollars exclusively. Nations such as Saudi Arabia choose to keep huge foreign reserves because their entire economy depends on the one production and resource of oil to which their economy is almost entirely addicted. When oil prices plunge, their economy benefits at least temporarily from the flexibility provided by their heavy buildup of foreign exchange holdings.

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FOREX Markets FOREX markets are the world wide foreign exchange markets. They are called FX markets as well. FOREX markets are different from all of the other major financial markets in that they are over the counter and decentralized. They exist for the purpose of trading currencies. Unlike with other markets, the FOREX markets are also open twenty-four hours a day during the week and on Sunday, since the different financial centers around the globe serve as trading bases for a variety of buyers and sellers. This foreign exchange market is the place where supply and demand mostly decides the different currencies’ values for nations around the world. The main point and reason for the FOREX markets are to help out investment and trade internationally through permitting businesses to easily change one currency to the other one that they require. In practice, individuals or businesses actually buy one amount of foreign currency through paying for it with a given amount of a different currency. As an example, Canadian businesses may import British goods by paying for them in British Pounds, even though their income and base currency are Canadian dollars. The foreign exchange markets allow for investors to speculate on the rising and falling values of various currencies as well. It also makes the infamous carry trade possible, where investors are able to borrow currencies with low yields or interest rates and use them to purchase higher interest rate yielding currencies. Critics have said that the FOREX markets also hurt some countries’ competitiveness against other countries. This market is extremely popular and unique for a variety of reasons. It possesses the greatest trading volume on earth, managing in the three to four trillion dollar range every single trading day. This gives it enormous liquidity. It is also geographically centered all over the world, from Wellington in New Zealand to London in Great Britain to New York in the United States. Traders love that the market runs fully twenty-four hours per day except for on the weekends, when it reopens Sunday afternoon. Finally, an enormous degree of leverage, that can be as much as two hundred to one, allows for even people with small accounts to make potentially enormous gains. Because of all of these factors and its world wide trading base, the FOREX markets have been called the ones where perfect competition is most evident. This is the case even though central banks sometimes intervene directly in these markets to increase or decrease the value of their currency relative to a trading partners’ or trading competitors’ currency value.

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Fortune 500 Fortune Magazine publishes a famous annual list of the biggest 500 companies throughout the United States. This list has become known as the Fortune 500. The positions in the list are based upon total revenues earned for the given year. The magazine’s editors compile this list from the most current revenue figures. They consider both private and public companies. For a private company to be included, it must have revenue information that is available as part of the public domain. Being listed as one of the Fortune 500 companies has always been deemed to be a prestigious position. Over recent years, the leaders in this important list have competed with each other for the top spots. Among the contenders for these important top rankings have been Walmart, Exxon Mobile, Apple, General Motors, Chevron, and General Electric. Energy producing companies nearly always figure prominently in the list. The Fortune 500 list has evolved quite considerably since Fortune Editor Edgar P. Smith first conceived of it. The first year the magazine published it was 1955. At the time, only companies whose revenues came from certain sectors were considered to be included. This comprised companies in energy exploration and production, mining, and manufacturing. Other sectors of the economy were not completely left out by Fortune Magazine. These were included in separate special lists of Fortune 50 companies. In these lists, there were companies which were ranked by assets. This included the 50 biggest commercial banks by assets, 50 largest life insurance companies, and 50 largest utilities in the United States. Other Fortune 50 companies were ranked by revenues. Among these lists were the 50 biggest transportation companies and the 50 largest retailers in America. Fortune magazine finally expanded the definitions of what companies could be included in the benchmark Fortune 500 list in 1994. They broadened their methodology to factor in companies who were members of the services industry. This change made an enormous difference in the subsequent results immediately. The Fortune 500 list gained 291 new companies because of it. Three of the members of the coveted Top 10 spots became service companies for the first time in that ground breaking year. Besides the Fortune 500, Fortune Magazine also publishes several other related rankings. These include such lists as the broader Fortune 1000 and the more selective Fortune 100. These lists are much less widely cited than is the gold standard Fortune 500 list. Fortune has also expanded their lists internationally in recent years. This list is known as the Global 500. Its members generally employ more people, have higher revenues, and boast higher profits than the 500 companies on the solely American based Fortune 500 list. The all around health and performance of the U.S. economy can be measured by the results of the Fortune 500 companies. During the middle of the Great Recession back in 2008, these companies’ results gave hope that there might be improvement in the overall economic picture. In 2009 the Top 500 American corporations as a whole saw earnings increase by 335%. These more encouraging results indicated that possible economic recovery lay ahead. The subtraction from or addition to this list also speaks volumes about different sectors in the American economy. Following the collapse

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of the housing market in the Great Recession, home builders fell off of the list in significant numbers.

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Fractional Banking System The fractional banking system is also known as the fractional reserve banking system. This system is the way that virtually all modern day banks around the world operate. In a fractional reserve banking system, banks actually only maintain a small amount of their deposited funds in reserve forms of cash and other easily liquid assets. The rest of the deposits they loan out, even though all of their deposits are allowed to be withdrawn at the customers’ demand. Fractional banking happens any time that banks loan out money that they bring in from deposits. Fractional banking systems are ones where banks constantly expand the money supply beyond the levels at which they exist. Because of this, total money supplies are commonly a multiple bigger than simply the currency created by the nation’s central bank. The multiple is also known as the money multiplier. Its amount is determined by a reserve requirement that the financial overseers set. This fractional reserve system is managed ultimately by central banks and these reserve requirements that they enforce. On the one hand, it sets a limit on the quantity of money that is created by the commercial banks. The other purpose of it is to make certain that banks keep enough readily available cash in order to keep up with typical withdrawal demands of customers. Even though this is the case, there can be problems. Should many depositors at once attempt to take out their money, then a run on the bank might occur. If this happens on a large national or regional scale, the possibility of a banking systemic crisis emerges. Central banks attempt to reduce these problems. They keep a close eye on commercial banks through regulations and oversight. Besides that, they promise to help out banks that fall into difficulties by acting as their ultimate lender of last resort. Finally, central banks instill confidence in the fractional reserve banking system by guaranteeing the deposits of the customers of the commercial banks. A significant amount of criticism has been leveled against this fractional reserve banking system. Mainstream critics have complained that because money is only created as individuals borrow from the banking system, the system itself forces people to take on debt in order for money to actually be created. They say that this debases the currency. The biggest problem that they have with the commercial banking system growing the money supply is that it is literally creating money from nothing. Other critics associate fractional banking with fiat currencies, or money that is only valuable because the governments say that they are. They decry these as negative aspects of current money systems. They dislike that fractional banking systems and fiat money together do not place any limits on how much a money supply can ultimately grow. This can lead to bubbles in both capital markets and assets, such as real estate, stock markets, and commodities. All of these can be victims of speculation, which is made easier by the creation of money through debt in the fractional reserve system.

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Franchise A franchise can be defined in many ways. The definition from the International Franchise Association describes franchising as a means to expand a business so that goods and services can be distributed more effectively via a licensing relationship. The word itself legally means a specific kind of license. Ultimately, franchising refers to the personal relationship which a franchisor maintains with its franchisees. In this arrangement, the franchisor licenses out its trade name as well as its operating methods, or systematic way of doing business, to a particular franchisee. In exchange for this arrangement, the franchisee pledges to run the business as per the terms of this license. The operating method here refers to the franchisor’s system and way of doing business. Franchisors guarantee their franchisees will have their support and help. They also maintain a certain level of control over specific parts of the franchisee business. This is critical for the franchise owner to safeguard its intellectual property rights as well as to be certain that the franchisee keeps to the guidelines of the brand itself. The quid pro quo of this is that the franchisee typically delivers a one time start up fee (known as the franchise fee) to the franchisor. The franchisees also pay a royalty fee to the franchisor, which is periodic and continuous. This enables the franchisee to utilize the franchisor’s operating system and trade name. The franchisor itself carries little responsibility for involvement in the daily management of the business of the franchisee. This is because franchisees exist as independent operators. Neither are they joint employers with their franchisors. This gives the franchisees a free hand in hiring employees, paying them according to their wishes, scheduling their shifts as they see fit, arranging their employment rules and practices, and even disciplining their own employees, all without requiring any approval from their franchisor. However, the uniforms which the employees wear will be stipulated by the brand and operating system of the franchisor. Franchising is about a contractually defined relationship between the two parties. The franchisees and franchisor will share the brand in common. Despite this, both are distinctly separate businesses in both real terms and legally. The role of the franchisor is simply to build up its business and brand as part of supporting the various franchisees. The part which the franchisees play is to operate and manage their own business according to the specific terms of the franchise agreements. It is interesting that definitions of franchises range from one state to the next according to the various laws which different states enforce. Some states include among the various elements of franchising the responsibilities of the franchisor to deliver a marketing plan to its franchisees. Others insist that the franchisor maintain an interested community of the business jointly with the franchisee. Business Format Franchises are the most readily recognizable types of these arrangements for the everyday individual. These relationships typically cover the whole of the business and its format, not only the products, services, and trade name of the franchisor in question. In this common type, franchisors are expected to give their franchisees training, operating manuals, standards for the brand, a marketing plan and strategy to carry it out, quality control monitoring, and more.

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Examples of the idea make these distinctions clear. Pizza Hut does not license out pizzas or breadsticks. Burger King does not license out hamburgers or chicken sandwiches. The two mega franchise operations instead license out components of their intellectual property. In this case it includes both their business systems and their trade marks, or their ways of producing these food items and company-described premises and atmosphere. The history of these and other brands demonstrates that both services and products have changed significantly over the decades. Among the various advantages to these types of business format franchises and their arrangements is that they have the flexibility to do so effectively. Today there exist numerous kinds of franchises throughout a constantly expanding array of industries and market segments in not only the United States and Canada but around the globe. Estimates state that more than 120 separate industries utilize the concept and practices of franchising now. The greatest share of franchising by far is still the food and restaurants businesses. Nowadays even medical services and home based health care rely on franchising though.

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Franchise Model Franchises are businesses where the owners sell the rights of their business to third parties. The owners of the franchise are known as franchisors. The third party operators who buy the rights are called franchisees. The franchise model is the precise way the business is run to insure uniformity among the different regional or national franchise outlets. This model of business offers advantages to the sellers and the buyers of the franchise. Franchisors who sell their rights gain the ability to grow their business brand faster than they might with their own capital or by using the help of lenders or investors. They are able to harness other individuals’ money to build up the business footprint faster than they can alone. They still maintain control over the brand. Franchisors receive both an upfront franchise fee and continuous royalties. They avoid the deadlines of loan repayments with this model. With the royalties and fees that the franchisors gain, they are able to run the corporate headquarters operations, advertise and market the business brand, support and train their franchisees, build up their brand in the industry, and make improvements on the service or products that their business provides. Franchisees also gain many benefits. Their franchise has a greater likelihood of succeeding than if they start up their own business. This is evident in many ways. They receive upfront training and continuous support. The time to open is less. Buyers also receive the recognition of a brand that is known, help in finding the best site for the new location, lesser costs because of group purchasing power, and better advertising exposure through regional and national campaigns. Besides this, they receive leads that are generated by call centers and websites, the established franchise model, and moral support and counsel from fellow franchisee peers. A more recent benefit for franchisees pertains to help getting funding secured for startup and ongoing operation costs. The model has been wildly successful particularly with nationally known franchises such as McDonald’s, Subway, and Panerra Bread. Yet there are still downsides to the franchise model. These disadvantages apply to franchisees. Most importantly, they have little independence. This is evident from their services and goods they provide to franchise wide promotions that might not be effective in their own individual market. Franchisees will have to utilize the company colors and approved paint colors on their walls. They can be made to redesign their units at significant expense. Most dangerous of all is the possibility that the franchise transforms after the franchisee signs a 10 to 15 year long contract. The ownership or management could completely change and force the brand to go in a different direction that the franchisee does not like or at all want. The franchise model is all about following the system. This idea is central to the success of a franchisee’s efforts. The reason that a franchisee purchases the franchisor’s model and system is because they have confidence in it. Franchisees feel they can succeed and make money if they follow the system perfectly. A good franchisor considers appropriate regional variations and suggestions for some changes. They also

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know that if they leave the system without gaining approval from the franchisor first, they may violate the franchise agreement. This could cause them to have their rights to use the franchisor’s name and business model revoked. Franchisees are also required to keep confidential any trade secrets or proprietary methods of business. They are also made to sign and abide by a non-compete clause agreement.

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Fraud Fraud turns out to be an intentional misstating or misrepresentation that leads businesses or individuals to encounter harm. These damages are frequently reflected as monetary loss. Several elements must be involved for acts to be considered fraudulent. A number of different kinds of fraudulent activities exist. They range from insurance fraud to identity theft to supplying false tax information to offering false statements. In some cases, this type of deception is only one part of a larger crime. It is typically handled in criminal court, though it may be tried in a civil court case as well. Not every jurisdiction or country has the same definition of what constitutes fraudulent activity. The United States judges it to include a number of different components. A fact or statement has to be misrepresented or untrue. This statement must be relevant or important. The person making the statement must be aware that it is a false declaration. He or she must also mean for the listener to rely on the statement. The hearer can not be aware that the declaration is untrue. This listener must be relying on the veracity of the declaration in order to make a choice. The hearer also can not have a reason to believe the statement could be untrue. Most importantly, the hearer has to experience some form of damages for it to be considered fraud. In other words, the persons speaking have to supply a lie which they know is untrue while intending the hearer to believe it to be true. The hearer can not know it is a lie or believe the lie might be false. The hearer also has to rely on the lie in a decision making process. The listener must suffer damages from believing the lie to be the truth. There are numerous different kinds of fraudulent activity. These can mostly be arranged according to three categories of employee, government, and consumer. Employee fraud means that workers defraud the company or individual who employs them. This could be done by intentionally falsifying expense reports or by embezzling corporate funds. Government fraud revolves around activities that are done intentionally to trick a government agency or some types of businesses protected by law. Insurance and tax frauds are components of this group. Consumer fraudulent actions revolve around scams and cons. They are designed to cheat individuals out of money or personal information, like with scams that involve investments, telemarketing, or gathering sensitive components of personal identity. Some cases of fraudulent activity are committed by white collar criminals and pertain to complex financial deals. To be considered white collar crime, the fraudulent activity must involve business professionals who harbor criminal intentions and who possess specific knowledge. Crooked financial advisors might attempt to trick clients into buying shares of precious metal repositories. They have credibility from their reputation as a professional investment advisor that makes them trustworthy to clients. Individuals who feel this is a legitimate business opportunity could invest large sums and obtain realistic looking share certificates from the advisor. When the advisor is well aware that there are no repositories like these and accepts payments for the false share certificates, he has defrauded the customers who contributed funds to the investment venture.

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Freddie Mac Freddie Mac is a semi-private company that Congress chartered in 1970. They created the entity to offer stability, liquidity, and affordable prices for the country and its housing markets. They have grown to be responsible for the home purchases of one out of four buyers. Besides this the company is also among the biggest financing sources for multifamily housing in the nation. From 2009 to 2016, the company has dispersed mortgage market funding that amounts to over $2.5 trillion. This has enabled in excess of 13 million American families to refinance, purchase, or rent a home in that time frame. In 1970 Congress was seeking to stabilize the mortgage markets of the country. They wanted to grow and improve opportunities for rental housing that was affordable and for home buying. Because of this, Freddie Mac’s mission has always been to bring stability, liquidity, and affordability to the national housing market in the United States. They do this in a variety of ways. The company helps the secondary mortgage market. They buy both mortgage securities and mortgage loans outright as investments. They then package and sell these as guaranteed mortgage securities known as PCs. In this secondary market, there are entities which buy and sell mortgages as complete loans or as mortgage securities. Freddie Mac never makes loans to home owners directly themselves. Because of the collapse of the mortgage backed securities markets in 2007 and 2008 and its impact on their finances, the company is now being run under conservatorship. The FHFA Federal Housing Finance Agency oversees their business to make sure loans are carefully scrutinized and securitized. They want to avoid the mistakes of the financial crisis becoming repeated here. Freddie Mac operates in three main business areas to ensure that a continuous supply of mortgage funding goes through to the housing markets in the country. They make rental housing and home buying more affordable through their single family credit guarantee business, their multifamily business, and their investment business. They utilize all three of these to promote financing for affordable housing. The single family line is essentially a recycling operation. They work with securitizing mortgages so that the entity is able to provide funding to millions of different home loans annually. This securitization proves to be the means where they buy up different loans lenders have made and then package these up into various mortgage securities. They then sell these on the worldwide capital markets. The money from the sale of these securities they next funnel back to the lenders. In this way home loan operations have sufficient mortgage money for lending. The company is also interested in supporting renters as well. This is the role of their multifamily business. In this line, the outfit cooperates with a group of lenders to help finance the construction of various apartment buildings throughout the United States. The lenders make the loans and Freddie Mac buys them to package and resell. This way the lenders receive back the proceeds so they can issue more loans. This is a critical line as multifamily loans prove to be a few million dollars each and require unique underwriting from one property to the next. Their investment business actually purchases some of their own mortgage backed securities which they

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and other financial entities like Fannie Mae guarantee. This portfolio further invests into individual loans which they guarantee but choose not to securitize. By bidding on some of their own securities, the investment business and portfolio serves the markets. It gives these mortgage backed securities greater liquidity and offers more funding for mortgages. They do this by issuing their own debt which creates net income for the company after they pay their interest to the bond holders.

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Free Enterprise System Free enterprise systems are those which have limited government interference in the overall economy. Governments do not place many restrictions on the economic activity and commercial abilities of their citizens in this system. Ownership and business activities are not heavily regulated by the government. Other names for this system are capitalism or free market economies. In such economic systems, individuals can spend their money however they would like. A number of companies compete for business in most industries. This creates the effects of higher quality products and better prices. Individuals can engage in any work or job that they like under this system. The history of the free enterprise movement and system dates back to the 18th century. At this time people in countries around the world had to obtain governmental approval in order to start up a business. The philosophy of free market economies argued for limiting restrictions on business ownership. The idea was that individuals should be permitted to trade with anyone they wished from any nation. Proponents of the system wanted to run their business as they saw fit. Adam Smith wrote about this system of capitalism and the invisible hand that guides free markets at this time in his timeless classic The Wealth of Nations. The French came up with a similar concept Laissez-faire. This meant that government should keep its hands off individual business. Private party transactions were supposed to be left free from government tariffs, regulations, privileges, and subsidies. In the early 20th century Communism developed as an opposing system to free enterprise. It argued for state owned control of industry and businesses. Workers were encouraged to labor for the good of the collective group instead of for their own benefit. Large sections of the world adapted this form of economic domination in Eastern Europe, Asia, and Russia particularly. In time this system became discredited. In the 1990s it collapsed in the former Soviet Union and Eastern Europe. It has all but disappeared except for in China. A number of countries of the world have adapted many of the causes of free enterprise into their economies. This system of free enterprise became a major part of the U.S. and British economies’ strength. There are free market representatives who continue to insist that the U.S. and other Western countries need less restriction on their economies. Still other countries of the world participate in a third economic system. This is known as socialism. Socialist governments attempt to manage their capitalist economies. One of their goals is to protect workers’ rights and benefits. They often place restrictions on free trade with other countries and erect barriers to competition. Larger industries are nurtured and are often part owned by the government. Smaller businesses are not as heavily regulated. They enjoy more of the benefits of free market economies. France is an example of this type of economy. Free enterprise systems are characterized by a number of different traits. The spending of consumers determines what goods and services companies will supply. Markets permit individuals to obtain

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property, buildings, and real estate with few limitations. Owners of businesses enjoy several advantages with this system as well. They are allowed to make their own prices and decide how much profit they will pursue. They can also choose their own material suppliers and with whom they will conduct their business. The government also will not limit them to the kinds of business which they are allowed to pursue.

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Friedrich Hayek Friedrich Hayek was a renowned Austrian economist born in Vienna in 1899. He earned significant fame for an impressive variety of contributions in such diverse fields as economics, psychology, and political philosophy. His economic ideas came from the Austrian School in economics. They focused on the fact that knowledge is limited in nature. Hayek became especially famous for defending free market capitalism. He is today still remembered as among the most effective critics of the socialist idea that was mostly consensus during his life time. A man of many specialties, Friedrich Hayek has been called an ultimate Renaissance man for the twentieth century. His substantial and discipline changing contributions impacted economics, psychology, and political sciences. These fields often find an idea is surpassed by expansions on the creators’ original theories. Yet with von Hayek, a number of his important contributions were so eye opening that many scholars still read them to this day over fifty years after he envisioned and wrote them down. A significant number of graduate students in economics today read and study his articles which he wrote in the decades of the 30’s and 40’s. Even now many of the insights they still draw from his writings are ground breaking in their disciplines. Author Daniel Yergin has claimed that Hayek was the foremost economist of the second half of the 1900s in his book entitled Commanding Heights. Friedrich Hayek turned out to be the most famous articulator and defender of the Austrian Economics school of thought. This is most ironic as he stands out as the only important recent member of this school that could call Austria his birthplace where he was raised. Following World War I, von Hayek earned twin doctorate degrees in political science and law from the University of Vienna. He then joined up with Ludwig von Mise in his private seminar with other young up and coming economists. By 1927, von Hayek had taken on the director position at the newly established Austrian Institute for Business Cycle Research. He received an invitation from Lionel Robbins in the early 1930s and accepted a faculty position at the famed London School of Economics where he remained for 18 years, eventually earning British citizenship in 1938. In this important time, Friedrich Hayek worked on Austrian theories of monetarism, capital, and business cycles. He believed in an important connection and relationship between the three topics. Von Hayek believed that the market happened spontaneously as an unplanned entity. Though no one designed it, it grew slowly but steadily because of human interaction. Despite this, the market did not function perfectly anywhere. In 1974, Friedrich Hayek received the greatest honor of his life by co-wining the Nobel Prize in Economics. He and partner Gunnar Myrdal won this famous prize because of their “pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of interdependence of economic, social, and institutional phenomena.” Friedrich Hayek died on March 23 in 1992. Following his death, several of the universities at which he had taught over the years honored him with tributes, by naming halls and auditoriums after him. In a field where economic theories come and go all the time, his are still revered as especially insightful and

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diligently learned half a century after he created them.

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FTSE 250 FTSE 250 is a broad-based stock index maintained by the FTSE company. This company is much like Standard and Poor’s in that they both concentrate their efforts on calculating indices. The FTSE is not made up of any stock exchange, though among its co-owners is the famed and historic London Stock Exchange (LSE). The other co-owner of the company is its namesake the Financial Times newspaper publishing empire. Easily the best known of the FTSE indices is the FTSE 100. There are many thousands of indices owned, produced, and calculated by FTSE, but only one is the blue chip index of all British and international company and economy stocks based on the LSE. The second most important and widely cited index from the company is this FTSE 250. This one is made up of the 101st to 351st largest companies in the U.K. As these firms tend to be much more British and far less international than those making up the FTSE 100, they are gauged to be a superior measurement of how the British economy and U.K. based firms are actually performing. The FTSE 250 index list is altered four times a year on a quarterly basis. This occurs reliably every March, June, September, and December month. The index itself is continuously calculated instantly in real time. The owner of the index publishes it every minute accordingly online and through financial news and media outlet feeds. As of November 7, 2016, the 350 different constituent companies which comprise the FTSE 250 are as follows: 3i Infrastructure, AA, Aberdeen Asset Management, Aberforth Smaller Companies Trust, Acacia Mining, Aggreko, Aldermore Group, Alliance Trust, Allied Minds, Amec Foster Wheeler, AO World, Ascential, Ashmore Group, Assura, WS Atkins, Auto Trader Group, Aveva, Balfour Beatty, Bankers Investment Trust, Barr, A.G., BBA Aviation, Beazley Group, Bellway, Berendsen, Berkeley Group Holdings, Bank of Georgia Holdings, BH Macro, Big Yellow Group, B & M European Retail Value, Bodycote, Booker Group, Bovis Homes Group, Brewin Dolphin Holdings, British Empire Trust, Britvic, Brown N, BTG, Cairn Energy, Caledonia Investments, Capital & Counties Properties, Card Factory, Carillion, Centamin, Cineworld, City of London Investment Trust, Clarkson, Close Brothers Group, CLS Holdings, CMC Markets, Cobham, Computacenter, Countryside Properties, Countrywide, Cranswick, Crest Nicholson, CYBG, Daejan Holdings, Dairy Crest, Debenhams, Dechra Pharmaceuticals, Derwent London, DFS, Dignity, Diploma, Domino's Pizza, Drax Group, Dunelm Group, Edinburgh Investment Trust, Electra Private Equity, Electrocomponents, Elementis, Entertainment One, Essentra, Esure, Euromoney Institutional Investor, Evraz, F&C Commercial Property Trust, Fidelity China Special Situations, Fidelity European Values, Fidessa Group, Finsbury Growth & Income Trust, FirstGroup, Fisher, James & Sons, Foreign & Colonial Investment Trust, G4S, Galliford Try, GCP Infrastructure Investments, Genesis Emerging Markets Fund, Genus, Go-Ahead Group, Grafton Group, Grainger, Great Portland Estates, Greencoat UK Wind, Greencore, Greene King, Greggs, GVC Holdings, Halfords Group, Halma, Hansteen Holdings, HarbourVest Global Private Equity, Hastings Group, Hays, Henderson Group, HICL Infrastructure Company, Hill & Smith, Hiscox, Hochschild Mining, Homeserve, Howden Joinery, Hunting, Ibstock, ICAP, IG Group Holdings, IMI, Inchcape, Indivior, Inmarsat, Intermediate Capital Group, International Personal Finance, International Public Partnerships, Investec, IP Group, Jardine Lloyd Thompson, JD Sports, John Laing Group, John Laing Infrastructure Fund, JPMorgan American Investment Trust, JPMorgan Emerging Markets Investment Trust, JPMorgan Indian Investment

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Trust, JRP Group, Jupiter Fund Management, Just Eat, KAZ Minerals, Keller, Kennedy Wilson Europe Real Estate, Kier Group, Ladbrokes Coral, Laird, Lancashire Holdings, LondonMetric Property, Man Group, Marshalls, Marston's, McCarthy & Stone, Meggitt, Mercantile Investment Trust, Metro Bank, Millennium & Copthorne Hotels, Mitchells & Butlers, Mitie, Moneysupermarket.com Group, Monks Investment Trust, Morgan Advanced Materials, Murray International Trust, National Express Group, NB Global, NCC Group, NMC Health, Ocado Group, OneSavings Bank, P2P Global Investments, PageGroup, Paragon Group of Companies, PayPoint, Paysafe, Pennon Group, Perpetual Income & Growth Investment Trust, Personal Assets Trust, Petra Diamonds, Petrofac, Pets at Home, Phoenix Group Holdings, Playtech, Polar Capital Technology Trust, Polypipe, PZ Cussons, QinetiQ, Rank Group, Rathbone Brothers, Redefine International, Redrow, Regus, Renewables Infrastructure Group, Renishaw, Rentokil Initial, Restaurant Group, Rightmove, RIT Capital Partners, Riverstone Energy, Rotork, RPC Group, Safestore, Saga, Savills, Scottish Investment Trust, Scottish Mortgage Investment Trust, Segro, Senior, Serco, Shaftesbury, Shawbrook Bank, SIG plc, Smith (DS), Smurfit Kappa Group, Softcat, Sophos, Spectris, Spirax-Sarco Engineering, Spire Healthcare, Sports Direct, SSP Group, Stagecoach Group, St. Modwen Properties, SuperGroup, SVG Capital, Synthomer, TalkTalk Group, Tate & Lyle, Ted Baker, Telecom Plus, Temple Bar Investment Trust, Templeton Emerging Markets Investment Trust, Thomas Cook Group, Tritax Big Box REIT, TR Property Investment Trust (two listings, both ordinary & sigma shares), Tullett Prebon, Tullow Oil, UBM, UDG Healthcare, UK Commercial Property Trust, Ultra Electronics Holdings, Unite Group, Vectura Group, Vedanta Resources, Vesuvius, Victrex, Virgin Money, Weir Group, Wetherspoon (J D), W H Smith, William Hill, Witan Investment Trust, Wizz Air, Woodford Patient Capital Trust, Wood Group, Workspace Group, Worldwide Healthcare Trust, and Zoopla.

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Fund Manager Fund managers are the individuals, investment companies, or sometimes banks that handle a mutual fund’s investment decisions. These decision makers are charged with earning as much profit for their fund as they reasonably can while still following the risk parameters that the mutual fund discloses. Fund managers are compensated differently than stock brokers who earn commissions. These managers receive their compensation based on the total dollar amounts under the management of the mutual fund. An advantage to this form of payment is that it provides motivation for fund managers to increase overall assets. A more successful manager will attract more investors and money and achieve greater returns. The management fee that the fund levies pays the fund manager. This fee appears on fund financials under the expense ratio. A mutual fund’s board of directors hires the fund manager. Fund shareholders themselves select the board of directors. These fund managers wear many hats. They oversee all of the investments that the mutual fund undertakes. They must set and manage annual meetings. They must also be responsible for the mutual fund’s customer service efforts and many different elements of fund compliance. Compliance roles include offering a fund prospectus, negotiating commission rates with brokers, issuing proxies, and other important periodic and daily tasks. Fund managers generally hire staff to help them with these many roles. Sometimes they contract out some or all of these services to another company. In practice most mutual funds are owned by families of mutual fund companies. In these cases, these companies provide their fund managers with these services at a cost. A number of mutual funds have single managers in charge of the fund. The majority of larger funds have significant sized staffs that the fund manager leads. In such cases, these leadership positions are more like investment managers than fund managers. The biggest funds have a few fund managers who share the responsibilities and decisions. Entire investment firms act as fund managers to some mutual funds. A fund manager is an important person to consider when investors are looking at mutual funds. One of the most important characteristics of a successful mutual fund concerns how long the fund manager has been present. Funds which boast a fund manager who has been with them a long time have a distinct advantage. If a fund claims significant changes in its fund management, this is generally looked at as a negative factor. It might indicate that there have been problems in the fund with the performance. It could also imply that the fund manager has not properly carried out compliance and other critical issues in the daily running of the fund. Alternatively, a change in fund manager could simply mean that the fund has overhauled its investment strategy and changed its emphasis. Hedge funds also employ fund managers. A hedge fund manager is far less restricted in the investments that he or she can pursue than is a mutual fund manager. This is because there is much less regulation for hedge funds than for mutual funds.

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The hedge fund managers receive their income according to a different compensation scheme. Mutual fund managers earn their fees however the fund performs. Hedge fund managers instead are rewarded with a percentage of their earned returns. They also receive a small management fee that commonly runs between one and four percent of the fund’s net asset value. Investors who do not like paying managers for poor performance appreciate this structure for paying hedge fund managers. The disadvantage to it concerns risk. Hedge fund managers could pursue more aggressive and risky strategies to make greater returns because of their fee structure.

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Fundamental Analysis Fundamental analysis is a method for evaluating stocks and other instruments to learn the value of the shares based on two ideas. These are the factors that impact the actual business of a company in the here and now as well as its prospects for the future. Fundamental analysts most commonly consider individual stocks, but they can also use the method on the whole economy broadly or on individual industries more specifically. In its simplest form, this is the idea that individuals can determine the economic health of a financial issue or entity using information about the entity itself. The opposite idea to fundamental analysis is technical analysis. Performing fundamental analysis involves looking at a number of different pieces of information on the given company. This information can be broken down into quantitative and qualitative components. Quantitative information analysis considers expenses, revenues, liabilities, assets, and other important financial elements that a company possesses. These numbers are tangible and demonstrate how the company share price should perform in the future based on how the company is doing now in the present. Financial analysts find most of this information in financial statements of the company they are considering. The second component of Fundamental Analysis, qualitative analysis, is more difficult to define. Simply put, analysts determine qualitative measures from the quality of the company instead of its size and market share. This contemplates the parts of a company’s business that are more intangible and hard to measure. Among the things considered in qualitative analysis are the company executives and board members and their quality, the unique technologies a company possesses and its patents, and the recognition of its brand name. Analysts find some of this information in a company annual report presentation. The goal of fundamental analysis is to answer a range of different questions that help to decide if a stock or industry is worthy of investment. Some of these questions concern the following: is the corporation increasing its revenue, will it be solid enough to beat competition not only today but tomorrow, can the company pay back its debts, and is the company earning a profit. There are two main assumptions in which this type of analysis believes. Fundamental analysts are trying to measure intrinsic value. One of their main ideas is that the actual price of a stock on any given day does not equate to the true intrinsic value of the stock. A second principal concept is that stock markets may not reflect the fundamental values for particular stocks now. These analysts believe that the markets will demonstrate fair intrinsic values over time. This time frame could be in coming days or even over years. The entire goal in determining intrinsic value is to know at what price a stock should be fairly valued. Investors focus on this company in an effort to learn the intrinsic value so that they can buy the shares of the stock at a discount to this fair value. The idea is that given enough time, investments will make money when the market value of the stock rises to meet the fundamental fair value.

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This study does not only look at the individual companies by themselves. It also considers the overall industry of which a company is a part. This is an important part of fundamental analysis. When looking at an industry, fundamental analysts consider many different factors. They look at how many customers make up the industry base. The market share that a company possesses within the overall industry is also crucial information. Actual measurable growth of the industry reveals what the company’s future prospects are likely to approximate. The number and strength of the competitors helps to explain what the company is up against within its own field. Finally, any governmental regulations on a given industry can massively impact the prospects and potential for any and all companies competing within the industry. Fundamental analysis is criticized by two opposing ideas. Technical analysts argue that all of the information the fundamentals embody are already factored in to the value of the stock as it trades on a daily basis. Technical analysis states that this is a pointless exercise to go through, gather, and contemplate the various underlying components such as profit and loss or assets and liabilities. The other main opponent to fundamental analysis is the efficient market hypothesis. The followers of this concept argue that individuals can not outperform the stock market over the long term regardless of how much information they gather and consider. They believe that the market itself already prices all stocks effectively on a constant and continuous basis. These proponents argue that the countless investors who participate in the markets all negate any advantage that fundamental or technical analysis would provide, so that no one is able to outperform the overall stock market over time.

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Futures Futures prove to be financial derivatives that are also called forward contracts. Such a futures contract gives a seller the obligation to deliver an asset, such as a commodity, to the buyer at a pre set date. These contracts are heavily traded on major produced commodities like wheat, gold, oil, coffee, and sugar. They also exist for underlying financial instruments that include government bonds, stock market indexes, and foreign currencies. The history of futures goes back to Ancient Greece where the first recorded example is detailed about an olive press arrangement that philosopher Thales entered into. Futures contracts become commonplace at trade fairs throughout Europe by the 1100’s. Merchants did not feel secure traveling with significant amounts of goods, so they would only bring display samples along and then sell merchandise that they would deliver in greater quantities at future dates. Futures contracts created an enormous bubble in the 1600’s with the Dutch Tulip Mania that caused tulip bulbs to skyrocket to unthinkable levels. In this speculative bubble, the majority of money that was exchanged turned out to be for tulip futures and not the tulips themselves. The first futures exchange in the United States opened in 1868 as the Chicago Board of Trade, where copper, pork bellies, and wheat were traded in futures contracts. In the early years of the 1970’s, futures trading grew explosively in volume. Pricing models created by Myron Scholes and Fischer Black permitted the quick pricing of futures and options on them. Investors could easily speculate on commodities prices through these futures. As the demand for the futures skyrocketed, additional significant futures exchanges opened and expanded around the world, especially in Chicago, London, and New York. Futures trading could not happen effectively without the exchanges. Futures contracts are spelled out in terms of the asset that underlies them, the date of delivery, the last day of contract trading, transaction currency, and size of ticks or minimum permissible price changes. Exchanges have developed into major and predictable markets through their standardizing of all of these various factors for many different kinds of futures contracts. Trading futures contracts involves major leverage. This means that they carry tremendous opportunities as well as risks. Futures, with their ability to control enormous quantities of commodities and financials, have been the root causes for many collapses. Enron and Barings Bank were both brought down by financial futures. Perhaps the most famous futures meltdown involved the Long Term Capital Management group. Even though this company had the inventors of the futures pricing models Scholes and Black working for them, the company lost money in the futures markets so quickly that the Federal Reserve Bank had to become involved and bail out the company to stop the whole financial system of the Untied States from collapsing.

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Futures Contracts Futures contracts are legally binding agreements which two parties usually enter into on a futures exchange trading floor or electronic platform. They spell out the particulars for selling or buying specific financial instruments or commodities for a pre-set price at an exact moment in the future. Such contracts have become standardized to make it easy to trade them on the various futures exchanges. They provide information on the quantity and quality of the commodity, though this depends on the nature of the underlying asset. Futures contracts can be settled in two ways. Some of them require actual physical delivery of the commodity specified. Others simply settle between the two parties in cash. These contracts specify all important characteristics for the item which the parties are trading. This makes them different from the word “futures” that more generally refers to the markets in which these commodities and instruments trade. There are two actual types of participants in the futures markets who utilize such futures contracts. These are speculators and hedgers. Individual traders and managers of portfolios can use them to place speculative bets on the direction of price movements for the given asset that underlies the contracts. Hedgers involve buyers or producers of the contact asset itself attempting to lock in the price for which they will later buy or sell their commodity. There are many different commodities and assets for which futures contracts exist. The most obvious of these are hard assets such as precious metals, industrial metals, natural gas, crude oil and other energy products, grains, seeds, livestock, oils, and carbon credits. Literally dozens of the more significant stock market indices around the globe have these contracts available to trade. Some major individual stocks have their own futures contract on their shares as well. The major interest rates and most important currency pairs also have such contracts and markets to trade. Futures contracts which require physical delivery do not often result in such physical delivery. Many investors in these contracts trade them and sell them before the date of delivery. They can roll them forward by selling the imminent to expire contract and buying a further month out to replace them. For producers of a good, these contracts provide a unique solution to the problem of fluctuating prices. Oil producers are classic examples. They might intend to produce a million barrels of oil to deliver in precisely a year. If the price is $50 for a barrel today, and the producer does not want to risk prices falling lower, it could lock it in. Oil prices have become so volatile that they could be substantially lower or higher a year from now. By selling a futures contract, the producer gives up the opportunity to possibly sell the oil for more in a year. It also eliminates the risk of receiving a lower amount. Mathematical models actually determine the prices of futures contracts. They consider the present day spot price, time until maturity, risk free return rates, dividends, dividend yields, convenience yields, and storage costs. This might mean with oil prices at $50 that a one year futures contract sells for $53. The producer receives a guarantee for $53 million and will have to provide the 1 million barrels of oil on the exact delivery date. It will obtain this $53 per barrel price despite the spot prices at which the markets are trading on that date.

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Futures Exchange A futures exchange refers to a central clearing marketplace that allows for futures contracts as well as options on such futures contracts to be traded. Thanks to the rapid increase in electronic trading of futures, this term also finds use regarding futures trading activities directly. There are the two most important futures exchanges in the world today. The biggest in the United States is the Chicago Mercantile Exchange, or CME. This one became established in the last years of the 1890s. In the early days, the only futures contracts available were agricultural products’ futures. This changed rapidly in the 1970s. Currency futures appeared on the major currency pairs after the breakdown of the Breton Woods Agreement. The futures exchanges of today are massive by comparison. They allow for investors to hedge all sorts of financial products and commodities. These range from stock indices and individual stocks to energies, precious and base metals, soft commodities such as orange juice and soybeans, interest rate products, and even credit default swaps. In today’s futures exchange, it is hedging financial instruments and products which create the significant majority of activity in futures markets. Today the futures exchange markets carry an important responsibility for global financial system operations, efficient functioning, and activity. The international nature of this global futures exchange has given rise to the world’s first truly international futures market, the ICE Intercontinental Exchange. ICE is massive and important in not only futures markets. They own and operate 12 different exchanges around the world, including NYSE EuroNext, which controls the famed and venerable New York Stock Exchange and EuroNext exchange (owning the Paris and Dutch stock exchanges, among others). In Europe, this is a serious rival to the historic LSE London Stock Exchange and continental powerhouse the German Deutsche Bourse. The ICE today counts 12,000 listed futures contracts as well as securities. It trades 5.2 million futures contracts every day, as well as $1.8 billion in cash equities every day. In energies, the Intercontinental Exchange Futures commands almost half of all the traded crude and refined oil futures contracts volume for the entire planet. It is also the location of the most highly liquid market for the European interest rates short term contracts. It controls a wide variety of global benchmarks in agriculture, energies, foreign exchange, and equity indices. ICE only launched its international futures exchange back in 2000 with the advent of their electronic trading platform. This makes it among the newer futures exchanges in the world, and yet it is a dominant international player still. Their high tech-powered rise increased the access to and transparency of the Over the Counter traded energy markets as well as the new global futures markets exchange they opened shortly thereafter. It was 2001 when they expanded to energy futures with their acquisition of the International Petroleum Exchange. In 2002, ICE expanded heavily into Europe by opening up their ICE Clear Europe. This represented the first new clearing house in the United Kingdom in a full century. By 2007, the Intercontinental Exchange had cemented its global position in energy trade by acquiring both the NYBOT New York Board of Trade and the Canadian-based Winnipeg Commodity Exchange.

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The end result today is an entire ecosystem made up of futures and equities markets, clearing houses throughout the world, listing and data centers and services, and technology-driven solutions which together work to create a full, free, and transparent accessibility to the worldwide futures, energy, derivatives, and capital markets. Between ICE Futures U.S.’s operations and endeavors within the United States, the futures exchange is enabling and empowering markets which allow for an effective risk management throughout the world economy. Their product offerings and solutions encompass a diverse and broad variety of futures contracts. These span internationally traded equity indexes and futures; credit derivative futures; FX futures; North American oil, power, and natural gas futures; and soft commodities and agriculture futures including sugar, cotton, coffee, and cocoa.

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G20 The G20 is the combined organization of developed and important developing nations. These countries make up 85% of the global economy and include two thirds of all the people on earth. As the powerful driving engine of the global economy, this group has been recognized as centrally important in tackling issues of world importance. The G20 is comprised of central bank governors and finance ministers of the European Union (represented by the President of the European Central Bank and the European Council President) and the United States, the United Kingdom, Turkey, South Africa, Saudi Arabia, Russia, Mexico, South Korea, Japan, Italy, Indonesia, India, Germany, France, China, Canada, Brazil, Australia, and Argentina. The G20 is headed by a president. This individual position rotates every year among the constituent member states. These central bank governors and finance ministers meet two times per year. They generally coordinate their meetings with those of the World Bank, International Monetary Fund, and the G20 summits. At the November 15-16 2015 meeting held in Turkey, around 4,000 delegates and 3,000 representatives of the world media participated or attended. The G20 group actually formed back in 1999. The idea was to provide a more important voice and forum for developing countries in arranging the world economy. These meetings began as only informal sit downs of central bankers and finance ministers. The world’s first G20 summit occurred in the midst of the 2008 global financial crisis from November 16-17. They met in Washington, D.C. Until this first summit, most important global economic issues and plans were tackled by the G8 or G7. These represent only the economically important developed nations. At this first summit, the emerging market leaders wanted the United States to better regulate its financial markets. The U.S. at first refused. These developing leaders also wished to see the debt rating companies like Standard & Poor’s and the hedge funds better regulated. They believed standards should be strengthened in derivatives trading and global accounting. G20 members blamed poor standards and regulations for the financial crisis that led to the worldwide Great Recession. The 2015 summit meeting happened on November 15-16, 2015 in Antalya, Turkey. This particular meeting concentrated on an appropriate response to the Paris terrorist attack. Member nations consented to accepting refugees from the war on ISIS while promising to improve their border monitoring against potential terrorist threats. The United States conceded to sharing more of its intelligence information with both France and the other member states. The U.S. refused to dispatch ground troops to Syria, but did promise to support the coalition of anti ISIS Iraqi and Syrian forces. The group agreed on additional steps to restrict the important sources of financing for the Islamic State. The 2014 summit annual meeting occurred from November 15-16, 2014 in Brisbane, Australia. This meeting concentrated efforts on condemning the Russian invasion of the Ukraine. The membership also unanimously agreed to strive together to boost the growth of the global Gross Domestic Product to 2.1%

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by the year 2018. This would provide another $2 trillion to economies of the world. Both the European Union and The United States twisted arms of other member states to act on worsening climate change. This was not in the official meeting agenda. Leaders agreed to help out the fight against Ebola virus in West Africa. President Obama also met on the sidelines with the leaders of Australia and Japan regarding a peaceful settlement to maritime conflicts over territories in the South China Sea. The 2016 G20 meeting is scheduled to be held from September 4-5, 2016 in Hangzhou, China. It will be the eleventh such summit of the G20.

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G8 Summit The G8 Summit is a yearly meeting of the leaders of the powerful economies of the world. The annual G8 president for the year hosts the meetings. Technically there is no political or legal authority for the summit, and its outcomes are not internationally binding. Yet when the major eight world leaders concur on an issue, this promises enough authority to change the direction of global economic policies and growth. The G8 is made up of the United States, Great Britain, Canada, Italy, Germany, France, Japan, and Russia. The founding six nations of the group held their first summit in Rambouillet, France back in 1975. In attendance were the U.S., France, Britain, Germany, Italy, and Japan. Canada joined the group the following year to round out the G7. In 1997, the other members consented for Russia to join, bringing it up to its format of eight countries. The group once again devolved to the G7 when Russia invaded the Crimea in the Ukraine and was suspended indefinitely. The remaining members all agreed on disallowing Russia as a form of sanctions against its aggressive behavior against its neighbor in annexing Ukrainian territory. The G8 Summit regularly invites other critical global leaders to attend. This includes representatives for China, India, Mexico, the European Union, and Brazil. Other crucial international organizations are regularly invited, such as the heads of the United Nations, the World Bank, and the International Monetary Fund. The G8 Summit proved its power and efficacy every year in over 30 years of annual meetings. In 2008 a noticeable shifting of power happened. The G8 discussed inflation in food prices and other critical world issues while entirely missing the impending 2008 global financial crisis and Great Recession. This G8 Summit in 2008 occurred in July at the same time as Freddie Mac and Fannie Mae were failing and the LIBOR rates were sky rocketing. The Fed had just met in its first emergency meeting in more than 30 years to discuss saving Bear Stearns. This signified that the old financial world order had ended as the G20 met and took up the most important issue facing the world and its economies. Their summit tackled the economic and financial crisis at its roots. They asked the United States to better regulate its financial markets. The U.S. refused, instead permitting credit default swaps and other derivatives to be unregulated and blow up the world economy. This crisis made it clear that the emerging market economies were a critical part of any global solution. They had mostly sidestepped the financial crisis and clearly saw the flaws in the developed market economies and financial markets which had caused it. From this point forward, the G20 had the reputation of being the most crucial meeting in the world of all the important global leaders. The 2015 G8 Summit (G7 Summit) was held on June 8, 2015 in Emau Castle in Germany. The G7 came out with a plan to phase out fossil fuels around the globe entirely by the year 2100. It did not sufficiently address either a cohesive plan to take down ISIS or the ongoing Greek debt crisis. Instead it left this last matter to the IMF and EU for resolution. The 2014 Summit was originally intended to be held in Sochi, Russia and hosted by Russian President Vladimir Putin. The G7 cancelled this meeting and opted for an emergency summit on June 7-8, 2014 in

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Brussels, Belgium. They pledged $5 billion in economic aid to Ukraine and strengthened the economic sanctions against aggressive Russia. They also agreed to provide greater support to the efforts of the WHO to lessen such dangerous infectious diseases as Ebola and Tuberculosis. The 2016 G7 summit happened from May 26-28, 2016 in Ise-Shima, Japan. As has become a recent tradition, Russia was not invited.

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Garnishment Garnishment of wages refers to a legal procedure which results in an employer withholding part of an individual’s earnings so that a debt can be paid. The vast majority of such garnishments occur because of an order from the court. Other types of this form of wage collection happen when either a state taxing agency or the IRS itself levies wages against taxes that are not paid. Other federal agencies may similarly garnish wages for debts people owe the federal government which are not tax related. A voluntary wage assignment should not be confused with garnishing wages. Sometimes employees will instead agree of their own free will to turn over part of their earnings to creditors or for child support. Federal law governs the garnishing of wages. The Consumer Credit Protection Act in Title III controls the maximum totals that may be taken from an employee’s earnings. It also safeguards the employees so that they may not be fired when their pay is garnished for a single debt. The U.S. Department of Labor and its Employment Standards Administration administers this Title III under its Wage and Hour Division. It may not order or countermand wage garnishment. The courts or agencies responsible for beginning the garnishing are the only ones which can modify or cancel such judgments or actions. This garnishing law applies to any individuals who earn personal income from a job, such as from salaries, wages, bonuses, commissions, or from other forms of earnings like from retirement vehicles or pensions. Tips are not covered by the laws on garnishing wages. This law enforces a maximum sum that may be taken from any pay period or work week earnings, no matter how many orders the employer receives. Normal garnishments that are not for taxes or child support may not exceed 25% of the disposable earnings of the employee. Alimony or child supports have their own maximum amount limitations. When the worker supports another child or spouse, the law permits as much as 50% of disposable earnings to go for child or alimony support. If no other spouse or child is involved, then as much as 60% may be taken from payroll for such alimony or child support. Besides this when support payments are behind, another 5% may be garnished to catch up on back payments. Other garnishments have different maximum earnings amounts for which the law allows. Federal agencies and agencies collecting on their behalf may take as much as 15% of all disposable earnings in order for the U.S. government to be repaid. This amount also applies for monies that have been defaulted on to the federal government. The Department of Education guaranty division is authorized by the Higher Education Act to take as much as 10% of disposable income in order to pay back federal student loans on which the borrowers have defaulted. The way that these wage garnishments work is that the courts issue an order to collect monies that the defendant owes. These debts typically center around judgments on tax debts, child support, criminal fines, or other personal debts. The order to garnish wages is then sent to the employer of the defendant. The employer is responsible for setting aside the part of the employee’s wages that are to be utilized for paying the debt of the person incrementally. Often these payments go directly to the court which ordered

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them. There are cases where instead the garnished wages transfer to an agency that acts as intermediary which then processes and distributes the payments.

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General Obligation Bonds General Obligation Bonds are municipal bonds which are reinforced by the full taxing powers and overall credit worthiness of the jurisdiction which issues them instead of a certain revenue stream from the associated specific project. These special general types of bonds are floated by municipalities under the belief that the jurisdiction will have the resources in the future to pay back all of its debts via general taxation or incoming revenue from other projects. With these GO bonds, there is no collateral from other underlying assets of the issuer. What makes these general obligation bonds so appealing to investors even though they have no underlying security behind them is that the issuing government agency has promised to utilize every available resource, including tax revenues, in order to pay back the bond holders. Such pledges from local governments can include a promise to assess special property taxes so that the government entity is able to meet its obligations to the bond holders. As an example, property owners have skin in the game because of their local area property holdings and any unpaid property tax obligations. Credit ratings agencies will analyze and rate the pledges of general obligations according to the strength of their credit qualities. They then assign them generally high investment graded ratings. When said property owners are incapable of paying in their fare share of property taxes according to the final due date, the government is permitted legally to raise the effective rates of property taxes in order to compensate for any delinquencies. On these required due dates, a general obligation bond pledge will mandate that the local government entity has to pay its owed debt using the resources which are available. These general obligation bonds are also useful for the local area governments to be able to raise sufficient funds for needed projects which will build up revenue streams for projects including bridges and roads, equipment, and parks. Such bonds are generally utilized to pay for government infrastructure projects which will serve the general good of the public at large. It is actually the relevant state laws which set the stage for what local governments are allowed to issue in the forms of these general obligation bonds. They can be unlimited tax obligation pledges or limited tax obligation promises to repay. Unlimited tax obligations are much like the limited tax promises. The principal difference pertains to the local government being required to raise property tax rates to levels that will service the debts, even as high as 100%, in order to cover other taxpayer delinquencies. It is up to the local residents to agree in advance to property tax increases which are needed to repay the bonds. Alternatively the limited tax obligation pledges request that the local government issuing the bonds will increase the property taxes as needed in order to cover the debt service obligations. There is a statutory limit that provides boundaries for these. Governments are able to employ a portion of the property taxes which are already levied, increase existing property tax rates to a level that will service the debt payments, or utilize an alternative revenue stream in order to pay the debts as required by the terms of the general obligation bonds. Such general obligation bonds are usually considered to be the safest form of municipal bonds because they are backed up by the ability of the issuer to tax. There are also other reasons that give them their aura of perceived safety. Companies may go bankrupt every day of the year, but municipalities can not.

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They have therefore a far greater motivation to maintain their precious credit ratings since they can not simply go bankrupt and disappear into oblivion. They will also have to return to the bond markets periodically at other points in the future so that they can fund still more projects for their constituents. Besides this, the state laws generally detail the precise conditions under which the issuing municipalities are able to issue such general obligation bonds, as well as the kind of security they are able to utilize.

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Generally Accepted Accounting Principles (GAAP) Generally Accepted Accounting Principles, more commonly referred to by their acronym GAAP, are the mostly American used set of accounting principles, procedures, and standards. These are utilized by companies to put together their corporate financial statements. Such GAAP proves to be a blend of the most accepted means of reporting and recording accounting data in the United States combined with the American policy board set standards. Companies must use GAAP in order for their investors to have some common standard of consistency with financial statements they compare when considering the various companies in which to invest their money. These standards include such areas as balance sheet items classification, revenue recognition, and measurements of outstanding shares of stock. Regulators expect that companies will obey these generally accepted accounting principles rules as they release their financial statements to routinely report their financial information. American investors should be leery of company financial statements that are not properly developed utilizing these guiding principles. Despite this fact, these accounting procedures are merely a cohesive group of guidelines and standards. Crooked accountants are still able to distort and misrepresent the numbers while using these generally accepted procedures. Although a company may utilize the generally accepted procedures, investors should still carefully go through their financial statements with a healthy degree of skepticism. The competing accounting standards that most of the rest of the world employs is known as the IFRS International Financial Reporting Standards. There has been a recent move to harmonize the two sets of standards in past years. Because of the global financial crisis and economic collapse of 2008 and its terrible aftermath, globalization, the SEC agreeing to accept international standards, and the SarbanesOxley Act, countries like the United States have been severely pressured to close the gap between GAAP and the IFRS. Doing so would have major ramifications on accounting throughout the U.S. It also would affect investors, corporate management teams, accountants, national accounting standard makers, and American stock markets. Bringing these two sets of standards together is impacting CFO and CPA attitudes regarding international accounting. This influences the International Accounting Standards quality as well as the various endeavors that professionals are making on converging the two sets of standards. There are some problematic inconsistencies with international financial reporting because the financial reporting standards and rules are somewhat different from one country to another. This dilemma has become more of a challenge for those international investors who are attempting to figure out the various differences in global accounting and reporting. As they are thinking about offering substantial investments to overseas companies which are earnestly seeking capital in good faith, it makes it more challenging since companies report according to the standards of the country where they do business. The IASB International Accounting Standards Board has been sincerely looking for a practical solution to this international complication, confusion, and conflict that inconsistency in accounting standards for

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financial reporting has created and continues to encourage. The principle difference with GAAP and the IFRS methods lies in the totally different approaches that either one uses regarding the standards. Generally Accepted Accounting Practices prove to be based on a set of rules. It employs a complicated group of guidelines that set criteria and rules in any given scenario. The International Financial Reporting Standards alternatively utilizes a method based on principles. The IFRS instead starts with the goal of good financial reporting and gives guidance on the particular needs and challenges of a given scenario.

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George Soros George Soros is a Hungarian born multi billionaire investor and philanthropist. In his lifetime he has gone from escaped refugee from the Nazis to twenty-first richest man on earth. Besides making billions of dollars through the investments of the hedge fund he started and still manages, he has contributed generously to various charities throughout the world via his foundation. Soros is considered to be a controversial figure for some of the investments he has undertaken and positions he holds on various global issues. George Soros was born in Budapest the capital of Hungary in 1930. In the middle of the 1940’s, he fled from the Nazis to England where he studied at the famed London School of Economics. After graduating from there in 1952, he sailed to New York in 1956 to begin working for F.M. Mayer, a brokerage firm on Wall Street. He worked for several other firms before starting his own hedge fund that he originally called the Soros Fund in 1973. He soon renamed this the Quantum Fund and afterwards again the Quantum Fund Endowment. Investors contributed $12 million to this fund that achieved enormous success. With Soros leading the company, it made countless billions for both its investors and Soros himself. Thanks to this success of this fund and successor fund ventures, Soros showed a net worth amounting to $26 billion as of September 2015 when he was 85 years old. This wealth was high enough to secure for him the spot of twenty-first richest person on earth. The investment decisions and statements of George Soros have made him a controversial figure over the years. He took on the Bank of England in 1992 in the Black Wednesday U.K. currency crisis and beat it, costing Great Britain billions of dollars. His involvement made the crash so much worse but made he and his investors over a billion dollars in a single day. He has also authored a number of books on the imminent collapse of worldwide financial markets. Some critics have complained that he manipulated markets to achieve his aims. Soros also criticizes U.S. and Israeli policies and blames them for worldwide anti-Semitism. Besides this, Soros has attacked the U.S. criminalization of drugs. On the philanthropic scene, George Soros has been extremely generous and is a leading global figure. He began giving back from his enormous wealth in 1979. By 1984 he had created his Open Society Foundations charitable fund. These foundations fund initiatives on a global scale with the goal of advancing justice, independent media, business development, education, and public health. His foundations boast an activity list that is 500 pages long. Among their work is loaning money to help the Russian university system and setting up New York City after school activities. He has funded the arts and helped places that have suffered from natural disasters. The foundations have also tried to stem the brain drain from Eastern Europe while fighting disease around the world. Observers either love or dislike George Soros. No one can deny that he is a towering figure in the worlds of currency, finance, and philanthropy. His organizations help to shape public policies and perform enormous humanitarian projects. The author of 12 books has penned works on topics that range from

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global capitalism to the war on terror. As the head of the Soros Family Fund nowadays, the legendary investor can still move markets with his opinions and positions on markets.

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Georgist Public Finance Theory Georgist Public Finance Theory refers to an economic school of thought. Also known as geoism, this relates to the idea that economic value which comes from property including natural opportunities and natural resources ought to belong in kind to every individual in a society. They simultaneously believe the production value each individual produces should be owned by each contributing member according to what they produce. The philosophy came from the works of Henry George. This Georgist paradigm provides solutions to ecological and social issues. It does this by depending on the concepts of public finance and land rights while striving to combine both social justice and optimal economic efficiency. As such, this Georgist Public Finance Theory concerns itself with the fair distribution of economic rents created by pollution, monopolies, and the control over commons. This includes privileges and rights such as intellectual property and titles of ownership for natural resources. Those natural resources that have a limit on their available exploitable supply are able to produce economic rents. Georgists claim that placing a tax on economic rents is fair, efficient, and also equitable. The principle policies of the Georgists maintain that taxes should be assessed based upon the value of the land. They feel that any revenues created by an LVT land value tax will eliminate or reduce those taxes on investment and labor which are both inefficient and unjust. Some of the followers of the Georgist Public Finance Theory argue for the redistribution of extra public revenues to be returned to the inhabitants via a dividend payment to the citizens or a basic income distribution. Land value tax is called progressive by many economists dating back to Adam Smith and his Wealth of Nations. These taxes are mostly paid in by the landowning class of wealthy individuals. They can not pass them on to renters of the land, workers, or tenants. The idea behind land value taxes is that they should ameliorate inequalities in economics, increase wages, lessen the vulnerability which economies suffer from such as property bubbles and credit manias, and take away any motivations to abuse real estate. The basis philosophically for Georgist Public Finance Theory hails back to a few of its early advocates like Baruch Spinoza, John Locke, and Thomas Paine. Yet the person who made the entire concept of gathering in public revenues from the privileges of natural resource ownership became popularized by the social reformer and economist Henry George via his first work Progress and Poverty which was published in 1879. The ideas of Georgist Public Finance Theory became most influential and widespread in acceptance in the early 20th and late 19th centuries. There were whole communities, political parties, and even institutions which were founded on these ideas at the time. Early followers of George’s philosophy on economics were many times called Single Taxers. This was based upon the idea of obtaining public revenues only from privileges on land. Today’s Georgists have altered this foundational belief to include a wide range of government funds’ sourcing. There were a few communities founded under the Georgist Public Finance Theory principles back in the

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late 1800s and early 1900s in the United States. Three of them which still exist and function under these ideals are Fairhope, Alabama which arose under the governance of the Fairhope Single Tax Corporate in 1894; Arden, Delaware that Fran Stephens along with Will Price founded a few years later in 1900; and Altoona, Pennsylvania which still operates under only a single land tax to this day. Internationally, the German sphere of influence in Jiaozhou Bay or Kiaochow within China fully implemented the Georgist Public Finance Theory policies. The only government revenue source that they relied on came from a six percent land value tax levied throughout the territory. The German Imperial administration hoped that this would eliminate the land speculation problems which had arisen in their southwest African colonies. This objective was achieved successfully in their China sphere of influence as the hoped. These Georgist ideas became a part of the societal fabric in one form or another in such far flung nations and territories as Hong Kong, Australia, South Africa, Singapore, South Korea, and Taiwan. Such countries still assess one form of land value tax or another today.

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Glass Steagall Act Congress created and passed the Glass Steagall Act in 1933. This legislation arose because of the effects of the 1929 catastrophic stock market crash. Two congressmen came up with this solution in the Great Depression when many banks were failing. The law made separate all activities which involved commercial banking and investment banking. Commercial banks had become heavily involved in the stock market. This activity received much of the blame for the stock market and financial crashes. Lawmakers felt that commercial banks had employed money from their depositors in speculation in the stock market. The reasons this act came forcefully into law had to do with banks’ activities. Commercial banks had bought new and unproven stocks to sell to individual customers. It was the greed of banks that led to the new legislation. The goals of banking were mired in conflict of interest. Banks would make loans to corporations in which they already had an investment. These loans were not issued based on good underwriting. They would then push these investments to their clients. Their goal was to have their customers help support these companies. Such commercial speculation insured that when the companies failed, the banks and their customers all lost huge amounts of money. Finally banks began to collapse in the thousands as a result of this poor and unregulated activity. The act actually came about because of Senator Carter Glass. Glass had served as Treasury secretary previously. He also founded the U.S. Federal Reserve System. The failing banks motivated him to act on a bill. He became the main driving force of this legislation. His partner on the project was Henry Bascom Stegall. Stegall served as House Banking and Currency Committee chairman. At first he would not support the bill with Glass. They added an amendment to create insurance for bank deposits. This brought Congressman Steagall’s critical support of the act. The effects of this Glass Steagall Act erected a variety of barriers in the banking industry. A new firewall of regulation arose between investment bank and commercial bank businesses. The two types of banks experienced unprecedented oversight and control over their activities. All banks received one year to choose a specialty in either investment banking or commercial banking. Those that chose commercial banking were heavily limited in their investment banking activities. Income from securities could not exceed 10% of the commercial bank earnings. Commercial banks were permitted to underwrite bonds the government issued. The ultimate goal was to stop banks from committing their depositors’ funds to projects which were poorly underwritten and speculative. Banks that were too big to fail at the time became significant targets for this act. JP Morgan and Company and rival financial empires were among these. Such outfits had to eliminate many services. This targeted a large and important part of their incomes.

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Later on criticism of the Glass Steagall Act arose. This happened as different explanations became popular for the Great Depression. Many different individuals also saw that this act had created problems for financial services. They blamed the law for restricting financial firms to the point that they were not able to compete effectively. Many opposed the act by the 1980s. Glass Steagall opposition grew into the 1990s. Congress finally repealed the act in 1999. The elimination of this act has been blamed for the Great Recession crisis that started in 2006. Banks were again able to mix investment and lending activities. Close regulation of commercial banks had been largely eliminated. Because of this, banks again made many risky loans that were either liar loans or not properly documented for income.

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Global Debt Global debt is an issue that has become especially troublesome since the financial crisis of 2007-2009. Eight years following this crash and Great Recession, the planet is experience a debt problem that has never before been seen in the whole history of the world. Total debt outside of the financial sector has increased by more than double in real dollars since the century began through 2016. By 2015, it had climbed to over $152 trillion. This figure that includes the debt of governments, households, and non financial firms continues to grow. Global debt levels as of October 2016 reached a record setting 225% of the entire gross domestic product for the globe, per the IMF’s Fiscal Monitor semi annual publication. Roughly two thirds of the total nonfinancial firm debt is owed by the private sector of businesses and consumers. The balance nearly a third of the total is considered to be government public debt. While other measures have this percentage higher, the IMF claims that government debt is up to 85 percent of GDP versus the 70 percent seen in 2015. This enormous amount of global debt has made the job of worldwide policy makers much more challenging. Central banks have found that their efforts to stimulate economies are diminishing. It is up to government fiscal policy to increase growth to try to keep up with rising global debt. So far, few countries have seen much success in these efforts. The surge in global debt borrowing hails back to the private debt boom that occurred before the financial crisis in 2008. Corporations and consumer households within the world’s advanced economies began to retrench after the crisis. Despite this, debt deleveraging did not proceed evenly and in other cases debts continued to rise. Bad debts of banks especially proved problematic. Many of these have wound up on the balance sheets of governments instead. The low interest rate environment that followed the financial crisis also encouraged a rising tide of corporate debt in the emerging nation markets. Private debt levels were already dangerously high in advanced countries. Now they are also problematic in such important emerging economies as Brazil and China. Both of these are rightly thought of as systemically critical in the world’s financial system. The problem with deciding how dangerous global debt has become is there is no consensus on what percentage of debt versus GDP is critical. It is well known that financial crises are related to an overabundance of private debt in developing and developed economies. Beyond this, research has demonstrated that higher levels of debt come with lower rates of growth, even though a financial crisis may be side stepped. The IMF has been warning especially about the need for deleveraging to happen in both the euro zone area and China. There are two more problems associated with rising debt levels. As debt increase outpaces economic output growth, more government debt equals a greater level of state involvement in the overall economy. It also guarantees a higher tax rate and number of taxes for the future. Besides this, debt has to be rolled over regularly. The repetition of having to auction debt creates a scenario where governments face a vote of confidence on a routine basis. Should a government fail to

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inspire enthusiasm for its debt auction as has happened with a number of euro zone governments in past years, then the erring nation plunges head long into serious crisis.

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Gold Reserves Gold Reserves are the amount of gold which nations and some international organizations hold to secure the value of their currency or to give credibility to their central bank policies. They are also utilized as a method of making international payments to other nations in order to settle outstanding bills and claims. Such reserves (as a percentage of total reserves) that countries maintain were far larger from the 1700s through outbreak of World War I. This was because of the successful and stable policy of the gold standard that countries such as Great Britain and its empire pioneered throughout the globe. For thousands of years, gold has been a means of exchange to one degree or another for empires, kingdoms, and nations around the world. During most of the time from the 1600s to 1900s, gold became even more critically important even after paper currency arose. This gold backed up the value of the paper money and could be exchanged for paper currency. Paper money served as legitimate claims on the gold reserves of the central banks of important nations for hundreds of years. International trade was settled in gold. This helps to explain why countries had to build up and inventory a large supply of gold reserves. This was not only for economic reasons, but also for political ones. The larger a nation’s reserves proved to be, the greater their economic strength was regarded. This was an internationally accepted standard at least until the beginning of the First World War. In those difficult years, many nations abandoned their gold standards because they could no longer afford to maintain them and simultaneously pay for the skyrocketing costs of the devastating global “Great War.” Nowadays no modern governments demand that all of their money be backed up by their gold reserves. Switzerland alone requires as much as 25 percent of their Swiss francs to be backed by equivalent gold holdings in their reserves. Despite this fact, most governments of the world still keep enormous quantities of the yellow metal as a protection against economic disaster, world financial crises, or the outbreak of hyperinflation. Most years, governments collectively boost their reserves by literally hundreds of tons. Canada is almost unique in that it has chosen to totally liquidate its reserves of the precious metal. Gold remains the most widely watched and heavily traded world wide commodity, per a Futures magazine report in 2013. This is in part because non-government groups such as individuals, investors, and businesses recognize that gold is the ideal hedge against inflationary outbreaks or global and national recession. National gold reserves are always described in numbers of metric tons. Though its stocks are no longer what they once were as a percentage of global gold holdings, the United States owns the biggest single stock pile of gold reserves on earth with a considerable lead on the second biggest holder. The U.S. holdings still amount to about the equivalent of the next three biggest national holders combined. The other countries in the top five nation holders are Germany, Italy, France, and China. The International Monetary Fund claims to have more gold holdings than Italy yet less than those Germany owns. Per 2014, the national gold holdings were broken down accordingly. The United States owned 8,133.5 tons. Under the system of the Breton Woods international currency exchange mechanism, the U.S. stored

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somewhere between 90 percent and 95 percent of all global gold reserves in American-based vaults. Germany had 3,387.1 tons in 2014. Italy maintained 2,451.8 tons. France owned 2,435.4 tons. China held 1,054.1 tons officially, though the majority of analysts concur that the Chinese massively under-report their true gold holdings. This is likely to be the case as China is the world’s largest gold miner. It allows them to add gold quietly to their reserves without having to make purchases on the international gold markets.

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Gold Roth IRA Gold Roth IRA’s are IRA’s that are allowed to contain gold and other precious metals. Gold Roth IRA’s make sense for many investors. This is because gold and other precious metals like silver and platinum have been considered to be the greatest form of long term storage for cash and valuables throughout history. This means that gold in particular could be considered to be the best asset for retirement. Although there are many other types of instruments used for retirement accounts and planning, including bonds, stocks, savings, and annuities, gold is the only one whose final value does not rest on an institution or individual’s performance or success. This makes physical gold an ideal means for saving for retirement. Gold Roth IRA’s are specially created either through initially funding one or by rolling over a Roth IRA or traditional IRA to a gold backed Roth IRA. Rolling over an existing employee held 401K to a Gold Roth IRA can be difficult if the employee has not left the company. This is because employees are not usually allowed to do rollovers until they separate from their company. IRA’s that already exist can be transferred to Gold Roth IRA’s. They can be moved from credit unions, banks, or stock broker firms to a trust company that is allowed to hold your Gold IRA holdings. In this type of transfer, you could choose to move securities held in the account along with cash, or cash by itself. Gold Roth IRA’s must be created by sending in cash to the administrator of the IRA. They will then purchase the gold, silver, or platinum physical holdings as you instruct them. The gold must then be kept by a gold IRA custodian on your behalf. These depositories provide safe places for the gold, as well as easy access to buy or sell it. The gold kept in a Gold Roth IRA may not be sent to your house or assumed in your personal possession. Instead, it has to be liquidated before the funds from it can be accessed. Gold that is requested as a distribution will be penalized at your personal tax rate plus a ten percent penalty. Only certain forms of gold and precious metals are allowed to be purchased and held within a Gold Roth IRA. Gold bars have to demonstrate a twenty-four karat purity to be eligible. They can be one ounce, ten ounces, a kilogram, one hundred ounces, or four hundred ounces in size. Gold coins that are permitted are twenty-four karat bullion coins from the United States, Canada, Austria, and Australia. The most heavily minted gold coins of all time, the South Africa Krugerrand's, are not permitted, as they are only twentytwo karats. Silver bars and coins that have .999 or higher purity are permitted to be held in a Gold Roth IRA account. This allows the Canadian Silver Maple Leaf, the U.S. Silver Eagle, and the Mexican Silver Libertad one ounce bullion coins. Silver bars that are one hundred ounces and one thousand ounces are also permitted.

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Gold Standard The gold standard represents a centuries’ used system of money for backing up currencies with tangible, physical gold holdings in a central bank vault. Under the gold standard, the basic economic currency unit proved to be a pre set amount of gold by weight. Several different types of gold standards exist. The Gold specie standard proves to be a system where the money unit itself is represented by gold coins that are in circulation. Alternatively, it could be represented by an exchange unit of value that is literally expressed in units against a specific gold coin that circulates, along with other coins that are minted from a metal with less value, such as silver or copper. Conversely, the gold exchange standard usually has to do with silver and other valuable metal coins that are circulating. In this type of exchange system, the monetary authorities promise that a set exchange rate against the currency of another country practicing the gold standard will be maintained. This gives rise to a gold standard that is not literal but still de facto. The silver coins circulating then trade with a set external value in gold terms that stands independently of the actual silver value contained within the coins. The most common gold standard that has been seen in the last few hundred years turns out to be the gold bullion standard. The gold bullion standard refers to a money system where no gold coins are actually circulating throughout the economy. Instead, the monetary authorities have consented to exchange a set amount of gold in exchange for their paper currency. This is done at a set price that is established for the paper currency that circulates. The gold bullion standard existed in the world economy from the 1700’s until 1971. During this span of almost three hundred years, the values of major world currencies proved to be exceptionally stable, as were the supplies of money in existence. This resulted from a restriction of the gold standard that only allowed such paper currency to be printed as greater amounts of gold existed in the respective nation’s treasury and vaults. The positive of this proved to be that the world could count on currencies that did not fluctuate wildly in value or decline consistently over time. Governments disliked the gold standard as it kept them from increasing the money supply or spending more money than the country actually had. They found it too restrictive. The gold standard in the world collapsed when President Nixon initiated what became known as the Nixon shock by unilaterally taking the country off of gold exchange and convertibility for dollars in 1971. The currency of both the U.S. and most countries of the world then became Fiat currencies, only backed up by the government decree. Since the gold standard was abandoned, the U.S. dollar has declined so severely that a single dollar in 1971 would today be worth $35 2010 dollars.

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Goldman Sachs Goldman Sachs is an American based investment bank. The global company proves to be among the largest and most successful securities, investment banking, and investment management firms. It delivers an extensive variety of financial services to a client base that is diverse and significant. Among its clientele are financial institutions, corporations, individuals, and governments. The group was founded in 1869. Its headquarters remain in New York City. Goldman Sachs’ keeps offices in all of the important worldwide financial centers. Their office network spans over 35 countries and employs almost 35,000 staff. For 2015, the company boasted profits of $8.77 billion on revenues amounting to $39.2 billion. Goldman operates in four groups which include Investment Banking, Institutional Client Services, Investing and Lending, and Investment Management. With the Investment Banking group, Goldman Sachs offers an impressive array of services for investment banking to a varied client base of financial institutions, corporations, governments, and investment funds. These services cover a broad range of needs. Among them are equity and debt underwriting for private placements and public offerings. The firm also provides strategic advice for divestures, mergers and acquisitions, restructurings, corporate defense activities, risk management, and spin offs. They offer international and local financing of acquisitions and transactions along with relevant derivative transactions. In the year 2015, this group earned revenues of $7 billion. The Institutional Client Services division works with the group’s large institutional clients. They make markets for a number of investments such as equity, fixed income, commodities, and currency pairs on behalf of these clients which include governments, investment funds, corporations, and financial institutions. The group clears transactions for clients via important futures, options, and stock market exchanges around the world. They deliver prime brokerage services, securities lending, and financing for these customers as well. This segment showed revenues of $15.2 billion for 2015, making it twice as large as the next biggest group. The Investing and Lending operations finance their clients. This includes both originating loans and investing in them. This longer term loan and investment operation covers private and public equity securities, real estate, and loans and debt securities. They make these both directly and indirectly through outside funds. For year 2015, the segment earned $5.4 billion in revenues. Investment Management operations delivers investment products and services mostly via commingled and separately managed accounts. This includes private investments and mutual funds in all of the important asset classes. They offer these services to both wealthy individual and institutional clients. They also provide high net worth families and individuals with advisory services for their wealth. This includes financial counseling, portfolio management, and brokerage transaction services. In 2015, this segment earned $6.2 billion. Goldman Sachs suffered dramatically from the 2008 financial crisis because of its heavy involvement with subprime mortgages. The U.S. government had to rescue the group to keep it from failing. They had

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to convert to a traditional bank with Federal Reserve oversight. Since then, it has massively returned to profitability and repaid its loans. There are numerous important alumnus among the one time Goldman Sachs executives. These include former Treasury Secretaries like Henry Paulson and Robert Rubin, current European Central Bank President Mario Draghi, and Mark Carney the current Governor of the Bank of England.

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Good Debt Good debt is debt that benefits a person or business to carry. Such good debts demonstrate both the creditworthiness and the responsibility of a borrower. They also create a good base to build on in the future. There are many examples of good debt, which stands in contrast to bad debt. Good debts are typically those debts that are taken on to acquire an item or investment that only grows in value with time. Examples of this include things like real estate loans, schooling loans, home mortgages, business debt, and passive income investments. Each of these items could provide a significant and real advantage with time. Real estate could increase in value and be resold for profits. Higher education commonly leads to greater amounts of earnings. Loans on homes are commonly wonderful for building credit and provide properties that serve as excellent collateral. Loans for businesses may result in profits earned from trade and sales. It is important to note that cars and other items are not included in these lists. This is simply because they lose value the moment that they are purchased and driven away. Bad debts in contrast are those that result in higher interest rates and considerable deprecation of the items purchased with time. Goods that are for short time frame use and bought on credit are commonly considered to be bad debts. Since the item’s life span will only decline with time, and the interest rates are typically high, no benefit is derived from purchasing these things with debt. A great number of such purchases rapidly decline in value, even after one use. A significant benefit to good debts lies in the increase in cash flow that they commonly create. Properly structured good debts lead to tax advantages, to the ability to invest in still more assets that can produce cash, and to higher credit scores as well. Good debts that are paid on time furthermore build up a good financial base for the future. Good debts create cash flow, which stands in contrast to bad debts that do not. Investments that produce passive income are among the best good debts. For example, purchasing an apartment building using debt will result in both income revenue and substantial tax deductions. This proves to be good debt, since although you are borrowing money, you are receiving passive income and gaining the ability to depreciate assets that can actually appreciate with time. On top of this, you are allowed to live there while you accrue all of these other benefits. When considering a good debt, you should make certain that the income that the investment will provide is high enough to make the investment and the accompanying debt worth while. A number of experts offer advice on this. They suggest that not tying up in excess of twenty percent of your overall value in debt is a better practice. Higher debt levels than this can sound off warning bells with banks and other lenders.

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Government Bonds Government bonds are debt instruments that governments issue to pay for government expenditures. Within the United States, federal government issues include savings bonds, treasury notes, treasury bonds, and TIPS Treasury inflation protected securities. Investors should carefully consider the risks that different countries’ governments possess before they invest in their bonds. Among these international government risks are political risk, country risk, interest rate risk, and inflation risk. Governments generally have less credit risk, though not always. Savings bonds are a type of United States government bonds that the Treasury department sells. They are available in an electronic form. The Treasury offers them directly from their website, or individuals can buy them from the majority of financial institutions and banks. When savings bonds reach maturity, the investors get back the bond’s face value along with interest which accrued. These savings bonds may not be redeemed the first year of issue. Any investors who redeem them in their first five years of issue lose three months interest for cashing out too early. The Treasury of the United States also issues intermediate time frame bonds known as Treasury notes or T-Notes. These notes provide interest payments semiannually at a coupon rate which is fixed. These notes typically are denominated in $1,000 face values. Those with three or two year maturity dates come in $5,000 denominations. Before 1984, T-Notes were callable and gave the Treasury the right to buy them back given specific conditions. The U.S. government’s longest term bonds are Treasury Bonds, or T-Bonds. These have maturity dates ranging from ten to 30 years time. They also provide interest payments on a semiannual basis and come in $1,000 denominated values. These T-bonds are important because they pay for federal budget shortfalls, are a form of monetary policy, and ensure the country is able to regulate its money supply. As all bond issuers, the Treasury department looks at return and risk requirements on the market when it goes to raise capital so that it can be as efficient as possible. This helps to explain the different kinds of Treasury securities and government bonds they offer. U.S. government bonds have generally been considered to be without risk, which is why they trade so easily in extremely large and liquid markets. The downside to this is that they offer considerably lower returns than do other bonds. TIPS do provide protection against inflation so that any inflation increases will not exceed the interest rate of the bond. The prices of government bonds are based on current interest rates. This means that the fixed rate bonds will decline in value as the interest rates rise, since there is lost opportunity to obtain newer bonds at higher interest rates. Similarly, if interest rates fall, the bond’s values will rise. The federal government is able to control the money supply in part by its issue of the government bonds. If they wish to increase the money supply, they can simply buy back their own bonds. These funds then find their way to a bank and expand the money supply as banks keep small reserves and loan the rest out (in the money multiplier effect). The government is also able to lower the money supply by selling additional bonds which takes money out of circulation. If the government were to retire the funds received from the sale of these bonds, it would reduce the available money supply. More often than not, the U.S. government spends the money.

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Government Debt Government debt refers to the total amount of government issued IOUs which have not been paid back at any given point. Governments issue such debt any time they chose to borrow money from the public or from overseas nations and companies. As a government borrows this money, it provides government securities that give all of the important information on this investment debt. The face of the certificates states the interest rate which the government will pay on the original principal, the amount which they are borrowing, and the payment schedule for both principal pay back and interest payments. These outstanding securities are equal to the total debt amount which the government has not paid back. It is also the government debt. Governments actually issue a variety of debt types. Economists classify such debt in different categories. The first would be by the form of governmental agency that issued such debt in the first place. Within the U.S., the principal governmental agencies which issue debt are state, federal, and local jurisdictions. Local debt is also further subdivided into sub-classes including city-, county-, or parish-issued government debt. All of these are considered a type of government bonds. Yet another way to classify such government debt is according to the dates of maturity. This is why bond investors and U.S. Treasury officials with the Federal Reserve discuss thirty year and ten year bonds. These are the amounts of time between when the government originally issued the bond and the due date of the principal. With federal government debt, there are three easy to understand and remember types of maturities. Treasury Bills are the first of these. They come with maturities amounting to a single year or under. This could be three month T-bills or year long T-bills. Treasury notes are the second designation. They have maturities that range from a single year to ten years long. Treasury bonds are the over ten year long maturity dates. With local or state level government debt, the terminology used is just bonds. This is true regardless of when they mature. There are also bonds that carry infinite repayments. Analysts call these perpetuity bonds. With these bonds, the principal never becomes repaid. Interest payments will then be made forever. This would practically be until the government defaults, the country collapses financially, or the government buys back the bonds. Such bonds were at one time issued by the government of Great Britain. They called these consols. A final means for classifying government debt bonds comes down to the revenue source which underlies the bonds’ repayment. Those government debts that the entity plans to repay by utilizing revenues they garner from taxing their constituents they call general obligation bonds. Revenue bonds are those bonds that they pay back by employing particular user fees, sometimes from the project itself which the bonds will finance. This could be tolls on a new highway or a bridge. Only local and state government debt is classified this way. The United States government debt has radically and exponentially increased over the past 15 to 20 years. Consider that in 2004 early in the year, the outstanding federal government debt amounted to around $7.1

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trillion. In early 2017, that amount topped $20 trillion for the first time ever. Roughly half of this enormous debt amount the government owes to its pension funds - the Social Security Trust and Medicare Trust Funds. Some economists like to say that the internal debt does not carry any public welfare or economic impacts, but they are incorrect with this assertion. Since the Social Security Fund will start to need its loaned out money paid back in 2020, it will require the government to issue either new debt to non-governmental buyers or to raise taxes dramatically to pay back the pension funds for the social security recipients’ monthly benefits to continue. This problem will only worsen over time through 2032 or 2033, when the funds will have exhausted all of their money the government owes them back. At this point, the federal government will either have to abandon the Social Security and Medicare programs entirely, dramatically reduce the benefits to where they are sustainable, hugely increase the age when retirees can draw on them, or vastly increase government revenues from somewhere.

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Government National Mortgage Association (GNMA) GNMA refers to a United States HUD Department of Housing and Urban Development based government corporation. This agency is different from its cousin Freddie Mac as Ginnie Mae is not a private corporation. Rather it is an actual U.S. government agency. The roles of GNMA are two-fold. They are to guarantee there is sufficient liquidity for mortgages which are government insured. This comprises all mortgages provided by the FHA Federal Housing Administration, the RHA Rural Housing Administration, and the VA Veterans Administration. The other responsibility of Ginnie Mae is to attract the capital of investors into the marketplace for such loans. This allows for the various issuers to provide still more loans in the future. The majority of those mortgages which Ginnie Mae securitizes and sells are in fact MBS mortgage-backed securities which are guaranteed by the FHA. These are usually mortgages which are offered to lower income borrowers and first time home buyers. GNMA operates in a fairly straightforward manner. The governmental agency purchases home mortgages off of the financial institutions which make such loans. Then it pools them together into $1 million and higher collections. Ginnie Mae has choices at this point. Some of these pools it holds on to and then directly sells them to investors outright. Others it sells off to financial institutions and mortgage bankers who then sell them on to investors themselves. After this, either the mortgage banker or GNMA itself will collect mortgage payments off of the pools’ mortgage homeowners. For those investors who choose to invest in a GNMA, they typically receive monthly payments which come with at least a portion of the principal (that remains outstanding) as well as an interest payment. The other method has investors just obtaining interest payments. In this case, the principal only comes back to the investors as the mortgage reaches maturity. Sometimes investors call such bonds from the agency Ginnie Mae pass through securities. This is because the requisite mortgage payments will go through, or pass through, a bank. The bank then collects its fee in advance of passing on what remains of the payment to the appropriate investors. These payments amount to greater returns than comparable U.S. Treasury notes provide investors. GNMA’s also possess other advantages. They are guaranteed not to default and fail by the United States’ government and its full faith and credit. They also prove to be extremely liquid. This is partly because they may be easily resold via the active secondary market at any time. GNMA instruments come with a hefty minimum investment dollar requirement. This amounts to typically $25,000. Once this minimum threshold is met, the size may be increased in only single dollar increments to whatever level is desired. There are opportunities to purchase such Ginnie Mae’s which can sell for under the standard $25,000 when they are occasionally offered at face value discounts via the secondary market. This could occur in cases where the applicable interest rates prove to be lower than more current instrument issues’ rates or also as the remaining principals have become reduced significantly. There are also mutual funds which buy into Ginnie Mae’s. The cost of shares in such funds are

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considerably lower than the $25,000 minimum of the instruments themselves. In cases like this, investment trusts or outright Ginnie Mae funds will purchase the bonds directly from the government agency or secondary market. They will then provide their own shares, which represent stakes in such instruments, to the investing public. It is not only separate investors who purchase the Ginnie Mae’s. A great range of different organizations and companies purchase them. Several examples of these other buyers abound. They are credit unions, retirement pension funds, commercial banks, real estate investment trusts, corporations, and insurance companies. There are also a great variety of different institution kinds that actually issue such Ginnie Mae’s. Among these are banks, mortgage companies, and credit unions.

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Government Sponsored Enterprise (GSE) A government sponsored enterprise is a financial service operations that the U.S. Congress created by law. Their purpose is to improve the amount of credit that flows into specific areas of the American economy. They were also intended to help those parts of the capital markets become more transparent and efficient as well as to lessen risks for investors and capital suppliers. The wish of Congress in establishing them was to increase the available finance and lower the cost of obtaining it for certain specific segments of the economy. This was to be accomplished by encouraging investors via lowering the risks of losses to those involved. The main components of the economy where these were set up were home finance, agriculture, and education. Among these, two of the government sponsored enterprises are best known. These are Fannie Mae, the Federal National Mortgage Association and Freddie Mac, the Federal Home Loan Mortgage Corporation. The year 1916 saw the first government sponsored enterprise that Congress established. This was the Farm Credit System. Congress moved GSEs into housing finance in 1932 when it established the Federal Home Loan Banks. It focused on education costs and finance when in 1972 Congress chartered Sallie Mae. In 1995, Congress passed a law and permitted this educational GSE to give up its government sponsorship so that it could transform into a fully private company. The segment of the economy for residential mortgages and borrowing proves to be substantially the largest industry where the government sponsored enterprises function. In mortgages, these GSEs own or pool around $5 trillion in home mortgages. The way that Congress came up with to boost capital market efficiency and get past the imperfections of the market was to help funds migrate more effortlessly from fund suppliers to fund borrowers in major loan demand areas of the economy. They accomplished this with a type of government guarantee which limited the loss risks for those who offered the funds. These government sponsored enterprises now mostly serve as intermediaries between agricultural and home borrowers and lenders. Freddie Mac and Fannie Mae remain the two best known and most influential GSEs today. They buy up mortgages and issue them through affiliated companies. Once this is accomplished, they pack them up as MBS mortgage backed securities. These securities come with the important financial backing from Freddie Mac or Fannie Mae. Investors allowed to trade in the TBA to be announced markets find these investments appealing when they carry government sponsored enterprises backing. These housing GSEs also established a secondary market for loans with their guarantees, securitizing, and bonding. It has helped the main issuers of primary market mortgages to boost their volume of loans at the same time as they reduce the risks of single loans. It also gives investors a wide market of instruments which are securitized and standardized. The government sponsored enterprise does not actually come with the government’s hard guarantee of

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their credit. Despite this, lenders have always given them better interest rates at the same time that investors in the securities have paid high prices. This stems from the government’s implicit guarantee that these critical organizations will not default or fail. It has helped the two main GSEs to save on borrowing costs to the tune of around $2 billion each year. The subprime mortgage crisis and financial crisis reached a fevered pitch and embroiled Freddie Mac and Fannie Mae in 2007 and 2008. The American government demonstrated the value of the implicit guarantee then by bailing out and putting the two GSEs into conservatorship in September of 2008.

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Graduated Payment Mortgage (GPM) A graduated payment mortgage is a special type of home mortgage where payments are low initially and go up over the term of the loan. These are still considered to be a type of fixed rate mortgages as the interest rates are set and pre-determined even when the payments rise. The low upfront payment helps financial institutions to qualify the borrowers. Banks only have to take into account the original low rate to approve them. This is why the GPMs assist those who otherwise would not be able to get qualified using the normal FRM fixed rate mortgage. This aids a great number of potential home buyers who might not be able to get qualified to purchase a home. It is best for younger or newer homeowners. Their levels of income should rise with time. This helps them to make the increasing mortgage payments. The payments rise every year with a graduated payment mortgage until the entire amount has been repaid. The amount that they increase varies from one contract to the next. Typically the payments rises between 7% and 12% each year from the original base amount. There is a danger with these types of products. If the young home buyers do not see their income rise consistently and significantly enough, the increasing payments on the home will take a greater share of their take home pay every year. Eventually, they may not be able to afford the payments if their salaries do not rise sufficiently. The original payment for these graduated payment mortgages is not enough to cover the loan’s interest. The difference between what is covered and what is not is called negative amortization. This amount adds on to the loan balance with every payment. It takes years for the rising payments to overcome this increase in the loan balance. Lenders do not like the fact that the balance goes up above the initial amount. Because of this they charge greater rates for these types of loans than they do for standard fixed rate mortgages. The trade-off with a graduated payment mortgage is the larger payment that continues to grow for several years. This generally does not reach its peak level until five years have passed. The higher payment will then stay fixed for the rest of the mortgage term. This is the price to pay for a low upfront payment that a borrower can be approved for and can afford. There are other kinds of graduated payment mortgages on the market. These alternatives provide varying rates of payment rises for different amounts of time. In one example, homeowners can get a gradually rising rate of 3% per year for ten years rather than pay more than 7% each year for 5 years. These alternative GPMs require a higher upfront payment amount and can also lead to a larger final payment. Because the initial payment is higher, the negative amortization will be less. This will cause the peak loan balance to be smaller. GPMs are not unique in mortgages that have payments which increase. There are also fixed rate mortgages called temporary buy downs. These come with lower upfront payments during the loan’s early years. The advantage to these is that the loan does not incur negative amortization.

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Temporary buy downs only work if someone pays for the buy down account. The financial institution takes money from this supplemental account to cover the lower payments in the first two years. This way the lender receives identical payments for the entire life of the loan. Either the home seller or the buyer has to supply the money for the supplemental account.

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Great Depression The Great Depression represented the most serious economic contraction that affected the world in the twentieth century. It occurred the decade before the Second World War broke out, in the 1930’s. The Great Depression began and ended in differing years in the various countries and economies of the world. In general it started around 1929 and held countries in its grip through the end of the 1930’s and the early years of the 1940’s. The Great Depression turned out to be the deepest, hardest, longest, and most geographically encompassing depression that the world had seen. Nowadays, the Great Depression is still held up as the model for how badly the economy of the world can collapse. In the eighty years since the great depression began, economists have not named another economic contraction in the world or the United States as a depression. The Great Depression began in the United States. It commenced with the stock market crash that began on September 4, 1929. The far steeper stock market decline of October 29, 1929 became known as Black Tuesday and eclipsed the worldwide newspaper headlines. This rapidly spread from the U.S. to nearly all countries around the globe. Practically all nations of the world, whether rich or poor, felt the tragic and crushing impacts of the Great Depression. International trade plummeted by as much as one half to two thirds of its previous level. Along with this, profits, personal incomes, tax revenues, and prices plunged. In the United States, unemployment soared to twenty-five percent, but in other countries, this level reached even thirty-three percent. Cities all over the globe suffered especially, particularly those that relied on heavy industry as their economic mainstay. In a great number of nations, construction came practically to a stop. Even farming suffered terribly with the prices of produce crashing by around sixty percent. The areas that depended on industries in the primary sector took the worst hit, including logging, mining, and cash cropping. Job losses in these industries turned out to be among the worst. A few nations’ economies began recovering in the middle of the 1930’s. For most countries around the world, the terrible consequences of the Great Depression remained until the outbreak of the Second World War. The military output required by the conflict rapidly increased production and employment everywhere. Numerous events and problems caused the Great Depression’s original economic collapse of 1929. Structural weaknesses were present, only waiting for particular events to turn the crash into a worldwide depression. It is particularly interesting how the contraction ran from one country to the next like a wildfire in a forest. Regarding the structural weaknesses of the 1929 economic contraction, historians are quick to point out that enormous and widespread bank failures only became worse as the stock market crashed. Others hold up specific monetary policy like the Federal Reserve in the United States contracting America’s money supply, and the British Empire choosing to go back to the pre-World War I parity of the Gold Standard with one pound equal to $4.86.

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Great Recession The Great Recession proved to be the worst American and world wide economic downturn since the 1930’s era Great Depression. It began within the U.S. in December of 2007 and is said to have ended in June of 2009 officially. There is ongoing debate with some economists as to whether the full effects of the Great Recession have really ceased, or this is merely a lull in between bouts of a greater depression. The Great Recession started in the U.S. but later spread to most industrialized countries around the globe. This world wide recession led to a severe drop in trade and a significant drop in economic activity. The financial crisis of 2007-2010 actually kicked off the Great Recession. The financial crisis and resulting Great Recession ultimately stemmed from irresponsible lending policies practiced by banks on a widespread level and encouraged by the U.S. and British governments. Along with this, the increasingly common practice of securitizing real estate and mortgages led to the financial collapse. Mortgage backed securities from the United States were promoted and sold around the globe. They turned out to be far more speculative and risky than anyone had predicted or disclosed. Besides this, a worldwide boom in credit encouraged a speculative asset bubble in stocks and real estate. As prices continued to rise, the risky lending only grew more prevalent. The crisis actually flared up as a result of severe losses on sub prime loans that started in 2007. These demonstrated that other loans were also at risk amid too high real estate prices. As the loan losses continued to rise, Lehman Brothers suddenly collapsed on September 15th of 2008. An enormous panic ensued in the inter-banking loan markets. With stock and real estate prices sharply declining, historical and major commercial and investment banking institutions throughout both the U.S. and Europe showed how much they had over extended themselves with major leverage as their losses quickly mounted. The governments of their home countries had to step in with enormous amounts of public tax dollars in order to save many of them from imminent bankruptcy. This resulting Great Recession has led to a substantial decline in international trade, dropping commodity prices, and high and mounting unemployment around the world. Although the National Bureau of Economic Research declared the Great Recession officially over at the end of 2009, other economic experts are not convinced. Nobel prize winning economist Paul Krugman has said that this Great Recession heralds the start of a second Great Depression. Others who are less pessimistic have claimed that true recovery in the United States will not emerge until the end of 2011. A number of events have been blamed for causing the financial crisis and Great Recession. The environment that preceded the crisis included an unnatural rise in asset prices along with an accompanying boom in worldwide economic demand. These are believed to have resulted from the multiyear period of too easily available credit, insufficient regulation, and poor oversight from the regulatory bodies who all too often simply looked the other way when times were good.

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Grexit Grexit is the clever abbreviation for the idea of a Greek exit from the Eurozone. The feared event of Greece returning to its old currency until 2001 the Drachma never occurred thanks to a variety of bailouts in exchange for austerity measures. This did not stop it from threatening to collapse several European banks which held Greek debt and infecting the sovereign bonds of other similarly afflicted countries like Spain and Portugal. The global financial crisis pushed over Greece’s precarious financial position. In 2009 in only the first quarter, the country’s GDP plunged by 4.7%. At the same time its deficit skyrocketed to more than 12% of the national GDP. Credit downgrades were not long in following. All three of the major agencies Moody’s, Standard and Poor’s, and Fitch began downgrading Greek debt until S&P finally cut it to junk level in 2010. The resulting yields on 10 year Greek bonds rose to over 44% at their worst point in March of 2012. The socialist government began a series of cuts to attempt to stabilize its shrinking finances. In the initial austerity measures the socialist party passed in 2009 they cut the spending and government jobs wages by 10% and raised the age for retirement. During the next three years, they passed other austerity packages that severely cut back pay for government jobs, laid off public workers, increased taxes, cut minimum wages, cut pensions, slashed defense and health spending, and loosened the procedures for laying off employees. Not all of these measures were evenly implemented. Interest groups with powerful allies were able to stall the ones that impacted them while those impacting the poor and middle classes moved forward. Unemployment soared from slightly more than 10% to around 28% by September of 2013. More than 40% of Greek children live in poverty. Nearly 50% of ages 15 to 24 year old Greeks are unemployed. In order to qualify for international help from the IMF and EU, Greece was told to cut its expenditures still further. They were forced to begin a series of humiliating austerity measures and to enact painful structural reforms in order to receive the bailout money that was needed to stave off financial collapse. Prime Minister Papandreou asked for a bailout from the IMF and EU in April of 2010. These groups responded to the calls for help by approving a €110 billion over three years ($147 billion when offered) bailout. This represented the largest bailout of a sovereign nation in history. In order to receive it, Greece had to go through yet another series of agonizing austerity measures. Greece needed still more help and in February of 2012 received approval for a second package of bailout money. The EU nations, the European Central Bank, and the IMF known collectively as the Troika increased their money to Greece by another $172 billion bringing them to a total of €246 billion worth $319 billion in those days. Greece was required to lower its debt down from the 160% GDP at the time to 120% by 2020. Greek bond holding banks took a 53.5% haircut on their bonds’ face value. This amounted to as much as 75% loss of the real value of the debt. Regular Greeks felt betrayed by their own leadership and the leaders of fellow Eurozone countries such as Chancellor Angela Merkel of Germany. Their economy continued to slide in and out of recessions.

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Greece finally reached the point of a referendum on the policies and austerity that had brought the country to this low point. More than 60% of Greeks who voted rejected austerity in the results. This led to fears that Greece would drop out of the Euro if the demands of Syriza party leader and Prime Minister Alexis Tsipras for a better bailout package were not met. This departure from the Eurozone never materialized, as Greece continued to receive periodic monetary help and support from the Troika every quarter. Greeks never saw most of this $320 billion in bailout money, as it instead generally passed through the country on its way to repay holders of Greek debt.

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Gross Domestic Product (GDP) GDP stands for the entire value in dollars of all goods and services that have actually been produced within the nation in a particular period of time, commonly a year. A simpler way of putting GDP is how large the economy proves to be. The Gross Domestic Product turns out to be among the most closely watched and important measurements for how healthy the economy is. GDP is commonly given out as a comparison against a prior year or quarter. When the financial news reports that the Gross Domestic Product has increased by three percent year on year, it is referring to the economy having expanded by three percent during the last year. Coming up with the actual measurement of Gross Domestic Product is complex. In simplest terms, it is figured up in one of two methods. The income approach works by totaling up the earnings of all individuals in the country over a year. The expenditure approach simply tallies up the money that everyone in the nation spends over the year. It stands to reason that through both means you should come to approximately a similar total. With the income approach, economists take all of the employees’ compensation in the nation. They add this to all of the profits that both non incorporated, as well as incorporated, companies have made throughout the country. Finally they add on all taxes paid minus subsidies given. This is known as the GDP(I) method of calculation. The expenditure based means proves to be the more typically utilized method. To figure up GDP this way, all government spending, net exports, consumption, and investment in the country have to be tallied up together. You can not overstate the importance of GDP to an economy’s growth and production. Almost every person within the nation is massively impacted by gross domestic product. If an economy is in good shape, then wages will rise and unemployment will prove to be low as businesses require greater quantities of labor in order to produce to keep up with the expanding economy. Major changes to Gross Domestic Product, revised to the downside or upside , have significant repercussions for the stock markets. The reasons for this are simple to grasp. Economies that are contracting translate to smaller amounts of profits for corporations. This leads to lower prices for stocks. Investors also become nervous about decreasing growth in GDP, since it commonly means that the nation’s economy is falling into recession or is already in a recession. Conversely, economies that are expanding signify that corporations’ profits in general will be higher. Investors bid stock prices up on this news as they become increasingly confident in the future economic prospects. Because of these effects of Gross Domestic Product on peoples’ lives, it could be said to be the most significant economic measurement for all of the people in the country in general.

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Gross Income Gross income can be several different things in the United States. In tax law for business, gross income signifies all proceeds realized from every source minus the cost of goods that have been sold. It is also used for individuals and pertains to all income earned from any and every kind of source. As such, it is not simply cash that has been realized, but it can also be income received in kind, as property, or as services. For a taxpayer, gross income is commonly believed to be all of the monies and values received. Although most income is tallied into this figure, a few kinds of income are excluded deliberately. For companies, individuals, trusts, estates, and others, gross income is necessary for figuring up the mandatory income taxes within the United States. Taxes are figured up using a taxable income number that starts with gross income and then subtracts permissible tax deductions. Taxes are then calculated based on the resulting taxable income. Many different types of income are considered to be a part of the gross income category. Wages are the earnings for work performed payable as tips, salaries, and related income. Income made as a result of such personal service is always tallied up in a person’s gross income. Gross profits made from selling an inventory of products are also considered gross income. Gross profits result from sales prices of items minus the cost of the goods actually sold. All interest received is also considered to be a part of gross income. Dividends, along with distributions of capital gains from companies or mutual funds are similarly a part of gross income. Gains on property that has been disposed of are also tallied into the gross income total after the extra proceeds beyond the adjusted cost in the property is determined. Also included are royalties and rents from intangible and tangible items. A number of other non traditional types of income are also considered to be a part of this. Pensions, income from life insurance, and annuities income are counted. So are alimony, child support, and other maintenance payments. Shares of partnership income that are distributed fall under this category. Even the proceeds from national and state tax refunds are considered to be gross income. The Internal Revenue Service claims that such gross income includes all forms of income from any source of which they are derived. As such, gross income can result from any gains having to do with labor, capital, the two together, or profits having to do with the sale of anything or a capital asset. A notable exception to gross income includes gifts and inheritances. While these could be taxed under the category of estate taxes or gift taxes, they are not deemed by the IRS to be a part of gross income.

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Halifax The Halifax Building Society was a British bank based in the town of the same name in West Yorkshire, England. It was an independent British bank that became a trading division of the Bank of Scotland, which eventually became an entirely owned subsidiary of today’s banking giant Lloyds Banking Group. Even as a subsidiary of a subsidiary, Halifax remains the biggest residential mortgages and savings accounts provider in the United Kingdom. In the 2016 British Bank Awards, it came in fifth in the overall rankings. Halifax arose as a building society in the year 1853. These societies were organizations which allowed individuals with extra money to invest them in a pool for loaning out money to others who wished to buy or build a house. This particular building society grew into the biggest building society in all of the U.K. by 1913. From this point on, it only continued to expand and financially prosper. It held the number one lending position in Great Britain as an independent company through 1997 when the bank demutualized. The early history of the Halifax Permanent Benefit Building and Investment Society allowed it to grow into the mortgage lending giant of the twentieth century. The idea became formulated at the Old Cock Inn in a meeting room above it close to where the first building of the Building Society would later be located. Local working people all benefited from the establishment of such a society. Those investors who had extra cash on hand could invest it in the society. They would receive interest payments. Borrowers were then able to apply for and receive loans to allow them to pay for buying a house. Halifax Building Society did not expand through the typical mergers and acquisitions of other societies of the time. Instead, they grew organically. They began opening up branches all around the United Kingdom. They achieved the status of largest building society in Great Britain by 1913. They opened their first office in London by 1924 and the first locations in Scotland by 1928. With the demutualization of 1997, the company evolved into a public limited company named Halifax plc. This important entity became a component of the best known London Stock Exchange index the FTSE 100. The company went through another name change in 2001 as it merged with the Bank of Scotland’s The Governor and Company to form HBOS. The company’s long and proud independent history ended in 2006 when an act called the HBOS Group Reorganization Act of 2006 transferred all bank assets and liabilities of the group over to the Bank of Scotland which also became a standard plc company holding Halifax as one of its divisions. The new group ran into trouble in the financial crisis and had to be rescued. The HBOS began suffering from collapsing stock prices and rampant speculation on its future at the end of 2008. At this point, Lloyds Banking Group intervened and took over both Bank of Scotland plc and HBOS in January of 2009. Lloyds TSB applied to the Court of Sessions which approved them taking over HBOS in a January 12, 2009 ruling. Bank of Scotland along with HBOS officially became a part of the Lloyds Banking Group family on January 19, 2009. Troubles continued after the merger. The Bank of Scotland announced on February 9, 2010 it would be closing its 44 retail bank branches in Ireland. The deteriorating economic environment and crisis were the reasons Halifax gave out for the closures. In August of that year, they announced that the last business of

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Bank of Scotland Ireland would be wound down by the conclusion of the year. This resulted from an over $2 billion loss they booked during the first six months of the year because of failed loans they made earlier to property developers.

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Hank Paulson Hank Paulson is the nickname for Henry M Paulson, Jr. who served as Secretary of the Treasury from 2006 to 2009. Paulson came to Treasury well prepared for the almost unprecedented economic challenges he would face when he arrived in July of 2006. Before becoming secretary, he worked in finance for 32 years with Goldman Sachs, a leading American based global investment bank. While at Goldman, he served as CEO and Chairman of the Board for eight years. One of Hank Paulson’s first endeavors at Treasury was to bring together a diverse group of well experienced professionals so that he could restart the once routine meetings for the President’s Working Group on Financial Markets. These strenuous efforts from the financial regulators of the President’s Working Group subsequently proved to be key for the efforts of the American government to stave off the complete collapse of the U.S. and global financial systems. Paulson demonstrated a rare non partisan form of leadership in the critical moments of the crisis. He persuaded Congress to provide him with the historically unparalleled emergency powers which he required to stop the crisis. The man headed the economic team for President George W. Bush with creating and coordinating an impressive and ultimately successful international and national strategy to the 2008 crisis. This Financial Crisis and Great Recession proved to be the worst the country and globe had seen since the 1930’s era Great Depression. Thanks to his decisive actions and courage to face the challenges, he helped to keep the U.S. financial system from collapsing. The catastrophe that these efforts avoided could have sent unemployment to levels not known since the 1930s. Secretary Hank Paulson did not stop with averting the collapse. He and his Treasury colleagues began to come up with a new regulatory frame work to overhaul the outdated financial regulatory structure. Among these much needed reforms were many of the ideas that eventually made it into the Dodd Frank Bill of financial reform legislation which President Obama finally signed into law. Secretary Paulson is also remembered for having worked with President Bush to see the G20 elevated to the most important global forum for economic recovery and financial reform. He shepherded the first Summit and its work which laid out a blueprint for the future meetings and importance of the group. Paulson also earned his place in history for changing the way that the United States engages with China. He did this by starting and leading the Strategic Economic Dialogue. These Cabinet level discussions helped to prioritize and address a significant range of economic topics. Paulson’s leadership of this group significantly improved the American relationship with China. It produced substantial results ranging from an important ten year framework to coordinate environmental and energy initiatives, to better product safety for trade, to more appropriate flexibility in the range of China’s currency. The SED has been continued by the administration of President Obama as the model for ongoing discussions with China. Secretary Hank Paulson demonstrated his commitment to open investment and free international trade as well. He served a important role regarding a few foreign policy initiatives. This included advancing Free Trade Agreements with Panama, Columbia, South Korea, and Peru.

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His efforts to reform the review process for national security helped to foster more foreign investment within the U.S. Paulson’s Treasury also worked tirelessly to stop financing of worldwide terrorist organizations. He helped the President to push nonproliferation of nuclear materials. Among his reforms to Treasury were modernizing the department in areas pertaining to Treasury bond issuing and leadership of the environment.

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Hard Currency Hard currency refers to a type of currency which proves to be generally accepted throughout the globe for payments on services and goods. Such currencies are trusted to be reasonably stable over the short term timeframe. They must be extremely liquid on foreign exchange, or forex (FX), markets. Nations with solid economic performances and highly stable political environments typically issue these. Because such hard currencies come from economically and politically stable nations, they are greatly respected in settlement of payments and forex trade and markets. Huge multinational transactions commonly become settled in one of the world’s main hard currencies. There are a few such currencies. While the U.S. dollar is often referred to as today’s ultimate hard currency, a number of other ones exist nowadays. The Euro zone euro, the British pound sterling, the Swiss franc, and the Japanese yen are among these examples. The phrase is similar to that of reserve currency. The difference is that it is possible to be considered a hard currency while not truly being a reserve currency. The Swiss franc is a classic example of a currency which is most definitely a hard currency but not one of the principle reserve currencies of the world. Markets for the real hard currencies are highly liquid, even when compared to the typically liquid nature of forex trading in general. A typical means for determining how strong a hard currency actually is revolves around the foreign exchange markets’ liquidity. There are eight global currencies which are considered to be by far and away the most heavily traded ones on earth. These are the U.S. dollar (USD), the euro (EUR), British pound sterling (GBP), the Japanese yen (JPY), the Swiss franc (CHF), the Canadian dollar (CAD), the Australian dollar (AUD), and the New Zealand dollar (NZD). Each of these proves to be hard currencies because of their massive liquidity amounts in FX markets. Sometimes the South African Rand (ZAR) is added to this list as a ninth hard currency. Not all of them are reserve currencies however (as with CHF, CAD, AUD, NZD, and ZAR). The United States dollar is still considered to be the most important reserve currency of the world even today. This is because it settles international trade transactions for between 60 – 70 percent of all international transactions in the world. Each of these hard currencies earned the confidence and respect of the international business and investment community. This is because they typically do not radically appreciate or depreciate. There are some exceptions to the rule. In 2015, the Swiss franc soared by as much as 40 percent against the euro within hours of the Swiss National Bank abandoning their two year long ceiling versus the euro. Still the Swiss Franc versus both the euro and the U.S. dollar did stabilize within months. The opposite of a hard currency would be an unstable currency. While the hard currencies are stable in supply and always in demand, weaker unstable currencies come from nations whose finances are in chaos. Argentina and its peso are dramatic examples of unstable currencies. In 2015, the Argentina peso plunged 34.6 percent of its total value versus the dollar. This scared especially foreign investors away from the extremely unattractive currency.

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It is interesting to note that currency values primarily derive from the important economic considerations, including a nation’s GDP Gross Domestic Product. Part of the reason the U.S. dollar remains so strong is because the country’s GDP for 2015 was $17.947 trillion and ranked number one on earth. China came in second that year with a $10.983 trillion economy. India ranked seventh with a $2.091 trillion economy. Yet neither the Chinese Renminbi nor the Indian rupee enjoys the status of hard currency. It goes to show how the stability of a country’s money supply and the policies of its central bank play into which currencies are considered to be hard and which are deemed less stable and less respected internationally.

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HARP Program HARP stands for the Home Affordable Refinance Program. This program that the government sponsored entities Fannie Mae and Freddie Mac created and back is unique. It turns out to be the one refinancing program that works with borrowers who are eligible and who have no or little equity in their houses so that they can receive refinancing benefits and lower interest rates. The HARP program has changed some over the years. One of the main improvements to the program was to get rid of the underwater limitation amount for home owners. There is now no restriction on how much more the borrowers owe on their mortgage than the property is actually worth. Thanks to this modification in the HARP program, a great number of home owners who could not qualify before will now be able to do so. The program itself expires on September 30, 2017. This makes it important for buyers who are considering it to take action on it or get more information in the near future. The HARP program is a good choice for those borrower who have maintained a successful payment history over the last 12 months. It does not require a perfect payment record. Over the last six months there can not be any late payments. From six to twelve months prior there can only be a single payment that is 30 days late. The loan must also be guaranteed by or owned by Freddie Mac or Fannie Mae. In order to participate, there are several other considerations. The loan only can be modified with this HARP program if it is either the primary residence or a second house or investment property. It makes most sense if the value on the house has declined. It is especially useful for those whose first mortgage amount is greater than the present house market value or if there is little equity in the property. The loan will only qualify if borrowers closed on them before or on May 31, 2009. This information can be obtained with the loan lookup tool and results on the Fannie Mae or Freddie Mac websites. There are a number of good reasons for borrowers who are not able to take advantage of other refinancing means to utilize the HARP program on their mortgage. It lowers the monthly payment after the process is complete. The refinance procedure also decreases the interest rate. This means that borrowers will save on interest as well as monthly payment amounts. It can be especially beneficial for those who have adjustable rate mortgages. These HARP interest rates are fixed, which means they will not change with time. Lower interest rates and less interest also help the home owners to build up their equity faster. It is possible to get a refinanced mortgage with a shorter term as well. Because the program does not require any appraisals, this saves the home owners both money and time that it takes to find someone to perform them to most banks’ satisfaction. Participating in the HARP program is not difficult. It requires that borrowers undergo an application process, receive approval, and finalize closing much like with the original mortgage. HARP lenders work with the home owners every step of the way and assist in deciding if the program meets the needs of the borrower. There may be closing costs associated with the refinance. These often can be rolled over into the new loan to reduce out of pocket costs as necessary.

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Hedge Account A hedge account is an account established with a hedge fund. There are several reasons why a person or business would be interested in setting up a hedge account. These mostly center on the desire for investments that commonly produce higher profits or the wish to hedge, or protect, a business’ operations from certain unpredictable and undesirable swings in market prices. Businesses can open up their own hedge accounts in various futures and commodities markets to protect themselves from these business impacting price movements in important related commodities. A person who is interested in opening a hedge account will have to make application to a hedge fund. Hedge funds are typically restrictive in the types of funds that they will accept from an investor. The investor will have to prove certain income levels or asset base holdings that demonstrate that they are capable of bearing the substantial losses that could result from trades in a hedge account. They must also have liquid cash that they can tie up for long periods of time, since most hedge funds do not allow immediate on demand withdrawals. Funds that are invested with them could be tied up for a year or longer, and minimum waiting periods apply. Because of all of these reasons, hedge funds are typically looking for people as investors who have in excess of a million dollars of liquid net worth. Hedge accounts can also be accounts that businesses use to offset the changes in commodities’ prices. A company’s products may be heavily dependent on prices such as sugar and cocoa if they are a chocolate company, oil and other energy prices if they use energy intensive processes or are shipping companies, or even industrial metals such as copper if they produce wires or cables. Gold and silver mining companies, along with oil producers, routinely hedge their quantities of precious metals and energies that they expect to produce to protect against anticipated declining prices. By locking in the present price for these goods and commodities that they require or will produce later on in the year, they can insulate themselves from price swings that move against them. This can mean the difference between having to raise prices and risk losing market share or selling goods at a much lower profit margin. Because of this, many major multinational companies around the world routinely protect themselves and their operations through the use of hedge accounts. Some of them even have individuals or departments that oversee these operations. For a business to set up such a hedge account is not difficult. They only have to open a commodities account with one of the major commodities exchanges, such as the Chicago Mercantile Exchange, the Chicago Board of Trade, New York Mercantile Exchange, or the New York Board of Trade. These accounts can be used by companies for speculating on the price movements of underlying commodities as well, and not only for hedging their operations. In this case, care has to be taken, as the leverage provided by hedge accounts, such as commodities accounts, is enough to bring down a company overnight if they are irresponsible with the trades in the account.

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Hedge Fund A hedge fund is an investment fund which are commonly only open to a specific group of investors. These investors pay a large performance fee each year, commonly a certain percent of their funds under management, to the manager of the hedge fund. Hedge funds are very minimally regulated and are therefore are able to participate in a wide array of investments and investment strategies. Literally every single hedge fund pursues its own strategy of investing that will establish the kinds of investments that it seeks. Hedge funds commonly go for a wide range of investments in which they may buy or sell short shares and positions. Stocks, commodities, and bonds are some of these asset classes with which they work. As you would anticipate from the name, hedge funds typically try to offset some of the risks in their portfolios by employing a number of risk hedging strategies. These mostly revolve around the use of derivatives, or financial instruments with values that depend on anticipated price movements in the future of an asset to which they are linked, as well as short selling investments. Most countries only allow certain types of wealthy and professional investors to open a hedge fund account. Regulators may not heavily oversee the activities of hedge funds, but they do govern who is allowed to participate. As a result, traditional investment funds’ rules and regulations mostly do not apply to hedge funds. Actual net asset values of hedge funds often tally into the many billions of dollars. The funds’ gross assets held commonly prove to be massively higher as a result of their using leverage on their money invested. In particular niche markets like distressed debt, high yield ratings, and derivatives trading, hedge funds are the dominant players. Investors get involved in hedge funds in search of higher than normal market returns. When times are good, many hedge funds yield even twenty percent annual investment returns. The nature of their hedging strategies is supposed to protect them from terrible losses, such as were seen in the financial crisis from 2007-2010. The hedge fund industry is opaque and difficult to measure accurately. This is partially as a result of the significant expansion of the industry, as well as an inconsistent definition of what makes a hedge fund. Prior to the peak of hedge funds in the summer of 2008, it is believed that hedge funds might have overseen as much as two and a half trillion dollars. The credit crunch hit many hedge funds particularly hard, and their assets under management have declined sharply as a result of both losses, as well as requests for withdrawals by investors. In 2010, it is believed that hedge funds once again represent in excess of two trillion dollars in assets under management. The largest hedge funds in the world are JP Morgan Chase, with over $53 billion under management; Bridgewater Associates, having more than $43 billion in assets under management; Paulson and Company, with more than $32 billion in assets; Brevan Howard that has greater than $27 billion in assets; and Soros Fund Management, which boasts around $27 billion in assets under management.

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Hedging In the world of finance, hedging is the act of putting together a hedge. Hedging involves building up a position in one market whose goal is try to counteract risk from changes in price in another market’s position that is the opposite. The ultimate goal is to diminish or eliminate the business or person’s possibilities of risk that they wish to avoid. A number of specific vehicles exist to help with hedging. These typically include forward contracts, swaps, insurance policies, options, derivatives, and products sold over the counter. Futures contracts prove to be the most popular version of hedging instruments. In the 1800’s, futures markets open to the public came into existence. These were set up to permit a standardized form of effective, viable, and open hedging of commodity prices in agriculture. In the intervening century, these have grown to include all manners of futures contracts that allow individuals and businesses to hedge precious metals, energy, changes in interest rates, and movements in foreign currencies. There are countless examples of individuals who might be interested in hedging. Commercial farmers are common types of people who practice hedging. Prices for agricultural crops like wheat change all the time as the demand and supply for them fluctuates. Sometimes these price changes are significant in one direction or the other. With the present prices and crop predictions at harvest time, a commercial farmer might determine that planting wheat for the season is smart. The problem that he encounters is that these predicted prices are simply forecasts. After the farmer plants his wheat crop, he has tied himself to it for the whole growing season. Should the real price of wheat soar in between the time that the farmer plants and harvests his crop then he might make a great amount of money that he did not count on, yet should the real price decline by the time the harvest is in then the farmer might be ruined completely. To remove the risk from his wheat crop equation, the farmer can set up a hedge. He does this hedging by selling a certain quantity of futures contracts for wheat. These should be sold at an amount equal to the wheat crop size that he expects when he plants it. In such a way, the commercial farmer fixes his price of wheat at planting time. His hedging contract proves to be a pledge to furnish a particular quantity of wheat bushels to a certain place on a fixed date in time at a guaranteed price. Now the farmer is hedged against changes in the prices of wheat. He does not have to worry anymore about the wheat prices and whether they are falling or rising, since he has been promised a fixed price in his hedging wheat futures contract. The possibility of him being totally ruined by falling wheat prices is completely removed from the realm of possibility. At the same time, he has lost the opportunity of realizing extra money as a result of rising wheat prices when harvest time arrives. These are the upsides and the downsides to hedging; both the positives and the negatives of uncertainty are eliminated.

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Helicopter Money Helicopter money is a phrase that economists and market followers employ to describe monetary stimulus on an aggressive level. It involves the ability of the government to print money and distribute it in an effort to create higher inflation. This is a tactic that the U.S. Federal Reserve and Bank of Japan have both engaged in over the past since the Great Recession and financial crisis began in 2008. The Japanese central bank has been dabbling with the helicopter money idea again in 2016 as they are desperate to jump start their economy that has been in stagnant deflation for literally decades now. The metaphor originally came into being around five decades ago thanks to the famed economist Milton Friedman. Former Federal Reserve Chairman Ben Bernanke revived the idea in the mid 2000s. The policy has been involved with economic catastrophes when it was misused. Despite this, the idea is being talked up again around the world as the world economy’s deflation continues apace. Some observers state that desperation in monetary policy leads to helicopter money when all other central bank endeavors fail. In order for the European Central Bank or Federal Reserve to conjure money out of nothing, they must have a way to do this. Their preferred method is by purchasing assets such as bonds from banks. They affect this with money which is only an entry into an electronic accounting system. It is up to the banks to distribute the money around the national economy or economies at this stage. The problem arises when these traditional methods are not effective. If banks are not loaning out money in the form of mortgages or credit, the central banks are stymied in their efforts to move money aggressively around the economy. Milton Friedman originated the thought experiment that defines the phrase helicopter money. In his paper “The Optimum Quantity of Money” from 1969, he came up with a whimsical idea. “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.” The immediate result would be a greater quantity of money flowing around and chasing the identical quantities of goods and services. This would lead to prices rising and thereby create greater inflation as a result. The reason that central banks are desperate to get higher inflation is because of what Milton Friedman discovered about the Great Depression. His influential study on it showed that the economic collapse resulted from a failed monetary policy. Per Friedman, central banks did not provide a large enough supply of money, which permitted ruinous deflation to erupt and settle into the global economy. Deflation means that prices are falling. This causes both businesses and consumers to hold off on spending money since they know that they can buy it for less money in the future. It raises the debt burdens of countries (as well as companies and individuals) since the money with which they must repay it will have a greater value in the future. Such scenarios lead to a vicious cycle. The weakness in the economy causes prices to fall, which in turn leads to additional economic weakness. Many countries in the developed world are struggling with this in 2016. Japan and the euro zone are the biggest victims so far. This is why their banks have been pursuing a raft of measures that represent increasingly aggressive policies in their efforts to reverse the deflation. Helicopter money is one of the

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ideas they are talking about and experimenting with in their desperation.

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High Frequency Trading (HFT) High frequency trading turns out to be a platform for program-based trades. It works with super computers that are able to run huge quantities of trading orders at incredibly rapid speeds. This HFT works with complicated algorithms. These analyze a wide range of markets and then place a number fastpaced orders depending on the conditions in the markets. The secret of the trading algorithms lies in their speed. Those traders who have the quickest trade executions usually make more money than do traders who have slower trade executions. This high frequency trading has not always been mainstream or even possible. It grew in popularity as some of the exchanges began to provide incentives for corporations that could increase the stock market’s liquidity. As an example, the NYSE New York Stock Exchange works with a number of liquidity providers. These are known as SLPs Supplemental Liquidity Providers. The strive to provide better liquidity and more competition for the exchange and its already existing quotes. The companies that participate in this program earn either a rebate or a fee when they increase the liquidity. This amount turned out to be $0.0019 in mid 2016 for securities that are listed on the NYSE or NYSE MKT. It may not sound like an enormous amount of money. It adds up to major profits quickly as some of these companies are engaged in millions of transactions on busy days. The NYSE and other exchanges introduced this SLP program for a specific reason. After Lehman Brothers collapsed back in 2008, liquidity turned into an enormous concern for market participants. The SLP provided the solution to low liquidity. It also made high frequency trading a major part of the stock market in only a few years. High frequency trading offers some significant benefits to the stock exchanges and financial markets. The most significant one centers on the significantly better liquidity that the programs provide. It has reduced bid ask spreads substantially. Larger spreads are more or less a thing of the past. Some exchanges tested the benefits by trying to place fees on the HFT. The spreads then increased as fewer trades occurred. The Canadian government started charging fees for high frequency trading on Canadian markets. A study concluded that the end result was 9% higher bid to ask spreads. There are many who dislike high frequency trading as well. Opponents are harsh in their criticism. Many broker dealers have been eliminated by the computer programs. The human element has been removed from many decisions on the exchanges. When errors occur, the critics are quick to point out that human interactions could have prevented them. Part of the problem in the speed is that the programs are making decisions in literally thousandths of a second. This can lead to huge moves in the market with no apparent explanation or reason. The best example of the mistakes that can lead to enormous and scary stock market moves happened on May 6, 2010 during the Flash Crash. The DJIA Dow Jones Industrial Average experienced its biggest

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drop of all time on an intraday basis. The Dow plunged over 1,000 points and dropped a full 10% in only twenty minutes. It then recovered back much of the loss in the next few hours. When the government investigated the issue, they found an enormous order which had caused the sell off to begin. The HFT computer algorithms did all the rest. Another criticism concerns large corporate profiting at the expense of the smaller retail investors. The trade off is superior liquidity. Unfortunately, much of this turns out to be phantom liquidity. It is there for the market at one moment and then gone in another. This keeps the traders from benefiting from the liquidity.

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High Yield Preferred Stocks Preferred stocks are a special type of stocks that many companies issue. These types of stocks provide investors with a different level of ownership in a given company. A preferred stock holder obtains a higher priority on the earnings and assets of a company than a common stock holder would enjoy. These preferred stocks also pay a higher dividend that has to be given out before any dividends can be paid to the common stock holders. As such, they represent a hybrid type of security on the stock markets. They are like common stocks in that they are bought and sold as stocks and represent ownership in a company. These stocks can also trade up and down in price like a common stock. Unlike a common stock, they do not come with any rights to vote for a company board of directors or items on a company ballot at the annual meeting. They are also like bonds in that they pay a higher dividend that must be paid out unless the company lacks the earnings to pay these holders. In this way preferred stocks have elements of bonds with their fixed rate of dividends. Every preferred stock comes with its own unique details that are set when the company issues the stock. Preferred stocks are often higher yielding issues. They are most commonly issued by companies that are in industries such as financials, real estate investment trusts, utilities, industrials, and conglomerates. Despite this higher yield that makes them like bonds, they can be traded on the major stock exchanges. They are typically found on exchanges including the NASDAQ and the New York Stock Exchange. As preferred stocks are a type of equity legally, they show up as equity on any company balance sheet. Both common and preferred stock holders are owners in the company. There are several advantages to preferred stocks that investors like about them. In the past, individual retail investors were less aware of preferred stocks, but this is changing. Part of the reason they have gained in popularity surrounds market volatility. As common stocks have seen wild price swings in recent years, investors have been looking for more stable instruments in which they can invest. Preferred stocks fit this need as they tend to be more stable in price than do common stocks. With more baby boomers looking for investments that provide higher yields, this has brought preferred stocks into the spotlight. The retirees gain the advantage of better yields and the opportunity for the price to increase in the issues as well. Preferred stocks are not new. They have existed from the time when modern day investing began. Institutional investors have known about and invested in them for many decades. Many individual investors did not because they lacked the information they required to select and trade them. In the past, individuals did not have any lists of preferred stocks from which to pick. The information available was difficult to come up with before the Internet made this kind of information much more readily available. Now there are tools smaller individual investors can find that provide calendar searches for ex-dividend dates.

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There are also screening filters that allow individuals to narrow down their search for the best high yielding dividend preferred stocks. Preferred stocks represent another way to diversify an investor’s portfolio and earn higher yields on dividends at the same time.

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HM Treasury HM Treasury stands for Her Majesty’s Treasury. This is the United Kingdom’s finance and economic ministry. It keeps control over the public spending and lays out the direction for the economic policy of Great Britain. Among its important mandates is to work towards a sustainable and strong level of economic growth. The HM Treasury of today dates back to the time of the Norman Conquest in 1066. The kingdoms of the Anglo Saxons also had Treasuries which collected taxes and handled expenditures before this nation altering invasion occurred. The Danegeld was a tribute levied on Anglo Saxons to pay the Vikings to leave or not attack. Britain’s first official Treasurer was likely one “Henry the Treasurer.” He held land from King William located near Winchester which proved to be the location for the royal treasuries of both late Anglo Saxon and Norman Britain. Henry is believed to have functioned as William the Conqueror’s treasurer. He is mentioned in the Domesday Book, the very first systematic tax assessment of the entire nation which the Treasury carried out at the time. Eleven Downing Street is the home of HM Treasury. In 1684, Mr. Downing obtained the permission from King Charles II to construct and name his new Downing Street development at St. James Park. These houses were finished in 1686. Even though Number 11 Downing Street did not become the official residence of the head of Treasury the British Chancellor of the Exchequer until 1828, a precedent had been set a generation earlier. In 1806 and 1807, Lord Henry Petty dwelt there while he held the position as Chancellor of HM Treasury. Chancellors who have since elected to live over their office have experienced a house that is not only historic for Britain, but unique and quite comfortable as a home as well. HM Treasury bears many important responsibilities today. They handle all aspects of public spending. This includes the pay for pensions and public sectors, spending of the various ministries, welfare policy, capital investment, and the AME annually managed expenditure. They carry out a number of functions in financial services. Among these responsibilities are to ensure the City of London remains competitive, to guarantee financial stability in the UK, and to regulate banking and other financial services throughout the nation. Treasury also maintains responsibility for overseeing the various taxes in Britain. This includes indirect, direct, property, business, corporation, and personal taxes. The ministry handles encouraging private sector involvement and investment in national infrastructure and delivers infrastructure projects throughout the public sector. Finally, they must make certain that the growth of the British economy is ultimately both steady and sustainable. In carrying out these critical responsibilities, HM Treasury has a range of priorities. They work towards strong growth which is sustainable. They attempt to utilize the tax money responsibly. Their goal is to rebalance the national economy while reducing the deficit. They strive to create a fairer and simpler tax system for all.

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Treasury looks to develop safer and stronger British banks. They work towards levying the most competitive corporate taxes possible. They help to increase the ease and access to financial services for British consumers. Finally, they seek to better the financial sector’s regulation so that it will safeguard both the national economy and members of the British public. HM Treasury has its headquarters in London. They also maintain regional offices in Edinburgh, Scotland and Norwich, England.

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Home Affordable Modification Program (HAMP) The Home Affordable Modification Program is also known by its acronym HAMP. This stands for a program created by the United States government. They founded it in order to assist those homeowners who were struggling to keep up with their mortgages. For any homeowners who have watched in dismay as their financial conditions deteriorated since they originally purchased their house, they could be able to qualify for loan modifications to make keeping the home possible and affordable. The program actually helps participants by allowing them to reduce their monthly mortgage payments. This happens as the program approves a lower rate of interest, extends the mortgage’s time frame (and term), or alters the type of mortgage to fixed rate from adjustable rate ARM. In some cases, two or even three of these changes may be approved together. The modifications can happen because the United States government backs them. The Home Affordable Modification Program began as the Departments of Housing and Urban Development HUD combined forces with the Treasury in order to forge a new initiative that they named Making Homes Affordable. Though there were other parts to this ground breaking concept, the HAMP proved to be a key pillar of it. The government recognized in the wake of the Great Recession that many Americans were only one accident, job loss, or illness away from falling hopelessly behind on their mortgages and payments. This is why they decided to come up with their innovative program for modifying mortgages to make them more affordable for those who are in the most need of help. Becoming eligible for this home modification assistance program requires an applicant be able to successfully meet a particular set of criteria. They must have bought and financed the house before or on January 1st of 2009. They have to be capable of proving a real financial hardship that makes them struggle to meet their monthly mortgage payments. At the same time, they have to show that they are already behind on the monthly payments or even at risk of sliding into foreclosure of their home. In order to successfully qualify, the property can not have been condemned. They may not owe more than $729,750 on the primary residence which is a single family home. Finally, applicants may not show any personal real estate fraud convictions from any time within the past ten years. If they meet all of these exacting criteria, then interested parties are able to call their specific mortgage servicer to inquire about any additional requirements that could exist with their particular company. It is also important to inquire if the mortgage servicing company even participates with the Home Affordable Modification Program in the first place. If the provider does participate and the applicant actually meets all of the minimum requirements for participation, then the home owner will need to speak with his or her lender in order to obtain all of the necessary paperwork and forms to enroll. These forms include first the Request for Mortgage Assistance Form, or RMA. There is also the Income Verification Form as well as the IRS’ 4605T-EZ form to complete. It is important to note that the final application does not get submitted to the government, but instead to the mortgage servicer. They will require a tangible proof of financial hardship when the individual submits this application. There are actually a number of key benefits which this Home Affordable Modification Program delivers for successful applicants. They are able to sidestep foreclosure of the home, reduce their costs for keeping

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the house, obtain a new start on the mortgage, and better their credit history and rating. The home loan will be made to work for the owners so that they can simply modify the mortgage instead of losing the house. Though the program is one that has helped a number of Americans, it is not the foolproof answer to irresponsible home buying and borrowing. There have been a number of homeowners who availed themselves of the program in HAMP only to re-default a second time. Some of these have actually forfeited their homes in the foreclosure process. The program has been shown in a recently conducted study that it can help a number of the fully 20 percent of homeowners who are not saving money which they might be able to by taking advantage of either a loan modification program such as this one or through refinancing their home.

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Home Equity Line of Credit (HELOC) A home equity line of credit is also known by its acronym HELOC. It represents a viable alternative to the more commonly used home equity loan. Whereas home equity loans provide lump sum amounts, Home Equity Lines of Credit provide cash as and when the borrower needs it. The downside to a HELOC is that a bank can decide to reduce the amount of available credit or cancel the line altogether without warning. This can happen before a borrower has utilized the funds. In a home equity line of credit, borrowers use the equity within the home to be their collateral with the bank. The lending institution decides on the maximum amount that the borrower can obtain. The home owner then determines how much of this they want to borrow for the amount of time the bank permits. This might be until the monthly payments reduce the line to a zero balance, or it could be for a certain number of months. This makes these HELOCs much like a credit card in the ability to draw on the resources only when and as they need them. The main difference between a home equity line of credit and a home loan is that the former is a revolving loan instrument. Borrowers are able to use the money then pay it off. They can then draw on it once again. Home equity loans pay a single lump sum up front amount one time. HELOCs also feature variable interest rates that will change over time, while home equity loans come with interest rates that are fixed. The payment amounts on the home equity loans are also fixed every month, while the payment on the HELOC depends on how much of the line is used. In order to be able to obtain a home equity line of credit, the home owner must have significant equity in the house itself. Banks will insist that owners keep at least 10% to 20% equity within the property all the time. This must be the case after the line is approved as well. The HELOC approval process will also require verifiable proof of income, consistent documented employment, and a high credit score that is generally more than 680. It is important for prospective borrowers to determine what they will use the home equity line of credit money for before they draw on it. Home renovations lend themselves better to home equity loans. This is because the one time large amount would enable the borrower to finish the renovations and then repay the loan. A HELOC is a better fit for a revolving bill such as the children’s college tuition. Borrowers can use them to cover the tuition, then pay them off hopefully before the next tuition payment become due. At this point they can re-utilize the HELOC for the next semester tuition. The home equity line of credit can also be a good choice for individuals who wish to consolidate the balances on their credit cards which feature high interest rates. The rates for the HELOC are typically much lower. This strategy requires some discipline. Once the credit cards have been cleared, there is the danger that the home owner might be tempted to run them back up again while they are still making payments on the line of credit. This would put borrowers in a worse situation than before they chose to consolidate. Home equity lines of credit can get a home owner into the bad habit of constantly borrowing and paying them back as with a credit card. This can be a problem if the borrowers take on more debt with the HELOC than they can afford to pay in monthly payments. Missing these payments would put their home

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at jeopardy of being seized by the bank.

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Home Equity Loan A home equity loan is a means for home owners to borrow money using the value of their house. Borrowers find these loans appealing because they can usually borrow significant sums of money. Besides this, they are much simpler to get approved for than with many competing kinds of loans. A home owner’s house secures these home equity loans. The borrowers may utilize these funds for any purpose that they wish. They do not have to be spent on expenses related to the house that secures the loan. Such a home equity loan is actually a kind of second mortgage on a house. The first mortgage allows the buyer to purchase the home. When sufficient equity is established in the house, owners can attach other loans to the property to borrow against it. There are a number of benefits to obtaining a home equity loan. They appeal to both lenders and borrowers. Borrowers get better APRs or interest rates from them than with other loan types. Because they are secured by the value of the home, they can be easier to get approved for even with bad credit. The IRS allows home owners to deduct interest expenses from these home equity loans from their taxes. Finally, borrowers are able to obtain substantial loan amounts using these loan vehicles. The lenders like these loans because they consider them to be safer loans. The house acts as collateral in the process. This means that banks are able to seize the house to liquidate it and regain unpaid balances if the owner fails to make the payments. Because of this, banks know that borrowers will make the payments of these loans a high priority so they do not lose their house. Banks protect themselves in any case by not lending too much against the value of the property. In general, lenders will not allow borrowers to obtain a greater amount than 85% of the value of the house. This includes both the amount that remains on the first mortgage as well as the second mortgage home equity loan. This percentage is known as the loan to value ratio. It can vary somewhat from one bank to the next. The way home equity loans work is relatively straightforward. Borrowers receive a one time cash payment. They then make fixed payments each month to pay back the loan over a pre-set amount of time. The interest rate will be set by the bank at the beginning of the loan. With every payment, the loan balance declines after part of the interest costs are covered. This makes these amortizing loans. Sometimes borrowers do not require all of the money at one time. An alternative to the home equity loan in this case is the HELOC home equity line of credit. This delivers a set amount of money which home owners can draw on only when and if they require it. The borrowers only have to pay interest on money which they physically draw and borrow. It is possible for the interest rate to change on these HELOC loans. Banks may also cancel such a line of credit before the borrower has utilized all or part of the funds. Home equity loans can be used for many different needs. It is wise to improve the value of the house with the money through renovating, remodeling, or increasing the appeal of the property. Other common uses borrowers employ them for are to help pay for a second home, to afford college tuition and expenses for family members, or to consolidate bills with high interest rates.

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HSBC HSBC stands for Hong Kong Shanghai Banking Corporation. This largest international bank in the world by balance sheet has over $1.63 trillion in total assets. The British London based banking giant counts more than 47 million customers as part of its international network spanning 71 countries and territories and 6,000 offices around the globe. HSBC was founded by a British businessman in 1865 to finance the growing trade between the West and Asia, and especially China. Today HSBC remains among the largest and most impressive banking and financial services conglomerate groups in the world by any relevant measure. Their stated goal is to be recognized as the globe’s foremost and best respected international bank. HSBC is operated globally through four major divisions. These include its Commercial Banking, Global Banking and Markets, Private Banking, and Retail Banking and Wealth Management divisions. Among the banking group’s many achievements over the centuries, the group was responsible for setting up the modern day Chinese currency and banking system back during the reign of the last Chinese imperial dynasty. This financial and currency system which HSBC established for China is still used today. HSBC Commercial Banking operates throughout 55 different nations and territories. Their operation covers both developing and developed world markets that are most important to their many customers. The division serves a great variety of customer types, ranging from major multinational corporations to small outfits to medium sized companies. It offers them the financial tools they need to run their operations effectively. One of the bank’s most appealing features is that it can call upon its vast and multinational financial strength to support clients with term loans, project and acquisition finance, and daily working capital. The bank also offers its customers the financial and legal know how to assist them in engaging in effective stock and bond issues and offerings. The commercial banking group supports specialist staff in four primary fields. Global Liquidity and Cash Management provides businesses with tools to effectively manage their liquidity. The online platform helps the customers to transact payments seamlessly between currencies and countries. Global Trade and Receivable Finance offers financing to suppliers and buyers in the trade cycle so that they can cover their supply chains. Global Banking offers its commercial customers a variety of services such as capital financing via equity, debt, and advisory services. Insurance and Investments provides protection in the form of financial, business, and trade insurance. It also offers wealth management for corporations, employee benefits, and other commercial insurance products to protect against risk. The Global Banking and Markets division works with customers to help them access commercial opportunities for developed and developing markets. This division operates in three groups including the corporate sector group, the resources and energy group, and the financial institutions group. Services and products are comprised of financing, advisory, research and analysis, prime services, trading and sales, securities services, and transaction banking.

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HSBC Private Bank delivers global private banking services that include wealth management, investment, and private banking services to its individual, business, and executive clients. The division’s goal is to become the world’s foremost private bank for business owners who are high net worth individuals leveraging the group’s longstanding globally leading commercial services and heritage. Retail Banking and Wealth Management provides its tens of millions of customers with a broad range of products and services. These include personal banking, internet banking, loans, mortgages, savings, insurance, investments, and credit cards. They offer a variety of proprietary services and accounts that include HSBC Premier, HSBC Advance, personal online banking, financial planning, and wealth solutions.

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Hyperinflation In the field of economics, hyperinflation proves to be inflation, or rising prices over time, that is extremely high and even beyond controlling. This state of the economy exists as the overall levels of pricing in a certain country are rising sharply and quickly at the same time as the actual values of these economic goods remain roughly the same price as measured in other more stable currencies. In other words, the nation’s own currency is diminishing in value rapidly, commonly at rate that grows in pace. The IASB, or International Accounting Standards Board, gives a precise definition of hyperinflation. They state that when the rate of inflation during three cumulative years nears one hundred percent total, or at least twenty-six percent each year compounded annually for three consecutive years, then hyperinflation has been reached. Other economists such as Cagan have declared hyperinflation to be when inflation is greater than fifty percent each month. Hyperinflation can witness the overall price levels go up by five to ten percent and higher even in single days for extended periods of time. This stands in sharp contrast to regular inflation which is commonly only reported over a quarterly or annual basis. As greater and greater amounts of inflation are created in each printing of money instance, a truly vicious cycle takes effect. Such hyperinflation is clearly evident as the money supply grows at an uninterrupted rate. It is typically seen alongside the population’s unwillingness to keep the hyper-inflationary currency for any longer than they have to in order to use it for any hard good that will prevent them from losing more actual purchasing power. Hyperinflation is typically a part of wars and their after effects, social or political upheavals, and currency meltdowns such as seen in Zimbabwe. Hyperinflation is a phenomenon that is unique to fiat currencies that are not backed up by anything but a government’s faith and trust. As the money supply is not limited by normal restraints like gold in a vault, it is instead run by a paper money standard. The supply of it is completely dependent on the discretion of the government. Hyperinflation commonly leads to intense and long lasting economic depressions. This is not always the case though. In Brazil which suffered in the grips of hyperinflation for thirty years in the 1964 to 1994 period, the government managed to avoid economic collapse by valuing all non-monetary goods, services, and investments for the whole economy in an involved index. The government supplied this daily updated index that they measured with the daily Brazilian currency against the United States dollar. In contrast to Brazil, Zimbabwe did not bother to set up such an index measured against the dollar. They did offer the day by day changes in the U.S. dollar as a comparison for everyone in the country to see. This voluntary comparison only served to worsen the problem and finally destroyed the real value of non monetary items that did not get updated as expressed against the Zimbabwe dollar. All monetary items in the country finally lost every bit of value during the hyper-inflationary meltdown.

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Import In simple terms, imports are goods that are utilized in one country that were produced in another country. The term import refers to the idea of bringing goods and services into a nation. It originally came from the concept of bringing these things into a port via ships. A person who is engaged in the practice of bringing these goods and services into the other country is called an importer. Importers live and are based in the country into which they bring these goods and services. Export is the opposite of import. It refers to sending the goods made in one country abroad to the importing country. Exporters are based overseas from the importer and importing country. Imports are then any items, such as commodities or goods, or alternatively services that are brought to a country from a different country in legitimate means. They are commonly used for trade purposes. Such goods are then put on sale to people in the importing country. Foreign manufacturers make such goods and services that are then offered to the domestic consumers of the importing country. Imports for the country receiving them are the exports of a country that sends them. International trade is actually based on such imports and exports. Importing any goods commonly means dealing with customs agencies in both exporting and importing nations. Imports can be subjected to trade agreements, tariffs, or quotas much of the time. Imports can refer to more than simply services or goods that have been brought into the country. They can also be the resulting measured economic worth of any goods and services that are being imported. Such imports’ values are measured over periods of time, such as monthly, quarterly, or yearly. The abbreviation of I represents the value of such imports in macroeconomics. From an economic strength point of view, imports are considered to be somewhat negative. Exports are nearly always regarded as positive, since they represent produced items that are being sold to others for currency consideration. When a nation’s imports are greater than their exports, this leads to a trade imbalance, or trade deficit. Such trade imbalances must be paid for with something eventually. Much of the time it ends up being debt instruments that are exported back to the countries from which the imports come. Countries like the United States and Great Britain are guilty of having significantly greater values of imports than exports. They commonly run large trade deficits.

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Import Quotas Import quotas are numerical restrictions which a government of one country imposes on the imports of another competing nation. The main purpose of such quotas lies in decreasing imports while simultaneously boosting a country’s own inherent domestic production. With the numbers of such imports restricted, the price of these imports will increase. This then fosters the production, purchase, and consumption of more domestically-produced goods and services by a nation’s own consumers. Import quotas prove to be among three of the most common foreign trade policies utilized to discourage imports while encouraging exports. Besides these are export subsidies and tariffs. National governments undertake to enforce these quotas as foreign trade policies. They are enacted with the intention of defending domestic production through limiting foreign competition. Quotas in general are typically quantity limitations which a group slaps on activities, services, and goods. Employers typically run into hiring quotas for different national groups of people. Sales representatives also face such quotas in their sales activities and endeavors. This is why import quotas as an extension of this idea are simply the foreign sector amount of imports which a domestic government will permit in a given industry or service sector. By increasing the numbers of domestically-produced goods in an economy while discouraging the numbers of competing imports, a nation’s consumers are prompted to buy home-produced goods and services instead of foreign-based and -produced ones. There are five principal reasons why import quotas are sometimes imposed on foreign imports of goods and services. The political pressure is such that domestic employment has to be protected and encouraged. Many domestic jobs proponents fear the competition of low foreign wages. By decreasing the number of imports from such countries, governments are able to lower the playing field for higher and better paid domestic employees. Governments can also be concerned about unfair trade practices and infant industry worries. Unfair trade means that the foreign-created imports could be dumped at prices which are lower than possible production costs. Foreign exporters would do this temporarily in a market in order to reduce the ability of domestic producers to effectively compete and remain in business at the same time. China has been a major practitioner of dumping and unfair trade practices in industries such as steel around the world in the past. Infant industry refers to a comparatively new domestic industry which has not grown up sufficiently in order to benefit from the necessary economies of scale. Import quotas serve to safeguard this infantile industry while it develops and grows from cheaper and more efficient competition overseas. A final motivating factor for import quotas revolves around the quite complex idea of national security. These quotas could be employed to discourage imports while encouraging domestic production of those goods which are called crucial for the nation’s security and ultimate survival of its national economy. The military hardware production industry is one such example of a sector which many nations are eager to protect from less expensive foreign competition. Economists are divided on the net effect and overall effectiveness of import quotas as they pertain to

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foreign trade and government policies. They do tend to help out the domestic economy for which they are the most advantageous. Domestic firms which are struggling against competition from stronger foreign competitors are most likely backers of such policies. The national companies see benefits from greater sales and profits, as well as additional income for the owners of the resources and factors of production. The problem with boosting domestic prices by restricting consumers’ access to foreign imports is that such foreign trade policies will hurt the domestic consumers by increasing prices in stores and reducing both the ultimate quality and available choices offered.

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Income Distribution Income distribution proves to be the way that a country’s entire gross domestic product is actually shared out among all members of the population. This has long been a main concern of the study of economics and related governmental economic policies. The classical economists of the discipline such as Adam Smith, David Ricardo, and Thomas Malthus were principally concerned about the factor of income distribution. This refers to the actual distribution of income as it pertains to the principal factors of production, such as capital, labor, and land. More modern day economists have similarly turned their attentions to the topic in recent decades. They have been mostly preoccupied with the income distribution as it pertains to both households and individual consumers in economies. There are many public policy issues which involve such relationships as those of economic growth and income inequality. These have led to the creation of various measurements to analyze income distribution in a society and economy. Chief among these is the Lorenz Curve representation. It is correlated closely with such income inequality measurements as the highly respected and internationally utilized Gini coefficient. There are many different related causes of and factors leading to income inequality in the world today. Some of the more important ones prove to be tax and other economic policies, fiscal policies, monetary policies by central banks such as the Federal Reserve and Bank of England, labor union policies, the labor market in given industries and regions, individual skills sets of specific workers, impacts of automation and technology, the negative effects of globalization, educational levels of workers in different regions and countries, race, gender, and culture. Thanks to such useful concepts as the pervasive Gini coefficients, a few well respected organizations including especially the United States’ Central Intelligence Agency and the international body the United Nations have been able to measure actual levels of income inequality on a country to country comparison basis. The World Bank similarly employs the Gini coefficient index as it has consistently proven to be a dependable and accurate index measurement for comparing and contrasting income distribution on a nation by nation basis. This widespread index runs a measurement gamut of from 0 to 1. On this scale, 0 represents complete equality, while 1 depicts total inequality in the society or economy in question. As of the year 2016, the world’s Gini index measures fittingly at 0.52. Income inequality may be looked at through two different statistical approaches. These are intra country inequality that looks at the conditions within the nation itself. The other is inter country inequality that amounts to the various inequality levels between one country and the next one. A May of 2011 report that the OECD researched and published demonstrated a disturbing trend regarding income inequality and income distribution among the OECD developed nations. The income gap between poor and rich in these developed nations, practically all of which represent the high income economies, “has reached its highest level for over 30 years, and governments must act quickly to tackle inequality.” The United States is a classic example of this troubling point. Income in America has become so

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unevenly distributed throughout the prior 30 years that the earners of the top quintile 20 percent now earn a greater share than the combined four quintiles or bottom 80 percent together do. This is the kind of dangerous and damaging statistic upon which violent class based revolutions are built.

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Income Tax Income tax refers to the tax on income which governments mandate for all personal and business entities and organizations which reside or are based in their jurisdiction. The law states that both individuals and businesses have to file their income tax returns once each year. Such filing demonstrates if they owe the government taxes or are instead able to claim a tax refund. This makes the tax on income a critical source of funding for governments. They employ it to pay for their various activities, goods, and services which they provide to the citizens and residents of their home country. Income tax systems are usually progressive in nature. This is because national governments tend to understand that higher income earners have the broadest shoulders to bear the heaviest burdens of higher tax rates. The lower income earning individuals (and businesses) can not pay so much of their gross incomes. The United States first imposed an income tax on its citizens in the time of the War of 1812. The goal for this tax was only to help repay the still-fledgling nation’s $100 million worth of debt. They ran this up in the expenses related to the costly war on both land and sea. The government actually made good on its promise to repeal this tax on income after the conclusion of the war and repayment of the national war debt. Despite this fact, income tax in America became a permanent fixture in the country in the early years of the twentieth century. The United States’ entry into the First World War especially ran up enormous costs and debts for the nation. The tax never again disappeared in the U.S. The story is similar in many Western economically developed nations such as Great Britain, Canada, and others. Within the U.S. today, it is the IRS Internal Revenue Service which carries the responsibility of enforcing tax laws and collecting these income taxes. They utilize a complicated and bureaucratic system of regulations and rules on incomes that have to be reported. They also monitor and decide which credits and deductions those filing individuals and businesses may claim. This agency collects the taxes from any type of income including wages, commissions, salaries, bonuses, investment earnings, and business income. Individual income tax is one of the largest revenue generators for the Federal government of the United States today. The majority of citizens and residents within the country do not have to pay taxes on the entirety of their full earnings. Instead, the government utilizes a system of deductions on many different items to reduce the people’s taxable income. Among these important deductions are dental and medical bills, interest on a mortgage, and educational expenses. Taxpayers are allowed to minus these from their gross income in order to decide how much of their income is actually taxable. Should a taxpayer make $120,000 income and receive $20,000 worth of deductions, then the IRS will only impose taxes on the remainder of $100,000. After this, the tax agency will apply credits against the taxes which individuals owe. This means that an individual who owed $25,000 worth of taxes and received $5,000 in credits will only have to pay $20,000 total taxes. Besides federal income taxes, a great number of the fifty states within the U.S. also collect their own state

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income taxes. Only seven states did not levy such taxes on their residents as of 2016. These lucky state residents lived in Wyoming, Washington state, Texas, South Dakota, Nevada, Florida, and Alaska. The two states of Tennessee and New Hampshire only levy such income taxes on any earnings realized from investments and dividends. Businesses and corporations must also pay taxes on their earnings. The IRS deems any type of partnerships, corporations, small businesses, and even self-employed contractors to be businesses. Such groups must first report all of their business income and then subtract out their capital and operating expenses. What remains is called taxable business income.

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Index Funds Index funds are typically exchange traded funds or mutual funds. Their goal is to reproduce the actual movements of an underlying index for a particular financial market. They do this no matter what is happening in the overall stock markets. There are several means of tracking such an index. One way of doing this is by purchasing and holding all of the index securities to the same proportion as they are represented in the index. Another way of accomplishing this is by doing a statistical sample of the market and then acquiring securities that are representative of it. A great number of the index funds are based on a computer model that accepts little to no input from people in its decision making of the securities bought and sold. This qualifies as a type of passive management when the index fund is run this way. These index funds do not have active management. This allows them to benefit from possessing lesser fees and taxes in their accounts that are taxable. The low fees that are charged do come off of the investment returns that are otherwise mostly matching those of the index. Besides this, exactly matching an index is not possible since the sampling and mirroring models of this index will never be one hundred percent right. Such variances between an index performance and that of the fund are referred to as the tracking error, or more conversationally as a jitter. A wide variety of index funds exist for you to choose from these days. They are offered by a number of different investment managers as well. Among the more typically seen indices are the FTSE 100, the S&P 500, and the Nikkei 225. Other indexes have been created that are so called research indexes for creating asset pricing models. Kenneth French and Eugene Fama created one known as the Three Factor Model. This Fama-French three factor model is actually utilized by Dimensional Fund Advisers to come up with their various index funds. Other, newer indexes have been created that are known as fundamentally based indexes. These find their basis in factors like earnings, dividends, sales, and book values of companies. The underlying concept for developing index funds comes from the EMH, or efficient market hypothesis. This hypothesis claims that because stock analysts and fund managers are always searching for stocks that will do better than the whole market, this efficient competition among them translates to current information on a company’s affairs being swiftly factored into the price of the stock. Because of this, it is generally accepted that knowing which stocks will do better than the over all market in advance is exceedingly hard. Developing a market index then makes sense as the inefficiencies and risks inherent in picking out individual stocks can be simply eliminated through purchasing the index fund itself.

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Individual Retirement Account (IRA) An IRA stands for Individual Retirement Account. IRA’s offer two types of savings for retirement. They can either be tax free or tax deferred retirement plans. In the universe of IRA’s, numerous different types of accounts exist. These are principally either traditional and standard IRA’s or Roth IRA’s as the most popular types. The various IRA’s are helpful to different individuals based on the particular scenarios and end goals of every person. Standard IRA’s permit contributions of as much as $4,000 every year. These are contributions that are tax deductible, giving the IRA’s their primary advantage as retirement accounts. People who are older than fifty are allowed to contribute more than the $4,000 maximum for the purposes of catching up for their approaching retirement. Any money put into the IRA is used to reduce your annual income amount, which lessens your overall tax liability for the year. The tax is really only deferred though, since monies taken from an IRA will be taxed at the typical income tax rate for the individual when they are withdrawn, even if they are held in such an account until retirement. When the money is taken out earlier than this age of 59 ½, then an extra ten percent penalty is applied as well. There are exceptions to the penalty rule though. When these early withdrawn monies are utilized to buy a home or to pay for the tuition costs associated with higher education, then they are not penalized. The typical tax rate would still apply, although the penalty is waived in these two cases. This makes IRA’s a good vehicle for investments that also give you the versatility of making significant purchases with the money. Roth IRA’s are the other principal type of IRA’s. The government established these types of IRA account back in 1997 in an effort to assist those Americans in the middle class with their retirement needs. Roth IRA’s do not turn out to be tax deductible. The upside is that they offer greater amounts of flexibility than do the typical IRA’s. These contributions are allowed to be taken out whenever you want without a penalty or extra tax. Interest that the account earns is taxed if taken out before the first five years have passed. At the end of five years, the earnings and contributions both made are capable of being taken out without having to pay either taxes or penalties. The identical housing and education allowances that permit to standard IRA’s pertain to Roth IRA’s. The principal attraction of Roth IRA’s is that they offer tax free income at retirement time. It is worth noting that the Roth IRA’s have their particular rules that keep them from being for everybody. If your income is higher than $95,000 in a year, then you will be barred from making the full contribution, and if it exceeds $110,000, then you will not be allowed to make a partial contribution. For married, filing jointly, the limits are $150,000 for full contributions and $160,000 for partial contributions.

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Inflation Inflation proves to be prices rising over time. It is specifically measured as the increase in a given basket of goods and services’ prices. These goods and services are taken to represent the entire economy. Inflation is also the going up in cost of the average prices of goods and services as measured by the CPI, or consumer price index. The opposite of inflation is known as deflation. Deflation turns out to be the falling of an average level of prices. The point that separates the two from each other, both deflation and inflation, is price stability, or no change in the costs of goods and services. Inflation has almost everything to do with the amount of money available. It is inextricably tied to the money supply. This gives rise to the popularly remarked observation that inflation is actually an excessive number of dollars chasing too small a quantity of goods. Comprehending the way that this works is easier when considering an example. Pretend for a moment that the world possessed only two commodities: oranges that are gathered up from orange trees and paper money created by government. In seasons where rain is limited and the oranges are few as a result, the cost of oranges should go up. This is because the same number of printed dollars would be competing for a smaller number of oranges. On the other hand, if a bumper crop of oranges are seen, then the cost of oranges should drop, since the sellers of oranges have no choice but to cut prices to sell off their large inventory of oranges. These two examples illustrate inflation in the former and deflation in the latter. The main difference between the real world and this example is that inflation measures changes in the price movement on average of many or all goods and services, and not simply one. The quantity of money in an economy similarly impacts the amount of inflation present at any given time. Should the government in the example above choose to print enormous amounts of money, then there will be many dollars for a relatively constant number of oranges, as in the lack of rain scenario. So inflation is created by the number of dollars going up against the quantities of oranges that exist, or overall goods and services existing. Deflation, as the opposite of inflation, would be the numbers of dollars dropping compared to the quantity of oranges available. Because of this, levels of inflation result from four different factors that often work together in combination. The demand for money could drop. The supply of money could expand. The available supply of various other goods might decline. Finally, the demand for other goods increases. Even though these four factors do work in correlation, economists say that inflation is mostly a currency driven event. This means that in the vast majority of cases, it results from governments tampering with the money supply. Generally, they do this by over printing their own currency to have money to pay for spending, resulting in higher inflation.

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ING Group The ING Group is the largest Dutch and Benelux based bank in the world. The acronym ING translates into International Netherlands Group in English. This global bank and financial institution draws on its important European base to provide services on a global scale. Their customers include governments, institutions, major corporations, smaller businesses, families, and individuals. ING is famous for its world class service and well known brand that put their customers at the center of all their endeavors. Over 52,000 staff work for the ING Group to deliver wholesale and retail banking and financial services and products to their customers located in more than 40 countries. The group calls its advantages the important financial positions it enjoys, its international network, and its all channel distribution strategy. They claim their greatest asset is their brand that is both well recognized and well liked by customers in a number of different countries. They are honored as one of the leading institutions found in the Banks industry sector of the Dow Jones Sustainability Index. The ING Group acts as a European network bank that extends its range around the globe for its many customers. They boast a range of global franchises as well. ING concentrates on growing into the main bank for new customers. This strategy is to increase the number of customers with recurring income payment accounts that have another product minimally included. ING starts customers with retail banking and offers other anchor products such as lending, wholesale banking transactions, and investments. The bank’s business transformation program is working to help the bank grow into an optimal operating model of Wholesale Banking. To do this, they are increasing their customer base in industry transaction and lending financial services. To better focus on this goal, they divide their principal and target markets into market leaders, challengers, and growth markets. The market leaders group are those countries of Benelux - the Netherlands, Belgium, and Luxembourg. These are the nations where the ING Group is market leading in wholesale banking and retail banking services. The strategy here is to expand in certain segments and to continue developing into their direct first bank model. They are investing in digital capabilities and providing excellence in their operational programs to this effect. Challenger markets are those where they are working consistently to increase their current market share. These markets include the important countries of Germany, France, Italy, Spain, Austria, and Australia. The businesses in these nations provide wholesale and retail banking. The focus with retail here is to offer online direct banking services. This gives them a price advantage versus other traditional banks. In the challenger markets, ING is working to use their already recognized savings vehicles to grow into payment accounts and to create primary banking relationships. They are striving to launch from their expertise in direct banking to build up the consumer lending and small to medium sized business lending. They are also working on diligently increasing their corporate customer base in these countries through new abilities in industry lending and transaction services here. ING Group’s growth markets include their businesses in Turkey, Poland, Romania, and Asia. Here they provide a comprehensive line of wholesale and retail banking. These rapidly expanding economies

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provide them with solid opportunities for growth. This is why they are investing heavily to build a sustainable market share here. To do this, they are concentrating their efforts on digital technology leadership and also are pushing their direct first bank model.

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Initial Public Offering (IPO) An IPO is the acronym for an Initial Public Offering. Such IPO’s represent the first opportunity for most investors to start buying shares of stock in the firm in question. Initial Public Offerings commonly generate a great deal of excitement, not only for the company involved but also for the members of the investing community. Private companies decide to issue stock and become publicly traded companies for a few different reasons. The main two motivating factors revolve around the need to raise more capital, as well as the desire to permit the original business owners and investors to take profits on their time and investment that they originally put into starting up the company. It is true that private companies are limited in the amount of capital that they are able to raise, since their ownership turns out to be restricted to certain organizations and individuals. Public companies have the advantages of allowing any investor to take a stake through buying stock shares on exchanges that are publicly traded. It is far easier for them to raise money as public companies. Initial Public Offerings that go well translate to large amounts of cash for a company. They use this for future expansion and development. Those who began the company or who were initial investors typically make enormous gains at that time in compensation for their time and effort. Initial Public Offerings take huge amounts of preliminary work. Great amounts of paper work have to be filled in and filed with the regulatory oversight groups. A prospectus has to be created for investors to study and consider. Advertising campaigns for the first shares that will be sold must be developed. On top of these tasks, the company has to continue its normal operations. Because of this, financial firms such as Morgan Stanley or Goldman Sachs are commonly engaged to perform these tasks on the company’s behalf. Such a firm is called the IPO underwriting company. With enormous sized IPO’s, these tasks could even be divided up between a few different IPO underwriting companies. Contrary to what many people think, the majority of IPO’s typically do not do well initially. Besides this, a percentage of the companies will not make it, meaning that all of the investment in the IPO stock could be lost. Because of this, there is great risk and often lower rewards for sinking money into Initial Public Offerings than in traditional well established companies and stocks. Many investors buy into the enthusiasm and excitement that surrounds Initial Public Offerings. Another explanation for their euphoria may have to do with believing that there is something special in being among the first investors to acquire the next possible Apple, Coca Cola, or IBM. Whatever their reasoning proves to be, investors continue to love Initial Public Offerings and the somewhat long shot opportunities that they represent.

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Initiative for Policy Dialogue (IPD) The Initiative for Policy Dialogue, also known as IPD, is a Columbia University based American nonprofit organization of global economic reach and importance. Joseph E. Stieglitz the famous Nobel winning laureate in economics founded the group back in July of 2000. In this endeavor he had the financial support of such important heavyweight groups as foundations and governments. These included the Rockefeller, Ford, Mott, and McArthur Foundations as well as the governments of both Sweden and Canada. This Initiative for Policy Dialogue proves to be an international network of over 250 world renowned economists, civil society representatives, political scientists, and active practitioners of various backgrounds from around the whole world. Their backgrounds are diverse and well represented of various inter-disciplines. The IPD uses this wide range of skills and tremendous resources in order to assist nations with effective solutions for urgent challenges, issues, and problems. They are also interested in building up the developing national institutions as well as civil societies. It is the mission of the Initiative for Policy Dialogue to carry the pressing areas of concern from the developing world to both academics and American and other developed nations’ policymakers and governments. Joseph Stieglitz the driving force behind this organization is well-placed and -suited to do this with his connections to governments and academia around the world. He serves as co-President of the organization. As the Columbia University ranking “University Professor” in Economics at their business school, he is also involved with their School of International and Public Affairs. Stieglitz also serves as their Committee on Global Thought Chairman. He has chaired the United Nations Commission known as the “Experts on Reforms of the International Monetary and Financial System.” The U.N. established this committee after the devastating Great Recession, financial collapse, and economic crisis of 2007-2009 under the auspices of the President of the General Assembly. He has also served as the World Bank’s Senior Vice President and Chief Economist, as well as President Clinton’s Chairman of the Council of Economic Advisors. Stieglitz earned the Nobel Memorial Prize in Economics back in 2001. It is hard to find a more impressive resume in the world of economics. He was named among the top four most influential economists in the world. The other co-President of the Initiative for Policy Dialogue is José Antonio Ocampo. Ocampo also works as Professor for the Columbia University School of International and Public Affairs. He is similarly a Member of the Columbia University Committee on Global Thought. Ocampo is internationally known for his role as the Chairman of the U.N. Committee for Development Policy. He has also served as Under Secretary-General at the United Nation’s ECLAC Economic Commission for Latin America and the Caribbean. Previously he held the post of Colombia’s Minister of Finance, Planning, and Agriculture. The Initiative for Policy Dialogue has four main programs that help them to impact public policy and shape the world. Their Task Forces help experts from around the world to collaborate in order to investigate complicated issues of development so that they can offer alternative policies to governments. Their Country Dialogues work to better the quality of decisions which policy makers engage in regarding

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issues covering economics. Their Journalism Program is the outlet which they use to improve the economic literacy of journalists so that they are able to more effectively report on the complex economic topics that affect developing nations. The Educational Programs attempt to explain the various issues combating both local and global decision making in the developing nations of the world.

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Insider Trading Insider trading is a generally negative phrase, though it can also refer to a legal activity. The illegal and better known version if it involves a person purchasing or selling a security when they have information that is not publicly available on the stock. The timing involved in such a trade often determines if it is legal or illegal. If the critical information has not yet been released to the public, then it is not legally allowed. This is because the government determined to level the playing field in investing. Trading securities when investors have special knowledge is not fair to those traders who do not have the ability to access this information. A person who tips off other individuals is also participating in illegal insider trading. This is the case if the tipster possesses valuable and relevant information that is not available to the public. Fines and jail time can be given to those who pass along illegal insider information. The responsible body for policing this type of illegal trading is the SEC Securities and Exchange Commission. They maintain and enforce rules that protect average investors from the results of illegal insider trading. Legal insider trading happens all the time. It is not as well known as the illegal version. A legal trade from an insider occurs when company directors buy or sell shares that they fully disclose according to the rules. This occurs every week. The transactions must be electronically turned in to the SEC in a manner that is timely. Not only must they be sent in to the SEC, the company of the person involved must disclose this transaction information on their official website. Congress passed the Securities Exchange Act of 1934 to address this issue. This first important step pertained to company stock transactions and legal disclosure. Major owners of securities and directors of the company as well had to disclose their positions, any transactions, and any time the ownership changed hands. Several forms allow corporate insiders to legally disclose their stock affairs. Form 3 permits them to initially file that they have a company stake. Directors use Form 4 to make a disclosure on company stock transactions two days or less after the sale or purchase. They utilize Form 5 for earlier transactions or for transactions that become deferred until later. It is not only company or corporate directors who are able to be tried and convicted for insider trading. Stock brokers and their clients can also be accused of this crime. Martha Stewart is a classic example of a brokerage client who the courts found guilty for placing insider trades back in 2003. Martha Stewart received a tip from her Merrill Lynch stockbroker Peter Bacanovic concerning her shares of ImClone, a bio-pharmaceutical company. She used this information to sell her shares. Her broker had obtained this information that the Chief Executive Officer of ImClone Samuel Waksal liquidated all of his position in the corporation. Waksal learned that the Food and Drug Administration was not going to approve his company’s cancer drug Erbitux. After the two sales occurred, the FDA officially and publicly rejected the ImClone

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treatment drug. This caused a major selloff in the company stock of 16% in a single trading day. Stewart had saved a stock loss of $45,673 by selling out early. The problem was that her sale had been based on the tip that CEO Waksal had sold all of his shares. This had not been publicly disclosed. Waksal became convicted and received a seven year jail sentence. Martha Steward was also convicted and forced to serve out five months in jail. She also received a number of months of house arrest and then probation.

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Insolvency Insolvency refers to the point where an individual, business, or even governmental organization is not able to cover its various financial obligations any longer. This means that it is unable to settle debts with its creditors and lenders as they are due. Many times, before such an indebted individual, company, or government becomes embroiled in any type of insolvency or bankruptcy procedures, they will try to enter into informal negotiations with creditors. This could involve setting up other payment schedules and arrangements. Insolvency can happen for a variety of reasons. Among these is a decrease in cash flow and profitability forecasts, poor management of cash resources, or a rapid expansion in costs and expenses. Where businesses are concerned, this type of insolvency is classified according to one of two separate categories. The first of these is Cash Flow insolvency. This happens as a corporation or company simply can not pay the business debts as they become due. The second form is Balance Sheet insolvency. This type results from a company reaching the point where it possesses a negative net asset position. It simply means that the corporation’s aggregate debts are greater than its total assets. It is entirely possible for firms to be solvent by balance sheet figures but at the same time be insolvent by cash flow. The opposite scenario could also occur. If a company is bankrupt according to its balance sheet while still solvent by cash flow, it simply means its incoming revenues permit it to cover its current financial obligations. There are numerous companies which possess longer term debt obligations that continuously operate in this balance sheet-bankrupt status. Technically, insolvency and bankruptcy are not exactly the same thing. The former is a condition of being in financial trouble or at least difficulties. Bankruptcy is instead a court order. It describes the ways in which a debtor which is no longer solvent will continue to meet its obligations or instead have its assets sold off to settle with the creditors. This means that it is entirely possible for a company, individual, or government entity to be no longer solvent but not yet be officially bankrupt. This could result from a temporary or sometimes fixable problem. The reverse is never the case. An entity can not be bankrupt yet still be solvent. Such a lack of solvency often translates into an eventual bankrupt state when the debtors are not able to improve their financial conditions. Corporations and firms that have become insolvent are able to improve their financial state. They might slash costs, borrow money, sell their assets, renegotiate the terms of their debts, or seek out a bigger corporation to acquire them. The buyer could settle their debts as part of the assumption of their services, products, technology, and proprietary trademarks. Several unfortunate events can lead to a company becoming insolvent. If they do not have enough management in human resources or accounting departments, this could contribute to the problem. A lack of qualified accounting staff could cause a company’s budget to be either ignored or misappropriated. There might also be sharply increasing vendor prices which the company is powerless to stop. Higher prices for their goods and services mean that companies will have to raise their prices in an effort to pass

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these along to the consumer. The problem arises when customers then shop another company or product to get a better price. Lost clientele nearly always translates into a drop in cash flow. This means that they no longer have the cash coming in to cover the bills due to the company creditors. There could also be lawsuits brought by employees or customers that break a company’s finances. The firm could be forced to pay enormous bills for both defense and in settlement damages which make it impossible for them to continue ongoing operations. As operations cease and revenue naturally drops, the ability to pay bills disappears quickly. A final reason centers on the lack of evolution in a company product line. It might be customers simply change their needs and therefore purchasing habits. This could lead them to rival firms which offer a broader product range or line. The company which could not or did not adapt its products will find its revenues and profits decreasing to the point where they are unable to cover their expenses with their remaining income.

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Institutional Investor Institutional investors turn out to be organizations or occasionally individuals which buy and sell securities in huge enough quantities and currency totals. They benefit from lower fees and commissions as well as special treatment from the market makers. These large and powerful deep pocketed investors experience fewer regulations from the regulatory agencies as well since they naturally assume that they have a larger knowledge base and are sophisticated enough to protect themselves in their investing strategies. There are many different kinds of investors who qualify as institutional investors. Some of them are life insurance firms and pension funds. These entities derive their money from a variety of sources, but in all cases they pool the funds in order to buy and sell real estate, stock and bond securities, and other alternative types of investment classes such as loans, commodities, precious metals, and artwork. There are many different kinds of institutional investors such as hedge funds, pension funds, insurance companies, sovereign wealth funds, commercial banks, investment advisors, Real Estate Investment Trusts, mutual funds, and university endowments. Other operating firms that choose to invest their extra capital in such asset classes are also covered by the term. Some institutional investors are activist. This means that they may interfere with the internal workings and governance of the firm by using their substantial voting rights in the companies in which they own larger stakes to influence corporate decisions, investments, and behavior. Institutional investors act as intermediaries between smaller retail investors and corporations. They are also significant sources of critical capital for the financial markets. Since they pool together their member investment dollars or Euros, these larger and more powerful investors effectively lessen the cost of capital to entrepreneurs at the same time as the efficiently diversify their clients’ portfolios. Since they can impact the behavior of companies as well, this helps to reduce agency costs. Institutional investors have several significant and game changing advantages over smaller, weaker retail investors. They possess enormous resources to invest as well as specialty knowledge that pertains to a variety of different investment options. Many of these choices are not even available to traditional retail investors at all. They also have longer term investing horizons as they are not limited to accumulation and distribution requirements of individual investors who will want to transition to retirement at some point. Such institutions turn out to be the biggest movers and shakers within both supply and demand segments in the securities markets. This means that they transact the overwhelming majority of all trades on the major stock and bond market exchanges. Their choices and actions substantially impact the prices and bid/asks of most securities on the various markets. This has led a number of retail investors to attempt to level the proverbial playing field of investing by researching the various filings of holdings the institutions make with the SEC Securities and Exchange Commission to learn what different securities they ought to invest in for their own individual portfolios and trades.

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Some of these institutional investors are critically important in specific types of countries. For example, those countries which are oil rich and exporting nations generally contain one or more massive sovereign wealth funds which possess a lion’s share of the investable wealth of the nation. These are usually government controlled and administered institutional funds and investors. They can amass even hundreds of billions of investable dollars, as have the Norwegian, Abu Dhabi, Saudi Arabian, Qatari, and Kuwaiti funds. In developed nations, it is the pension funds and insurance companies which control a substantial portion of the excess and readily deployable and investable capital.

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Insurable Value Insurable value represents the level of coverage which an insurance policy provides. This is the amount which they company will give to the insured when there is a damage causing event. They typically assign these values to policies such as home insurance. There is an important difference between the true market value and the insured value that is crucial because homes are involved. The value difference between these two numbers on a house can amount to tens (or even hundreds) of thousands of dollars in many cases. Insurance companies employ a standard computer model nowadays to figure up this insured value amount. This helps to guarantee consistency and transparency from one customer to the next. Customers are able to ask for a second round opinion or even a full reassessment when they feel that the policy does not fairly and fully appreciate their asset’s true value. In order to come up with insurable value, the insurance company will look at improvements which are done to the property. This might be a variety of changes made to the land or building. Some of these would be expansions to the primary house, a new roof, permanent updates or renovations made inside the house, and any new outbuildings constructed on the property. The insurance policy needs to deliver sufficient coverage in order for the home owner to be capable of rebuilding the home in a similar fashion on the land should devastating damage occur. This could be called replacement or rebuilding value as well. Insurable value will never include the land value or any appreciation of the property itself. This is because these are not property owner-driven improvements nor a part of the structure itself which is insured. Consider a concrete example to clarify the topic. People could purchase a home for $400,000 in the U.S. The insurable value might only be $250,000, which is the value for property-made destructible improvements. Should the house catch fire and burn to the ground, the insurance company would be willing to deliver enough resources to rebuild the house and put in the important appliances. It would not be as nice a house as if they bought a like home in that area though. This is why occasional updates on the insured value are critical so as to show the effects of higher costs and inflation on prices for construction supplies and contractor services in a given region. The insurance company will like attempt to utilize a fast calculation for the home replacement value when they create the policy in the first place. They will consider the information which the owner provides on the property. Some policies are far more complicated. In these cases, the insurance firm will decide to dispatch a home assessor. This person will visually inspect and consider the property itself to decide on the exact amount of insurable value. In the cases of commercial properties, this is often critical. The reason for this is that manufacturing plants and equipment will commonly be an important component of destructible improvements. They would boost the total of the insurable value. Should a factory collapse because of a devastating earthquake, the covered firm will require sufficient resources to not only rebuild the factory itself, but also to buy new production equipment. The insured company has to know that the insurance policy will provide sufficient coverage.

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There are scenarios where the insurable value is actually approximately the same as the true cash value or market value. This depends on the property or other asset in question. It is a fact that insurance companies will provide different treatment to varying assets from property such as jewelry, art, cars, and other insurable property. With cars for example, the policy holders will insist on being able to replace a totaled out car with a similar one according to year, make, and model in the event of a tragic accident.

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Insurance Broker Insurance brokers are intermediary parties who stand between the insurance companies and insurance buyers. They should not be confused with insurance agents. Insurance agents represent the insurance company. Insurance brokers represent consumers or businesses as insurance buyers. Insurance brokers have a variety of responsibilities and roles. They are legally bound to help individuals and businesses to find and purchase the insurance coverage that they require for a fair price. Insurance brokers must also maintain the correct license to be able to sell insurance. In addition to this, a broker is required to stick to the regulations that its state mandates by the insurance department in the state. Insurance agents are able to represent either a single or multiple insurance companies. Insurance brokers only represent the individual or company purchasing insurance. Agents can be independent or captive. Independent insurance agents have the luxury of representing a variety of insurers. Captive agents are only able to rep products for one insurance company like State Farm, Allstate, or Farmers Insurance. Brokers do not receive their appointments from insurance companies. To become an insurance broker is much easier than to become an insurance agent. Brokers get binders from insurance companies in order to start policies. They take insurance applications from their clients and submit them to the companies. These legal document binders are like temporary insurance policies. They cover the insured individual for limited time periods like 30 to 60 days. The insurer’s representative must sign them for them to be valid. Such binders that the brokers obtain for their customers will then be replaced when the policy is ready and issued. Insurance brokers can be wholesale or retail. Wholesale insurance brokers deal in specific types of insurance coverage. Many of these are not available to retail insurance brokers. Such coverage includes long distance trucking auto coverage and motorcycle maker product liability coverage. Retail insurance brokers work one on one with their policy holders. Individuals are able to obtain standard commercial insurance from their retail broker. For more complicated insurance coverage they turn to the wholesale insurance brokers. Brokers are paid in a specific way. They receive commissions on their policy sales as income. These commissions come from the premiums that insurance companies charge the policyholders. Many times insurance brokers receive base commissions as well as contingent commissions in compensation. A base commission would be the typical compensation that insurance companies pay when the insurance broker sells insurance policies. This works out to be a percentage amount of the total premium paid. The percentage amount will depend on the kind of insurance coverage which has been sold. As an example, brokers or agents could earn 15% for selling general liability insurance policies to customers. On typical workers compensation coverage, they might receive 10% in commission. There are also different commission levels for renewals than for initial policy sales. Many insurance companies pay out smaller commissions for renewal policies and larger ones for new policies. The reason for this is to encourage brokers to bring in new business. Where the insurance company may give 10% on

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new policies for workers compensation, they may decide to only pay 9% for renewals of such policies. Insurers provide contingent commission bonuses to insurance brokers who reach certain goal levels of growth, profitability, volume, or customer retention. This has become a controversy for insurance brokers because they are intended to represent the buyers of the policies, not the insurance companies. There have been cases where brokers obtained these contingent commissions without their customers’ awareness. Critics have accused brokers who accept these of putting customers into policies that make the broker more money. Because of this controversy, there are insurance brokers who do not accept contingent commissions anymore.

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Intangible Assets Intangible assets refer to the possessions of a company that are not physical. They are difficult to quantify for several reasons. These types of assets can not be physically measured. They also represent an unknown or undetermined cash value to a company. Several criteria for intangible assets are that they are invisible and can not be touched. Despite this interesting characteristic they are intrinsically valuable. These assets prove to be critical to the overall success of any business. Intangible assets are typically classed in two categories. These are legal assets and competitive assets. Legal assets are easier to understand than are competitive assets. Legal assets include the wide varieties of intellectual and creative property. In this category are such important holdings as patents, copyrights, brand names, trade secrets, and trademarks. Each of these can be owned and has value, though it is not easy to assign a value to these elements. Patents are the rights to inventions. Copyrights give ownership of writings and similar creative property. Brand names are a company’s physical name or product, such as Coca Cola, McDonald’s, or Big Mac. Trade secrets refer to a company’s ways of making things that are not known to rivals and competitors. The formula for Coca Cola is a well-known example of a trade secret. Trademarks are the ownership of popular company or product slogans or phrases as used in advertising. The second category of intangible assets is the competitive intangible assets. These are more abstract and difficult to grasp. Competitive assets refer to reputation and the knowledge of how to do things for the business. Such assets as these can be obtained with experience mostly. These types of assets include human capital, know how, leveraging, reputation, and collaboration. Naming such ideas is hard enough, but assigning them values is a matter of conjecture. There are reasons why coming up with values on such intangible assets is so incredibly hard. Valuing properties means that an analyst must gaze into a company’s future to determine the ways that these assets will impact its bottom line in the coming years. In the process they take the assets’ cost and allocate it through the expected life of the asset. Some intangible assets are valued in legal terms. An intangible asset will never be given a longer life span than forty years. When the analysts and accountants do this allocation, it is referred to as amortizing the intangible assets. Another division of intangible assets is the category of either definite or indefinite assets. With definite assets, individuals are referring to those that will endure for a specific amount of time. Contract agreements are good examples of these types. Indefinite assets can last for an indefinite time span. A well-known example of this is a company’s brand name. Such an asset will endure so long as the enterprise keeps making the products. Intangible assets may be hard to value, but they are still valuable for a company. Clearly an intangible asset can not have the same easily assessable value that a physical plant or other equipment would. Such intangible assets are often of great value to the company though.

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There are many cases of such a property being instrumental in the company’s eventual success or failure. McDonald’s is so wildly successful because of the tremendous value it gains from consumer recognition of its brand name. This recognition can not be physically touched or seen. The results of its impact on the company profits are unquestionably valuable to McDonald’s. The strength of their global brand pushes sales around the world on every year. These intangible assets like brands are so powerful precisely because they make an impact on customers’ choices. This allows companies to charge higher prices for their products.

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Intellectual Property Intellectual property, also known by its acronym of IP, is the concept having to do with creations from a person’s mind. The ownerships of such property are recognized as rights that can be possessed, bought, and sold. As such, they have also given rise to relevant fields of law. As a result of this intellectual property rights and law, creators and owners of many intangible assets obtain exclusive rights to them. This includes literary, musical, and art works; inventions and discoveries; and also phrases, designs, symbols, and words. The most prevalent forms of intellectual property are then trademarks, copyrights, trade secrets, patents, and industrial design rights. Intellectual property rights go back to the 1600 and 1700’s in early modern Great Britain. The Statute of Monopolies from 1623 is viewed as the origin of patent law, while the Statute of Anne from 1710 is looked at as the basis for copyright laws. The phrase intellectual property arose in the 1800’s. It finally became common in the U.S. in the late 1900’s. Intellectual property rights are believed to create economic growth and a flourishing free enterprise system. This is because such rights of exclusivity permit the creators and owners of these intellectual properties to realize financial benefit from their creation. It gives individuals and businesses motive to develop and invest in intellectual property. With patents, such businesses are willing to come out of pocket for the development and research costs because of this incentive. Because of this, the creation and maintenance of these intellectual property laws are given the credit for major contributions made to great economic growth in the Western World like the United States and Great Britain. Many economists point out that around two thirds of big businesses’ value lies in intangible assets. It is also said that industries that use intellectual property intensively create as much as seventy-two percent more added value for every employee than do those industries that do not use intellectual property intensively. This is to say that a great deal of economic growth is generated by intellectual property rights and associated industries. Critics of intellectual property rights do exist. Those in the free culture movement hold up intellectual monopolies as examples of things that hold back progress, damage health, and concentrate ownership to the disadvantage of the common people. They argue that the public good is hurt by monopolies that constantly grow out of software patents, extensions of copyrights, and business method patents. Besides this, some claim that intellectual property rights that are strictly enforced slow down the transfer of technological advances and scientific break through to poor countries. Still, developing nations are beneficiaries of developed nation technologies like vaccines, the Internet, mobile phones, and higher yielding crops. Critics claim that patent laws come down too hard in favor of the people who develop innovations versus those who employ them.

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Interbank Market The Interbank Market refers to the modern day financial system which involves banks trading cash and other instruments with other financial institutions and banks. This never involves banks trading money with non-financial businesses, consumers, or retail investors. It is possible for interbank trading to be pursued by banks for the benefit of their bigger customers, yet in general such trading between banks proves to be proprietary. This means that it happens between banks on the behalf of their own company accounts. Interbank markets also involve FOREX foreign exchange services in a commercial capacity of buying and selling currency pair investments. There can be long-term trading as well as huge quantities of shorter term, speculative nature currency trading. The Bank of International Settlements stated in information which they compiled and analyzed in 2004 that around fifty percent of all transactions on the world FOREX markets are strictly interbank market trade. It was after the failure of the Bretton Woods agreement and the catastrophic decision of then-American President Richard Nixon to abandon the gold standard back in 1971 that the present-day form of the interbank market arose and developed. Currency exchange rates for the majority of the big and economically important industrial countries became freely floating at this time. It was only on occasion that the various national governments chose to intervene in the interbank markets where their own currencies were concerned. These markets do not have any central or single location or authority. Instead, the trading occurs all over the world in every time zone and during six days per week from Sunday afternoon through Friday afternoon. The only exceptions to this schedule are the few internationally and unanimously recognized holidays, such as New Year’s Day. The arrival of this new floating rate system of exchange happened to occur as the inexpensive computer systems and program revolution emerged. This happy coincidence permitted for quickly executed, globally-based exchange trading for the first time in history. At first, voice brokers utilized the phone and later fax machines to match up sellers and buyers in these earliest days of the interbank FOREX trading. These eventually became replaced by the new fast and far more cost-effective computer systems. The computer systems which became connected by the Internet in time could scan huge volumes of traders and obtain the most optimal price in this way. Thanks to both Bloomberg and Reuters who created impressive trading systems which became ubiquitous around the world, banks gained the ability to trade literally billions of dollars in transactions at the same time. On the busiest days in the FOREX and interbank markets nowadays, daily trading volume exceeds more than $6 trillion. The biggest market participants are the interbank market makers. Such financial institutions have to be both willing and able to extend pricing to other players in the market besides requesting prices for themselves and their own interest in trades. Interbank market deals have minimums which start at $5 million. The majority of transactions are vastly larger. Sometimes they exceed a full billion dollars in only a single transaction. The biggest players in the interbank markets by far are United States market makers JP Morgan Chase Bank and Citicorp, German and European market maker Deutsche Bank, and

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Asian market maker (London- based) HSBC. The majority of such spot transactions agreed on the interbank markets will settle two business days following the trade execution. The biggest exception to this policy lies with the American dollar versus the Canadian dollar. It settles the following day. This settlement delay requires banks to maintain extensive credit lines (even when these are current spot trades) with their peer financial institutions so that they can trade continuously. To lower the risks inherent with settlement, most banks engage in netting agreements. These agreements require that an offsetting transaction must be done within the identical currency pair which will settle on the exact same day as the opposing transaction. In such a way, the banks are able to drastically reduce the quantity of money which must change hands, as well as the default risks which could happen if one trading bank suddenly and unexpectedly encountered financial problems.

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Interest Rate Interest rates are the levels at which interest is charged a borrower for using money that they obtain in the form of a loan from a bank or other lender. These are also the rates that individuals and businesses are paid for depositing their funds with a bank. Interest rates are central to the running of capitalist economies. They are commonly written out as percentage rates for a given time frame, most commonly per year. As an example, a small business might require capital to purchase new assets for the company. To acquire these, they borrow money form a bank. In exchange for making them this loan, the bank is paid interest at a pre set and agreed upon rate of interest for lending it to the company and putting off their own use of the monies. They receive this interest in monthly payments along with repayments of the principal. Interest rates are also used by government agencies in pursuing monetary policies. Central banks set them to influence their nation’s economic performance. They impact many elements of an economy such as unemployment, inflation, and investment levels. There are several different interest rates to consider. The most commonly expressed one is the nominal interest rate. This nominal interest rate proves to be the amount of interest that is payable in money terms. If a family deposits $1,000 in a bank for a year, and is paid $50 in interest, then their balance by the conclusion of the year will be $1,050. This would translate to a nominal interest rate amounting to five percent per year. The real interest rate is another type of rate used to determine how much purchasing power is received. It is the interest rate after the level of inflation is subtracted. Determining the real interest rate is a matter of calculating the nominal rate and removing the amount of inflation from it. In the example above, supposed the economy’s inflation level is measured at five percent for the year. This would mean that the $1,050 in the account at year end only buys what it did as $1,000 at the beginning of the year. This translates to a real interest rate of zero. Interest rates change for many reasons. They are altered for political gains of parties in power. By reducing the interest rate, an economy gains a short term boost. The help to the economy will often influence the outcome of elections. Unfortunately, the short term advantage gained is often offset later by inflation. This reason for changing interest rates is eliminated with independent central banks. Another main reason that interest rates change is because of expectations of inflation. Since the majority of economies demonstrate inflation, fixed amounts of money will purchase fewer goods a year from now than they will today. Lenders expect to be compensated for this. Central banks raise interest rates to fight this inflation as necessary.

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Interim Financing Interim financing is a way of obtaining funding on a short term basis for a project. It can also be called gap financing or bridge financing. People or companies elects for this kind of financing for a specific purpose. They may be seeking to get funding so that a project can be finished and start creating revenues. This would keep them from having to take resources away from other projects. This concept generally refers to loans. There are also cases of interim financing where companies utilize grants or other types of financial assistance. A short term loan proves to be among the most frequently employed types of interim financing. These kinds of loans can be crafted so that the borrower will pay back the entire principle of the loan along with all of its interest in twelve months or less from the loan issue date. This is the opposite of long term financing. In the longer term variety, the borrower receives several years to repay the loan. Loan deals on gap financing often come with interest rates that are a little higher than with longer term loans. For individuals or companies with excellent credit, financing companies can often offer extremely competitive interest rates on these short term loans. A common use of interim financing is with construction projects that need to be finished. On an individual level, a consumer may wish to renovate either a room in the house or the entire home. The borrower may decide to obtain a short term loan at a better interest rate to cover the costs of labor and materials at the beginning of the project. This can save the borrower on the more substantial interest rates and fees for using credit cards or store credit with the various vendors. The end result is that the consumer spends significantly less money on the improvement project than he or she would by not utilizing the interim financing. Real estate deals are another common use for this interim financing. A home owner may wish to move forward and buy a new house. The owner may need their present house to sell first. Short term loans like these can prove to be an optimal answer to the problem. Using the bridge loan the owner buys the house. The borrower can then repay the loan once their original house sells. This kind of strategy will help to push through the sale of the original house as well. The previous owners have already moved, which means the new owners can occupy the property without delay. The goal of interim financing is to offer a short term bridge loan for the individual or business concerned. Despite this, sometimes a situation develops where the borrower will not be able to repay the loan as quickly as hoped. In this case, longer term or additional financing becomes necessary. Many lenders will work with the borrower in such a case to come up with a longer term financing program. This will completely pay off the short term original loan. Additional money will usually be provided so that the borrower has the funds necessary to complete the project. This is especially the case with construction companies. It works out better for the borrower to engage in a rollover longer term loan than to take out another short term loan. The reason for this is that the longer term loans’ finance rates are nearly always lower than the most competitive rates lenders will offer borrowers for short term bridge

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loans.

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Internal Rate of Return (IRR) The IRR is the acronym for internal rate of return. This IRR proves to be the capital budget rate of return that is utilized in order to determine and compare and contrast various investments’ profitability. It is sometimes known as the discounted cash flow rate of return alternatively, or even the ROR, or rate of return. Where banks are concerned, the IRR is also known as the effective interest rate. The word internal is used to specify that such calculation does not involve facts that are part of the external environment, such as inflation or the interest rate. More precisely, the internal rate of return for any investment proves to be the interest rate level where the negative cash flow, or net present value of costs, from the investment is equal to the positive cash flow, or net present value of benefits, for the investment. In other words, this IRR will yield a discount rate that causes the net current values of both positive and negative cash flows of a specific investment to cancel out at zero. These Internal Rates of Return are generally utilized to consider projects and investments and their ultimate desirability. Naturally, a project will be more appealing to engage in or purchase if it comes with a greater internal rate of return. Given a number of projects from which to choose, and assuming that all project benefits prove to be the same generally, the project that contains the greatest Internal Rate of Return will be considered the most attractive. It should be selected with the highest priority of being pursued first. The assumed theory for companies is that they will be interested in eventually pursuing any investment or project that comes with an IRR that is greater than the expense of the money put into the project as capital. The number of projects or investments that can be run at a time are limited in the real world though. A firm may have a restricted capability of overseeing a large number of projects at once, or they may lack the necessary funds to engage in all of them at a time. The internal rate of return is actually a number expressed as a percent. It details the yield, efficacy, and efficiency of a given investment or project. This should not be confused with the net present value that instead tells the particular investment’s actual value. In general, a given investment or project is deemed to be worthwhile assuming that its internal rate of return proves to be higher than either the expense of the capital involved, or alternatively, than a pre set minimally accepted rate of return. For companies that possess share holders, the minimum IRR is always a factor of the investment capital’s cost. This is easily decided by ascertaining the cost of capital, which is risk adjusted, for alternative types of investments. In this way, share holders will approve of a project or investment, so long as its Internal Rate of Return is greater than the cost of the capital to be used and this project or investment creates economic value that is viable for the company in question.

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Internal Revenue Service (IRS) The Internal Revenue Service is an agency of the United States government. It is an entity that falls under the Department of the Treasury. The IRS’ purpose is to collect incomes taxes from businesses and working individuals. Workers generally pay in their incomes taxes to the IRS once a year. There are cases where groups pay taxes quarterly, as with businesses and independent contractors who make more than pre-determined amounts. In practice employers withhold most individuals’ taxes are from their paychecks. For most individuals and small businesses, annual tax payments are due every year on April 15th. They pay these for the preceding year. Submitting these payments and forms is known as filing taxes with the IRS. The agency also permits extensions for filing if the requests are turned in ahead of the due date. Estimated payments have to come with the request for extension. The Internal Revenue Service figures up taxes for individuals and businesses on a sliding scale. Individuals and entities that earn higher amounts are subsequently placed into higher tax brackets. The more individuals earn, the higher amount they will be required to pay to the IRS. Any person who earns a yearly salary or who is paid wages by the hour will have taxes estimated and deducted directly from every payroll. This creates a situation where too much or too little money may be deducted throughout the year. Individuals who overpay will receive a refund. Those who underpay will have to make a payment to cover the additional tax if the appropriate amount did not come out of checks during the year. Income taxes in the U.S. depend on the amount of net income. This is the income that remains once deductions have been calculated and subtracted from the total gross income. Individuals in the poverty bracket are not expected to pay any income taxes. Those people who earn $50,000 will pay around 20% of their net incomes. Over $100,000 earners are more likely to pay near 25% of net income earned. Sometimes those earning millions of dollars per year are able to use tax shelters, business write offs, and accounting strategies to receive substantial tax breaks and actually pay a lower percentage of their net income in taxes. This is why the middle class in America bears the greatest taxation burden. The IRS was not the original Federal taxing authority in the United States. President Lincoln began its original predecessor the Bureau of Internal Revenue in 1862 with Congressional approval. They set this agency up to collect a new income tax to assist in paying for the Civil War. This tax was intended and enacted to be temporary at the time. While the first income tax did become repealed in 1872, the government reinstated it again in 1894. Supreme Court legal challenges kept the income tax in a quasi legal state until the 16th Amendment came into force in 1913 and allowed income taxes to be permanent. Eventually the Bureau of Internal Revenue evolved into the Internal Revenue Service. The IRS website offers consumers and businesses all of their forms in a convenient, downloadable format. It also features instructional pages to properly complete these tax forms. A frequently asked questions page helps individuals with general queries. For people who need assistance in filing, there are

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a variety of software programs available that will ask questions and prepare the relevant tax forms for individuals. These programs then file the forms online with the IRS. Another option is to hire and pay a CPA certified public accountant to complete and file their tax forms.

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International Accounting Standards Board (IASB) The International Accounting Standards Board is an independent and private entity which arose back in 2001. The group was originally created to replace the former International Accounting Standards Committee. The IFRS Foundation maintains all oversight of the IASB. Under their auspices, the IASB creates, publishes, and approves the International Financial Reporting Standards for the global accounting community. There are presently 14 members of the IASB. The IASB group is headquartered in London, Great Britain. The constitution of the IFRS foundation gives the IASB full control over all technical and operating issues. This includes pursuing and developing the technical agenda after consulting with the public and the appropriate trustees of the foundation. They also approve and deliver interpretations that the IFRS Interpretations Committee recommends. Finally, they prepare and publish the International Financial Reporting Standards and all accompanying related drafts as laid out in the constitution of the IFRC Foundation. The IASB itself was originally organized under the auspices of the IFRS Foundation. The foundation itself proves to be a non profit company incorporated in Delaware in the United States on March 8, 2001. The IFRS Foundation oversees all of the tasks that the IASB pursues as well as its strategy and structure. At the same time, the IFRS maintains the responsibility for fund raising for the IASB. Another governing agency within the IFRS Foundation is the DPOC Due Process Oversight Committee. This trustee committee bears responsibility for the function of overseeing the IASB, as per the foundation’s constitution. The last governing board is the Monitoring Board. It monitors the trustees of the IFRS foundation. It also participates in nominating the Trustees as well as approving all final appointments that the board makes to the Trustees. There are several technical groups within the framework of the organization of the IFRS Foundation. The International Accounting Standards Board itself is among these. It bears the sole responsibility for setting all International Financial Reporting Standards since 2001. There is also the IFRS Interpretations Committee. Their job is to create interpretations that the IASB actually approves. It also engages in tasks as requested by the IASB since 2001. Finally there are the various working groups. These different task forces are for particular projects that meet a necessary agenda of the group. There are also numerous advisory groups within the IFRS Foundation that carry out important functions for the IASB. The ASAF Accounting Standards Advisory Forum gives advice regarding the activities for setting technical standards by the IASB. The IFRS Advisory Council provides advice to both the IFRS foundation and the IASB. There are also a variety of specific policy committees that serve advisory roles to the IASB and the IFRS foundation. These include the Capital Markets Advisory Committee from 2003, the Effects Analyses Consultative Group of 2012, the Emerging Economies Group from 2011, the Financial Crisis Advisory

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Group that merged with FASB in 2008, the Global Preparers Forum, the IFRS Taxonomy Consultative Group from 2014, the Joint Transition Resource Group for Revenue Recognition of 2014, and the SME Implementation Group from 2010. One of the important tasks of the IASB has been to help with the project to converge the differing GAAP and IFRS standards. In order to simplify the understanding of different countries’ accounting and financial statements, the group is trying to bring the standards into some sort of harmony. This will especially help out investors who must read and compare the financial statements and reports of various international companies.

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International Bank Account Number (IBAN) IBAN is an acronym which stands for the International Bank Account Number. This standardized numbering system for identifying bank accounts around the world with precision was first conceived of and implemented by the banks of Europe. They wanted to make simpler the means of transacting between bank accounts of financial institutions based in different countries. This internationally agreed to system for identifying the world’s banks and bank accounts was critically needed for banking across international borders. European banks found it necessary to come up with a way to effectively process the cross border transactions. They wanted to dramatically lower the dangers of errors in transcription and subsequent transmission problems which sometimes resulted. It was the ECBS European Committee for Banking Standards that first adopted the IBAN concept. It later evolved into a global standard under the auspices of ISO 13616:1997. This standard became updated with ISO directive 13616:2007 that now utilizes SWIFT as the official registrar. The system originally arose as a means of facilitating payments made throughout the European Union. It has now been put into place by the majority of European nations along with many countries throughout the globe, especially in the states of the Caribbean and Middle East. Sixty-nine different nations utilized the IBAN account numbering system as of February 2016. More sign up all the time. The IBAN account number is made up of several components. The two letter national code comes first. This is followed up by the two check digits which enable an integrity check of the IBAN number to be sure it is correct. Finally come as many as thirty alphanumeric characters which are also called the BBAN, or Basic Bank Account Number. Each national banking association decides which BBAN will become the standard for their own national bank accounts. In general, the remaining thirty characters include such information as the domestic bank account number, branch location identifier, and additional routing information. While the IBAN concept has taken hold effectively throughout the continent of Europe, it is not a universal global standard yet, though it is the closest thing to one. The practice of working with such standardized account numbers as these is growing and gaining in popularity in other countries of the world. This is proven by the fact that nearly forty non- European countries now employ the International Bank Account Number system for themselves on only the twentieth anniversary of the concept being introduced originally. Before the rise of the IBAN, every country utilized its own national standard to identify bank accounts within their own borders. This proved to be confusing in Europe, particularly as the borders between the 27 different EU countries began to blur thanks to the EU. Free movement of people, capital, and goods meant that money was being drawn from and transferred back and forth between the banks and bank accounts of different European states on an increasingly common basis. Sometimes important and even critical routing information was simply missing from transfers and payments. SWIFT’s routing information does not require transaction specific formats which identify both account numbers and transaction types specifically. This is because they leave the transaction partners to agree on these. SWIFT codes also lack check digits, meaning transcription errors can not be detected nor can banks

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validate the routing data before they submit the payments without these two digits. Continuous costly routing errors were creating delays on payments and transfers as the receiving and sending banks were also working with intermediary banks for routing. The ISO International Organization for Standardization overcame these problems in 1997 by creating the IBAN in association with the European Committee for Banking Standards. Because the ECBS simplified and better standardized the original format proposed by the ISO, an update was issued with ISO 13616:2003 and then again in ISO 13616-1:2007. As of 2017, the United States’ banks do not employ IBANs themselves. Instead, they utilize either Fedwire identifiers for the banks or the ABA Routing Number.

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International Bank for Reconstruction and Development (IBRD) The International Bank for Reconstruction and Development proves to be a principal and original organization within the World Bank. It loans money to help out middle income nations as well as poorer countries that are creditworthy. It derives the majority of its funds from selling bonds on the global capital markets. Over 180 countries participate as members of the IBRD. Every member has a certain amount of voting power. This is based on its subscription of capital. The United States possesses a full sixth of all the IBRD’s shares. Besides an enormous amount of voting clout, the U.S. also owns the exclusive rights to veto any changes which are proposed for the bank itself. The origins of the International Bank for Reconstruction and Development hail back to the end of the Second World War. The United States founded it in 1944. The initial purpose of this organization lay in assisting Europe to rebuild itself from the devastation brought on by World War II. The role of the bank has since shifted to offering loans along with technical assistance, knowledge, and advice to mostly middle income nations. As the first institution within the World Bank, the IBRD cooperates closely alongside the other institutions within the World Bank Group. Together they serve to encourage economic growth, to assist developing nations in reducing the poverty of their citizens, and to help spread prosperity. The bank itself is owned by the 189 member nations’ governments. A board and directors represent these countries for routine decision making and administration. This board is comprised of 25 members who are Executive Directors. Five of these are appointed and 20 of them are elected by the owning members. Developing nations are able to benefit greatly from the technical services, knowledge, and strategic advice that the bank provides. This is beyond its financial resources which it distributes as guarantees, loans, and risk management products. The World Bank serves in this capacity its beneficiaries who are also shareholders and global actors as well as being clients of the bank. Not only national but sub national levels of governments can participate and benefit. The International Bank for Reconstruction and Development finances a wide variety of projects spanning every sector. It simultaneously offers its expert knowledge and technical support for varying phases in an ongoing project. Some of the financial services and products which the IBRD delivers assist countries with developing resilience to external shocks. They help with product access for alleviating negative affects of interest rates, currency exchange rates, destructive weather and natural disasters, and volatility in commodity prices. The bank is different from a traditional commercial lender in that it does more than serve as a financier. It also has an important role in the international transfer of knowledge and technical assistance. In times of crisis, the International Bank for Reconstruction and Development serves to help preserve the financial strength of its borrowers to limit the negative effects on the poor. It also works to provide financial market access to these nations at better terms than they would be able to attain by themselves.

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This helps with attracting private capital as well by encouraging a positive investment environment. Many of the longer term social and personal development projects that the bank supports, private creditors would not consider. The bank also helps with promoting institutional reforms in areas like anticorruption and public safety.

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International Financial Institutions (IFI) International financial institutions (IFIs) are international financial organizations which multiple nations founded. They are subject to international law instead of the laws of any one single country. The IFIs are usually owned by national governments of the founding members. Sometimes other international institutions or organizations are stakeholders as well. Even though there are IFIs that two or three nations created, the best known ones were developed by numerous national participants. The most famous international financial institutions arose following the Second World War in order to help rebuild Europe, as well as to offer the means of multinational cooperation in overseeing the world’s financial system. The largest international financial institution in the world today proves to be the European Investment Bank. In 2013, this organization possessed a balance sheet that amounted to 512 billion euros. This compares to the main component parts of the World Bank, the IBRD with $358 billion in assets as of 2014 and the IDA with its $183 billion in assets as of 2014. By means of comparison, the world’s biggest international commercial banks boast assets each totaling between $2 - $3 billion, as with Britain’s HSBC and the United States’ JP Morgan Chase Bank. Arguably the most important international financial institutions in the world today remain the ones which the Bretton Woods agreement founded in 1944. These are the World Bank and the International Monetary Fund. Both are participating members of the United Nations system. Their goals are to improve the standards of living in their respective member nations. Each of these two organizations has its own approach to achieving this mandate, yet they complement each other. The IMF concentrates its efforts on larger macroeconomic issues. The World Bank instead focuses on developing the economies and reducing the poverty of member states over the longer term. The World Bank and IMF came into being in July of 1944 at the internationally attended Bretton Woods Conference held in New Hampshire. The conference had a goal to build up a new framework of development and economic cooperation which would help to establish a more prosperous and stable global economy. Over 70 years later, this goal is still critical to the operations of both international financial institutions. Only the means they use to reach the goals has changed as different economic challenges and developments arise. The World Bank mandate is to encourage poverty reduction and economic improvement longer term. They do this by offering financial and technical assistance to aid countries which are trying to reform sections of their economies or to develop particular projects. These projects could be delivering electricity and water, constructing health centers and schools, safeguarding the environment, or fighting disease. Such help as the World Bank provides is typically longer term in nature and funded by contributions from member nations as well as by issuing bonds. The staff of the World Bank is typically specialized in certain sectors, issues, or methods. The IMF on the other hand operates under a mandate to foster monetary cooperation on an international level while it offers technical assistance and policy advice to help countries to develop and keep more

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prosperous and stronger economies. As part of this, the IMF offers loans. They also help nations to create policies and programs that will address their imbalance of payments if they are unable to obtain affordable term financing to meet their international financial obligations. These loans are either medium or short term. The funds come from the quota contributions’ pool provided by member states. The staff of the IMF is mainly economists who possess vast experience with financial and macroeconomic issues.

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International Financial Reporting Standards (IFRS) The International Financial Reporting Standards prove to be the principally used set of accounting regulations in the world. Their main rival is the United States’ based GAAP Generally Accepted Accounting Procedures. These IFRS turn out to be a single collection of accounting standards. They were created and are maintained still by the IASB International Accounting Standards Board based in London. The IASB developed these IFRS standards with the goal of them being effectively utilized on a consistent basis throughout the globe. They were written with developed, developing, and emerging market economies and nations all in mind. These standards provide both investors and other consumers of business financial statements with the necessary tools to make like comparisons between various companies. Thanks to the IFRS, investors can effectively compare and contrast the financial performances of various publicly traded corporations on a consistent basis against their global peers. This is a high standard for the IFRS. It of course requires more and more countries sign on to these accounting standards in order for the objective to be effectively and eventually met. This vision of a single set of worldwide accounting standards is well supported by numerous globally active organizations. Among these are the International Monetary Fund, the World Bank, the G20, the Basel Committee, the IFAC, and the IOSCO. Thanks to the tireless efforts of the IASB and the IFRS foundation along with the support of these other active international organizations, the IFRS account standards have now been made law in over 100 countries. These include all of the 27 core countries in the European Union plus Great Britain as well as over two thirds of the member nations comprising the G20. This makes sense as the G20 and other critical worldwide bodies have always encouraged the important task of the IASB and its goals of achieving a universally recognized set of international accounting standards that everyone can rely on and understand. Since the year 2001, the International Accounting Standards Board has created and continued to improve and promote the International Financial Reporting Standards. The IASB turns out to be the body that sets the standards for the IFRS Foundation. This foundation is an organization that serves the public good. It has been well recognized for the award winning examples of its organizational transparency as well as the participation of all of its stakeholders and other participants. The 150 members strong staff based in London hail from around 30 individual countries. The IASB operates under the auspices of a 14 member Board of Directors that is appointed and monitored by 22 different trustees coming from around the globe. These trustees themselves are further accountable to a public authority monitoring board. This way all of the various members of the leadership at the IASB are accountable to someone else. The work of the IASB via the IFRS allows international accountants to more consistently deliver a standard means of detailing the financial performances of companies and other financial entities. This benefits investors, companies, and regulators. The standards of accounting that the IASB creates and the IFRS represents give the preparers of financial statements a complete set of principles and rules to follow when they are compiling the financial accounts of these organizations. This makes for an international

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standardization throughout the global markets. It all works because the various corporations traded on public stock exchanges are required by law to prepare and produce financial statements that follow the appropriate IFRS accounting standards as do their business rivals and peers. The IFRS foundation maintains an online database of profiles on 143 countries and jurisdictions to show whether or not they accept and utilize these standards.

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International Monetary Fund (IMF) The International Monetary Fund represents an international organization with membership of 189 different countries. As such it counts nearly all countries of the world among its almost global membership. This IMF seeks to achieve financial stability, helps to encourage worldwide monetary cooperation, pushes for economic growth that is sustainable and for high unemployment, helps to facilitate international trade, and attempts to lessen poverty throughout the world. Members of the United Nations created the International Monetary Fund back in 1945 as a result of the idea initially conceived of at the important Bretton Woods UN conference held in New Jersey in the United States in July of 1944. Originally 44 nations attended this conference and looked for ways to rebuild the global economy. They wanted to create a way of fostering economic cooperation. The group collectively hoped to not repeat the mistakes of the 1930s. A currency devaluing race to the bottom had led to the Great Depression in those years. There were a number of original goals for the IMF. The organization was to encourage stability of exchange rates and monetary cooperation on an international scale. They were to promote and aid in the growth of a balanced international trade. IMF also had to help build up a system for balance of payments that was multilateral in scope. They also were designed to provide emergency resources to member states that suffered from problems with their balance of payments. Safeguards on the resources loaned out would b required. With the early 1970’s dissolution of the fixed exchange rates based on the gold standard set up at the Bretton Woods conference, their role changed some. They were no longer responsible for stable exchange rates and a balance of payments system based on pegged exchange rates. They became more of an organization that helps out member states in emergency economic need. Today the IMF counts among its largest emergency borrowers Greece, Portugal, Ukraine, and Ireland. It also issues precautionary loans to members who may need to borrow based on particular conditions within their countries. The countries with the largest precautionary loan amounts agreed on include Poland, Mexico, Colombia, and Morocco. Between the two groups, the IMF has committed itself to $163 billion. Of this amount $137 billion has not yet been drawn. The International Monetary Fund still works to safeguard the global monetary system. They watch over the system of international payments and free floating exchange rates so that nations and their populations can engage in transactions with each other. In 2012, the fund received an expanded mandate in part as a result of the chaos in the Great Recession. This bigger mandate includes all issues pertaining to the financial sectors and all macroeconomic issues that have to do with global stability. The International Monetary Fund has its headquarters in Washington, D.C. Their governance is by an executive board. The board is made up of 24 directors. Each of these directors represents either a group of nations or a single nation. The IMF maintains a global staff of 2,600 individuals who hail from 147 different countries. The majority of the IMF’s money comes from its quota system. Every member is given a quota that they

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must contribute. This amount is based on the nation’s economic size in the global economy. The member state’s maximum contributions are limited to this quota. When countries join, they pay as much as onequarter of their quota in a widely traded foreign currency like the pound, euro, dollar, or yen or as SDR Special Drawing Rights made up of a basket of these currencies. The other three-quarters they pay from their own currency.

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International Monetary Unit International Monetary Unit can refer to two different things. It could be the U.S. dollar, which is the world’s primary reserve currency. The International Monetary Unit is also the Special Drawing Rights, which are the currency units that the International Monetary Fund issues. Special drawing rights are not an actual unique currency per se. They are units that are made up of a special basket of currencies. These days, these are comprised of U.S. Dollars, British Pounds, Japanese Yen, and Euros. The Special Drawing Rights, also known as SDR’s, can be said to be International Monetary Units since they prove to be reserve assets for international foreign exchange. The International Monetary Fund actually allocates them to different countries. These SDR’s offer the ability to get foreign currencies when a country needs hard cash for emergencies and other financial crises. Although they are still expressed in units against U.S. dollars, the Special Drawing Rights remain the International Monetary Fund’s only unit of account. They have their own currency code, XDR. They may be only little used now for an International Monetary Unit, but their utilization is growing, particularly at the insistence of Russia, China, and the United Nations. Since the end of the Second World War, the U.S. dollar has proven to be the world’s main reserve asset for foreign exchange. This makes it a primary candidate for the world’s International Monetary Unit. As over sixty percent of central bank reserves are still held in dollars, it is unarguably the world’s reserve currency even though many nations would like to see this changed and its share of reserves has been dropping consistently for some time now. Countries ranging from China and Russia, to Iran and Venezuela, to France have all called for a new International Monetary Unit to be established, particularly in the wake of the Financial Crisis of 2007 to 2010. A new international monetary unit may arise to replace the dollar, but it does not look to happen any time too soon. This is mainly because no suitable replacement for it has been found yet. Euros are not yet widely enough held, though they are gaining in share of reserves each and every year. Neither Japanese Yen, nor British Pounds, nor Swiss Francs are significantly representative enough of economic spheres of influence to be a viable challenger. The special drawing rights are one possible replacement for the dollar, as would be a gold backed International Monetary Unit. Gold served this purposes for several hundred years during the gold standard era of the 1700’s to 1971. Gold is a last candidate for a new International Monetary Unit. As it has universal appeal and acceptance, it does offer a strong challenge to the dollar. Gold is a hard international monetary unit to argue with because it does not bear the liabilities of any single nation. It can not be manipulated by any single government or corporation. This makes it a likely choice as at least part of a new International Monetary Unit in the coming century, if not the sole one.

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Internet Bubble The Internet bubble is also known as the dot com bubble. This Internet bubble proved to be a spectacular asset bubble that occurred during the years of 1995-2000. It’s peak turned out to be on March 10 of 2000 when the NASDAQ stock market saw a high of 5,132.52 in the middle of the trading day. In this time, stock markets of all developed countries witnessed a swift and dramatic rise in equity values. Internet stocks and other relevant fields were the drivers of this phenomenal boom. It became a boom cycle that went bust as the Internet bubble proved to be unsustainable and show cased stocks with unjustifiable values. This Internet bubble bore numerous characteristics typical of other forms of asset bubbles. A huge number of companies started up that were Internet technology based. These dot com companies proved to be spectacular failures in many cases. Any company that had an e in front of its name, or a .com at the end of the name witnessed spectacular rises in price, regardless of their products and fundamentals. In the constant allure of the glitzy Internet stocks, reason and rational thought were exchanged for hype. This cycle of dramatically gaining prices in stocks combined with individual investors speculating in stocks, confidence that Internet companies would certainly make money at some point, and significant amounts of available venture capital all led to a boiling point. Investors became eager to look past traditional concepts of investing such as price to earnings ratio. Instead of this, they substituted in unbridled confidence in the possibilities of technological achievements. Even though these prices in the Internet bubble exploded spectacularly, taking the NASDAQ stock exchange down to between 1,000 and 2,000 in a year or so, the technological revolution did not die out with the bubble. The Internet bubble did give rise to the constant commercial expansion of the Internet through the advancement of the World Wide Web. Even though many of those initial companies failed, enough other ones survived to make the Internet bubble evolve into a more sustainable Internet boom that in some respects is still ongoing even in 2010.

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Intrinsic Value Intrinsic value has several meanings where finance and business are concerned. The first of these meanings pertains to companies and their underlying stock issues. An intrinsic value of a stock could be said to be the actual per share value of a stock, in contrast to its book value or price according to the stock market. Intrinsic value takes many other elements into account, such as trademarks and copyrights owned, as well as the value of the brand name. These factors are intangible in nature. This makes it hard to figure out their true worth, although it can be done. As a result of this, such items of intrinsic value are not commonly included in the stock’s actual market price. A different way of understanding intrinsic value is that the intrinsic value is the amount that a company is actually worth. Market capitalization on the other hand is the price that investors will willingly pay for a company at any given point. Intrinsic value can be calculated in varying ways, depending on the investor who is doing the calculation. Intrinsic value is also the amount of money that a call or put option on a stock is in the money. Call options give investors the right but not the obligation to buy a stock at a certain price, while put options grant investors the right but not obligation to sell a stock at a particular price. Figuring up a call option’s intrinsic value is done by simply taking the difference of the call option’s strike price and subtracted from the actual price of the underlying stock. As an example, a call option might have a strike price of $40. The stock that this option is based on could be worth $55 per share. This would give the option an intrinsic value of $15 each share, or $1,500 since stock options represent a hundred shares. Stock prices that prove to be lower than call options do not possess any intrinsic value. Put option intrinsic values are found by taking the difference of the strike price of the put option and subtracting the price of the stock that underlies them. As an example, should a put option contain a strike price of $30, and the stock be trading at only $25, then the put option will have an intrinsic value of $5 per share, or $500 for the one hundred share option. On the other hand, if the stock market price turned out to be higher than the strike price of this put option, then the option would not contain any intrinsic value. Intrinsic value is also the true, real worth of an asset or object. Gold and silver have intrinsic value in that people will pay you for them at any time and in any country. Conversely, paper currencies may only be said to have intrinsic value if they are linked to or backed up by a hard asset.

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Investment Trusts An investment trust represent a type of collective investment pool generally utilized in Great Britain. These closed end funds are established as public limited companies within the United Kingdom primarily. Analysts have stated that the British investment trust was a forerunner of the American-promoted investment company. In truth the name is somewhat of a misnomer. These investment trusts are not actually legal trust entities whatsoever. Instead they are a legal company or even individual. The reason this is important is because of the fiduciary responsibilities that trustees owe their membership. When the fund is first established, a pool of all investors’ funds becomes created. The investors then received a set amount of the fixed total number of shares that the trust floats on the launch date. Boards usually hand over the responsibility of the fund management into the care of a professional fund manager. This manager will then invest the fund’s money into a vast range of individual shares of different corporations. This provides the fund investors with a massive diversification into a number of different companies that they could not possibly afford to do using their own limited resources. These investment trusts may not have any employees, but instead count just a board of directors which is made up of exclusively non-executive directors. This has begun to change over the last few years as competition in the form of other funds emerged. Thanks to commercial property trusts and private equity groups utilizing the investment trust structure for holding vehicles, the structure of the staff and boards has changed in some cases. Shares of investment trusts trade on various stock exchanges as do shares of typical publicly held corporations. What makes the value of these shares of the investment trusts interesting is that the offered price per share is not always the same as what the underlying share value should be based on the portfolio which the trust holds. When this happens, analysts say that the trust itself trades for a discount or a premium to its actual NAV net asset value. This sector of the investment trust experienced significant trouble in the years from 2000 through 2003. This was because there was no set compensation plan for the industry. They then came up with guidelines for compensation packages and this cleared up many of the issues overshadowing the space. One should not confuse investment trusts and unit (investment) trusts. There are some key differences between the two. The manager of an investment trust has the carte blanche legal ability to borrow funds in order to buy shares in company stocks. The managers of unit trusts (which are open ended funds) may not do this without first having a process for risk management established that makes rules on the ways the leverage will be considered and permitted. Such gearing can boost gains earned on investments yet also dramatically expands the risk to investors. These investment trusts have a history going back around 150 years. The first one established was the 1868 founded Foreign & Colonial Investment Trust. Its stated goal was to “give the investor of moderate means the same advantages as the large capitalists in diminishing the risk of spreading the investment over a number of stocks.”

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The investment trust is classified in a breakdown by similar characteristics. This permits prospective investors to compare and contrast the various trusts within a certain category more effectively. The trusts are also further broken down according to the kinds of shares they issue. Traditional investment trusts possess only the single class of ordinary shares and enjoy an unending investment vehicle lifespan. With the rival Splits, or Split Capital Investment Trusts, the structure proves to be more complex. They issues several varying share classes so that investors can match the shares up with their own investment objectives. The majority of such Splits begin with a preset investment life span that the fund determines when it launches. They call this the wind up date. The average wind up date of such a Split Capital Investment Trust occurs between five and ten years from the fund establishment.

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Investment Value Investment Value refers to an asset’s specific value given a particular range of investment parameters. It can be defined as the property value to a given group of investors (or an individual investor) who have specific investment goals in mind. This makes it a subjective measurement of the asset or property’s value. Many times potential investors will employ the investment value metric when they have an interest in buying a certain real estate property with a particular group of investment goals and objectives. It might be they have a targeted return rate they are looking for in the investment. This is why such a value metric heavily involves motivations and beliefs in a particular investment strategy. The reason that this investment value would have importance on a transaction concerns buyers contemplating buying a given asset when they want to compare the pricing of the real estate or asset in question to the anticipated rate of return. When they are able to use this value to consider their specific rate of return, they are able to measure up the investment final results with the projected price they will pay out for the property. This helps them to make an intelligent purchasing decision consistent with their investment objectives. In contrast to the investment value, market value is the true value of the property (or asset) in question based on the supply and demand of the open market. It is typically determined by utilizing the appraisal process where Real Estate is concerned. This contrasts with the individual investors’ value they may place on the property as it pertains to their unique goals, objectives, and needs for the property they are considering. It is important to realize that investment value is not the same as market value in many cases. The investment values might be lower, higher, or the same to the market values. This would heavily depend on the property’s specific scenario at the time. In fact the market values and investing values are typically approximately the same. Yet they can diverge. For example, investment value might be greater than that of the market value. A certain buyer may place a higher value on the property than would a typical informed purchaser. This could happen in the real world when a firm decides to expand its premises into a larger newer building that has just gone on sale across the road from the current company offices. The company might be willing to pay a higher price than the market value so that it could ensure competitors stay out of the market and do not secure the building before they can conclude the transaction. In such a scenario, this extra value becomes derived from the strategic advantage that the firm will realize by having the property. Where a single investor is concerned, it is also possible for investment value to exceed the market value. An example of this could be when the investors have a special tax status or situation that can not be transferred. They might also have some type of highly advantageous financing terms that do not apply to rival investors or buyers. It is similarly possible for investment value to be under that of the market value on a property. This could happen when the given property is not a kind in which the investors normally specialize or concentrate

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their efforts. As an example, for multifamily developers, choosing to consider developing a hotel could cause the investment value for this particular situation to be lower than the traditional market value for the given site. This would be because of the greater costs involved in learning to develop the property. It might also be that the investors are seeking out and demand a higher than average return from a property thanks to their current portfolio diversification and allocation.

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Investor Strictly speaking, an investor is any person or entity that makes an investment. In the past, the word investors has acquired a far more specific meaning. In the world of business and finance, investors has come to characterize those individuals or companies that routinely buy debt instruments like bonds, or equity issues like stocks in an attempt to make financial profits. They hope to realize such gains in return for financing or providing capital to a company that is looking to expand. Investors also relates to other types of individuals, businesses, or parties that put money into different types of investments. Although this is a less commonly used version of the word investors, it can relate to those engaging in currency, real estate, commodities, derivatives, or other personal property investments like art or antiques. An example of this would be a real estate investor. They purchase a piece of property or a house with the hopes of selling it for a greater amount of money than for what they purchased it. Similarly, commodities’ investors are hoping to buy contracts or options on hard assets like gold, oil, or lumber cheaply to sell them later more dearly. Investors are commonly buying such stocks, bonds, or other types of assets and holding on to them with the goal of realizing one of two types of returns, or in some unusual cases both types. These are capital gains or cash flow investments. Investors who are interested in capital gains are simply looking to sell an instrument or asset that they obtained at one price for a greater amount. When they do this, they realize a capital gain. Should they sell the investment for less than they purchased it, they would instead realize a capital loss. Capital gains can only be realized one time on an investment, as the investors will have sold the investment and have to look for another investment to begin the process anew once again. Cash flow investors are alternatively looking for a repetitive income stream. They hope to achieve regular, smaller sums of passive income just from holding their investment. Dividends on a stock, royalties on an oil or gas investment, and rents from a residential or commercial realty property are all examples of cash flow investments and returns. So long as the investor owns the cash flow investment, he or she should be able to continuously count on a regular income stream. The word investor commonly gives the connotation of a person who acquires these assets for the longer term. This stands in contrast to a day trader or even short term investor. Investors can be professional or self taught amateurs. Investors also represent many entities other than individuals or even traditional businesses. They can be investment groups like clubs, venture capital investors who provide money to start up companies, investment banks, investment trusts such as REIT Real Estate Investment Trusts, hedge funds and mutual funds, and even sovereign wealth funds that invest on behalf of their respective nations.

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IRA Custodian An IRA custodian is commonly represented by some form of a financial institution. This would likely be a brokerage or a bank. These Individual Retirement Accounts’ custodians have the job of protecting your assets in your IRA. Per the rules of the Internal Revenue Service, such IRA custodians have to be financial institutions that are approved. People can not choose to perform the role of an IRA custodian. In order for institutions that are not financial in nature to perform the responsibilities of such IRA custodians, they have to receive a special approval issued to them by the Internal Revenue Service. These IRA Custodians actually carry out the transactions that the clients request of them. They also file any and all reports, maintain all required records of anything done on the account as a custodian, and send out statements and notices for taxes, either of which may be mandated by law or the agreement for custodianship. They sometimes will disburse the assets found in the IRA as per the wishes of the client, as well as file all necessary and relevant paper work with this action. One thing that IRA custodians do not have to do is to offer legal or investment advice to you, the IRA holder. This means that you have to provide the custodian of your IRA with clear and accurate instructions which follow the code established by the IRS. IRA custodians can be responsible for overseeing a great range of investment securities and financial instruments. While IRS rules restrict IRA money being invested into collectibles like rare coins and artworks, or even life insurance, the custodian is able to work with various different investments like franchises, real estate, tax liens, and mortgages. Still, a great number of financial institutions acting as IRA custodians will choose to restrict the kinds of investments that they will allow to be held in one of their IRA’s under custodianship. It is important for owners of IRA’s who wish to have their funds placed into investments that are not traditional for IRA’s, such as real estate or franchises, to seek out and choose an IRA custodian who will allow and work with these kinds of investments. This is the particular reason that a real estate management firm might choose to attain IRS certification in order to obtain the permission for overseeing real estate investment IRA’s. Much of the time, IRA customers will just deposit their retirement money and assets into their account that the custodian holds and will supply them with overall guidelines for their investments. The IRS mandates fiduciary responsibility for IRA custodians. They have to place clients’ interests first. This translates to practical requirements, such as not being allowed to put the IRA money into investments and projects that come with a great amount of risk, unless they have the customer’s expressed consent. IRA custodians are also involved with self directed IRA’s. Self directed IRA’s contain investments that are actively managed directly by the customer. The custodian only performs the actions that the customer requests in these cases.

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iShares iShares prove to be a group of ETF’s, or exchange traded funds, that are run by BlackRock. The very first iShares were called WEBS, or World Equity Benchmark Shares. They were later renamed iShares. Today iShares are traded on stock exchanges the world over. This iShares proves to be the biggest ETF issues in both the United States and the world as a whole. Most every iShares fund actually tracks the performance of either a stock market index or a bond market index. The London Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the Toronto Stock Exchange, the Hong Kong Stock Exchange, and the Australian Securities Exchange, along with various other Asian and European stock markets, all trade listed iShares funds. There are hundreds of iShares issued funds. While many of them cover large and small indexes in the United States and internationally, others deal with specialized sectors or commodities. Naturally they have funds on an enormous variety of indexes, like the Dow Jones, NYSE Composite, and the Russell 3000 in the United States markets. These cover large cap, small cap, and mid cap indexes of stocks ranked according to their dollar amounts of market capitalization. iShares also has funds that cover a wide variety of sectors, ranging from energy funds and industrial funds, to financials funds and health care funds, to consumer staples and discretionary funds, to materials funds and technology funds, to telecommunications funds and utilities funds. Besides this, they also offer a good variety of real estate index funds for both international and United States real estate. The iShares listed funds cover a wide range of developed and developing international indexes, such as China, India, Brazil, Peru, Chile, Israel, Indonesia, Mexico, South Korea, Taiwan, Turkey, Poland, Japan, and emerging market index funds. Beyond this, they offer index funds for all of the various major regions of the world, including Africa and Middle East funds, the Americas funds, European funds, and Asian funds. They count various global sectors of index funds in their stable too, such as a nuclear energy index fund, a global clean energy index fund, and a global timber and forestry index fund. Where bonds are concerned, iShares provides a good variety of index funds based on treasuries, government credit, corporate credit, municipal bonds, mortgages, and global bonds. They have specialty index funds like dividend stocks funds and socially responsible corporation funds. Finally, in the category of commodities, iShares offers two especially popular funds, the Gold Trust fund that trades under the symbol of IAU, and the Silver Trust fund, that trades as SLV. iShares originally arose as a collaboration between investment bank Morgan Stanley and fund manager Barclays Global Investors in the 1990’s. By the year 2000, Barclays decided to launch a major expansion of the ETF market. To this effect, they started up and marketed more than forty new funds that they branded under the name of iShares. The other funds that Morgan Stanley and Barclays had launched as WEBS were soon renamed iShares as part of the broader effort.

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Janet Yellen With her appointment as the first female Chair of the Board of Governors of the Federal Reserve System, Janet Yellen has been hailed as one of the foremost living American economists. She previously served faithfully and effectively as Vice-Chairman of the Fed from 2010 until she rose to the post of head of the Fed with President Barrack Obama’s appointment in 2014. Janet Yellen has a long and distinguished history with the Federal Reserve System that goes back decades before her appointment as Chair of the Board of Governors. She left a teaching career at prestigious Harvard University in order to take up work as an economist at the Federal Reserve in 1977 and 1978. Janet Yellen departed from this post to become a London School of Economics lecturer in economics and political science, where she taught for nearly three years. After her initial time at the Fed, she then had a 20 year hiatus out of government service while she worked as a University of California, Berkeley professor. In this time, she met and married her husband who also worked as a professor at the school. In 1997, Janet Yellen again found herself back in Federal Service, this time working on the White House Council of Economic Advisers for President Bill Clinton through 1999. By 2004, Yellen had advanced to become CEO and President of the Federal Reserve Bank of San Francisco. Six years later, the Fed elevated her to serve in the capacity of Vice Chair of the Board of Governors under the leadership of Ben Bernanke. President Barack Obama then nominated her to succeed Bernanke as Chairman of the Board in October of 2013. While President of the Federal Reserve Bank of San Francisco, Janet Yellen demonstrated unusual perception concerning the country’s declining economic status. She both correctly recognized and predicted the 2008 housing crisis, almost alone among the contemporary economists to do so. During her tenure in this position, Yellen became well known as an outspoken champion of utilizing the Federal Reserve’s various powers in order to lower unemployment. Her track record indicates that she is more willing to risk higher inflation than rival economists in successfully accomplishing this difficult higher employment rate task. When the Senate confirmed Janet Yellen to succeed Ben Bernanke in the capacity of Chair of the Board of Governors for the Federal Reserve System on January 6, 2014, she became the only woman to head up the Federal Reserve Board so far. Yellen’s career has been not only long but also distinguished. This has given her ample time to write an exceptionally large volume of publications and papers. She has also co-written some of these with her Nobel Prize award winning economist husband Professor George Akerlof of UC Berkeley. Janet Yellen has been widely recognized for her countless contributions with the accolades she has received in the field of economics. In the middle 1980s, she received the honor of serving as a Guggenheim Fellow. In 1997, Yale University awarded Yellen with the prestigious Wilbur Lucius Cross Medal. Though she has argued strenuously in favor of raising historically low interest rates in the United States

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as Federal Reserve Chair, Janet Yellen has only been able to successfully raise them one time so far as of July 2016. Continuously erupting global economic instability and especially the turmoil resulting from the Brexit leave vote fallout has repeatedly staid her hand otherwise so far. To this point, she has been widely supported by other members of the Federal Reserve System’s voting presidents in these controversial holding on interest rate decisions.

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Japanese Bankers Association (JBA) The Japanese Bankers Association is also known by its internationally recognized acronym the JBA. This is the elite financial institutions’ umbrella organization. Its membership is comprised of bank holding companies, banks, and banker associations throughout Japan. Their purpose is to promote planning for the best operating of payment systems, to reinforce compliance and promote CSR, to encourage appropriate transactions for consumers, and to support the individual banking endeavors and operations of its member banks. Every year the Japanese Bankers Association elects both a chairman and a number of vice chairmen to oversee the organization. It is the JBA’s Board of Directors which confers each March to hold this election. The various board members actually vote to decide who will become the two heads of the umbrella banking organization. President and Chief Executive Officer Takeshi Kunibe of Sumitomo Mitsui Banking Corporation is the current chairman of the JBA, as of February 2017. In Japan, the various financial institutions are actually broken down into a few important categories. These groupings come from characteristics which include either the historical backgrounds or the primary business functions of the institutions in question. Such categories include city banks, regional banks, and member banks from the Second Association of Regional Banks (or regional banks level II). These are not legally binding definitions. Instead they are classifications used to help with publishing statistics and administration efforts. City banks prove to be extremely large in their geographical representation and size. Their headquarters lie in the major cities of the Japanese islands. They also boast branches in the important and large population centers of Tokyo, Osaka, and other important cities and surrounding suburbs. Today there are only five of the large and impressive city banks remaining in Japan. These are as follows: Bank of TokyoMitsubishi UFJ, Resona Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation, and Saitama Resona Bank. Mergers and acquisitions in the field have helped to narrow this important category down from the original 13 city banks to the present five. By contrast, regional banks are typically found and headquartered within the primary city of a given prefecture in Japan. They naturally conduct the overwhelming majority of their business endeavors in their home regional prefecture. It follows that they would have important local ties with area governments and locally based businesses. Today’s Japan boasts 64 regional banks such as Hiroshima Bank, Shikoku Bank, and Bank of Okinawa. The final category of the Japanese based banks is the regional banks level II. Such financial institutions tend to provide services to individuals and smaller companies in their principal geographical regions. The vast majority of the Regional Banks II was once mutual savings banks at some point. There are 41 Regional Banks II in Japan today. Among them are banks including Towa Bank, Aichi Bank, and Ehime Bank. The banking classification picture has become more clouded in 1999 with the rise of certain specialty financial institutions which were not traditional banks at all. These entered into the banking universe in Japan through founding different kinds of banks like those which are internet based or specialize in

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settlements. They do not fall under a traditional category of the three mentioned above and so are referred to by the Japanese Bankers Association as “other banks.” There are five banks in this non-traditional banking category. These are as follows: Citibank Japan, Aozora Bank, Norinchukin Bank, Shinsei Bank, and Seven Bank. There is only one single foreign based banking member of the Japanese Bankers Association today. This is the United States’ headquartered JP Morgan Chase Bank, National Association. Citibank Japan is of course classified as one of the “other banks” so does not fall under this category as determined by the JBA. One of the primary ancillary functions of the Japanese Bankers Association is to calculate up and publish the JBA TIBOR. Since 1995, they have released this Japanese Yen TIBOR rate as well as the Euroyen TIBOR rate from 1998. Such rates reveal the unsecured call markets’ prevailing rates as well as the interest rates on the offshore market.

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Jason Furman Jason Furman is a modern day economist who has most recently served since August of 2013 as the President’s Chairman of the Council of Economic Advisors. He proved to be the 28th individual who worked in this capacity for the White House. In this position, Furman endeavored on behalf of the President as his Chief Economist who was also a Member of the Cabinet. Jason Furman previously also helped the President since the administration began. Before his stint as Chairman of the CEA, he held roles as Principal Deputy Director for the National Economic Council as well as Assistant to the President. Before the administration took office, Furman was the campaign Economic Policy Director in 2008. He also worked on the Presidential Transition Team. Prior to serving President Obama, Jason Furman held a range of posts in both research and public policy. His research work had him as a Senior Fellow at the Center on Budget and Policy Priorities and at the Brookings Institute. He also held a number of positions at important universities like the New York University’s Wagner Graduate School of Public Policy. In these various capacities, Furman has engaged in research covering a substantial range of topics. These included tax policy, fiscal policy, Social Security, health economics, and international and domestic macro economics. He has penned a significant number of articles for scholarly periodicals and journals. Furman also worked as editor on two books for economic policy. In the realm of past public policy, Jason Furman served on behalf of the Clinton administration. He held posts at the National Economic Council and also with the Council of Economic Advisers for President Clinton. He also served at the World Bank for a time. Furman has accomplished all of this thanks in part to his Ph.D. he holds from Harvard University in economics. Jason Furman had his own style heading the Council of Economic Advisors. When he stood before the television cameras, he engaged in both defense and offense at the same time. In the midst of the government shutdown, he appeared on camera to explain to the public why the shutdown was so negative for the economy, using his memorable phrase the “mathematical derivations of all of this.” Once budget analysis determined there would be serious negative repercussions from the implementation of the Affordable Care Act, he hurried to inform the President before attempting to persuade the press that the analysis had been misinterpreted. Millions of American workers were not really going to reduce their hours or quit their jobs over it. Behind the scenes, Jason Furman worked tirelessly throughout Washington to argue the case with research that the national safety net has accomplished significant strides in reducing poverty over the 50 years since the day when President Lyndon B. Johnson declared war on poverty. He used this as a springboard to insist that the time had come to focus on changing the economy effectively so that there would be fewer numbers of poor people in the first place. This argument drove a major portion of the second term agenda for President Obama. Jason Furman was a critical part of the team responsible for shaping the Affordable Care Act, or Obama Care. The aides to President Obama have always claimed that Furman succeeded in the White House

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because he effectively stuck with economics, his main area of expertise. This is something that Obama always sought out in his close advisers.

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John Maynard Keynes John Maynard Keynes proved to be the English economist, professor, and journalist who also served in British government as a key economic advisor at the powerful British Treasury department. He has become best remembered for his at-the-time influential Keynesian economics. These theories had to do with the reasons for and solutions to long term unemployment. Keynes was born to a middle class family of moderately successful prosperity on June 5th of 1883 in the famed university town of Cambridge, England. The man is best known for his economic theories that are still called after his name as “Keynesian economics.” He wrote a critically important work entitled, The General Theory of Employment, Interest and Money from 1935-1936. This treatise argued that government-pushed policies of full employment could cure economic recessions. It has been called among the most influential books in all human history. John Maynard Keynes had an academic for a father that helped to propel his lifelong passion for learning, teaching, research, and public service. John Neville Keynes his father served as economist and eventually academic administrator at the world-renowned King’s College of Cambridge University. Even his mother could claim to be among the very first women graduates from Cambridge. Keynes attended the historic and prestigious university himself beginning in 1902. While studying there, Keynes came under the influence of economist Alfred Marshall. Marshall had such an impact on John that he switched from the classics and math studies to economics and politics. In the 1920s, Keynes began to write pieces which were increasingly skeptical of the then-dominant laissez-faire style of economics that was very gently overseen by minor public policies. He stood against Britain returning back to the gold standard at a fixed rate in 1925 and demonstrated his concern about the long-term unemployment problems experienced by British textile workers, shipyard employees, and coal miners even before the Great Depression erupted. Once Keynes wrote his internationally accepted greatest work The General Theory of Employment, Interest and Money, he became the most influential economist of his time. In this magnum opus, he argued for an economic solution utilizing programs of government-sponsored or -provided jobs to solve the persistent and sky-high unemployment. Some critics have argued that his book was unclear enough that no one is actually sure what Keynes was really trying to say. His arguments seemed to be that reducing the rates of wages would not help governments to lower unemployment. Instead, it would take government spending increases to lower unemployment. This would lead to a budget deficit, which he claimed would be a necessary evil in order to solve these terrible economic and social problems of the time. World governments were eager to find reasons to boost their spending. This explains why they adopted all of his principal views with enthusiasm. The majority of his academic peers also ascribed to his ideas in the 1930s and 1940s. Yet weaknesses in Keynes theories would emerge as reality challenged it repeatedly. He himself argued that his policies would only work optimally in a society that was totalitarian. From the later 1940s through the later 1980s his economic model remained a central tenet of economics and such textbooks. Yet economists finally began to move away from unemployment problem fixation and on to economic growth issues. As they learned more about the links between inflation and unemployment, his once-

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widely touted model lost its importance. John Maynard Keynes is well-remembered for two major services to Great Britain and the world just before he died. He was a prominent figure at the post World War II and international order-establishing Bretton Woods Conference held in 1944 in the United States. Though he was not the main force behind the World Bank and International Monetary Fund agencies, he definitely played a role in the financial architecture of the world this conference established. The final major public role he carried out lay in his successful negotiation for Britain of a multiple billion dollar loan from its war ally the United States in 1945. Keynes died the next year.

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John Sherman John Sherman was a United States Congressman, Senator, Secretary of the Treasury, and finally Secretary of State in the critical second half of 1800s America. His most lasting achievement that had a permanent and meaningful impact on posterity proved to be his signature Sherman Antitrust Act that he sponsored and saw passed while he was in government leadership. This act still regulates competition and works to prevent and break up monopolies to this day more than a hundred years later. Sherman began his seminal career in national government as a Republican party loyalist when he was first elected to the United States House of Representatives. He represented Ohio as one of its two senators from 1860 to 1877, an impressive 17 year span of time. The year 1877 saw him leave the halls of Congress to serve as the Secretary of the Treasury for President Rutherford B. Hayes. In the next decade, he sponsored the Sherman Antitrust Act, which Congress passed in 1890. This key act was intended to limit monopolies and prohibit trusts within the United States. Before it became law, some states had passed their own variations on this bill. The problem was that they were only effective concerning business within the given states. There was finally sufficient opposition to the rising buildup of economic power in trusts and enormous corporations and various colluding business concerns that Congress had to take decisive action. The act utilized the Congressional constitutional power to effectively regulate all interstate commerce. It made all conspiracies, combinations in trust form, and contracts that worked against foreign and interstate trade entirely illegal. Fines were initially set at a then-hefty $5,000 amount and included the possibility of a year in prison as the maximum punishments for violating the new act. At first the efforts of John Sherman and this act were effectively stymied by the U.S. Supreme Court. This judicially supreme body ruled against the Fed utilizing the act verses the trusts for several years. Under President Theodore Roosevelt, he began successfully to run his campaigns of trust busting and enjoyed a degree of success. Finally, the Supreme Court came on board by upholding the 1904 decision of the government to dissolve the Northern Securities Company. President Taft again employed it as a potent weapon to break up the Standard Oil Company Trust of John D. Rockefeller in 1911 as well as against the American Tobacco Company. As far as John Sherman himself went, when the Hayes administration ended, he returned to the Senate in 1881 and served another 16 years. During these years, Sherman became important and connected enough to run unsuccessfully for the Republican presidential nomination fully three separate times. Finally President William McKinley chose Sherman to be his Secretary of State in 1897. This appointment did not work out to be a harmonious one between the two leaders. Tensions became so high because of sharp disagreements over foreign policy that the Assistant Secretary of State William R. Day began to act as lead negotiator on such important national interventions as the annexation of Hawaii and the outbreak of the Spanish-American War with imperial Spain. Things grew so strained between the President and John Sherman that Assistant Secretary Day commonly attended Cabinet meetings in place of Sherman, a move intended to disgrace and embarrass the Secretary of State.

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John Sherman’s legacy as Secretary of State was not completely tarnished. He served as the lead interpreter of the most favored nation status in concerns pertaining to international trade. He also strove tirelessly to secure Chinese commercial concessions for the U.S. so that the country was not alone left out by the great international European powers and their spheres of influence in China. A great number of his original policies later became a cornerstone of the Open Door Policy employed by the turn of the 20th century. Unfortunately for Sherman, his weakness within the president’s cabinet meant that he could not win the day with his strenuous opposition to both the Spanish-American war and the subsequent acquisition of Cuba from Spain. Four days after the Spanish-American War erupted in 1898, Sherman angrily resigned out of moral protest. He remained actively bitterly opposed towards President McKinley, his cabinet members, and overall administration all the way until his death which took place in 1900.

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Financial Terms Dictionary - Terminology Plain and Simple Explained

Joint Venture Joint ventures are businesses or projects that two or more companies create together. They typically have shared risks and returns, ownership, and control structure. Companies form joint ventures for a primary reason. Usually they are trying to combine their various resources in order to achieve some specific goal. It could be for an existing or a new project. Each of the JV owners is ultimately liable for the losses, profits, and costs that come with it. The joint venture itself is a separate company that has different objectives from the main interests of the owning companies. Companies form joint ventures as a means to pool their expertise in the industry, their business reputation, their technology and abilities, and their separate human resources. This gives them the advantage of combining resources on a project as they are able to share the costs, liabilities, and risks associated with the job. Joint ventures are most often temporary partnerships between two or more companies. They draw up contracts that spell out the joint project terms for which every participant will be responsible. At the end of the joint venture, every participating party gets its shared percentage of the losses or profits. They sign an agreement that the joint venture is over and dissolve the original JV agreement. These are among the advantages for forming such joint ventures. There are many disadvantages to these joint ventures as well. Because of these, as many as half of the JVs ever formed end with conflict in under four years’ time. Among the problems that plague joint ventures are greater liability, reduced outside opportunities, and unfair divisions of resources and work. Greater liability is a serious and real issue for the owners of joint ventures. Most joint ventures become set up with structures of limited liability companies or partnerships. Each of these types of business structure comes with its own liability. Only if they form a business entity that is separate can they avoid this increased liability for the JV. All participating owners equally share responsibility for any claims that are filed against the JV. This is true regardless of how much they are involved in the activity that instigated the claims. Contracts with joint ventures also typically reduce the amount of outside opportunities for all of the companies participating. This lasts so long as the joint venture project is ongoing. There are often noncompete agreements and exclusivity arrangements made in the process. These agreements will impact their business dealings with vendors and customers alike. The idea is to keep all parties focused on the joint venture’s success and to reduce conflicts of interest between their various businesses. These limitations will end after the project concludes. In the meantime, they can negatively affect the main business and operations of the various partner companies. Unfair divisions of resources and work are a final problem that haunts many joint ventures. The parties involved all share control and ownership. This does not mean that the employment of resources and amount of work done will be fairly divided. One company might only have to put people to work on the project while another has to provide facilities, technology, or access to distribution. This may mean a lot more work and resources are committed by the one partner.

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Despite this unfair burden, the shares of the profits are the same for all contributors. It does not matter that one partner often contributes much more to the project. Such unfair distributions of work and resources often cause conflicts among the owners of the JV project. Conflicts like this can create a lower rate of success for the project in the end.

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Joseph Stieglitz Joseph Eugene Stieglitz is an American-born professor of economics at Columbia University who is also regarded as the fourth most influential economist in the world. This is based on the number of citations individuals have used sourcing him in papers, government reports, and other areas of academic work. He has received the world renowned Nobel Memorial Prize in Economics Sciences back in 2001 as well as the John Bates Clark Medal in 1979. He has served as former Senior Vice President and also Chief Economist at the Work Bank. Stieglitz also counts a stint at the Council of Economic Advisers for the United States president on his resume, where he served initially as a member and then finally in the prestigious role of chairman. Controversial at times, Joseph Stieglitz has been an ardent support of Georgist public finance theory and critical in his viewpoints on the ineffectual management of globalization in the world today along with economists who espouse laissez-faire economic policies. He refers to these individuals by the tongue in cheek label of “free market fundamentalists.” He is similarly critical of the World Bank and the International Monetary Fund, though he served even as Chief Economist and Senior VP at the former. At the turn of the new millennium in 2000, Joseph Stieglitz established the Columbia University think tank known as the IPD Initiative for Policy Dialogue to ponder weighty issues of international development. He served on the faculty of ivy league school Columbia University from 2001 on. He has received the greatest academic rank which the university has to bestow back in 2003 as university professor. As the founding chairman of Columbia University’s Committee on Global Thought, he similarly chairs the Brooks World Poverty Institute at the University of Manchester. Stieglitz has been a distinguished member of the Pontifical Academy of Social Sciences for years. The then United Nations General Assembly President Miguel d’ Escoto Brockmann appointed Stieglitz as chairman for the United Nations Commission on Reforms of the International Monetary and Financial System in 2009 at the height of the global financial crisis. This financial collapse from which the world has still not completely recovered originated within the United States at the fall of Lehman Brothers. In this capacity, he provided oversight and participation on proposals and a report which made recommendations on reforming the international financial and monetary systems. Joseph Stieglitz has also managed to amass fame with other nations’ political leadership as well as in the United States and United Nations. He worked as the chair for the international Commission on the Measurement of Economic Performance and Social Progress which French President Nicholas Sarkozy established. They issued their official report entitled Mis-measuring Our Lives: Why the GDP Doesn’t Add Up back in 2010. Presently, Joseph Stieglitz serves as the co-chairman for the successor organization called the High Level Expert Group on the Measurement of Economic Performance and Social Progress. During the years 2011 to 2014, Joseph Stieglitz also worked as the International Economic Association IEA’s President. He led the organization in its triennial world congress which occurred in a resort near the Dead Sea in Jordan back in June of 2014. For academic recognition and international accolades, no living economist today compares with Joseph

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Stieglitz. He has been awarded over 40 honorary degrees, including from such internationally prestigious schools as Britain’s legendary Oxford University and Cambridge University, and America’s gold standard school Harvard University. He has received decorations from a range of governments including France, Korea, Ecuador, and Colombia. The French president appointed him to the Legion of Honor, Order Officer, as a member. Time Magazine has named Joseph Stieglitz in 2011 as a member of their 100 Most Influential People in the World list. The man has written a range of books including the most recent The Great Divide: Unequal Societies and What We Can Do About Them from 2015, Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity from 2015, and Creating a Learning Society: A New Approach to Growth Development and Social Progress in 2014.

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Financial Terms Dictionary - Terminology Plain and Simple Explained

JP Morgan Chase JP Morgan Chase turns out to be among the oldest financial institutions or banks that are based in the United States. The firm’s history hails back more than 200 years. Today, the company boasts assets that exceed $2.4 trillion, and it is a leading global banking and financial services outfit. JP Morgan Chase has a presence in over 100 countries and maintains more than 235,000 employees around the globe in over 450 corporate offices. JP Morgan Chase counts millions of individuals and small businesses as customers of the banking group. They serve some of the most important governments, institutions, and corporations in the world. JP Morgan proves to be one of the global leaders in financial services for individuals and small businesses, investment banking, commercial banking, asset management, and financial transactions and processing. One of their proudest achievements as a testament to their importance in the United States is the fact that their company stock is one of the only 30 company components of the famed Dow Jones Industrial Average. JP Morgan Chase & Company proves to be not only one of the oldest and biggest financial institutions in the world, but also among the best known such organizations on earth. The earliest predecessor of the banking group received its charter in New York City in 1799. The company has an aggressive history of mergers and acquisitions that have seen over 1,200 predecessor banking and financial institutions merged into the present day form of the banking behemoth. Among its most important legacy firms are J.P. Morgan, Chase Manhattan Bank, Chemical Bank, and Manufacturers Hanover of New York City as well as Bank One, National Bank of Detroit, and First Chicago in the Midwest. These institutions each held important ties for their day and age to progress in finance and the expansion of both the American and world economies. The mega mergers of the banking group began in 2000 when J.P. Morgan & Co. Inc. merged together with the Chase Manhattan Corporation. In this merger, J.P. Morgan, Chase, Manufacturers Hanover, and Chemical became one enormous financial conglomerate. This at last combined four of the biggest, most important, and oldest banking center groups of New York City together under the single entity name and ownership of J.P. Morgan Chase & Co. The activity continued in 2004. J.P. Morgan Chase & Company merged with Chicago’s Bank One Corporation. At the time, the New York Times newspaper claimed that the combination would remake the competitive landscape of banking as it tied together the commercial and investment banking prowess of J.P. Morgan Chase with the significant consumer banking abilities of the Midwestern-based Bank One. In 2008, JP Morgan Chase acquired the world’s largest savings and loan Washington Mutual Bank as a result of the biggest bank failure in history. Gaining control of Washington Mutual’s substantial banking operations meant that the banking group expanded its consumer branches into Florida, California, and Washington State for the first time. This formed the second biggest network of bank locations in the United States whose branches reached an astonishing 42% of all people living in the U.S. That same year in the depths of the financial crisis, JP Morgan Chase took over the collapsing Wall Street

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firm The Bear Stearns Companies. This improved the group’s swelling abilities in a wide variety of businesses such as global energy trading, cash clearing, and prime brokerage. The group rounded out its presence in the United Kingdom in 2010 by gaining full ownership of its original British joint venture J.P. Morgan Cazenove. This joint venture was among the most premier investment banks in Britain.

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Jumbo Loan Jumbo loans are specific types of loans made by banks for home mortgages. They are special because these loans are for larger sized house loans. In order for a loan to be qualified as a jumbo one, it must be larger than the conforming loan limits. The government Federal Housing Finance Agency sets these conforming loan limits through regulation. They are the agency that oversees the mortgage buying government sponsored entities Freddie Mac and Fannie Mae. Both of these groups purchase mortgages from the traditional lenders like banks and credit unions. For the majority of the United States, jumbo loan limits start at $417,000. There are several states and a few hundred counties that have different loan limit amounts. Some of these limits range as high as $625,000 for their loan limits in areas that are the most expensive property markets. Counting Louisiana parishes, Alaska boroughs, and the District of Columbia like counties, the U.S. has 3,143 counties. This does not consider the Virgin Islands, Guam, or Puerto Rico. An overwhelming majority 2,916 of these counties have the traditional limit amount of $417,000 for jumbo loan minimums. Another 115 counties have loan limits that are in between the typical $417,000 and $625,000 maximum. This would include higher than usual priced real estate markets but not the most expensive ones like Los Angeles. In Colorado Denver County is one such example with a jumbo loan minimum of $458,850. Another 108 counties contain higher jumbo loan limits that start at $625,500. Included in these are the most expensive housing markets. Among these are such pricey counties as those found in New York City, Los Angeles, and San Francisco. Several states and their counties are allowed to have higher conforming loan limits than the maximum amounts set out by the government housing authority. This includes Hawaii, Alaska, the Virgin Islands, and Guam. These are all treated specially because of a long time exception to the regulation. In Hawaii for example, four of its five counties have the highest limits for jumbo loan cutoffs. They range from $657,800 to $721,050. Obtaining a jumbo mortgage involves some extra paperwork and proofs. Underwriting for these jumbo types is much the same as with standard conforming mortgages. There are more requirements for appraisals and down payments than with smaller mortgages. Some jumbo mortgage lenders have a requirement for two appraisals rather than the standard single one. Down payments are also often more demanding for jumbos than for the traditional mortgages. Usually these lenders will want a higher down payment to ensure the individual can really afford and is committed to the loan. The minimum down payments for these more expensive home purchases will vary with each lender. They might be as high as 30%, or they could be as low as 15% to 20%. Only applicants with significant finances need apply for these jumbo loans. A great number of their lenders require a minimum high credit score of 700 or better. They also insist on a debt to income ratio that does not exceed 43%. These lenders will want to see minimally from six to twelve months’ cash

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reserves in bank accounts as well. Jumbo loans are not only made to individuals for their primary residences. Lenders will also issue them for vacation or second homes. Investment properties may also involve jumbo loans. They come with a wide range of terms and interest rates. Jumbo loans can be issued as adjustable rate loans or fixed rate loans. They often come with higher interest rates than individuals would pay for conforming loans or for high balance conforming home loans. Sometimes in addition to the bigger down payment the underwriting standard will be stricter as well.

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Junk Bonds Junk bonds are almost the same as regular bonds with an important difference. They are lower rated for credit worthiness. This is why in order to understand junk bonds, individuals first must comprehend the basics of traditional bonds. Like traditional bonds, junk bonds are promises from organizations or companies to pay back the holder the amount of money which they borrow. This amount is known as the principal. Terms of such bonds involve several elements. The maturity date is the time when the borrower will repay the bond holder. There will also be an interest rate that the bond holder receives, or a coupon. Junk bonds are unlike those traditional ones because the credit quality of the issuing organization is lower. Every kind of bond is rated according to its credit quality. Bonds can all be categorized in one of two types. Investment grade bonds possess medium to low risk. Their credit ratings are commonly in the range of from AAA to BBB. The downside to these bonds is that they do not provide much in the way of interest returns. Their advantage is that they have significantly lower chances of the borrower being unable to make interest payments. Junk bonds on the other hand offer higher interest yields to their bond holders. Issuers do this because they do not have any other way to finance their needs. With a lower credit rating, they can not borrow capital at a more favorable price. The ratings on such junk bonds are often BB or less from Standard & Poor’s or Ba or less by Moody’s rating agency. Bond ratings such as these can be considered like a report card for the credit rating of the company in question. Riskier firms receive lower ratings while safe blue-chip companies earn higher ratings. Junk bonds typically pay an average yield that is from 4% to 6% higher than U.S. Treasury yields. These types of bonds are placed into one of two categories. These are fallen angels and rising stars. Fallen angels bonds used to be considered at an investment grade. They were cut to junk bond level as the company that issued them saw its credit quality decline. Rising stars are the opposites of fallen angels. This means the rating of the bond has risen. As the underlying issuer’s credit quality improves, so does the rating of the bond. Rising stars are often still considered to be junk bonds. They are on track to rise to investment quality. Junk bonds are risky for more reasons than the chances of not receiving one or more interest payments. There is the possibility of not receiving the original principal back. This type of investing also needs a great amount of skills in analyzing data like special credit. Because of these risk factors and specialized skills that are needed, institutional investors massively dominate the market. A better way for individuals to become involved with junk bonds is through high yield bond funds. Professionals research and manage the holdings of these funds. The risks associated with a single bond defaulting are greatly reduced. They do this by diversifying into a variety of companies and types of bonds. High yield bond funds often require investors to stay invested for minimally a year or two. When the yield of junk bonds declines below the typical 4% to 6% spread above Treasuries, investors

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should be careful. The risk does not become less in these cases. It is that the returns no longer justify the dangers in the junk bonds. Investors also should carefully consider the junk bond default rates. These can be tracked for free on Moody’s website.

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Keating Five The Keating Five refers to a corruption scandal of 1989. At the time, five important United States Senators were accused of corruption related to the Savings and Loan crisis in 1989. This political scandal came to represent all that Americans found (and still today find) wrong with their nationally elected congressional representatives. The five senators implicated as part of this Keating Five Scandal were California Democrat Alan Cranston, Arizona Democrat Dennis DeConcini, Ohio Democrat and former astronaut John Glenn, Arizona Republican John McCain, and Michigan Democrat Donald W. Riegle, Jr. The five Senators endured serious accusations of having unethically involved themselves on the material behalf of banker Charles H. Keating, Jr. who was then Chairman of the Lincoln Savings and Loan Association in 1987. This bank became the subject of a more than routine regulatory investigation run by the Federal Home Loan Bank Board, the FHLBB. This government group later backed away from acting against the bank, apparently without sufficient reasoning. Naturally the investigation revived two years later in 1989 as the Lincoln Savings and Loan institution spectacularly collapsed to the tune of a $3 billion loss to the federal government. An incredible 23,000 plus bondholders of the bank suffered wipeout losses along with countless investors who saw their entire life savings evaporate overnight. What caught the attention of journalists who investigated the mess were the major political donations Mr. Keating had directed to the campaigns of five senators. These questionably generous donations amounted to $1.3 million. The Senate Ethics Committee began a long-running investigation into pressure which it was alleged the Keating 5 had brought to bear two years earlier on the FHLBB. Three of the five accused Senators, Cranston, DeConcini, and Riegle, were found guilty of unethically interfering with the government investigation of the bank that might have allowed them to wind down the bank before it imploded at a loss of billions of dollars. Of the three, only Senator Cranston received an official reprimand from the Senate. Both Senators John McCain and John Glenn were fully cleared of any charges of wrongdoing by the investigatory committee. Yet the two men still received a minor slap on the risk in being told that they had “exercised poor judgment” in being at all involved. Each of the Keating Five senators was allowed to serve out their remaining Senate terms. When it was time for reelection, both McCain and Glenn ran again. The two men each held onto their seats. McCain emerged apparently unscathed, as he was able to run for the President of the United States twice, emerging as the official 2008 campaign Republic Party nominee. The Keating and Lincoln Savings scandal became a symbol of all that was inherently crooked about the financial system and ethics in American society. In the spring of 1992, a playing cards deck had been created, marketed, and sold under the name of the “Savings and Loan Scandal.” On the card faces were Charles Keating, Jr. holding up his hand. For the faces of the puppets on each of his fingers were the portraits of the Keating Five Senators. Polls were taken which demonstrated that the majority of American found the doings of these five Senators to be only typical of the actions of Congress in general. Even political historian Lewis Gould wrote about it that “the real problem for the Keating Three who were most involved was that they had

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been caught.”

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Keogh Plan Keogh Plans are like 401(k) plans intended for small businesses. They are distinguished from them by having higher limits than the 401(k)s do. These tax deferred pension plans can be established by businesses that are not incorporated or individuals who are self employed. These types of plans can be one of three types. There are money purchase plans preferred by those who are high income earners. Profit sharing plans provide yearly flexibility that is dependent on the company profits. Defined benefit plans feature higher yearly minimums. Keogh Plans are also referred to as HR(10) plans. They are permitted to invest in the same investments as IRAs and 401(k)s. This includes stocks and bonds, annuities, and certificates of deposit. The reasons these plans are so popular for sole proprietors and small business owners has to do with their higher contribution limits. A downside to them revolves around their greater maintenance costs and more burdensome administration than SEP Simplified Employee Pension plans feature. These Keogh Plans derive their name from the creator of the concept Eugene Keogh. He put together the 1962 Self Employed Individuals Tax Retirement Act which became named for him. The plans received a name change after the Economic Growth and Tax Relief Reconciliation Act passed in 2001. This act so altered these plans that the IRS code dropped the reference name of Keogh. They simply call them HR(10) plans now. These retirement accounts are still utilized, but have lost many followers to the solo 401(k) and the SEP IRA. The HR(10) plans still find a good fit with professionals who are highly compensated as with lawyers or dentists who are self employed. Otherwise these plans generally do not serve retirement savers better than the competing plans. The HR(10) plans come in two different principal breakdowns. These are defined contribution and defined benefit plans. With defined contribution plans, self employed persons can decide the amount of contribution they will make every year. This can be done either through money purchase or profit sharing plans. Money purchase requires that the profits percentage to go in the Keogh be decided at the beginning of the year. If the employed person makes profits, these contributions must be made without changes or a penalty will be assessed by the IRS. The amounts owners contribute to their profit sharing plans may be changed every year. As much as 25% of income can be deducted and contributed every year. The limit on this amount is $53,000 for 2015 and 2016. Defined benefit plans operate much as traditional pensions would. Business owners determine a pension goal for themselves then fund it. As much as $210,000 may be contributed in a year (up to 100% of all compensation) for the years 2015 and 2016. Business owners make all contributions in both types of Keogh plans as pre-tax. This means they these contributions come out of the taxable salary before taxes are figured. Keoghs plans are also similar to typical 401(k)s in the way that invested monies are able to be tax deferred until retirement. This may start as early as 59 ½ years old but can not be delayed until any later

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than 70 years of age. Any withdrawals taken before these years are federally and potentially state taxed as regular income and also penalized at 10%. Exceptions to the penalty rules exist if certain physical or financial health issues come up for the account owner before retirement. In order to maintain a Keogh Plan, a great amount of paperwork has to be filed each year. This includes the Form 5500 from the IRS. It requires a financial professional or tax accountant’s help.

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Key Performance Indicator (KPI) Key Performance Indicators are measurements that aid companies and other organizations in assessing the progress they are making towards their key goals. It is important for any organization to start out by deciding on its mission and determining its goals. Once they have done this effectively, they can decide on the best means of measuring their incremental progress to reaching the goals. A characteristic of Key Performance Indicators is that they are measurements that are quantifiable. They must also be relevant to the organization’s particular benchmarks of success. These will be different for various organizations. A business and a community service organization will not have the same KPIs. Businesses could have KPIs that relate to their total profits or amount of income that they derive from repeat customers. Customer service departments could use KPIs that measure the number of calls they answer in under a minute. Schools’ Key Performance Indicators could center on the percentages of students who graduate. Community service organizations might look at a KPI that revolves around the number of individuals they are able to assist in a given year. There is no one right or wrong Key Performance Indicator. KPIs only need to be measurable, relevant to the goals of the organization, and a core part of the group’s success. As an outfit’s goals evolve or are met, the KPI goals may shift as well. Key Performance Indicators have to be definable and measurable to be useful. It is no good setting a KPI that is subjective or a matter of opinion. Their definitions also should be consistent year in and year out. This is the only way that the targets set for each KPI will be meaningful. If a company sets a goal to be the best employer, then they might use their company Turnover Rate each year as a Key Performance Indicator. This will work so long as they are using the same turnover rate definition and measurement each year. Reducing turnover by a certain percent annually is an understandable goal that different departments can act on and address. Another important attribute of these Key Performance Indicators is that they have to be relevant to the organization and its goals. A business whose goal is to become the most profitable company in the sector will need to use KPIs that address profits and relevant finances. They might choose profits before taxes. Schools that are not interested in turning profits would not utilize such KPIs. For Key Performance Indicators to be helpful they also need to be a core part of an organization’s success. KPIs are only practical so long as they relate to the elements that the organization needs to work on so that they can attain the goals. Another important facet of these KPIs is that there should not be too many of them. The idea is for the members of the organization to be able to focus on the identical Key Performance Indicators. It is possible for the organization as a whole to have three to five KPIs while departments have several others that help to support the overall goals. So long as these goals can be neatly categorized under the company’s larger ones, this is acceptable.

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Key Performance Indicators make a good tool for performance management. When everyone in the organization is aware of the goals, then they can take appropriate steps to help reach them. KPIs can be posted on company websites, in employee break rooms, and in company conference rooms. All of the activities of the members of the organization should be focused towards meeting or even surpassing those KPI goals.

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Keynesian Economics Keynesian economics represents a system of economic ideas that the British economist John Maynard Keynes developed in the first half of the twentieth century. Keynes became best known for his easy to understand and straight forward arguments for the underlying causes of the Great Depression. His theories of economics found their basis in the concept of the circular flows of money. As his ideas became more and more widely accepted, they led to a range of intervening economic policies towards the end of the Great Depression, particularly in the United States. Keynes explained all flows of money in terms of their impact on other people and entities. He said that a single person’s spending contributes to the next individual’s paycheck. That person spending their pay would then supply the earnings of another. This virtuous circle goes on and on and assists in maintaining a healthy economy that is working properly. As the Great Depression settled in, the natural inclination of people to save and hold their money increased. Keynes proposed that this cessation in the normally occurring circular money flow is what caused the economies of the world to grind to a screeching halt. More than only explaining economic problems, Keynes offered solutions as well. He claimed that the best cure for this disease lay in priming the pump. With this expression, he intended for governments to intervene in order to boost their spending. They might do this by purchasing things on the open market or by growing the money supply itself. At the time of the Great Depression, such an answer did not turn out to be well received at first. Even so, the actions of American President Franklin D. Roosevelt in spending enormously on defense for the Second World War are generally credited for beginning the United States’ economic revival. Because Keynesian economics strongly makes the case for the government to jump in and help out the economy, it represented a serious break from the prior system of laissez-fair capitalism economics that predated it. This laissez-fair, or hands off, approach had endeavored to keep government out of the markets. The system argued that markets left undisturbed would find their own balance in time. Keynes’ ideas represented a direct challenge to the many supporters of free market capitalism, such as the Austrian School of economics. Frederick von Hayek proved to be among its earliest founders who lived in England and represented a bitter public rival to Keynes. Their ideas on government influence in private citizen’s lives battled back and forth for years in public policy debate. Keynesian economics discourages an excessive amount of savings, which it calls an insufficient amount of consumption and spending for the economy. The theory furthermore argues in favor of a great amount of redistributing wealth as necessary. Keynes thought that giving the poorest members of society money would lead to them probably spending it, which would support economic growth. Keynesian economics has been a major force in international economic policy since World War II. Though its influence is less in the past three decades, it has not died out. Its tenets are again gaining

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ground in the light of the failures that led to the financial collapse and the Great Recession.

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Land Law Land law represents the type of law discipline that pertains to the various inherent rights of individuals to utilize (or restrict others from) owned land. There are many jurisdictions of the world that employ the words real property or real estate to describe such privately, corporately, or government owned land. Land utilization agreements such as renting prove to be a critical intersecting point where land law and contract law meet. Water rights and mineral rights to a piece of property are closely connected to and interrelated with land law. Such land rights turn out to be so important that this form of law always develops one way or another, regardless of whether or not a country, kingdom, or empire exists to enforce it. A classic example of this phenomenon is the American West and its claim clubs. These institutions came about on their own as a means for land owners to enforce the rules which surrounded staking claims and mines’ ownership. When people occupy land without owning it, this is called squatting. This problem was not limited to the old American West, but is in fact universally practiced by the poor or disenfranchised throughout the world. Practically all nations and territories of the world maintain some form of a system for land registration. With this system there is also a process for land claims utilized in order to work out any disputes surrounding land ownership and access. International land law recognizes the territorial land rights of indigenous peoples. Besides this, country’s legal systems also acknowledge such land rights, calling them aboriginal title in many regions. In societies which still utilize customary law, land ownership is primarily exercised by customary land holding traditions. Land rights also pertain to the inalienable abilities for individuals to freely purchase, use, and hold land according to their wishes. Naturally this assumes that their various endeavors on the property do not interfere with the rights of other members of society. This should never be confused with the concepts of land access. Land access means that individuals have the rights to use a piece of property economically, as with farming or mining activities. Such access is considered to be far less secure than ownership of the land itself, since a person only using the property can be evicted from it at the whim of the land owner. Land law also deals with the statutes which a nation sets out regarding the ownership of land. This can be difficult to reconcile in some countries as they have the more traditional customary land ideas such as group or individual land rights as part of their culture instead of legal understandings. This is why the various laws between land rights and land ownership have to be harmonious to prevent bitter disputes, fighting, and indigenous territorial standoffs. Around the world, a growing focus on such land rights and the way these intersect with traditional laws on the land has emerged. Land ownership represents an important and often necessary for survival (in many cultures) source for food, water, resources, shelter, financial security, and even capital. This is why the United Nations Global Land Tool organization links landlessness in rural areas with both poverty and malnutrition.

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It led to the Millennium Development Goal 7D which works to better the lives and livelihoods of around 100 million individual slum dwellers. This project is working to promote land rights and land ownership for poor people the world over in hopes that this will finally lead them to a higher quality of life and more stable and secure existence.

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Lease Leases are contracts made between an owner, or lessor, and a user, or lesee, covering the utilization of an asset. Leases can pertain to business or real estate. There are a variety of different types of leases that vary with the property in question being leased. Tangible property and assets are leased under rental agreements. Intangible property leases are much like a license, only they have differing provisions. The utilization of a computer program or a cell phone service’s radio frequency are two example of such an intangible lease. A gross lease is another type of lease. In a gross lease, a tenant actually gives a certain defined dollar amount in rent. The landlord is then responsible for any and all property expenses that are routinely necessary in owning the asset. This includes everything from washing machines to lawnmowers. You also encounter leases that are cancelable. Cancelable leases can be ended at the discretion of the end user or lessor. Other leases are non cancelable and may not be ended ahead of schedule. In daily conversation, a lease denotes a lease that can not be broken, while a rental agreement often can be canceled. A lease contract typically lays out particular provisions concerning both rights and obligations of the lessor and the lessee. Otherwise, a local law code’s provisions will apply. When the holder of the lease, also known as the tenant, pays the arranged fee to the owner of the property, the tenant gains exclusive use and possession of the property that is leased to the point that the owner and any other individuals may not utilize it without the tenant’s specific invitation. By far the most typical type of hard property lease proves to be the residential types of rental agreements made between landlords and their tenants. This type of relationship that the two parties establish is also known as a tenancy. The tenant’s right to possess the property is many times referred to as the leasehold interest. These leases may exist for pre arranged amounts of time, known as a lease term. In many cases though, they can be terminated in advance, although this does depend on the particular lease’s terms and conditions. Licenses are similar to leases, but not the same thing. The main difference between the two lies in the nature of the ongoing payments and termination. When keeping the property is only accomplished by making regular payments, and can not be terminated unless the money is not paid or some form of misconduct is discovered, then the agreement is a lease. One time uses of or entrances to property are licenses. The defining difference between the two proves to be that leases require routine payments in their term and come with a particular date of ending.

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Lease-to-Own Purchase A Lease-to-Own Purchase is a combination of a lease on a house with a purchase option on the home. This option is valid for a specific amount of time, typically for 3 years or less. The price for the purchase is agreed on in advance and is a part of the contract. These types of arrangements became far more common after the housing crisis and Great Recession. Many individuals who wanted to buy a house could no longer qualify for the stricter loan requirements. This also impacted sellers who could not obtain a selling price with which they were satisfied by any other means. With a Lease-to-Own Purchase, the contract is typically designed and provided by the seller. The benefits of the arrangement can be set up to provide advantages to both buyer and seller parties. They might also be arranged so that the majority or even all of the benefits accrue to one side. This means that buyers should beware before entering such an agreement. It is wise for them to share the contract with a real estate attorney before they sign. In a traditional Lease-to-Own Purchase contract, borrowers first pay an option fee that goes against the cost of buying the house. This generally amounts to from 1% to 5% of the home price. The renter will also pay a fair market value rent alongside a rent premium that also goes towards the price of buying the house. Everything is negotiable in these contracts, including option period, option fee, rent premium, rent, and the price of the house. Should the purchase option not be exercised by the renter, then he or she forfeits the rent premium and the option fee to the seller. Buyers will naturally want a longer option period. This gives them a greater amount of time in which to repair their credit and save up money for a down payment. The downside to a longer option period in a Lease-to-Own Purchase comes into play if they can not exercise the option to buy. In this case, the renters forfeit both the option fee and the monthly rent premium which they have paid continuously. Sellers will want a shorter time period on the option. If they make it too short, they will be unable to sell the house to the renter. It is possible for a Lease-to-Own Purchase to work out to be a win-win situation for both parties. The rent premium and option fee to the buyers represent equity they are paying into the house which they expect to buy. Such payments are compensation towards a guarantee for the seller that the house will sell. The seller will get to keep the additional payments as income if the buyer is unable to obtain the mortgage needed to purchase the property. Some Lease-to-Own Purchase contracts will provide the renter with the ability to sell their option to another party. Such an option gives buyers additional confidence in the deal in the event that they are unable to personally exercise their buying option. This is a concession from sellers who would rather keep the house along with the fees they have collected. Some lease contracts will also have clauses that can cancel the buyer’s option. These are often set as penalties for late rent payments. One advantage to leasing the house before buying it lies in buyer awareness. The renters have time to consider any significant problems with the house, neighbors, or the neighborhood before they commit. If these are substantial issues, the buyers are able to cut their losses and not go through with the buying option.

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Leasehold Estate A Leasehold Estate relates to an official and legal interest that permits a company or individuals to assume temporary ownership of the land of another individual or company. They are able to use this land for business purposes, agricultural applications, or even as a dwelling. Property could include timber land, mineral land, oil land, farm land, or business and/or residence property. With such leasehold estates, landlords possess the title of the property at the same time as the tenant holds the rights to utilize said property. These estates range wildly in the format for the agreement and how it is set up, the amount of time the status exists, and the kind of property which is being leased. A Leasehold Estate can be established orally or as a written agreement. Those agreements which are intended to endure over a year might have to be composed in a written document per the laws of the relevant state which has jurisdiction. These agreements provide either explicit or implicit permission for all the receiving end parties, who are called the lessees, to assume control of the said property of the other party, who is referred to as the lessor. There are other various kinds of property agreements which exist. What separates leasehold agreements from these competing formats, such as purchase agreements, is the actual termination date. Every party which is involved with a leasehold agreement comprehends that the agreed upon ownership interests will eventually conclude. This is to say that they are not intended to last in perpetuity. Another distinctive feature of such estates lies with the lessee’s right to possess the said property in question. Various other kinds of property agreements, like licenses or easements, actually provide the holder with the permanent rights to utilize the property as they see fit. Leasehold Estates are quite specific. They comprise both land and any property on the land in question at a given address. Land in this sense of the word does not simply mean the physical land, but also includes any buildings which lie on the property. It also applies to any and all natural resources which occupy the land in question. These estates could also include other forms of personal property, like machinery or fixtures which are so permanently a part of the land that they become considered to be part and parcel of the property. Such fixtures could comprise things like fencing, lighting, wells, or windmills. Estates are types of personal property. Applicable state laws commonly govern the legal definition of personal property. This means that they could supersede clauses within the Leasehold Estate agreement. An example of this is found in the state of California. The leasehold which pertains to agricultural purposes may not be extended past a maximum time frame of 51 years total. This is why such leasehold agreements are established with a pre-determined and limited number of years in mind. This is articulated in the tenancy of years. Such a specified length of lease is determined by both lessor and lessee. The only exception is when state laws set the time span directly. It is possible to terminate such a leasehold tenancy ahead of the articulated time. The lessee must decide to surrender his or her possession of the property at the same time as the lessor agrees to resume control over his property and rights. Four different classifications of these Leasehold Estates exist. They are fixed term, periodic, at will, and at sufferance. Fixed term tenancy refers to the number of years of the tenancy. It is states as an interest

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which is established to endure a particular amount of time. Periodic tenancy relates to a set out amount of time, as with week to week, month to month, or even year to year. The leasehold can be ended by either tenant or landlord simply giving a notice to vacate the property. Usually a 30 days notice in writing must be provided to the owner of the property. Tenancy at will refers to the lack of structure with these kinds of leasehold agreements. No date is given for the end of tenancy in such a form of leasehold estate. Tenancy at sufferance happens as a tenant decides to overstay the date of termination as spelled out in the applicable agreement. Landlords in these cases possess the legal rights to simply evict the tenant if they wish.

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Legal Tender Legal tender proves to be official forms of payment that the nation’s government recognizes for paying either private or public debts or for meeting any number of financial obligations. In nearly all nations, national currency is the one and only legal tender. Creditors have no choice but to receive this currency for repaying of debts owed to them. It is only the appropriately endowed national institutions which are permitted to issue such legal tender. In the United States, this means the U.S. Treasury. In Canada, it refers to the Royal Canadian Mint. Any type of payment which must be taken for a debt is legal tender. The laws of the land determine which payments are such currencies. This term mostly pertains to money in cash form like coins and bills. It does not include credit cards, bank cards, checks, or lines of credit. Laws which pertain to legal tender are the bedrock in the forming of a country’s fiscal policy for a great number of states. In the days of the American federalist debates, individuals who sought to restrict the powers of the new central government attempted to force rules restricting the creation of a national central bank and to ensure that the national government could not issue currency. Such positions as those espoused by the anti-federalists were mostly defeated. The U.S. Constitution does in fact forbid individual states from issuing their own currencies, meaning they obtained at least a partial state-level victory. Following the American war for independence, the fledgling nation utilized a wide range of foreign silver and gold coins in trade. Throughout the American Civil War, these policies had to be altered because of the enormous levels of government debt issued and assumed. Because of these expenditures, the American government chose to start producing paper bills for money. With its landmark ruling in 1965, the U.S. Supreme Court affirmed that all American government issued money, including coins and bills, was legal tender. This meant that it had to be taken in payment of debts by every party within the U.S. They similarly ruled that foreign-issued money is not acceptable for forms of payments. This Supreme Court ruling did not completely settle the issue once and for all. In 2002, the long simmering topic on the issue of currency rose to the forefront of policy debate once again. It was the introducing of the Legal Tender Modernization Act within the U.S. House of Representatives that set it off once again. Besides various other provisos, the act insisted on the termination in circulation of the penny. Those in favor of the bill under discussion argued that pennies were worthless as a currency since they could not be utilized in most purchases or with vending machines. They cost significantly more than their face value to make and circulate and depend on heavy metal polluting industries in mining both zinc and copper. Despite its public interest, this bill never moved forward into the Congress. Rather it died a slow death for lack of interest and sponsors following the termination of that year’s lawmaking session. Among the great debates for the early years of the 21st century, the Europeans adopting the Euro took monetary center stage. A great number of nations had century’s long association with their proprietary and historical national currencies. The switch over to such a common currency format angered the fearful nationalists living within Europe. Around 20 nations eventually joined this new Euro zone and replaced their beloved old currencies with the euro. Most significantly, the U.K., Sweden, and Denmark refused to

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join and gained exemptions from the common currency requirements and mandate, electing to hold on to their own national currencies instead.

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Lehman Brothers Collapse The Lehman Brothers collapse occurred officially on September 15 of 2008 when the firm filed for bankruptcy. At the time it had $619 billion in debts and $639 billion in assets. This made it the biggest filing for bankruptcy in all of history. Its assets were massively higher than the ones that had preceded it in infamous collapses such as Enron and WorldCom. When the Lehman Brothers collapse occurred, it held the distinction of being the fourth biggest American based investment bank. The bank boasted 25,000 employees located in financial centers around the world. Its untimely fall turned it into the biggest casualty of the financial crisis that began from the U.S. subprime mortgage collapse. This crisis ran like wildfire through financial markets around the globe in 2008. The crisis became so much worse because of this turning point moment when the Lehman collapse occurred. It was a major contributing factor to the destruction of $10 trillion worth of market capitalization off of global stock markets in just October of 2008. This represented the largest recorded single month decline when it happened. The investment bank had managed to successfully navigate and survive numerous challenges over the years before the Lehman Brothers collapse. Their origins dated back to a Montgomery, Alabama general store that German immigrant Henry Lehman opened in 1844. Six years later, Henry with his two brothers Mayer and Emmanuel established Lehman Brothers. The firm moved increasingly into investment banking in the subsequent decades. As the U.S. economy expanded into a first rate power, Lehman prospered. Among the challenges it faced were the 1800s’ railroad bankruptcies, the 1930’s Great Depression, and the two world wars. The firm also navigated being acquired and then spun off by American Express in 1994 with a capital shortage. It survived both the collapse of Long Term Capital Management and the Russians defaulting on their debt in 1998. Though it had survived world rocking disasters in the past, the catastrophic collapse of the housing market in the U.S. proved to be too much for the investment bank. This was primarily because it had rapidly embraced the subprime mortgage market in the early 2000s, a misstep that was to cost the bank and its employees everything. It was in the years 2003 and 2004 that Lehman made the acquisitions that led to the Lehman Brothers collapse. It purchased five different mortgage lenders, among them the subprime lenders Aurora Loan Services and BNC Mortgage. These companies made loans to those borrowers who did not have complete documentation. Such mortgages were officially known as Alt-A loans but became nicknamed “liar loans.” At first the firm made enormous revenue gains in its real estate ventures. This capital markets division saw income roar up by 56% between 2004 and 2006. This massively outpaced growth in the asset management and investment banking divisions. From 2005 to 2007, the bank announced record profits. The year 2007 was the last one they could report such gains, with $4.2 billion in profits on $19.3 billion

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in revenues their best year ever. When the housing market began to plunge and borrowers defaulted massively on their loans, the end approached for Lehman Brothers. Less than a year after their record 2007 profits, their failed mortgages, credit default swaps, and investments based on collateralized mortgage instruments brought them completely down.

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Lender Lenders are individuals or more commonly institutions that loan out money. The person who receives this money is a borrower. A number of different kinds of lending organizations exist. These include commercial, mutual organizations, educational, hard money, and lenders of last resort. Commercial lenders are the most common of the traditional lenders. Commercial types are usually banks. Another kind of commercial lender would be a private financial organization. Commercial lenders provide offers on their loans to their borrowers at a set rate of loan terms. Such terms include time frame of the loan and the interest rate. Their goal is to make as much money as possible relative to the chances of the borrower not repaying the loan. Mutual organizations are another type of lender. They are composed of members of the mutual who cooperate together to loan money to the membership. The members pool their money into the organization. From there it is loaned out to the members who need to borrow money. They do this with favorable terms and at advantageous rates. Mutual organizations are not driven to make profits. This allows them to offer lower interest rates on the loans they make and higher interest rates on the deposits they take. Among these mutual groups are community based credit unions. Friendly Societies are another example of them. Educational lenders provide loans to individuals who are looking to further their education at an institution of higher learning like a college or university. They offer borrowers subsidized or unsubsidized loans. When the loans are subsidized, the Federal Government guarantees the loans and ensures that the lender provides a low and often fixed interest rate. Hard money lenders make special types of loans that are short term. These are loans principally secured by real estate collateral. The downside to this kind of a lender is that they often provide higher interest rates than a traditional commercial bank. The tradeoff is that they will often take on a larger variety of deals. Typically these hard money lenders give terms that are more flexible to their borrowers. Some states have stricter laws on interest rates that may be charged than does the Federal government. This forces hard money lenders to operate under different rules and with lower interest rates when they are in conflict with usury laws in give states. Many times these loans that lenders make to individuals become brokered loans. In such cases, third parties consider the borrower’s case then send the loan request out to a variety of lenders. This is often done over the Internet. They pick these different lenders because of their chance of approving the borrower in question. Sometimes the terms can be improved by one or more of these competing lenders in order to win over the borrower’s business. Lenders of last resort are an interesting final category. They are often governmental organizations whose goal is to save national economies and important banks from failure. These types of organizations loan money out to too big to fail banks which are close to collapse. They do this to safeguard the bank’s

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depositors and to prevent panic from pushing the nation’s economy into a downward spiral. Lenders of last resort can also be private organizations that make loans to individuals. These groups loan out money to borrowers who present great risks of default or who have extremely low credit scores. Interest rates with these lenders are substantially higher than with traditional lenders. They charge these rates in order to make up for the losses they suffer from their borrower’s greater default rates. Such lenders that charge even higher rates are sometimes known as loan sharks.

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Leverage Where business and finance are concerned, leverage pertains to the concept of using investment capital, revenue, or equity to multiply any gains or losses realized. Leverage can be affected in various ways. Among the most popular means of achieving it are through purchasing fixed assets, borrowing money, or utilizing derivatives. There are several important examples to the use of leverage. With investments, hedge funds work with derivatives to leverage their capital. They could do this by putting up one million dollar cash for their margin and using it to control twenty million dollars of crude oil. They then realize any and all gains or losses achieved by the twenty million dollar crude position. Businesses may similarly achieve leverage on their revenue by purchasing fixed assets. In so doing, the business would boost its proportion of fixed costs. Any change in revenue would then lead to a greater change in the associated operating income. Publicly traded corporations are also able to obtain leverage on their stock share holder equity through borrowing money. The greater amount of cash that they borrow, the lower amount of equity capital they will require. This translates to all profits and losses being distributed out to a smaller share holder base, making them proportionately bigger in the end. There are formulas for the four main types of leverage. Accounting leverage is found by taking all assets and dividing them by all assets minus all liabilities. Notional leverage is found by taking all notional quantities of assets, adding them to all of the notional liabilities, and then dividing the result by equity. To find the economic leverage, the equity volatility has to be divided by the identical assets’ unlevered investment volatility. Finally, operating leverage can be calculated through taking the revenue in question and subtracting out the variable cost, then dividing the operating income into the result. Leverage entails significant benefits and also substantial risks. While it does allow potentially great amounts of money to be made when investments go the way of an individual or organization, it can also involve devastating losses when the investments move against the entity. As an example, a stock investor who purchases stocks with fifty percent margin will double his losses when a stock goes down. Companies that borrow excessively to increase their leverage can experience collapse and bankruptcy in a downturn in business at the same time as a company with less leverage could survive. Not all uses of leverage entail the same degree of risk. Corporations that borrow money so that they can engage in international expansion, increase their line up of products, or modernize their plants and equipment gain additional diversification. This could provide more than just an offset for the extra risks that result from the leverage. Not all highly leveraged companies are risky either. Public utilities commonly include high levels of debt, but they are generally considered to be less risky than are technology companies that lack leverage.

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Levied Taxes Levied taxes are taxes that are forcefully collected from an individual, business, or other entity. Among the many taxes most frequently collected these days are income taxes. These taxes could be said to be levied, since the law requires that an individual’s income tax is levied for the government by the company where they work. Three main types of tax systems are in effect in the world today where income is concerned. These include progressive, proportional, and regressive tax systems. Progressive taxes levied are those that employ progressively greater rates of tax as earnings are higher. As an example, the first $10,000 that an individual makes might be taxed at only five percent, while the next $10,000 is possibly taxed at a rate of ten percent, and income above this could be taxed at a twenty percent rate. Proportional taxes use a pre set flat rate of tax. This applies to all earnings, no matter how high or low they are. With a ten percent flat rate, everyone will pay their ten percent of income as taxes levied, regardless of what amount of money they actually make. Regressive taxes are said to hurt the poor by shifting the tax burden to lower income earners. This type of tax levy only taxes income to a certain dollar level, such as the first $80,000. Any money made above this amount would simply not be taxed. In reality, most tax systems employ the various kinds of tax levying methods to address various forms of income. Levied taxes also apply to corporations and businesses. The income of a company is taxed in what is known as a corporate tax. This is sometimes alternatively referred to as a profit tax or corporate income tax. With corporate taxes levied, the net income is generally the figure that is taxed. Net income refers to the difference of gross income and expenses and other allowable write offs. With individuals, the total income for a family or individual is commonly taxed. Some deductions are usually allowed before the taxes to be levied are determined. Income may be reduced by a certain amount as a result of how many children a family has to support, as an example. There are many other forms of taxes levied in modern capitalist countries such as Great Britain and the United States. More than two hundred different types of taxes can be identified in the U.S. alone. These include such various taxes levied as income tax, sales tax, property tax, estate tax, capital gains tax, dividends tax, gasoline taxes, leisure taxes, luxury items taxes, and so called sin taxes on items such as cigarettes and alcohol. The United States has been called the most heavily taxed society in all of world history.

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Liabilities Where a business is concerned, liabilities prove to be amounts of money that are owed by the company at any given point. These liabilities are displayed on the firm’s balance sheet. They are commonly listed as items payable, or simply as payables. There are two types of liabilities. These are longer term liabilities and shorter term liabilities. Long term liabilities turn out to be business obligations that last for greater than the period of a single year. Mortgages payable and loans payable are included in this category. Short term liabilities represent business obligations that will be paid in less than a year. There are many different kinds of short term liabilities. They include all of the items detailed below. Payroll taxes payable are one of these. They represent sums automatically collected from the employees and put to the side by the employer. They have to be given to the IRS and any state taxing agencies at the pre determined time. Sales taxes payable are another short term liability. The business collects them from its customers when sales are made. They hold them until it is time to give them to the proper revenue collecting department within the state. Mortgages and loans payable are another short term liability. These represent payments made every month on mortgages and loans. They are not large single payments or the total amount of a loan that is eventually owed, but instead represent recurring monthly obligations. Liabilities for individuals are another type of liabilities altogether. They also represent money that has to be paid out. For people, they are debts owed, as well as monthly cash flow that goes out of the individual’s accounts. Liabilities and assets are the opposites of each other, yet people often get them confused. While assets are things that contribute positive cash flow to a person’s finances, liabilities are those that create negative cash flow, or money that leaves an individual’s accounts every month. For example, a house that an individual owes money on and makes monthly payments on is a liability, not an asset. The house takes money from the person in the form of monthly mortgage payments each month. For a house to be an asset, it would have to be completely paid off. Even still, if monthly taxes and insurance payments are being made, then technically it would still be a liability. Houses can only be assets really and truly when they are rented out and the rental income that a person receives is greater than all of the expenses associated with the house every month, including any mortgage payments, taxes, insurance, upkeep, and property management fees. When the net result of a property is money coming in, then it is an asset and not a liability.

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Liability Insurance Liability insurance is a commercial insurance product that protects businesses and other enterprises from accidents and injuries that occur on their premises. Accidents in a business can cause various types of injuries that create financial, physical, or psychological problems for customers. Business owners are ultimately at risk of law suits and claims from any individuals who deal with the business in any capacity. These issues can range from business contracts that are unfulfilled to medical injuries that require money for treatment. Business liability insurance practically helps businesses to survive difficult scenarios in this way. It provides for the expenses involved in the legal defense and damages that the business owner may be required to cover. The maximum amount that can be paid out by the insurance company is the policy limit of the liability insurance policy. Owners of the business would then be responsible for any claims beyond these limits if there were any remaining. In general, business liability coverage limitations are sufficient to cover expenses in the claims and lawsuits. There are a variety of different scenarios where this type of insurance proves to be useful for a business. Operations and premises are a first potential area of business liability. This covers accidents such as slips and falls in a business. It would pay for hospital bills that the customer incurred because of the accident. It could also be used to pay for legal bills that resulted from a negligence lawsuit. Completed operations and products are another area of concern. A job that the business performed or the products which it sold may turn out to be flawed. This could lead to financial and other repercussions for the injured customer. Liability insurance would take care of the legal defense costs. If the business loses the case, it will also cover the financial damages for which the company is responsible. Data breaches and cyber liability are a growing area of concern for countless businesses with online presences. Any business with a computer is potentially at risk for this type of cyber crime. Customers’ names, addresses, phone numbers, and sensitive credit card information can all be stolen this way. Important sensitive business information can also be taken. Fixing the problems in the hacked computers and websites is the easy part. Making sure the customers and even business itself do not become victims is the complicated issue. Cyber liability insurance provides hacked businesses with important security and risk management services for the business and its customers at no charge. It also aids with needed forensic and legal help to track down the source of the breach and to prosecute where possible. Another area that liability insurance assists business owners with is employment practices. Businesses that operate in a segment which has significant turnover will have hired and lost numerous full or part time employees. Any employees that have been let go can file legal action against their former employer without warning. Employment practices liability insurance protects business owners as well as officers, directors, and employees from these suits. It deals with lawsuits involving discrimination, harassment, wrongful termination, and other offenses while employed. Business liability insurance is also important for another reason. Many individuals structure their businesses as partnerships or sole proprietorships. It may be that the business income and assets are

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insufficient to pay for all of the expenses of a lawsuit and associated claim. If they do not have business liability insurance any other expenses can be taken from their own personal income and assets. Owners of companies who are unprotected may also be sued for personal liability in certain cases. This is why every business should have the full coverage of business liability insurance.

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Lien A lien is a claim on one individual’s property by another person or entity. The party that holds the lien is able to recover the property if a debtor will not follow through with making payments. There are also other circumstances in which liens would allow the lien holder to take the property. Mortgages on houses or buildings prove to be one kind these. Vehicle loans for a business or individual represent other types that are put on the value of the vehicle. When the obligation is paid off, the lien becomes discharged. Before individuals are able to receive their money after the sale of an asset like a car or house, the lien must be paid off first. With a vehicle, this means that the lender will not send out the title until they receive complete repayment of the principal. The majority of liens allow for the individuals or businesses to utilize the property as they are paying it. There are scenarios where the lender or creditor physically holds the property while the borrower is making payments. These are a part of bankruptcy procedures as well because they are secured loans with debt repayment rules that have to be addressed in a case. While there are a number of different types of liens, the most typical one is on a vehicle. Individuals buy a car from the dealer. The bank loans the money and secures the loan. They do this by placing a vehicle lien which allows them to hold on to the automobile’s title. The lender files a UCC-1 form to record this. So long as the debtor continues to make payments, the loan will be paid off finally. The bank would then release to the individual the title. If the individuals stop making their payments, the bank is able to take possession of the vehicle back while still holding the title. If the vehicle owners choose to sell the automobile when they still owe principal, they must clear the bank loan in order to obtain the title. Without the title, a person can not sell the vehicle. There are a variety of different types of liens in the world. Consensual ones are those which individuals voluntarily accept when they buy something. Non consensual ones are also known as statutory. These come from a court process where an entity places a lien on assets because bills have not been paid. Three of these are fairly common. A tax lien occurs when individuals do not pay local, state, or federal income taxes. These are put on the offender’s property. A judgment lien comes as a result of a case in a small claims court. When a court gives a judgment to one party, the offending party might refuse to pay. In this case the court will place a judgment lien on the offender’s property. A mechanic or contractor lien happens when a contractor performs a job for a home owner. If the owner refuses to pay, the contractor can ask a court to place a lien on the property in question. This would have to be paid off along with other security interests before the property owner is able to sell.

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Limited Liability Company (LLC) A limited liability company is often referred to by its acronym LLC. These business setups combine the best in both worlds of proprietorships and corporations. They offer the sole proprietorship or partnerships’ advantages of pass through taxation. At the same time, an LLC provides the same limited liability for the owners which a corporation receives. With a limited liability company, the owners will file their business losses or profits with their individual tax returns. This is because an LLC is not considered to be its own taxable structure. When lawsuits against the company are involved, it is only business assets that are at risk of seizure. Creditors and lawsuit parties are not usually able to get to the LLC owners’ personal assets, like cars or houses. This is not absolute protection. If the owners of the LLC engage in unethical, illegal, or irresponsible behavior, then they can forfeit this level of security. Setting up a limited liability company is harder than establishing either a sole proprietorship or partnership. Once this hurdle is cleared, it is much easier to run the LLC than it is a corporation. Officers of corporations are not completely protected from actions they undertake in the business. LLC owners must be careful not to behave like the entity is a mere extension of their own individual activities. Should the owners not act as if the LLC is its own separate business concern, then courts can determine that the business LLC does not really exist. In these cases, the judge could decide that individuals are masquerading their business affairs and conducing business as a personal venture. They can became liable then for these actions if this determination is made. Taxes are another major reason that individuals opt to set up a limited liability company. As pass through entities, the income from their business passes on through the entity directly to the members of the LLC. This means that they must report all financial gains or losses from the enterprise directly on their own tax returns. They do not have to file separate business tax returns. The IRS does require that LLC owners make an estimated quarterly tax payment four times per year. LLCs which are owned by more than one individual do have to file the informational return Form 1065 every year with the IRS. This form clearly states every owner’s share of the limited liability company profits or losses. The IRS goes over these to be certain that the owners are all appropriately reporting their share of the earnings. Limited liability company management is specific in how it has to be conducted. There are two forms of this. Member management involves an equal participation of the owners in the operating of the business. This is the way that the majority of smaller LLC owners run them. The alternative form of management is called manager management. In this type of business operation, the collective owners of the LLC must choose someone to handle the daily responsibilities of managing the company. This could be an owner or several of the owners. It could also be someone who is not a part of the LLC ownership who professionally manages the business on their behalf. In this arrangement, the owners who are not managing are only tasked with sharing in the profits or losses of the business. This is

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often the case with family members or friends who invest in a limited liability company.

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Liquidation The meaning of liquidation depends on the use of the word. In financial terms, there are three different definitions of it. In economics or finance it refers to a failed company. A company that is insolvent is unable to pay its bills when they are owed. Liquidation is the process of winding up the company. The operations of the company cease at this point. The assets would then be divided up among its creditors and stock holders. This is done based on whose claims have priority. Insolvent companies that choose to go into liquidation generally do so under U.S. bankruptcy code Chapter 7. This legal statute gives the rules on liquidation of companies. Companies that are still solvent but are in trouble may also file a Chapter 7 bankruptcy. This is less common. There are also bankruptcies for companies that do not force liquidation. One such provision that covers this scenario is Chapter 11. In a Chapter 11 filing the trustee saves the company and restructures its debts. When the process of liquidation occurs, the company halts all operations. All of its assets are tallied up and then distributed to the various claimants. After this is finished, the trustee finally dissolves the business. The debts actually have not been discharged in this process. They still exist to the point where the statute of limitations on the debts expires. There is no debtor in existence to pay off these debts. Creditors simply write them off in practice. The assets in this liquidation process are handled in a certain methodical way. The Department of Justice appoints a trustee. This individual supervises the process. Assets are distributed to those who have claims based on their priority. Secured creditors are first in line. This is because their loans are backed up by collateral. The lenders are allowed to seize this collateral and then to sell it. Many times they receive far less than the actual asset value because there are limited time frames. Sometimes the assets are not enough to cover their debt. These creditors are compensated from any other liquid assets in this case. Unsecured creditors come next in the process. In this category are holders of bonds, the IRS, and employees. Bond holders are a form of unsecured creditors. The company may owe the IRS taxes. Employees may be waiting on payroll or other money they are due. The last category to receive compensation is shareholders. If any assets are left they receive them. Preferred stock investors receive priority before the common stock holders. Usually there is nothing left for either class by the time the creditors are paid. Another definition of liquidation surrounds huge sales. Sometimes a company needs to close out a great deal of inventory. They would do this by liquidating their inventory at deep discounts. Any company can do this. They do not have to file for bankruptcy in order to sell off inventory. A third definition of liquidation involves closing out an investment. This generally occurs when an investors sells their holdings in exchange for cash. An individual might also liquidate out of a one position and into an opposite one. If he or she held long shares in a stock, they could instead take on the identical number of short shares.

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Brokers can force liquidate trader positions in certain cases. Traders who have acted or traded recklessly with risk can have this happen. If traders’ account values drop below the minimum margin requirements they can suffer from forced liquidation as well.

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Liquidity Liquidity refers to the point that a security or asset is able to be sold or bought in a given marketplace without interfering with the price of the asset. Good liquidity is demonstrated through a great amount of trading activity. Liquid assets prove to be the kinds that are simply and quickly able to be purchased and sold. Liquidity can be summed up in a single sentence as the capability of rapidly turning an asset into cash. Although no single means of determining liquidity exists, liquidity can be figured up through utilizing liquidity ratios. It is generally accepted that investing money in liquid assets proves to be safer and more accessible than placing your money into illiquid ones. The reason for this is that you are able to withdraw your money from a liquid investment quickly and without obstacles. There are many types of assets that prove to be simply convertible into cash. Money Market accounts are some of the most liquid assets. Blue chip stocks turn out to be the most liquid of stocks traded. Liquidity also has other meanings for businesses and economics. A business’ capability of fulfilling its payment responsibilities is referred to as its liquidity. This is figured both with regards to the company having enough liquid assets that they are able to get to in a timely fashion. The most liquid asset is money in your hand. This can be utilized right away for all economic functions. Among these are selling, buying, taking care of immediate needs and desires, and paying down debts. In general, liquid assets possess many or at least a few of a number of features in common. These assets that have good liquidity are able to be sold at any point during market operating hours, quickly, and with as small a loss in value as possible. Markets with liquidity possess numerous sellers and buying who are both willing and able to transact at all times that the market is open. For markets to have deep liquidity, eager and willing parties in great numbers have to be present in a market all of the time that it is open. The liquidity of a market has much to do with its market depth. Market depth is able to be quantified as the number of individual units that may be purchased or sold for a certain price impact. The opposite of this related term market depth is market breadth. Market breadth is quantified as the amount of price impact for every unit of such liquidity. A given item’s liquidity is measurable in terms of how frequently it is sold or purchased. This is called volume. Investments in markets with great volume like futures markets and the stock markets are generally understood to have far greater liquidity than do real estate markets. This is simply a function of stocks and futures’ capability of being rapidly transacted. There are assets that possess even liquid secondary markets. These offer greater advantages for traders, and because of this, buyers will pay a greater price for such an asset than for an asset that is similar but does not possess a liquid secondary market. This liquidity discount proves to be the lowered anticipated return or guaranteed yield on these kinds of assets. An example of this is the variance between just issued U.S. Treasury bonds and treasuries that are no

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longer recently issued. Both may have the same amount of time until they mature, but investors are more interested in purchased the ones that have only just been issued. Because of this, these newest ones have a higher price and lower yield.

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Lloyds Banking Group Lloyds Banking Group represents the biggest financial services consortium in the United Kingdom. As a financial services provider that concentrates on business and retail clients, they count millions of customers throughout the country. They have a presence in practically every community of the U.K. Part of the impressive size and strength of Lloyds Banking Group centers on its major household name brands. Among the most important of these are Lloyds Bank, Bank of Scotland, Halifax, and Scottish Widows. The main businesses of the Lloyds Banking Group help it to touch so many customers in their daily lives. They provide retail, business, and corporate banking. The group also delivers general and life insurance. They provide investment opportunities and pension plans as well. The shares of the Lloyds Banking Group trade on the London Stock Exchange as well as the New York Stock Exchange. The company is one of the biggest in the main British stock market benchmark index the FTSE 100. It also ranks among the largest banks in the world. Lloyds Banking Group also runs the biggest retail bank in the United Kingdom. This was formerly known as Lloyds TSB but is now simply called Lloyds Bank. It claims the highest number of bank branches in the country. This gives them access to a diversified and massive base of customers. It helps them to cross sell products and services so that they are able to offer a total package of financial services and products for their clients. Their mobile, telephone, and digital services are comprehensive. The history of this leading member in the Lloyds Banking Group, Lloyds Bank, goes back three centuries. Founded in 1765, the bank celebrated its 250 year anniversary back in 2015. This also makes it among the oldest of the largest banks in the world. Lloyds Bank started its first branch in Birmingham where it operated as a single branch for a hundred years. In the twentieth century, it pursued decades of mergers to grow into first a national and then an international bank. The 1995 merger with TSB changed its name to Lloyds TSB Bank for a time. In the process of its expansion, the bank gained control of the company which invented Travelers Checks, opened the first British ATM machine, and had a foremost part in launching among the first credit cards in the United Kingdom. Bank of Scotland is headquartered in Edinburgh. It turns out to be the oldest bank in Scotland. The Scottish Parliament founded it in 1695. It has remained a cornerstone of Scottish business since the act created it. The Parliament originally established the bank to increase the trade of Scotland with nearby trading partners. These included neighboring England and the Low Countries (now Belgium, the Netherlands, and Luxembourg). The Bank of Scotland also claims a number of pioneering firsts in the industry. It became the very first European commercial bank to issue banknotes with success. It continues to do this today. The bank became the first in the U.K. to put in a computer for processing accounts in 1959. In 2009 the bank joined the Lloyds Group.

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The banking group also owns the Halifax brand. This is a building society that arose in 1852. A little group set it up in meetings at the Halifax based Old Cock Inn. They created this investment and loan society to benefit the area working people. Individuals with extra money were able to invest it while others could borrow these funds to build or buy their own house. Eventually Halifax grew into the largest building society around the globe. It counts over 18 million customers today.

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Loan Modification A loan modification proves to be a set of changes on the original terms and conditions of a mortgage loan agreement. These must be agreed to by both the borrower and the lender. The housing crisis of 2007 caused many American homeowners to be on the verge of foreclosure. The numbers of imminent and in process foreclosures increased dramatically. Loan modifications were amended to be a means for home owners to stay out of foreclosure and keep their houses. The process is not simple or quick, and it can be time consuming. Consumers also have to watch out for scams that prey on the vulnerable owners of homes. Before the financial crisis erupted, a loan modification turned out to be a means for borrowers to ask for better interest rates on their mortgages without having to undergo an entire refinancing ordeal. Every mortgage company did not offer them. The ones that featured these would provide them for a cost to borrowers on the condition that their mortgage had not been resold to another firm. Now they are far more commonplace since lenders needed unorthodox solutions to help homeowners who were struggling to keep up with their payments and avoid foreclosure. For the process of a loan modification to begin, the borrower must first request such a change to the loan terms. These changes once only affected the interest rate and made them lower. The more recent packages offered since the Great Recession are even able to change adjustable rate mortgages into standard fixed rate types. It is possible that a lender could suggest such a change to its borrowers as a possibility. Usually the borrowers initiate the process by determining they can not keep up with their loan payments and asking for help and a modification. The next step is for the lender to consider the borrower’s request. They are not required to agree to these petitions. A great number of lenders have very strict guidelines on which borrowers they will approve for modifications and which they will not. This is the case even when the homeowner has foreclosure looming. It is partly because such modification programs were not created to save home owners from rising adjustable interest rates or payments they could not handle. They were made to create a cheaper way of refinancing down to better interest rates. Each lender makes its own rules for which modifications they will accept and which they will reject. Finally the lender will decide whether to approve or reject the modification request. They will then notify the borrower in writing. Many borrowers are rejected because they have been late with their mortgage payments frequently or too recently. Other lenders might not be in possession of the original loan any more. Whatever the reason is, the lender will state this in the letter. If the request for modification gains approval, the request goes through to the department that handles loan servicing. There the loan will be modified to the new terms and conditions. Usually this will only reduce the interest rate and not change the loan’s amortization. It may require several payment periods before these changes take effect. This is why borrowers should always keep making the payments in the amount and time for which they are scheduled.

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Loan Servicing The term loan servicing refers to the procedure of either a mortgage bank or servicing firm gathering up the regular principal and interest payments from the mortgage and loan borrowers. The amount of such service depends on the kind of loan in question and the particular terms that have been arranged between investors looking for such services and the servicing firm. In the roaring days of the housing expansion, mortgage servicing got to be substantially more profitable than it had been in the past. Loan servicers sought out borrowers who were likely to have trouble making their payments on time. They did this with the hope of bringing in a greater number of lucrative late fees. After the financial collapse and in the Great Recession, this strategy came back to haunt them, as greater and greater numbers of homeowners defaulted on their mortgages and other types of loans. Loan servicing outfits commonly make their money in the form of a percentage of the remaining balance on any loans that they are servicing. While the actual fees vary, they typically range from twenty five basis points down to a single basis point. This has much to do with the loan’s size, amount of service necessary, and whether the loan is backed up by residential properties or commercial properties. Loan servicers carry a certain value on their balance sheets from these loans. The current net value of the payment flow obtained in servicing the loans minus the anticipated costs for servicing them generates the asset that goes on the balance sheet. Such asset values commonly prove to be highly volatile when refinancing becomes more common. This is because the loans are commonly paid off in advance, leading to an end to the servicing fees that are collected. A number of companies have traditionally been major players in the loan servicing field. These include Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup as the biggest participants. GMAC is another major servicer. Between them they handle in excess of sixty percent of all American residential mortgage debt. For special borrower cases that are near default or already behind, another industry of loan servicing has grown up. This is dominated by two companies. Ocwen Financial and Litton Loan Servicing, which Goldman Sachs owns, overshadow the industry. While it is the case that the big servicing companies are capable of handling borrowers who are unable or unwilling to pay, they do it inefficiently. As many as twenty-four different employees of the major loan servicing companies become involved from the first call of a collection agent down to the final foreclosure.

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Loan Syndication Loan Syndication refers to the procedure of getting a few different lenders involved in delivering a few different components of a loan. This activity typically happens in those situations where borrowers need to borrow a huge amount of capital. In these cases, the money required might be more than any one lender will feel comfortable providing or could be higher than certain lenders’ levels of allowed risk exposure. This is why many lenders choose to work hand in glove on such projects in order to deliver the financing a borrower requires. Corporate borrowing typically involves this type of loan syndication such firms look for loans to cover a wide range of needs. It is most often needed as companies are attempting to perform an acquisition, a merger, or a share buyback, or for other kinds of capital intensive projects. With a capital project of this nature, significant loans will be involved. This is why these loan syndications are utilized for these types of projects or merger and acquisition activity. This kind of Loan Syndication permits any single lender to be involved with more than only a single huge loan. It also allows it to keep a more manageable and sensible level of credit exposure since it is not the one creditor involved with the deal in question. In these types of multi bank underwritten deals, the various lenders’ terms will commonly be identical to the borrower, although there are incidents where this is not the case and they instead vary. The various lenders will often require different amounts of collateral. These requirements can vary significantly. It is common however for there to almost always be a single loan agreement which governs the whole of the syndicate group. With the majority of Loan Syndication, one financial institution plays the role of lead bank. They will then arrange all terms and particulars of the deal itself. This lead financial institution is commonly referred to as the deal’s syndicate agent. Such an agent is commonly responsible to handle all particulars of the deal. This means they will arrange the upfront transaction, compliance reports, fees, loan monitoring, reporting, and repayment arrangements in the life of the loan. They do this on behalf of every lender who is a party to the deal. There can be specialists brought in to help with some aspects of the deal in question. These are typically third parties which are not a part of the loan syndicate. They often handle such important administrative functions as monitoring and report making. With loan syndications, there are many times higher fees to cover the huge reporting requirements as well as to finalize, package up, and handle the loan servicing and processing. This means that fees can run up to 10 percent of the principal of the loan amount. For the year 2015, the company with the greatest amount of loan funded syndications on its books was Charter Communications. They boasted of $13.8 billion in syndicate amounts thanks to the merger transaction with Time Warner Cable. The lead financial institution on the syndication was Credit Suisse. For the loan market of the United States, the banks which represent the foremost lead institutions with loan syndications prove to be Bank of America Merrill Lynch, Wells Fargo, JPMorgan, and Citi. There is an umbrella organization which covers the corporate loan market. This is the LSTA Loan Syndications and Trading Association. There goals are to offer resources for those firms interested in participating in loan syndications as well as those companies that require the services of loans in this

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capacity. It brings together all of the various important players in the market, delivers market research on relevant topics, and even lobbies industry regulators to impact procedures for compliance in Washington, London, and other important loan syndication cities around the world.

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Loan to Cost Ratio Loan to Cost Ratio, or LTC, proves to be a measurement utilized by finance companies in extending loans for commercial real estate projects. It is employed ultimately to make comparisons of the offered financing for a given building project versus the expenses of completing said project. With the LTC ratio, lenders of commercial real estate loans are able to decide on the risks involved in backing a particular construction project via loans. The LTC ratio is similar to the LTV loan to value ratio. They both compare the amount of the construction loan to the value in fair market terms of the project in question. Lenders work with the Loan to Cost Ratio in order to decide what loan percentage or dollar amount the financier is agreeable to finance. They do this with a basis on the firm costs stated in the construction project budget. After construction completes, these projects then possess a new and often times significantly higher value. Future values can often be double what the construction costs prove to be. This means that on a loan for $200,000 in construction, the future value of the project is likely to be $400,000 once it is fully concluded. Consider how LTC will look in this example. With $200,000 in construction costs, and an 80% LTC ratio, the lender would be willing to loan out $160,000 on the total project. Using a similar 80% LTV ratio metric instead would significantly change the amount of money the lender is wiling to extend to $400,000 x 80% for $320,000. Lenders never completely finance 100% of construction costs. This is because they feel that the builders also need to have significant exposure to the project in order to guarantee they will give their all to see them succeed. This is what is meant by the colloquial expression “skin in the game.” It prevents a builder from simply getting up and walking away from a project gone bad. It is why the majority of lenders will require a builder to kick in minimally 10% to 20% of the construction costs to secure a financing deal. Loan to value ratios are not the same as the Loan to Cost Ratio, though they have much in common up to a point. LTV evaluates the loan issued versus the project value once it will be fully completed. Since most banks assume that construction projects will double in value once they are finished, this is why an identical LTV percentage to the LTC ratio will yield twice the loan amount. Lenders hold firmly to the LTC ratio. It helps them to clearly express the levels of risk in a given financing project for commercial construction. In the end, using a greater Loan to Cost Ratio will entail a significantly riskier project from the lender’s perspective. This is why the overwhelming majority of reputable mainstream lenders will not surpass a pre-determined percentage when they consider any given project. They usually limit this amount strictly to a maximum of 80% of the project’s LTV or LTC. When lenders are willing to become involved at a higher percentage and ratio, they will most always insist on a substantially greater project and loan interest rate to compensate them for the additional level of risk to which they are consenting. Lenders will also have to consider other information and circumstances beyond simply Loan to Cost Ratio and Loan to value ratios when extending such financing. They take into consideration the value of the property and its location for where the project will be constructed. They also contemplate how much creditworthiness and experience the commercial builders in the application possess. Finally, they consult

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both the borrowers’ loan payment histories on other loans and their credit record as demonstrated in their company credit report.

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Loan-to-Value-Ratio (LTV) The Loan to Value Ratio is commonly known by its acronym LTV. This loan to value ratio states the total value of the first mortgage against the full real estate property’s appraised value. The formula for figuring this ratio is simply the amount of the loan divided by the property value. It is expressed as a percent. So if a borrower is seeking $180,000 with which to buy a $200,000 house, then the Loan to Value Ratio is ninety percent. The loan to value ratio proves to be among the most critical risk factors that lenders consider when they are deciding whether to qualify borrowers for a mortgage loan on a house. The dangers of a default occurring most influence the loan officers in their lending decisions. The chances of an institution having to take a hit in a foreclosure procedure only goes up as the dollar amount of the property equity goes down. Because of this, as the Loan to Value ratio goes up, the qualification tests for many mortgage programs get significantly stricter. Some lenders will insist on a borrower who comes with a high loan to value ratio on the property in question to purchase mortgage insurance. This safe guards the lender from any default realized by the borrower, but it also raises the mortgage’s total costs. Property values used in the loan to value ratio are generally set by appraisers. Still, the most accurate value of a piece of real estate is undoubtedly that determined when a willing seller and willing buyer come together to agree on a sale. Usually, banks decide to go with the lower number when they are offered choices of a purchase price that is fairly recent or an appraisal value. Recent sales are commonly deemed to be those that happened from a year to two years ago, although every bank makes its own rules in this regard. When a borrower selects a property that he or she will purchase with a lower loan to value ratio that is less than eighty percent, lower interest rates can many times be obtained by borrowers who are low risk. Higher risk borrowers will also be considered in such a scenario, meaning those who have prior histories of late payments on mortgages, who have lower credit scores, who have high loan requirements or higher debt to income ratios, and who have neither sufficient cash reserves nor requested income documentation. Generally, higher loan to value ratios are only permitted for those borrowers who have a reliable mortgage payment history and who possess greater credit scores. Only those buyers with the greatest credit worthiness are considered for one hundred percent financing that translates to a one hundred percent loan to value ratio. Loans that are made to the standards of lending giants Freddie Mac and Fannie Mae and their guidelines can not have loan to value ratios that exceed or are equal to eighty percent. Any loans higher than this percentage of eighty percent must come with attached private mortgage insurance. The private mortgage insurance premiums simply go on top of the existing mortgage principal and interest payments.

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Local Money Local Money is money that is created, printed, issued, and traded by an individual community. Communities that are struggling to keep their economies going are in need of a way of boosting the local economic picture. In creating money that can only be utilized by individuals and businesses in their own local area, they attempt to address this problem. In the United States, local money’s history originated in the difficult era of the Great Depression. During this decade of the 1930’s, banks were failing in numbers not seen before. This created a real shortage of currency and loans in local communities and towns. Individuals and businesses worked together to find a solution to the problem. They teamed up and created their own currencies that became known as Scrip. Utilizing this newly created local Scrip, trade and exchange continued to go on even with a shortage of banks and hard currency in the smaller towns throughout America. Today’s local money concept has made a comeback in the wake of the financial crisis and the Great Recession. Businesses began working with area banks to come up with their own local currency that could be purchased and issued to consumers in the area. In communities where local money has arisen again, a great number of businesses have signed on to the idea and consented to taking payment in the bills of this localized currency money. This is necessary in order for area consumers to feel compelled to obtain the local money in the first place. The way that local money works in practice today is interesting. The currency is printed up and then offered by area banks in a participating community. The currency is then sold at a significant discount to its actual value. For example, $100 local money could be sold by area banks for only $95 United States dollars. The $100 local money can then by spent by the consumer at its full value in any business that takes the local money as a method of payment. Already, over a dozen area communities throughout the U.S. have created their own local money currencies that are being honored on a fairly large scale. Not only is this helping out area businesses by keeping the locally earned paychecks in the communities, but since the currencies are sold at a five to ten percent discount to dollars, it allows struggling workers and families to stretch their incomes by using them. In communities that honor local money, they can be utilized to pay for groceries, gasoline, and even Yoga classes, as examples. Among the more successful and widely accepted local monies these days are the Ithaca Hours of Ithaca, New York; the BerkShares in Western Massachusetts; and the Detroit Cheers in Detroit, Illinois. The BerkShares for Western Massachusetts are a model case study of successful local money. They can be purchased from twelve banks throughout the area. BerkShares are accepted at in excess of three hundred seventy different businesses in the region. As the largest local money network in the U.S, the BerkShares have so far circulated almost two and a half million dollars. Successes like these have encouraged other communities like South Bend, Indiana to begin creating their own local currency.

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London Interbank Offered Rate (LIBOR) LIBOR is a main global benchmark interest rate. It stands for London InterBank Offered Rate. This rate represents how much banks actually charge each other for loans based on one year, six months, three months, one month, and overnight timeframes. Banks all over the world use this benchmark rate. Reuters news service publishes this critical rate every day at 11 am. They do this in five different currencies of the U.S. dollar, the Euro, British Pound, Swiss franc, and Japanese yen. Historically the BBA British Bankers Association oversaw and compiled this rate. The IBA ICE Benchmark Administration assumed this responsibility on August 1st of 2014. They figure up this rate using contributor bank submissions. In every currency for which they calculate it there are between 11 and 18 contributing banks who act as an oversight board. LIBOR does more than provide a rate for the interbank loans. It is utilized as a bank guide for their setting of credit card rates, interest only mortgages, and adjustable rate loans. Bank lenders add in between one and two points to make money. An incredible $10 trillion in loans are determined at least in part by this interbank rate. Besides these uses, this rate also serves as a base price for credit default swaps and interest rate swaps. These contracts are a type of insurance in case loans default. The swaps also created the 2008 financial crisis. Hedge funds and banks believed that risk did not exist in the mortgage backed securities because they were protected by this insurance. The problem arose as the subprime mortgages that underlay the mortgage backed securities started defaulting. AIG and other insurance companies discovered they did not have enough cash available to pay off the swaps. In order to save all swap holders from bankruptcy, the Federal Reserve was forced to rescue AIG with a bailout. Despite the fact that these swaps were supposed to be dispersed after the financial crisis, the LIBOR rate remains the basis on over $350 trillion of such credit default swaps. Banks created LIBOR in the 1980s in response to a demand for a standard interest rate to establish derivatives. The original rate came out in 1986 in the three currencies the U.S. dollar, British pound, and Japanese yen. The BBA later expanded it to include the additional currencies of Swiss franc and Euro. A scandal plagued the LIBOR rate starting in 2012. The British Bankers’ Association figured out the rate using its panel of banks that acted as representatives from every one of the currencies involved. BBA queried the banks about the rate they would charge in the set currencies for different amounts of time. The BBA’s downfall was that they believed the rates the banks provided them with were true. This unraveled in 2012 as British bank Barclays became charged with deliberately providing lower rates to the BBA then the ones they actually received from 2005 to 2009. They suffered a $450 million fine and the CEO Bob Diamond had to resign. When Diamond went down he told authorities the majority of other banks engaged in the same practice and that the Bank of England was aware. The reasons that Barclays and others were lying about their rate was for better profits. Lower rates made the banks look stronger and more attractive to borrowers than banks with higher rates. The end result had

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three bankers found guilty of manipulating rates in 2015 while six others were acquitted of their charges in 2016. The guilty bankers all worked for Rabobank. The rate was taken away from the British Bankers Association and given over to the care of the ICE Benchmark Administration because of the scandal.

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Long-Term Capital Management (LTCM) Long-Term Capital Management refers to an enormous hedge fund that had been created and led by several famed Wall Street investor traders and economists who were Nobel Prize winners. Because of its huge size and connectedness to many other systemically important financial institutions and markets, its demise nearly brought down the worldwide financial system back in 1998. It was the firm’s risky arbitrage-styled trading strategies that broke the company and endangered the U.S. financial system. Legendary Salomon Brothers John Meriwether the bond trader founded the company in 1993. What made Long-Term Capital Management such a systemic risk was that the fund boasted $126 billion worth of assets. Because it traded with significantly leveraged positions, it actually controlled a substantially greater number of positions than the massive $126 billion in assets it held. The near collapse of this hedge fund giant back in the end of 1998 almost started a financial crisis and did cause financial panic throughout the globe. The success of Long-Term Capital Management lay in its incomparable and unsullied reputations of the founders and owners. Principal stakeholders in the fund included the Nobel Prize winners for Economics--- Robert Merton and Myron Scholes. These three individuals (with John Meriwether) who really were the heart and soul of LTCM all proved to be legendary experts in derivatives investing. They knew how to deploy these highly risky assets in order to beat the market and earn significantly higher than average annual returns. Admission to this speculative fund cost investors a flat $10 million investment. They had to commit the money for a full three years and not inquire about what kinds of investments the Long-Term Capital Management invested in and traded. These were steep and unheard of restrictions and limitations for a hedge fund at the time, yet investors begged to be let in the fund. Their enthusiasm seemed warranted, as in its first two years, LTCM did provide fantastic returns of 42.8 percent for 1995 and 40.8 percent for 1996. These stellar returns were even after the management received a steep 27 percent cut in fees. These were the golden age years of the fund. Even in 1997, the Long-Term Capital Management firm managed to successfully hedge the majority of the Asian currency crisis risk to return a still impressive 17.1 percent that year. Yet returns were fast declining from their peak, and the writing was already on the wall. By September of the following year in 1998, the LTCM firm’s highly risky trades began to catch up with it. The firm neared bankruptcy. The regulators quickly ascertained that it was simply too big too fail thanks to its enormous size and importance. Because of this realization, the Federal Reserve stepped in to bail out the massive hedge fund. What led to the downfall of Long-Term Capital Management lay in its core strategies. As with many hedge funds, these relied upon making hedges for a number of volatile events (which were supposed to be predictable) in both bonds and foreign currencies markets. This went awry for the fund giant in 1998 when Russia decided to devalue its currency and to default on the Russian government sovereign bonds. This catastrophic economic event proved to be outside of the typical range of volatility for which the LTCM had prepared and hedged. European stock markets plunged 35 percent in response. The American

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stock exchanges declined 20 percent in sympathy. Investors then fled to their usual safe haven suspects, the U.S. Treasury bonds. This enormous increase in buy side volume pushed up the prices which inversely pushed down the longer term interest rates by over a full percentage point. It all combined to cause the extremely leveraged investment positions of LTCM to begin to crack and fail. By the conclusion of August in 1998, the capital investments of Long-Term Capital Management had drastically declined by fully 50 percent of their original value. Numerous pension funds and banks had invested heavily in the fund. The collapse in their investments also threatened to force many of them to almost bankruptcy condition. It was bond trading giant Bear Stearns that finished off LTCM. As manager of their derivatives and bond settlements, Stearns demanded a $500 million payment all at once. LTCM had been outside of its agreements with the investment bank for three months at this point, and they could not meet the margin cash call. The banking system now stood on the verge of collapse in the U.S. This is when the FRBNY (Federal Reserve Bank of New York) President William McDonough leaned on 15 banks to jointly bail out the fund with a $3.5 billion investment that gave them 90 percent ownership of LTCM. The Fed also aggressively began cutting their benchmark Fed funds interest rate. They pledged to U.S. investors that they would take any action necessary to support the markets and economy.

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Loss Mitigation Program Loss Mitigation Program refers to a special vehicle which arose during the latter years of the global financial crisis and preceding subprime mortgage crisis. This happened because of the 2008 subprime mortgage crisis which the American economy suffered from at that time. It started because of an enormous bursting of the housing prices bubble that caused a substantial rise in delinquencies and foreclosures of mortgages. Next a collapse in the value of all home-backed securities occurred, including in the now-infamous MBS mortgage backed securities. The economy continued to struggle to recover even four years later in 2012. Banks had been bailed out of their poorly made loans by the United States Treasury and Federal Government. Homeowners received no real such help at first though. They had no recourse but to try to manage their higher interest rates at the same time as their home prices had declined substantially. Fortunately for homeowners across the United States, one court intervened on behalf of consumers in the Western part of the state of Pennsylvania. It was this Bankruptcy Court for the Western District of Pennsylvania that took great initiative and developed the Loss Mitigation Program late in the year 2012. The program finally offered beaten down homeowners the ability to modify their mortgages in a courtoverseen program which the banks administered directly. This Loss Mitigation Program began in an effort to offer clarity on failing mortgages. The idea was to fast track the process of loan modification for both the lenders and the borrowers who were involved. It is true that many mortgage and finance companies had already developed their own internal programs for mortgage modification after the mortgage meltdown happened in 2008. Still the process for obtaining such a modification was overwhelming as homeowners dealt with tedious procedures and often saw little to no end results. The Loss Mitigation Program became necessary because the HAMP Home Affordable Modification Program which the federal government had sponsored had not prevented defaults at what the Special Inspector General for the TARP called an “alarming rate.” HAMP had been created originally to assist homeowners who needed to modify their government FHA insured mortgages, to stay out of foreclosure, and to lower their high monthly payments. Yet according to this watchdog group, by the conclusion of March in 2013, more than 312,000 participants in the program had realized default on their mortgages. The U.S. Treasury could not come up with any one reason to explain why these default rates had grown so egregiously. Some participants in the program revealed that they only benefited from a modification which was temporary in the initial trial period of the mortgage modification program. This is why the Loss Mitigation Program began. It was an effort to help the homeowners obtain real and lasting relief so that they could stay in their homes. The program worked according to a simple process which involved four steps. First homeowners had to file for bankruptcy protection in order to safeguard all of their assets and reduce or eliminate their other debts. This allowed them to concentrate their available income on keeping the residential property.

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Next the homeowner would engage a bankruptcy attorney to file motions that enrolled the individual into this Loss Mitigation Program. In other words, the modification program existed beneath the umbrella of the bankruptcy protection. Third, the court would approve the application then sign an order that laid out strict procedural guidelines for both lender and borrowers. Clear deadlines were spelled out for both borrowers and lender. It ensured the process became instantly transparent for borrowers since the mortgage modification package and mortgage status had to be treated in good faith by the mortgage company. Finally, the program set up an electronic portal through which all relevant correspondence on the process had to pass. The court’s representatives would monitor the correspondence to be certain that the two parties were carrying out their responsibilities and roles in good faith. Thanks to this portal, the Loss Mitigation Program process became streamlined, time saving, and cost reducing for all of the concerned parties. The entire process had to be completed in 60 days unless either the lender or borrower sought out and explained a valid reason for requiring extra time. Serious consequences were mandated for either party delaying the process unnecessarily.

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Loss to Lease Loss to lease is a phrase that is used in real estate property leasing, particularly pertaining to apartment complexes or senior assisted living facilities. Loss to lease is also an accounting line in the books of rental properties and apartment complexes. In both cases, it refers to income on leases that is potentially lost through making incentive offers to prospective tenants whom you hope to lease a unit in a property. Examples of loss to lease are helpful to understand the concept. Some apartments will offer one free month’s rent with a six or twelve month lease contract. The amount of this lost month’s rent would be the loss to lease figure for the leasing property and the leasing property’s books. Other examples involve loss to lease figured up on a monthly basis. Should the potential revenue from rent amount to only $500 when the market rate for rental is $550, then the loss to lease comes out to be $50 per month. Cash flow is the part of a rental property books where loss to lease most commonly appears. When required, it can be figured up using a simple formula. The scheduled base rental revenue is determined. This figure has the potential market rent subtracted from it to come up with the Loss to Lease result. The interesting thing about loss to lease is that it has no meaningful impact on a rental property or apartment complex’s cash flow bottom line. Instead, it only represents an accounting number. Loss to lease does not offer any advantages to a company or individual when they are figuring up and filing their taxes either, since it does not represent any actual real or tangible loss in income, only loss in potential income, or hoped for income.

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Ludwig von Mises Ludwig von Mises turned out to be among the very last thinkers of the original epoch of the Austrian School of Economics. He obtained his law and economics doctorate late in the period of the Austrian School in 1906 at the University of Vienna. His writings and teaching had a tremendous impact on the young people of his day and age, especially Americans of that and future generations. The Theory of Money and Credit proved to be among the best and most influential of Ludwig von Mises’ works. This ground breaking work became published in 1912. It served as a principal banking and monetary textbook for fully the following two decades. In this influential work, von Mises took off on the Austrian marginal utility theory to expand the idea to money. He observed that no one demands money simply to possess money for its intrinsic nature. Instead, individuals are attracted to its utility in buying goods with it. This was revolutionary thought at the time. In the book, Ludwig von Mises also postulated that the business cycles of economies occur because governments allow limitless expansion of credit by the banks. Mises then went on to put his ideas into place by founding his Austrian Institute for Business Cycle Research in 1926. The students of Ludwig von Mises were many and some of them were important to later generations. Friedrich Hayek became the most influential of them. He eventually expanded and extrapolated further on Mises’ ideas on business cycles. Besides these important ideas, Ludwig von Mises made other important contributions to the fields of political and economic thought. He argued that socialism would fall because its economy collapsed first. He penned a 1920 article which postulated social governments would be unable to engage in the necessary economic calculations which were needful in order to establish complicated and efficient economies. Social economists of the time Abba Lerner and Oskar Lange vehemently disagreed with his arguments. Today the majority of economists side with von Mises and his arguments which were further expounded on by his star pupil Hayek. Ludwig von Mises felt certain that self-evident axioms made economic truths in practice. These economic principals were not able to be tested empirically he believed. Finally he reached the point of writing his magnum opus great work entitled Human Action. In this and other publications, he spelled out his full world view of economics and human interaction. Unfortunately at the time, von Mises was unable to persuade the majority of economists living in his age who were outside of the Austrian School of Economics. He strongly championed laissez-faire economics, arguing that the government had no place to be involved in any portion of a national economy. There were points where he violated his own rules with some important exceptions. He believed that war justified forced military conscription, a sharply antifree market idea. Ludwig von Mises served as a professor without pay for the University of Vienna during the years 1913 through 1934. He worked officially for the Vienna Chamber of Commerce as economist at the same time. While in this role, he labored on behalf of the Austrian national government as their main economic advisor. When Nazism took root in his native Austria, von Mises immigrated to Geneva, Switzerland in 1934. There he became professor in the Graduate Institute of International Studies. He served in this

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capacity until he eventually immigrated on to New York City in the U.S. in 1940. He worked as a visiting profess there in New York University from 1945 through his eventual retirement in 1969. Sadly for Ludwig von Mises, his economic policy ideas were out of political favor policy wise in the years of the Keynesian revolution which swept across the American elite and political landscape between the 1930s and the 1960s. He became increasingly bitter after Hitler wrecked the land of his birth and as the Keynesian ideas became a full blown revolution in Washington D.C., London, and Paris. He went full circle from believing himself to be a mainstream member of economics to a final dismal view of himself as an economic outcast. This is evident in his book The Theory of Money and Credit. In the early sections he wrote in 1912, he argues calmly and rationally, while in the final section penned in the 1940s, he is vehement and argumentative. Despite this pitiful end to his great life and work, Von Mises had a profound legacy, especially in the United States. His powerful impact on the young people of his generation and that of his successor Hayek caused the Austrian School of Economics to enjoy a powerful resurgence in the U.S. after his death.

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Maastricht Treaty The Maastricht Treaty is the main treaty of the European Union. It was originally known as the TEU Treaty on European Union. This agreement was signed in Maastricht, the Netherlands on February 7, 1992. Members of the European Community debated it in their individual countries and then signed it. The treaty came about as an effort to fully integrate Europe into a closer political and economic union. The treaty established the European Union. It also set the groundwork for creating the euro, the single currency of the EU. The Maastricht Treaty was subsequently amended by several other agreements. These included the Amsterdam, Nice, and Lisbon treaties. This treaty represented a significant milestone in the process of integrating Europe. It modified other previously signed agreements like the treaties of Paris and Rome, as well as the Single European Act. These earlier arrangements had economic goals for the community. The original stated objective had been to create a common market for trading and investment. With the Maastricht Treaty, the Europeans signed on to a spelled out vision of political union for the first time. After the treaty came into effect, the European project no longer went under the name of European Economic Community or EEC. Instead, it became known as the EU or European Union. Article 2 in this treaty called for “the process of creating an ever closer union among the peoples of Europe.” This Maastricht Treaty had a structural base of three pillars. The central pillar referred to the community dimension. It set out arrangements that pertained to common community policies, citizenship in the EU, and economic and monetary union. These were laid out in the Euratom, the ECSC, and the EC treaties. This pillar led to the eventual creation of the European Central Bank and the euro. The second pillar concerned the CFSP Common foreign and security policy. Under this idea, the countries of the European Union would create a foreign minister for the EU to represent their single voice and policy objectives overseas. They also began working to come up with a common defensive policy with the intention of eventually creating an EU military force. This pillar also pertains to immigration and border control issues. It has suffered a serious challenge since the European refugee crisis has brought more than a million mostly Syrian and Iraqi refugees across the external borders of the E.U. The third pillar of the Maastricht Treaty is the idea that there would be police and judicial cooperation. This pertained to criminal issues and concerns. It established a European Court of Justice whose decisions supersede those of the national country high courts. The Maastricht Treaty also laid the grounds for the creation of the European Commission and the European Parliament. These bodies govern many budgetary and even political affairs within the block. The Maastricht Treaty set in motion the discontent that led to the Brexit vote and the United Kingdom’s decision to leave the EU. The pillars on common security and judicial cooperation turned out to major sore points with the British people. On the one hand, they despised the loss of control over their immigration policy and borders.

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On the other they did not like the fact that they had also lost judicial control. A number of high profile court cases decided in the highest British court were subsequently overturned by the European Court of Justice. This all helped to explain why the majority of the British voted against the ever further political union which article two of the treaty established.

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Macroeconomics Macroeconomics refers to the division within economics that concentrates its study on the workings of large national economies, or even regional economies, in their entirety. This field proves to be extremely general as a result. It is mostly concerned with big picture measurements like the rates of unemployment, as well as with the developing of models whose purpose is to detail the various indicators’ correlations. An opposite to macroeconomics might be said to be microeconomics that focuses on the activities of individuals and businesses instead of bigger pictures and scales. Macroeconomics and microeconomics are considered to be complimentary studies. Because of the Great Depression that occurred in the 1930’s, the study of macroeconomics evolved into a practical area of economics on which economists might concentrate their efforts. Up to that point, economists did not distinguish between the activities of individuals and businesses and an entire national economy. The most influential developers of macroeconomics proved to be those economists who made it their business to relate what had caused the Great Depression. The British economist John Maynard Keynes is among the chief of these economists who developed the study. Until just a few decades ago, Keynes’ ideas on macroeconomics overshadowed the entire field. Followers of Keynesian thought depended on the concept of aggregate demand, or total demand, to grapple with hard questions in macroeconomics, like the way to explain what stood behind particular unemployment levels. Today, Keynesian models are not the underlying philosophy of macroeconomics any longer, as neoclassical economics has successfully challenged it. Still, the presently used models bear great influence of the Keynesian precursors. To date, no one economic philosophy has come up with a single model that is able to correctly and totally reproduce the ways that economies literally work. This causes different economists to have varying understandings of economics. Because of this, gaining an understanding of macroeconomics involves studying the ideas of each major economic school of thought. As a result of the field of macroeconomics, governments have taken proactive approaches to managing economic cycles and changes. They do this through governmental policies that are utilized to create changes with the goals of either avoiding or lessening the impacts of economic shocks, such as depressions. This management of large national economies is affected in practical terms through two types of government policies. These are monetary and fiscal policies. Monetary policies involve the governmental control of the nation’s money supply and the national interest rate levels. Their goals are both stable prices with low inflation and low unemployment levels. Fiscal policies are amounts of spending that a government engages in, as well as taxes that they collect, to influence the economy. For example, the government can expand the economy by spending a good deal more money than it collects in tax revenues. It might similarly contract economic activity by spending less money than it actually brings in from taxes. Besides this, a government can stimulate the economy by cutting tax rates, or shrink the economic activity levels by raising tax rates.

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Madoff Investment Scam The Madoff investment scam began as a legitimate stock brokerage business that ballooned into one of the largest hedge fund like structures before being discovered as the largest Ponzi scheme fraud in history. Auditors only uncovered the scam in 2008 when Bernie Madoff admitted to his sons what he had done. They promptly turned him into the authorities. At this point, the $17.1 billion that Madoff’s operation stated it had under management was mostly gone. He confessed to have committed fraud that amounted to more than $50 billion and enmeshed famous clients, banks, charities, and investment funds from around the country and world. The list of investors who were entrapped by the Madoff investment scam was long and distinguished. It included producer/director Steven Spielberg, the New York Mets baseball team owner, clothing magnate Carl Shapiro whose losses neared $550 million, a group of Jewish charities, and thousands of wealthy retired individuals. Among the global and savvy banks and other financial firms that were taken in by Bernie Madoff included British banking giant HSBC, Spanish banking powerhouse Santander, and alternative investment group Fairfield Greenwich that sent $7.5 billion to Madoff’s investment pool. The Madoff operation looked like a hedge fund on the surface. His clients’ money actually resided in brokerage accounts at his company. Madoff operated like a Smith Barney or Merrill Lynch would with their investors. Much of his money arrived from so called funds of funds. They liked to invest assets into hedge fund pools. Feeder funds that he had developed personal relationships with would funnel money his way. There were banks like the Dutch division of Fortis that made substantial loans to funds of funds which desired to invest money with Madoff. It is not hard to understand what drew people into the Madoff investment scam. He proved to be one of the pioneers of market making. Bernie Madoff had been chairman of NASDAQ before and had given counsel to the U.S. government on issues relating to the markets. He had acted as a generous philanthropist as well. Madoff created excitement and snob appeal by refusing to take some would be investors and insisting that his clients not talk to those outside the firm. His returns consistently demonstrated impressive 10% per year performances, even in bad and challenging markets. Yet Madoff himself almost never reported a negative month for his investments. They way he did this was to use new investors’ money to increase the supposed returns of his existing clients. The Madoff investment scam fooled auditors and regulators for decades. His claim was that he used a split-strike conversion investment strategy to generate such consistent high returns. The idea was that he would purchase and sell different types of options to lessen volatility on the S&P 100 options market. Several advisory companies warned their clients against investing in his company. Aksia determined that the options market on the S&P 100 proved to be far too tiny to be able to accommodate his massive portfolio size. Quantitative research company MPI ran an analysis in 2006 to come up with a viable strategy which offered returns comparable to his and could not.

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Madoff’s strategies most closely resembled a fraudulent hedge fund Bayou that failed a year before his. He had no external custodian but chose to clear all of his own trades. His auditor who signed off on his practices had only three employees, one of whom was an 80 year old and another a secretary. The biggest alarm should have been the absolute secrecy under which he ran his investment business. A skeleton team operated it much like a black box at a distance from the company’s vastly larger staffed broker dealer. The clients remained in the dark as to how he generated these near magical returns consistently. Most of them did not mind this. The ones who did and asked too many questions, he simply ejected from the investment fund.

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Margin Trading Margin trading is the practice of buying investments on margin. This is accomplished through borrowing money from your broker in order to buy stocks. Another way of understanding margin trading is taking out a loan from your broker to buy greater amounts of stock shares. Margin trading generally requires a margin account. Margin accounts differ from cash accounts that only allow you to trade with the money that your account contains. Brokers have to get a signature from you in order to open up a new margin account. This could be as an extension of your existing account and account opening forms or as a separate and new agreement. Minimum investments of $2,000 are necessary to open such a margin account. Some brokers insist on larger amounts. Whatever the final margin requirement deposit is, it is called the minimum margin. After the margin account is up and running, you are able to purchase as much as fifty percent of a stock with margin trading money. The money that you use to buy your part of the stock is called initial margin. Margining up to the full fifty percent is entirely optional. You might borrow only fifteen or twenty percent instead. Margin trading loans can be held for as long a period as you wish, assuming that you continue to meet the margin obligations. A stock maintenance margin has to be maintained while the loan is outstanding too. This maintenance margin is the lowest account balance that can be held by the account in advance of the broker making you deposit additional funds. If you do not meet this minimum or resulting margin call for extra funds, then the broker has the right to sell your stocks in order to reduce your outstanding loan. Borrowing money from your broker is not done for the sake of charity. Interest has to be paid on the loan. Also, the marginable securities in the account become tied up as collateral. Unless you pay down the loan, interest charges will be applied to the loan balance. These interest amounts can significantly increase the debt level in the account with time. Higher debt levels in your account lead to still higher interest charges. Because of this, buying stocks on margin is typically utilized only for shorter time frame investments. This is true since the greater amount of time that you hold the margin loan in the investment, the higher a return you will require in order to break even on the margin trade. When you maintain such a margin based investment over a long time frame, it becomes difficult to turn a profit after the expenses are cleared. It is also important to remember that not every stock qualifies for purchase using margin. The rules pertaining to which stocks can be purchased with margin are set by the Federal Reserve Board. In general though, Initial Public Offerings, penny stocks, or over the counter traded stocks are not allowed to be purchased utilizing margin as a result of the daily volatility and trading risks associated with such kinds of stocks. Besides this, each brokerage can restrict whichever other stocks that they wish.

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Marine Salvage Marine salvage operates as a special part of the law that has to do with the many international treaties as well as conventions that pertain to recovering goods and vessels which disappear in the sea. There are many reasons why ships and good could simply vanish in the ocean or sea. Among these is a breakdown of navigational equipment, unexpected bad weather, piracy, or forced sinking of the ship. Those who work in this salvage industry try to recover lost goods at a profit. There are many different rules and laws pertaining to such salvage rights at sea. This depends in which jurisdiction the wreck or lost goods are discovered. It is why there are two main kinds of salvage which the various operators work under, pure salvage and contract salvage. Pure salvage operators do not work with a contract. They are more like modern day treasure hunters. They cause the most problems as the original owners try to regain control over their property once it has been liberated from the depths. Such issues as the legal rights’ owners hang over the odds of making money in this business. Professional salvage operators must have a full understanding of the law which governs the recovery of ships and goods in the waters where they operate. Otherwise, they will be unable to secure the rights to gain from any rescued goods, ships, or other valuable equipment. The other types of salvage workers operate as contract salvage professionals. They attempt to earn a set percentage or finder’s fee from the recovery of property which has effectively been lost at sea. The efforts at recovery are contracted directly between the original owner of the property and the company performing the salvage. This means that there is far less chance of a disagreement breaking out between the two parties. In practice, it also releases both of the parties from needing a thorough comprehension of the laws of marine salvage of the governing authority which has jurisdiction over the territorial waters in question. The only thing the salvage operation really needs to have a handle on pertains to the laws which govern the operation of international laws in the sea region. The world’s earliest known internationally accepted marine laws originated in Rhodes, a (modern day) Greek island off the coast of Turkey. This independent maritime power promoted a set of international conventions that were accepted throughout the Hellenistic and Roman worlds eventually. The two historical literatures of the Roman Empire and the Byzantine Empire reference and reprint the Rhodian Laws. This historical precedent for a common “law of the sea” is important because the admiralty laws which internationally influential nations like Great Britain, Italy, and the United States use were co-opted by these same imperial powers. This means they became the internationally accepted standards for the modern world. Such admiralty laws have to do with the business dealings and understandings which are instrumental in those operations of the sea and salvage. They also pertain to the international laws of the sea as well. It is interesting that not only professional divers take part in the range of marine salvage operations around the world. Novice divers also take a hand in such salvage projects. Regardless of their status

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personally or professionally, the same international laws mandate that they must honor the jurisdictional and commonly accepted rules. This means that private divers hunting for sunken treasure off of Mexico’s coast will have to abide by the identical maritime laws which professional divers working the international deep seas will. It is true that a great number of the marine salvage laws are identical in the majority of the countries in the world today. This interesting fact resulted from the near universal adaptation of a range of international conventions. Still, it is true that every legal jurisdiction has its own variations on the common standard of where, when, and how salvage operators can realize profits in their pure salvage endeavors.

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Mario Draghi Mario Draghi has worn many hats in his career. He is currently the Italian economist, banker, and manager who took over the role of European Central Bank President from his predecessor Jean-Claude Trichet on November 1, 2011. Before this, he has been professor, director at the World Bank, head of the Italian treasury, and board member at a number of companies including Goldman Sachs. Forbes has listed Draghi as the eighth most powerful individual on earth in 2014. Fortune magazine named him the second greatest leader in the world in 2015. As professor, Mario Draghi worked in the political science department of the University of Florence beginning in 1981 through 1994. He also served in the capacity of fellow at the Institute of Politics at Harvard University in 2001. While professor at Florence, the Italian held the job of Italian Executive Director for the World Bank during the years 1984 to 1990. The next year, he took on the post as Italian Treasury general director, a post he held a decade until 2001. In this capacity, he chaired the important committee that reworked Italian financial and corporate legislation and wrote the laws which govern the financial markets in Italy. During the years from 2002 to 2005, Mario Draghi worked at Goldman Sachs as their managing director and as vice chairman for the Goldman Sachs International group. In his time there, he worked with important governments and corporations throughout Europe implementing the company’s development and strategy in the continent. This caused controversy when he was later being considered for the post of European Central Bank President. Goldman had been involved with the credit default swaps that helped Greece to disguise its true financial situation before the global financial crisis broke out in 2008 and 2009. His defense centered on having not known anything about the arrangements and having nothing to do with it. All the deals Goldman Sachs had arranged with the government of Greece had been finalized before he joined Goldman. Mario Draghi took on the job of Bank of Italy Governor in December of 2005. He served in this role until October of 2011. During this time, he was a Board of Directors member at the Bank for International Settlements. He also was European Central Bank Governing and General Councils member during this tenure. He remains Italy’s governor on the board for the Asian Development Bank and the International Bank for Reconstruction and Development. The greatest challenges for Mario Draghi have been since he was elevated to succeed Trichet as the President of the European Central Bank on November 1, 2011. He will serve in this capacity through October 31, 2019. Mario Draghi has overseen the three year $640 billion loan program that the ECB ran for the European banks from the end of 2011. Under his leadership, he repealed his predecessor’s two rate hikes. He also increased government bond purchases of nations which were struggling in the periphery of the euro zone to help combat the debt crisis. In July 2012 when the sovereign bond crisis renewed, he announced the ECB would do whatever was necessary to preserve the Euro. Since that statement, the bond yields and borrowing costs have declined

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especially for Italy, Spain, and France. His verbal intervention has been called one of the critical turning points in the euro zone’s fortunes. Mario Draghi continues to fight economic stagnation in the euro zone. The bank mostly does this with its negative interest rates policy. They also continue aggressive quantitative easing every month as stimulus programs to support weak growth throughout the continent. In these and many other actions throughout his career, Draghi has demonstrated he deserves his nickname “Super Mario.” He originally received this name for his incredible ability to survive Italian politics.

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Market Capitalization Market capitalization refers to a company’s total value. Analysts determine it by multiplying the number of shares in existence times the price of the stock. This concept can also be utilized to measure the full value of a stock exchange. The New York Stock Exchange market capitalization would equal the value of all publicly traded companies on the exchange added together. Market cap is another name for market capitalization. Examples of how this is figured make it easier to understand. Companies that have 2 million shares which have been issued that sell for $20 apiece have a market cap of $40 million. If an investor had enough money and could get the stockholders to agree to sell their shares, he or she could purchase the company for $40 million total. In practice many shareholders would want more than the current share price to sell their stock. There are three different main sizes of market capitalization among traded companies. These are large cap, mid cap, and small cap corporations. Large cap companies are generally considered the least risky ones in which to invest. They typically possess substantial financial resources to survive economic downturns. They are also generally leaders in their industries. This gives them a smaller amount of growth opportunity. Because of this the returns for these large cap companies are often not as spectacular as with successful companies in the other two categories. They also have a significantly greater chance of paying dividends out to their share holders. Large cap corporations have $5 billion and higher capitalization. Mid cap companies are generally less risky than the smaller companies. They still do not have the same possibilities for aggressive growth. Mid cap companies commonly possess market capitalization of from $1 billion to $5 billion. Studies have shown that mid caps have outperformed large cap and small cap corporation stocks in the past 20 years. Small cap corporations are those which possess under $1 billion in market capitalization. These tinier companies have often completed an Initial Public Offering in the recent past. Such companies are considered the riskiest of the three types. This is because in economic downturns, they have the greatest chance of failing or defaulting. They also enjoy plenty of opportunity and space to expand. This means that they potentially could be extremely profitable if they succeed. Proponents of using market cap as the primary means of valuing companies have a well thought out argument. Stock prices tend to reflect the beliefs of investors and analysts in the anticipated earnings of a company. Higher earnings should cause traders and investors to bid up the price of the stock. Multiplying this price by the number of shares gives a comparable means of valuing one company against another. A downside to valuing businesses this way is that it can give companies without profits high valuations. In the dot com bust at the turn of the century, technology companies that had never turned a profit were valued in the tens of billions of dollars. This in theory made them more valuable than reliable companies that had actual assets and earnings. Companies in slower growing industries are also typically valued less than they should be since their stock prices are often undervalued. Critics of this way of valuing companies suggest that more accurate measures would include the value of a company’s assets, its annual

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revenues, or its earnings per share. Companies whose market capitalization falls substantially below their asset value become takeover targets. This is because corporate raiders are able to buy a company for less money than they will realize by selling off its various parts, businesses, and assets separately.

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Market Failure Market failure refers to a scenario where rational behavior does not prevail and lead to optimal economic outcomes for the group involved. This break down occurs because the individual incentives are insufficient to lead the participants to do what is best for the greater common good. When such failure happens, every person will still make the ideal choices for himself or herself, but these will turn out to be the incorrect choices for the group as a whole. This is a function of microeconomics. It is depicted as a steady state disequilibrium where the amount supplied is not sufficient to match the amount demanded. Such market failure transpires as individuals representing a group end up with a worse outcome than if they had not engaged in decisions that resulted in their own best interests. These groups end up with fewer benefits or pay costs which are too high. This sounds like an easy to understand idea, yet it is often deceptive and thus can be misidentified. The name is a misnomer itself. It has nothing to do with any intrinsic problems within the market economy construct. Market failures could occur within government sponsored activities just as easily. A classic example surrounds those groups with special interests that are looking for affordable rents. These groups are able to obtain an outsized influence by lobbying government for costs on everyone outside of their own group, such as with tariffs. As other small groups are able to impose their own higher costs, the entire population proves to be in a poorer state than if no one had lobbied the government in the first place. Another difference has to do with results. Not every negative outcome that results from market activity is classified properly as a market failure. These failures also do not mean that actors in the private marketplace are not able to address and resolve the problem themselves either. At the same time, all market failures do not have a possible solution. This is the case even when the public has been made aware of the problem or a sensible law is in effect. A number of typical types of market failures exist. Among the most frequently mentioned are monopoly privileges, externalities, factor immobility, and information asymmetries. The so called “public good problem” represents a simple to grasp example. These public goods refer to services or goods where the maker is not able to limit the amount of consumption to those customers who pay. Market failures can occur with public goods when there are consumers in the market place who choose to utilize the goods but refuse to pay. National Defense is a classic example of this as a service that benefits all citizens whether they pay or not. No one could practically produce the best quality and quantity of national defense on a private basis. Governments similarly are not able to employ a competitive pricing system to ascertain the right amount of national defense. This represents a classic market failure for which there is no definitive solution. Solutions to a number of potential market failures exist. Information which is asymmetrical can be addressed using ratings agencies like Standard & Poor’s or Moody’s to detail risks of securities. In the world of electronics, this service is provided by Underwriter’s Laboratories LLC. Negative externalities

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like pollution can be handled by lawsuits that make it more expensive for the polluter to operate this way.

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Market Sentiment Market sentiment refers to the all around attitude investors have with regards to a certain financial market or specific security. It is the tone and feeling in a market. This is displayed via the price movement and activity of various securities which trade in a given market. Some have called it the market crowd psychology or investor sentiment. Rising prices in a market are indicative of bullish market sentiment, while declining prices indicate the sentiment in a market is bearish. What makes market sentiment so interesting is that it is sometimes not based on the underlying fundamentals of the security or market in question. At times it instead is based on emotion and greed rather than actual business valuations and fundamentals. This market sentiment matters immensely to both technical analysts and to day traders. These individuals read technical indicators in order to measure shorter term price movements which the attitudes of investors can cause in a given security. They attempt to profit from these price fluctuations. Such sentiment also is important for contrarian investors. They prefer to place trades in the opposite direction of any prevailing sentiment. When all other investors are buying, a contrarian will use this sentiment to instead sell. In general, market sentiment is referred to as either bullish or bearish. As the bulls have control, the stock prices are running up and away. As the bears are dominant, prices of stocks are declining or even plunging. Since the markets are subject to and driven from the emotion of the collective traders, the sentiment of the markets is often not correlated to the underlying fundamental values. This means that market sentiment is more about group emotions and feelings while the fundamental value is more about the actual business performance. Traders realize profits when they find those stocks which are either undervalued or overvalued because of their market sentiment. Traders and investors alike utilize different indicators to attempt to ascertain what the sentiment of the markets actually is. This helps them to decide which stocks are the best ones for them to trade. There are a number of these helpful indicators. Among the more popular ones are the following: VIX CBOE Volatility Index, Bullish Percentage, 52 Weeks High to Low Sentiment Ratio, 200 Days Moving Average, and 50 Days Moving Average. The Fear Index, or VIX, runs off of the option prices. Such options prove to be like insurance contracts. A rise in the VIX means that traders see the need for more insurance within the markets. When traders instead feel like there should be more risk, this reveals a greater amount of price movement. Traders can simply compare the present VIX against the historical moving averages of it to decide if it is actually lower or higher. Bullish Percentage quantifies the numbers of stocks that have bullish patterns. It relies on point and figure charts to do this. Typical markets will demonstrate a 50 percent bullish percentage. If the figure turns out to be at least 80 percent or greater than this, then the sentiment of the markets is highly bullish. Another way of saying this is that the market is actually overbought. Similarly if the figure is 20 percent or less than this amount, it signals the sentiment of the market is bearish. This makes it oversold. Traders can simply sell as the market is too overbought and buy as the markets are oversold.

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High To Low Sentiment indicators will take the stocks which have made 52 week long highs and compare these against those stocks which have just made 52 week long lows. If stock prices trade around the lows universally, then the trading community is bearish in its sentiment on the markets. Conversely, if the stock prices trade near or at their highs, the same traders are instead showing their bullish market sentiments.

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Market Trends Market trends refer to the idea that financial markets tend to move in a given direction. Among the different types of these trends are secular, primary, and secondary kinds. Secular ones refer to longer time periods. Primary trends are those which happen over medium time frames. Secondary trends turn out to be those that occur over shorter time frames. Traders try to figure out and predict such trends with the study of technical analysis. This study provides a means of characterizing such trends in the market as predictable patterns, especially when prices reach resistance and support levels, which vary with time. The dilemma with predicting trends is that they are only truly knowable after they have begun. This is because future prices can never be fully predicted with accuracy. Secular markets actually cover those longer term trends which run from five to 25 years in duration. They are made up of a group of primary market trends. This means that a secular bull market would be comprised of bigger bull markets and smaller intervening bear markets. Conversely, secular bear markets are comprised of bigger bear markets and smaller intervening bull markets. An example of a secular bull market was the period in U.S. markets from 1983 through 2000 (or sometimes considered to be through 2007). The intervening bear trends would be considered the Black Monday Crash in 1987 and the dot-com crash from 2000 to 2002. Primary market trends are those which instead last only a year to several years. They generally enjoy significant and broad based support in the whole market while they are happening. In a primary bull market, the prices are generally rising. The bull market begins with a great deal of pessimism which is nearly universal. Somehow the despondency gives way to first hope, then belief before finally peaking out at irrational exuberance. At that point, the bull market has finished. The average bull market has lasted around 8.5 years, according to the market data Morningstar compiled from 1926 through 2014. Annual gains in these types of markets averaged between 14.9 percent and 34.1 percent. Important bull markets in the U.S. occurred from 1925-1929, from 1953-1957, and from 1993-1997. Two of the three ended badly in the Great Depression and the Dotcom crash, an ominous warning to investors. In primary bear market trends, the markets are deteriorating over a given amount of time. Vanguard defines these as minimally twenty percent price declines in a given two month period. Bear markets followed the great Wall Street Crash of 1929, occurred from 1937 to 1942, and following the Arab Oil Embargo crisis from 1973 to 1982. More recent examples were from 2000 to 2002 and from 2007 to 2009 in the wake of the Great Recession and Global Financial Crisis. Secondary trends are those which are short term in nature. These generally last for several weeks to several months. Market corrections are actually a kind of secondary market trend. Such corrections are defined as a shorter term decline in market indices by from around ten percent to around twenty percent. From April 2010 through June 2010, the S&P 500 dropped from 1,200 to around 1,000. Investors at the time believed this was the end of the bull market and the start of a bear market. In fact it was only a

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correction as the markets turned and continued going back up afterward. There can also be bear market rallies within the secondary market trends. These are better known as dead cat bounces. They are comprised of a price run in the markets amounting to from ten percent to twenty percent before the bigger bear market trend continues again. Such a dead cat bounce actually happened in 1929 after the initial Black Friday crash. The markets then descended into the ash can through 1932 and more or less through 1942. Another such false bounce occurred in the latter years of the 1960s and early 1970s.

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Market Value With regards to real estate, market value is the price which a real property seller can anticipate obtaining from the property purchaser in normal open and fair market negotiations. In general, appraisers value a home or other piece of real estate property utilizing a number of critical factors. When markets are volatile, such prices will vary significantly. Real estate agents may place one value on a home or other piece of real estate, yet in the end, the true property value is only what an able and willing buyer will actually pay to acquire it. It is crucial to be aware of the market value of a piece of property individuals or businesses are selling as this ultimately sets the asking price of the real estate in question. Those sellers who are not intimately aware of this will either overprice their houses or under price them. Either of these actions will often lead to poor financial results. Not being aware of a property’s true value can cause homeowners to become victims to practices of predatory lending. In this unscrupulous lending behavior, the bank or other lending financial institution will prevail upon a borrower to take out a greater amount of money than their property is really worth. It is real estate agents or better still professional appraisers who determine most accurately the market value of a house or piece of real estate through measuring it up to other properties in the area or neighborhood which share similarities with the one in question. Real estate agents and appraisers call such recently sold area properties “comparables.” They will always seek to find houses which are as alike in style, size, and location to the one they are appraising as possible. Such properties must have sold within the prior six months to a year. According to this strategy, the professionals will similarly discern what the typical price per square foot of the houses in the area actually is. This practice by itself will not set the market price of a house, but it will give the professionals a good starting point from which to set a reasonable and viable asking price for the property. There are also various other factors which influence a property’s market value. These include the condition of the property in question as well as any improvements which the seller makes. Where a home is concerned, bathroom and kitchen renovations and updates are the main ones which will boost the selling price. Other more cosmetic appearance improvements like new carpet, fresh paint, updated light fixtures, and special window treatments will help a house to show better and perhaps sell faster, yet they will not increase the all around value of the home. Yet it is absolutely true that the overall condition of any piece of real estate will impact its total value. Houses that boast more current and better maintained appliances and systems, roofs, windows, and even entry doors will realize a significantly better final selling price than those which offer flawed structures or outdated appliances, systems, entry doors, and mechanics. In corporations and investments, market value is the price for which a given asset will sell in the open market. This measure of value can often be applied to the market capitalization of any company which is publically traded. Determining the market cap value is a matter of multiplying out the current price per share by the quantity of total outstanding shares.

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This measure of market value is simplest to calculate for those instruments which are traded on exchanges, like futures and stocks. This is because their market prices are readily available and commonly disseminated. With over the counter securities such as fixed income securities, it can be far harder to ascertain. Yet the most difficult to determine market values are those commonly associated with less liquid assets such as businesses and real estate. This is why business valuation experts and real estate appraisers determine the market values for such assets as these.

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Maturity In the world of business and finance, maturity stands for the last payment date of either a loan or some other form of financial instrument. It is also known as the maturity date. On this maturity date, both the outstanding principal and any remaining associated interest are owed and expected to be rendered for final payment. If they are not paid on the maturity date, such loans or instruments are considered to be in default. A fixed maturity pertains to a kind of financial instrument where the loan will have to be paid back on a pre set date. Included in fixed maturity instruments are variable rate loans and fixed interest rate loans or other kinds of debt instruments. Besides these, redeemable preferred shares of company stocks fall under this category of fixed maturity instruments. The key to fixed maturities is that they must have a particular maturity date spelled out in their terms. This maturity date is much like a redemption date. Other instruments do not come with a set fixed maturity date. These kinds of loans go on indefinitely, until the point that a lender and borrower get together and agree on the loan being paid down. These instruments and loans are sometimes referred to as perpetual stocks. Other financial instruments may include a range of potential dates of maturity. These types of stocks may be repaid at any time that suits the borrower, so long as it is within the time range that is provided to them. Another form of maturity is the serial maturity. Serial maturities mostly pertain to bonds that companies issue to borrow money for a variety of purposes, including expansion into new markets or developing and marketing new products. With serial maturities, all of the bonds are actually issued at one time. Their classes describe the various redemption dates on them, which are generally staggered away from each other. Maturity is also used by financial news media to discuss securities that have maturities, such as bonds themselves. This abbreviation for these kinds of investments is commonplace. They might claim that the yields declined on twenty year maturities. This would mean that bond prices which are due to reach full maturity in twenty years rose while their actual yields fell, since bond prices move inversely to the direction of their associated yields. All types of bonds may be referred to using this short hand form of calling them maturities. This could include corporate bonds, Federal Treasury bonds, and also local government municipal bonds. All of these bonds have specific dates of maturity on which they will repay their principal. Preferred stocks also could be thought of as maturities, since they similarly possess set dates on which they are redeemed. They are not commonly referred to by this abbreviation though.

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Mercantilism Mercantilism refers to the main international system of trade which the world utilized in the years ranging from the 1500s to the 1700s. The philosophers behind this trade system held the idea that the world wealth was fixed. This made trade and the acquisition of wealth a zero sum game in which there had to be a loser for every winner. Because of this sincere and inherent belief about trade and economics, it led to several major early “world wars,” especially between England versus France and Spain over those three centuries. These were to protect the trade routes and expand colonies that were really factories for gathering resources and markets to which they would sell finished goods. These economic and armed struggles culminated in the Seven Years War from 1756 to 1763 (called the French and Indian War in the American colonies). In this truly first global conflict, Great Britain achieved total victory over its principal rivals of France and Spain for a resulting nearly half a century through the rise of Napoleon. The British gained control of trade routes and colonial possessions from the peace settlement that included Canada, India, African colonies, Gibraltar, Caribbean/Central American/South American possessions, and various other island holdings throughout the world. The ultimate goal of this mercantilism lay in building up the national wealth by enforcing a stringent government regulation which provided a government oversight of all national commercial ventures and interests. The backers of this economic theory argued that an imperial nation could most effectively increase its economic and national power by strictly enforcing and reducing imports through protectionist tariffs all the while increasing and optimizing exports around their colonies (and other countries of the world). The rise of mercantilism as a popular economic philosophy in Europe occurred in the 1500s. The system arose largely as a reaction to the discovery of new lands in the Western Hemisphere, African continent, and the rediscovery of the Indian Ocean Spice Islands, Indian subcontinent, and Japan/China. Precious metals like silver and gold were highly and ultimately sought after around the globe or through acquisition by trade. This economic system began to replace the earlier feudal economic order which was slowly dying out in Western Europe. It led to what was likely the first major incidence of political control over a national economy since Hellenistic Greek Kingdoms and Roman times. England represented one of the principal champions of this mercantilism. Its homeland lay at the heart of the British Empire and represented a relatively small and poorly natural resource-endowed country. In order for Britain to expand its limited wealth, it began to introduce some of the world’s earliest fiscal policies. These included the Navigation Acts and Sugar Acts which were intended to steer their colonists away from purchasing foreign made goods and to buying British exports instead. This led to a positive balance of trade, which they believed would build national wealth. Since national wealth was measured by holdings of gold and silver, according to this understanding of wealth it did succeed in its objective, at least for a time. Examples of these policies included the British based Sugar Act of 1764 that rolled out high tariffs on molasses and sugar imported from anywhere besides England and the British colonies. The Navigations Act of 1651 also came into effect to make certain foreign flagged ships could not trade along the English colonial sea coasts of the 13 colonies in America. All colonial exports were required to come through

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British control before they could be sold off around Europe. This was not a policy unique to England and the early British Empire though. Portugal, France, Holland, and Spain all competed effectively alongside the British for colonies and trading wealth. At the time, the dominant economic belief was that no powerful nation would be able to function self sufficiently without the resources and trade of its colonies. Among the key tenets of Mercantilism is that powerful imperial nation states could build up a truly firstin-history world economy through utilizing their military powers to make certain that resource supply centers and local markets were protected from foreign rivals’ competition. Nations were believed to be dependent on their own capital supply while the amount of trade volume in the world was a static conception. This gave rise to the system in economics that mandated nations had to maintain positive balances of trade and constant surpluses in exports. The weakness underlying mercantilism lay in a simple few economic truths that eventually crushed this global trade system. The first among these is that every nation state can not have an economic export surplus. Many others will require a greater and growing amount of imports in order to boost the growth rates of the successful nations. Besides this, there simply was not enough gold and silver to go around for all countries of the world to be considered wealthy and successful. This system that therefore had to count losers alongside winners internationally was doomed to descend into destructive international conflicts and eventual failure as a result.

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Merrill Lynch Merrill Lynch proves to be the global markets and commercial banking operations of Bank of American Corporation and all of its various affiliates around the world. They offer the largest network of bank branches in the United States. Among their national customer base are more than 47 million individual, business, corporate, and institutional accounts. This means that nearly one out of every six Americans is a customer of the banking group. The bank also counts operations in over 35 countries around the globe. The U.S. based bank is commonly listed as the 10th largest bank in the world. The global footprint of Bank of America Merrill Lynch permits them to provide financial services and products to investors, consumers, and businesses in all regions of the earth. They organize their global operations in over 35 countries in the four proprietary groups of Europe, the Middle East, and Africa; Latin America; Asia Pacific; and the Americas. The most important presence the bank has outside of North America lies in the Europe, Middle East, and Africa group. This EMEA division includes operations in 32 cities spanning 23 countries on the three continents. Bank of America Merrill Lynch has been partnering with European markets since the end of the First World War in the year 1922. They maintain over 14,000 staff members in the EMEA. These personnel, branches, and offices provide financial products and services for individual, business, institutional, corporate, and government customers through their knowledge of the international markets combined with a superior local market understanding. In Latin America, Merrill Lynch is proud to advise both institutional investors and corporations spanning the range of Latin America. They have effectively served this market for over 30 years. The group maintains offices or branches in seven nations where they deliver insights into a range of regulatory and market scenarios. The bank is a significant operator in the countries of Brazil, Mexico, and Chile. The Asia Pacific group of Merrill Lynch provides 12 different Asian nations and territories across over a dozen languages in five different time zones with over 60 years of regionally based experience. Though it boasts a significant and growing international presence, the true core strength and locations of Merrill Lynch have always been and likely always will remain in the Americas, particularly in the U.S. and Canada. Here it offers individuals a broad and impressive range of consumer and investment services. Consumer services include checking and savings accounts, credit cards, and home loans. Under the flagship brands of both Merrill Lynch Wealth Management and U.S. Trust, the group provides individuals with wealth management services through its network of over 18,000 client assisting financial planner representatives (as of 2015). These services they deliver include wealth management banking, investment management, concentrated stock strategies, wealth transfers, trusts, tax and estate planning, retirement services, insurance services, and philanthropic management.

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They offer their millions of business and corporate accounts in the United States and Canada a wide range of services through Bank of America and its various subsidiaries. These include lending and company financing, capital advisory and raising services, merchant services, card solutions, fraud prevention, payments and receivables management, liquidity management, equipment finance and leasing, investment management and products, retirement and benefit planning services, trade services, mergers and acquisitions, commodity, currency, and interest rate management, and philanthropic management. Merrill Lynch also serves institutional clients in the U.S. and Canada. It boasts of leveraged performance in asset management on a global scale. Their services portfolio is both broadly comprehensive and sophisticated. It includes research that leads the industry and expertise in multiple industries and regions of the globe.

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MERS MERS stands for the Mortgage Electronic Registration Systems. It is also a privately owned and operated company that maintains this electronic database and registry whose purpose is to follow the ownership of and servicing rights to American mortgage loans. This MERS represents a revolutionary way of vastly simplifying the means of keeping track of how both mortgage servicing and ownership rights can be originated, sold, and followed. The Real Estate finance industry actually created it. MERS boasts that it does away with the requirement to create and record assignments as both commercial and residential loans are being exchanged. The mortgage banking industry got together to come up with a way to simplify the process of working with mortgages through utilizing e-commerce to reduce and even eliminate paper. The mission of the company and its database lies in registering literally all mortgage loans within the U.S. on the MERS system. MERS actually performs its role on behalf of the servicer and the lender in handling county land records. Loans that are registered on the MERS system can not have problems with future assignments since MERS is always the nominal mortgagee, regardless of the number of times that a mortgage servicing is sold. MERS is approved to be original mortgagee by all of the major lending outfits, including Freddie Mac, Fannie Mae, Ginnie Mae, the VA, the FHA, and both Utah and California Housing Finance Agencies, along with each of the Wall Street ratings agencies. Many groups benefit from the existence of the MERS registry. This includes mortgage servicers, originators, wholesale lenders, warehouse lenders, retail lenders, settlement agents, document custodians, title companies, investors, insurers, and country recorders. MERS claims that the consumer benefit as well, though this has been in question until recently. Ironically, a recent situation has arisen surrounding MERS that may actually benefit many consumers in the end. They are embroiled in the middle of a scandal surrounding original titles and signed promissory notes. Part of what they accomplished in their paperless process led to the loss of such critical original signature documents that the majority of states require for enacting mortgage foreclosures. MERS is now right in the middle of a number of legal challenges resulting from the sub prime crisis and going on in most states around the country. Their right to begin the process of foreclosure has been called into account, since they lack these required original signed documents. This means that their role in the early days of setting up the system that helped with the buying and selling of mortgages may come back to haunt them and the entire mortgage industry as a whole in the end. Should judges rule these legal suits in favor of the homeowners who took out the mortgages, then it is widely believed that the losses that the banking industry in America suffers from will be so great that they will require substantial amounts of re-capitalization.

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Microeconomics Microeconomics is an economic social science that examines the results of individual human behavior. Unlike the big picture macroeconomics, it is most concerned with how peoples’ choices impact distribution and utility of scarce economic resources. The science demonstrates and explains the ways that various goods possess different values from each other. It also considers how people engage in more productive and efficient decisions and how they can work together most effectively. This science has long been regarded as a better settled and more advanced one than macroeconomics. Microeconomics studies economic tendencies. This means it considers what will occur when people pursue particular choices or as production factors change in some way. It categorizes the actors according to microeconomic divisions such as sellers, buyers, and owners of businesses. Such participants engage with supply and demand in order to obtain resources. They employ both interest rates and money as means for coordinating pricing. Microeconomics does not attempt to reveal the way a market should work. Rather it is interested in describing what will occur if specific conditions alter. As an example, a car maker might increase the cost of its vehicles. This science states that buyers will purchase a smaller number of them after the price increase. Similarly, if silver mines in Peru are shut down, supply will be constrained and the global silver prices will likely rise. The study is able to explain why slower sales of smart watches will tend to make Apple’s stock fall. It can also describe how an increase in the minimum wage will lead Burger King to put on fewer employees. It leaves the future levels of gross domestic product of countries in the European Union to macroeconomics. Microeconomic study typically follows Leon Walras’ general equilibrium theory as described in his 1874 “Elements of Pure Economics” and Alfred Marshall’s partial equilibrium theory from his 1890 work “Principles of Economics.” Their methods seek to distill the behavior of people down to a language of functional mathematics. This way economists can come up with a model for individual markets that can be tested mathematically. Their methods fit in with the neoclassical microeconomic umbrella. Followers of the neoclassical view believe that economists can create hypotheses for economic events which are quantifiable and can apply empirical evidence to determine which function best. The efficiency of the models is decided by how effectively real world markets fall into place according to a given model’s rules. There is one substantial alternative view within the study of microeconomics. This is the Austrian school followers’ ideas. They disregard the ides of static equilibrium espoused by the neoclassical view as irreparably flawed. They choose instead to use logical deduction as the basis for their analysis. Their two principles are subjective conditions and spontaneous order. Their model explains the way that economic incentives allow people to overcome uncertainty and lack of knowledge. They would claim that markets happen because individuals possess varying interests and preferences and an imperfect knowledge. Markets allow people to overcome these handicaps, according to proponents of the Austrian school.

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Middle Class In the United States, the Middle Class is a broadly defined social group found throughout America. There are no exact definitions of what comprises the middle class. Depending on whose standard you use, the middle class in the U.S. is made up of from twenty-five to sixty-six percent of families. The middle class in America have been responsible for many of the country’s greatest accomplishments. Middle class people are known by characteristics of creativity, coming up with concepts, and consultative abilities. Most middle class people have either obtained a college degree or at least been through some years of college education. Middle class values are central to the recognized American way of life. These values center around sticking to intrinsically held ethics and beliefs, independence, and innovation. Middle class people prove to be more politically motivated and active than do the other demographics throughout American society. The income of the middle class ranges widely. It can be from around the national median income to over $100,000 per year. This means that the standard of living for middle class people can similarly vary greatly, dependent on the size of the household in question. This means that families with two incomes that have many members can earn more than a smaller family in the upper middle class that only has one income, even though the latter’s standard of living would be considerably higher. The middle class in the United States remains the most influential group in American society. They are responsible for the vast majority of teachers, writers, voters, editors, and journalists. The majority of trends within the United States begin with the middle class. The middle class also pay the majority of the taxes within the U.S., making them an extremely critical group economically. The top twenty-five percent of earners, the overwhelming majority of whom are considered to be middle class, pay eighty-five percent of all taxes in the United States. Meanwhile, the bottom fifty percent pay only three percent, while the wealthiest one percent pay up to thirty-seven percent of the total share of taxes. Even though the Middle Class are considered to be indispensable to American society and the economy, their ranks are dwindling with time. Data on income demonstrates that the American Middle Class have benefited from much slower growth in income than the top one percent of wealthy wage earners, according to data going back to 1980. This stands in contrast to the rise in income seen in the years after World War II, when the income of the middle class grew at the same pace as did the income of the rich. In the years since then, the rich have out gained the middle class considerably. As an example, from 1979 to 2005, the after tax earnings of the top one percent grew inflation adjusted by 176% as opposed to only sixty-nine percent for the top twenty percent of wage earners as a whole and only twenty-nine percent for the top forty percent of workers. As a percentage of total gross yearly household income, the top one percent currently make over nineteen percent of all earnings, representing their greatest share of the wealth since the late 1920’s. Further proof that the critical middle class is shrinking is revealed by the June 2006 Brookings Institution

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survey. It demonstrated that the neighborhoods of middle income Americans as a percent of all metropolitan neighborhoods have decline dramatically over a thirty year period. From 1970 to 2000, this percentage decreased from fifty-eight percent to forty-one percent. According to this data, the middle class have already fallen well below the significant half of the country’s population that it always represented in the past.

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Milton Friedman Milton Friedman proved to be one of the leading proponents of monetarism. He stood as opposition to the dominant thought of the day Keynesian economics. Today’s supporters of the ideas of free markets owe Friedman and his followers the Chicago School economists a great debt of gratitude for their successful efforts. Friedman opposed Keynes from the very beginning. Keynes had argued that shorter term solutions could fix economies. He believed that consumers would alter their spending habits if given a stimulus check from the government. This way the state would not have to relinquish future taxes to help the economy. Friedman used empirical studies to attack this premise as he did with all Keynesian ideas. He demonstrated that individuals would only change yearly spending patterns if significant changes came to their lifetime income. A raise in a job would cause a more meaningful spending change than would a one time stimulus. Friedman argued that economies could be better improved by reducing the involvement of the government. He proposed stopping policies that caused inflation and reducing taxes. Milton demonstrated that inflation tricked consumers into believing they earned more. In reality higher costs of living cancelled any gains they made in income. The Keynesian multiplier represented another area that Friedman and the Chicago School economists constantly attacked. Keynes had assigned a higher spending multiplier to even government debt spending over private investment. Milton showed that such spending by the government only crowded out private investors who hold their money while the government is footing the bill. Friedman published several influential economic books as part of his work in developing monetarism. Among these was A Monetary History of the United States. Here he demonstrated that misguided monetary policies led to the Great Depression. It had not been any free market form of capitalism that failed. After he studied about a century of government monetary policy in response to recessions, depressions, booms, and crashes, he concluded that the Federal Reserve had created the Great Depression by massively reducing the money supply by more than one third from 1929 to 1933. These actions transformed a fairly common stock market crash into a long term depression. Friedman’s concentration on money’s role within the economy only grew with time. Though he started out as a fan of the gold standard he changed his views to those of a hard monetarist. With this he argued that the amount of money circulated should grow apace with the economic growth of the country. This would still act as a check on governments printing limitless money. It would also permit the national money supply to expand enough to continue the country’s economic growth. He became a controversial figure for defending free market capitalism in the 1960’s with his book Capitalism and Freedom. Some of the ideas in the book included a negative income tax for those who earned less and school vouchers. These received attention and eventually became main stream.

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Finally in the 1970’s the Keynesian system began to collapse thanks to the weight of stagflation. The powerful academics gave Milton Friedman and his hard money anti-inflation ideas another serious look then. His monetarism began to surpass the influence of the old Keynesian proposals at first in academic circles. In the next decades Friedman and his fellow Chicago School of thought economists rose to the posts of economic advisors in not only the U.S government but others around the world. They argued for and promoted smaller government and hard money policies. In this way, they were pushing for a return to the ideas and policies of Adam Smith and his Wealth of Nations masterpiece. Milton’s work and ideas were honored by Nobel Prizes in economics. Both he and his Chicago School of thought won several of these awards for their efforts in taking apart the worse ideas of Keynesian economics. Friedman went to his death feeling that they had become accepted for their ideas which were not fully implemented. He and his monetarists argued governments loved Keynesian practices because they pardoned excess inherent in big government. They also allowed for the projects that were the most wasteful.

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Modern Portfolio Theory Modern portfolio theory proves to be a model for investing invented by Harry Markowtiz. He outlined many of the ideas in his 1950s book Portfolio Selection. The economist and mathematician claimed that investors could successfully reduce their amount of market risk and still maximize their portfolio returns for that given level of investments. This is actually accomplished by mixing different risk level investments together. If the various investment risks are not correlated, then risky investments with higher returns can actually reduce overall risk in a portfolio. This Modern Portfolio Theory has come to dominate and become heavily utilized throughout the financial advising industry. Most investors would appreciate the goal of it to reach the greatest potential returns over the long term without having to suffer excessive amounts of market risk in the short term. Everyone would like to be able to decrease market fluctuations in their portfolios. The way it is possible is by diversifying. The theory demonstrates how investors are able to take individual investments which have high risk and combine them with a few other kinds of investments that are lower risk. The end result is a balance that delivers a better return while providing lower risk than the more volatile investments in the portfolio feature. Examples of how this works abound throughout the markets. Stocks usually have more risk in the markets than do bonds. Combining bonds with stocks can lower the risk of the stocks and still deliver an acceptable return. With individual stocks, international stocks along with smaller cap stocks carry a greater risk than do the larger cap stocks. If an investor includes all three types of these then the return will be above average while the risk is only average. This works as measured over longer time frames and compared to major benchmarks like the S&P 500. The theory itself can actually become a little complicated as it mathematically compares different kinds of investments against each other. This does not change an inescapable truth. Markotwitz claimed that no matter how well an investor balances out the portfolio, there are still limitations. In order to secure a greater return on average, investors will have to be willing to accept more risk. The opposite of this is true as well. If an investor wants fewer fluctuations in the portfolio from one month or year to the next, then he or she will have to be stand for lower returns over the long term in order to accomplish this. There are variations on Modern Portfolio Theory that are used by a wide range of financial advisors and investors. One of these is tactical asset allocation. It takes the parts of MPT that have to do with diversification and re-balancing and applies them to investing. There are a number of critics to MPT who charge that it is not the best means of investing. Many of these prefer technical analysis methods and like to use trends and market psychology in their strategies. Others put down the buy and hold principle that underlies the Modern Portfolio Theory. These critics continue to make the argument that market behaviors and trends can be timed. They state that balanced asset allocating misses out on the ability to capture big moves and avoid corrections. The problem with these charges is that market timing is not easy. Countless investors have failed at timing the markets. The majority of them lack the knowledge, temperament, and time to be effective at it

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consistently.

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Monetarism Monetarism is an idea that Milton Freedman developed and expounded upon. It centers on the idea found in monetary economics that money supply changes lead to huge impacts on short term national outputs and on long term price levels. It argues that the goals of monetary policy are most effectively achieved when the money supply is carefully and appropriately expanded in line with actually output growth. Milton Friedman started out as a believer in Keynesian economics. Later in his career, he determined that it had major problems and he began to criticize it on a variety of levels. He wrote a book with Anna Schwartz that proved to be extremely influential. In this book, “A Monetary History of the United States 1867-1960,” Friedman proposed that inflation is everywhere and always a monetary phenomenon. Because of this now generally accepted truth, he strongly recommended a policy to be practiced by the central banks, or the Federal Reserve, of maintaining supply and demand equilibrium of money. This money supply should only increase with demand and accompanying productivity growth. The roots of monetarism come from two radically opposed concepts. The hard money policies of the end of the nineteenth century were merged with some of the monetary ideas held by John Maynard Keynes who argued for money supply that was driven by demand. Keynes concentrated on the stable value of a currency that had been threatened by a lack of sufficient money supply that then led to currency collapse. Friedman concentrated instead on price stability to control and keep down inflation. This proves to be the perfect equilibrium of demand and supply for money. Friedman took these diametrically opposed concepts and wove them together into a new theory of Monetarism. In the 1960’s and 1970’s, this Monetarist school of thought for monetary demand being a stable function found significant traction in the work of David Laidler. Other influential monetarists include former U.S. Federal Reserve Chairman Alan Greenspan, who showed his Monetarism bias in his own policies and ideas. Some central banks have attempted to orient their monetary policy around appropriate targets for money supply. The European Central Bank is the chief of these Monetarist idea central banks. Monetarism is not entirely without its critics. The neo Keynesians propose that money demand and supply are closely interrelated. Other conservative economists maintain that monetary demand is not predictable. Nationally known economist Joseph Stiglitz makes the case that the relationships that exist between the growth of the money supply and inflation are weak at times when inflation is actually low.

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Monetary Policy This is one of the two tools the government has to influence the overall economy. With monetary policy, a nation’s central bank takes action to influence the economy. In the United States, the Federal Reserve Board is the central bank. They regulate the interest rates and money supply available in the country to stabilize the national currency and to control inflation. Monetary policy is the sister policy to fiscal policy. Monetary policy is effective because the Federal Reserve or other central bank is able to change the real cost of money. This allows them to influence business and consumer spending behavior and the amount of money they use. With this policy, central banks are able to mange their nation’s money supply. It allows them to oversee stable economic growth. The money supply is made up of several components. These include cash, checks, credit, and money market funds. Credit is among the most important and biggest categories of money supply. It covers mortgages, loans, bonds, and other promises to repay. There are two goals in which central banks utilize monetary policy. They are attempting to manage inflation levels and to lower unemployment rates. The United States Federal Reserve maintains particular target ranges in these two goals. The Fed desires its core inflation rates to be around 2% and no higher than 2.5%. They are seeking to keep unemployment rates under 6.5%. The U.S. believes a healthy unemployment rate ranges from 4.7% to 5.8%. On top of this, the Federal Reserve is looking for steady rates of economic growth. By this they mean a yearly increase of from 2% to 3% in the Gross Domestic Product. There are two types of monetary policies from which central banks can choose. They use expansionary monetary policy to increase economic growth. Central banks decrease interest rates, increase liquidity to the markets, and purchase securities from their member banks to affect this. Central banks employ contractionary monetary policy to slow down economic growth. They may sell securities in open market operations, increase interest rates, and increase liquidity to banks and markets in order to create this impact. Central banks have several different tools they can utilize to pursue their monetary policy. They perform open market operations by purchasing short term government bonds or selling these. Buying bonds increases the money supply while selling them decreases it. They can also raise or lower their main interest rates like Fed Funds rate in the U.S. or LIBOR in the U.K. This changes the price at which consumers and businesses can borrow money. Cheaper money means consumers purchase bigger, longer term goods using cheap credit. Businesses pursue expansion and hire more people with cheaper priced debt. Savers are encouraged to put their money into stocks and securities to earn higher returns than savings accounts pay when interest rate are low. Central banks can also change the reserve requirements that banks must keep. Higher reserves reduce their ability to make loans and help to decrease inflation. Lower reserves allow them to make more loans but drive inflation higher.

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Since the Great Recession in 2008, different central banks have engaged in more unconventional monetary policy in an effort to kick start declining economies. Quantitative Easing has been among these policies. It involves buying financial assets from banks with money the central banks print. From 2008 to 2013 the U.S. Federal Reserve massively expanded its balance sheet by trillions of dollars by purchasing mortgage backed securities and Treasury notes. Encouraged by the relative success and so far limited consequences of these actions, the Bank of England, the Bank of Japan, and European Central Bank have also engaged in their own quantitative easing policies. Critics have warned that such quantitative easing will massively increase inflation at some point in the future.

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Money Laundering Money laundering refers to the methods for taking income from corruption and crime and turning them into legal assets. Many countries and jurisdictions have re-defined the term to focus on financial or business crime, often used to support drug dealing empires or terrorism financing. The phrase can also refer to improperly utilizing the financial system for a variety of reasons. In these cases, it might involve digital currencies, traditional currency, credit cards, and even securities. In recent years money laundering has become associated with international sanction avoidance and financing of terrorist acts. The pursuit of this focuses on the source of money while that of terrorism financing is worried about the destination of this money. Throughout history, countries, kingdoms, and rules created regulations designed to seize wealth from their citizens. This eventually caused the formation of tax evasion and offshore banking. Though these are not crimes in all countries, the ones that do penalize and pursue it consider it to be a form of money laundering. In the early years of the 1900s, wealth began to be seized as a means of stopping crime. This began in earnest during the American Prohibition of the 1930s. Law enforcement agencies and the government became concerned with tracking down and seizing money involved in illegal alcohol sales. Organized crime had obtained an enormous boost because of the major new source of funds illegal alcohol vending provided. The emphasis for fighting money laundering shifted in the 1980s to drug dealers and empires in the American led war on drugs. Governments and law enforcement became concerned with seizing the financial rewards from drug related crime as they pursued the drug empire founders, managers, and dealers. These laws required individuals to demonstrate that their seized funds were from legitimate sources in order to get them back. The most recent focus of this illegal activities pursuit centered around terrorism empires that began with the 9/11 attacks in 2001. The Patriot Act in America and comparable legislation passed around the developed world gave a new motivation for such rules which would help fight terrorism and its financing. The G7 Group of Seven wealthy nations created its Financial Action Task Force on Money Laundering to pressure other governments around the globe. They wanted greater observation and monitoring for financial transactions with information sharing between nations. This resulted in improved monitoring systems for financial transactions and stronger anti-laundering laws from 2002. These regulations have created a far heavier burden for international banks. Enforcement of perceived money laundering breaches has led to severe investigations and steep fines against major international financial institutions. British banking giant HSBC received a hefty $1.9 billion fine from the U.S. in December of 2012. French bank BNP Paribas reeled from a steep $8.9 billion fine from the U.S. government in July of 2014. A number of nations have also instituted stricter rules on the amount of currency which is allowed to be

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physically carried across borders. Governments have set up central transaction reporting systems to make all of the financial institutions report every electronic financial transaction. The American Department of the Treasury established its Office of Terrorism and Financial Intelligence to seek out and exploit weaknesses in the networks of money laundering operations through national and international financial systems.

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Money Market Funds Money market funds are investment vehicles with a unique objective of keeping a consistent NAV net asset value of $1 each share while they provide interest for their investing share holders. To accomplish this, the portfolio of a money market fund is made up of securities that are short term in nature with maturities which are under a year. These securities typically are liquid debt and money instruments that are of the highest quality. Investors can easily buy money market fund shares by going through banks, brokerage firms, or mutual funds directly. The ultimate goal of these money market funds is to give their investors a safe haven investment for assets which are both readily accessible and equivalent to cash. In essence they are mutual funds. Among their most common characteristics are that they offer low returns and provide low risk as an investment. Because these funds offer comparatively lower returns than many other investments, financial advisors recommend that investors not remain in these vehicles as a long term selection. Their returns will not provide sufficient appreciation on capital in order to achieve the investors’ objectives over a longer time frame. Employer provided retirement plans will often sweep employees’ unallocated dollars into these funds until they give orders as to where to invest them specifically. The pros to money market funds can be significant. They offer more than simply high liquidity and lower risk. A number of investors find them appealing because there are not any fund entrance or exit fees (or loads) as with many mutual funds. A variety of them will offer investors gains which have tax advantages. These come from investments they make in state and federally tax exempt municipal securities. Other investments which these funds could hold include T-bills and other shorter time frame government debt issues, corporate commercial paper, and CDs certificates of deposit. There are also some downsides to money market funds besides their low returns. Though they are supposed to be stable and consistent in their values, they are not insured by the FDIC Federal Deposit Insurance Corporation. This means that in the rare cases where such funds break the buck, investors can suffer losses of principal. Competing investments like CDs, savings accounts, and money market deposits accounts provide similar returns but do offer this government backed guarantee of principal. This does not stop investors from regarding money market funds as extremely safe. The funds are carefully regulated by the Investment Company Act of 1940. The government changed the rules on such money market funds regarding their net asset values and in what they could invest in 2014. After that year, the funds were not permitted to set their NAV permanently at $1 any longer. They did this because of the three times in the history of such funds where the $1 share price had been broken (as of 2016). It had created “bank runs” on the assets of the money market funds in 2008 when it occurred most recently in the Financial Crisis. The American SEC Securities and Exchange Commission decided to prevent this from happening again by changing the fund management rules to provide them with more resilience and better stability. Such new restrictions more strictly limited the assets these funds were allowed to hold. The SEC also introduced triggers that would suspend redemptions and charge liquidity fees to prevent chaos in the markets. The fund managers had to start utilizing a floating NAV which created risk where it was not

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perceived to exist previously. Individual investors were not impacted by the floating NAV share rule since the funds are designated as retail funds and are exempt from this rule.

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Money of Zero Maturity (MZM) Money of zero maturity represents a way of measuring the money supply. This measurement for money which is circulating in an economy only covers money that is available to be spent and utilized. As such, this MZM is really a counting of all of the money supply that is liquid in a given economy. Individuals can figure up the money of zero maturity with some basic math. This starts with obtaining the M2 measure of the money supply. From this M2 figure, all time deposits must be subtracted, such as with certificates of deposit. Next this result must be taken and added to the amount of money market funds which are available. This sum finally provides the MZM. In practical terms, this measure of money includes several different components. All physical currency, including bank notes and coins, are a part of it. Checking account balances are also included. Savings account totals similarly comprise the MZM. Finally, money market accounts round out the figure. These are all configurations of money which are immediately available for par value to both companies and individuals. Other forms of money are not included in the measure. Money of zero maturity never considers money held in accounts such as certificates of deposit or any other types of time deposits. This is because these funds contained in such financial instruments can not be instantly accessed for full par value. Similarly investments held in stocks and bonds must be first sold and settled before they can be obtained. A number of analysts like to utilize the money of zero maturity because it proves to be an extremely liquid measurement. In fact this has grown to become among the most preferred means of measuring the country’s money supply exactly because it does more completely depict the readily available money in the economy that can be employed for consumption and other spending. The name for this money measure comes from its combination of all available liquid and money with zero maturity that the three M’s contain in M1, M2, and M3. There are practical applications for the money of zero maturity measurement. The figure presents a reliable indicator of a nation’s actual money base for the entire economy. As such it depicts the quantity of money which is literally moving throughout the economy as a whole. Since the Federal Reserve quit tracking and following the M3 number for money supply back in 2006 on March 23rd, this has become a preferred measurement of money supply, if not the most popular one. When economists and analysts are aware of the amount of money which is moving throughout the economy, they can develop a feeling for two important trends. They are able to learn at a fairly quick glance whether or not the economy is growing or is instead contracting. By studying this figure, they can also determine how high the danger for inflation is over the near term. When economists look at a chart of the MZM, they are interested in the rate of growth on a year to year, quarter to quarter, or month to month basis. As this growth rate improves, the economy is likely to expand along with it, and the threat of inflation increases apace. If instead the growth rate in the MZM decreases, the economy stands a solid chance of shrinking. This would mean inflationary threats are lower.

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Money Purchase Plan Money Purchase Plans are another type of retirement vehicle that some traditional for profit companies offer their employees. In these plans, employees and their employers both make contributions. These contributions from the employers are figured from a yearly earnings percentage. The plans are different from Profit Sharing Plans in which the annual basis of profitability determines how large the contributions are. Money Purchase Plans’ annual earnings percentages assigned for contributions stay the same ever year as set out in the originals terms of the retirement benefit plan. These plans do not enjoy a great deal of attention from the media. Despite this they are still a critical employer provided retirement vehicle that offers significant tax advantages for employees. These plans are classified as defined contribution plans much like 401(k)s, even though the employer contributions are mandatory. Employees enjoy account control over the investments as much as the specific plan investment rules permit. Account owners also carry full responsibility for determining when any money is distributed or transferred. The beauty of these Money Purchase Plans is that every contribution made to them is fully tax deductible while all gains in the account are tax deferred. This means the accounts are funded with pretax dollars. None of the money in the account will become taxable until it is distributed at retirement. The maximum contributions to the accounts in a year from employer and employee are $53,000 for 2016. There are some downsides to the Money Purchase Plans. A significant one is that the retirement accounts require substantial administration costs for these types of accounts. This comes out of the account returns and earnings on investments. Besides this, account holders are unable to obtain loans from these types of plans. Most other defined contribution plans do allow for such loans to be taken. Rollovers can also be hard to accomplish with these types of plans. The level of difficulty depends on the individual guidelines of a specific plan. It is critical for anyone considering a rollover to investigate the particular documents of the plan. The IRS does not limit rollovers from these plans. It is instead the specifics of the plans themselves that make it difficult for those who are still working for the company and under the official retirement age to transfer them. When the plan allows for them, rollovers proceed as with any other qualified retirement vehicle. They can be transferred into an individual IRA or rolled into another employer 401(k) plan. Any individuals who attempt to take cash distributions before they reach the government set retirement age of 59 ½ will suffer substantial penalties. Besides becoming fully taxable, these funds will be subjected to the 10% early withdrawal IRS penalty. Because of the stiff penalties, direct rollovers are more sensible than indirect ones. When individuals begin indirect rollovers, they receive a check distribution. The 60 day clock to complete the rollover then begins ticking. There are also withholding requirements when these types of indirect rollovers are attempted. Early distribution penalties can result from not completing these rollovers according to the strict IRS timetable.

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Investment choices are a weak point of these Money Purchase Plans. Legally they are allowed to invest in individual government and corporate bonds and stocks, mutual funds, options, and exchange traded fund shares. The plan provider may limit these choices further as they see fit. This means that these accounts may not invest in physical gold bullion holdings directly as with self directed or precious metals IRAs. They can participate in paper gold investments such as gold mining company stocks or mutual funds that own them. They may also purchase gold mining ETFs or gold ETFs like GLD.

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Money Supply Where business and economics are concerned, the money supply proves to be the complete quantity of money that is available throughout the economy at any given moment in time. Money can be defined in a few different ways. The commonly accepted definitions are comprised of both circulating currency and demand deposits. Demand deposits are the assets of depositors in banks that are easy for them to access, such as checking accounts. The statistical data on money supply is recorded and made available to the public by the government. In some countries, the central bank publishes such information. Analysts are always interested in any changes to the money supply total, since it has great impacts on inflation levels, prices, and the business cycle. There are now several different measurements of money supply published within the U.S. These range from narrow to broad money supply totals. While narrower calculations only measure the most liquid of assets that are easy to spend, such as currency itself and checking account deposits, other broader measures include assets that are not so liquid, such as certificates of deposit. The MB is the complete monetary base as it pertains to all currency. It proves to be the money supply figure that is the most liquid. M1 is the measure that leaves out bank reserves. M2 is the measurement that is given as the main economic indicator in figuring how high inflation will become. Both money and its near substitutes are included in this category. M3 used to be the main figure for money supply in the Untied States, until the Fed elected not to release it any longer after 2006. It included the M2 measure plus longer term deposits. Inflation commonly results from changes to the money supply. The evidence demonstrates the direct correlation between the growth of the money supply and longer term rising prices. This is particularly the case when the money supply increase is rapid within an economy. The latest example of how the growth of the money supply can ruin a currency and destroy an economy is demonstrated by Zimbabwe. This African country witnessed dramatic increases in the national money supply and then became a victim of hyperinflation, or a dramatic gain in prices. Because of this, the money supply has to be responsibly controlled and overseen. The money supply is actually controlled through monetary policy. Central banks such as the Fed determine the money supply in part through their reserve ratios that they make banks observe with percent of deposits kept on hand. They can also adjust it with the interest rates that they set for the country. Many critics have pointed to the rapid growth in the money supply of U.S. dollars in the years of the financial crisis and the Great Recession as dangerous. From the years of 2007-2010, the dollar money supply has been grown by in excess of three hundred percent. At the same time, the economy has a whole has barely grown. This is the consummate recipe for inflation, and many economists have suggested that you will see high inflation, and potentially even hyperinflation, within the United States in the next several years as a direct result.

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MoneyGram Money Gram is the name of the money transfer firm headquartered within the U.S. in Dallas, Texas. Its full name is MoneyGram International. The company’s operations center is located in St. Louis Park, Minnesota. The corporation maintains both regional and locally based offices throughout the globe. The company divides its various businesses along the lines of two different groups. These are Global Funds Transfers and Financial Paper Products. Using its proprietary network of financial institution clients and agents found around the world, the firm assists both businesses and individuals in transferring money and with various financial paper instruments. As the number two biggest money transfer service in the world, Money Gram is second only to Western Union. The firm does business in over 200 nations and possesses a worldwide network equating to approximately 347,000 agent offices. The creation of Money Gram International occurred because two independent businesses merged. This was the Travelers Express of Minneapolis, Minnesota and Integrated Payment Systems of Denver, Colorado. Integrated Payment Systems first set up Money Gram as a subsidiary unit. They spun it off into an independent firm which Travelers then acquired in 1998. By 2004, Travelers Express had opted to change its name to today’s MoneyGram International. The Global Funds Transfers division covers two services. These are the MoneyGram Money Transfer service and the MoneyGram Bill Payments Services. The bill payment group helps individuals to effect rapid payments as well as to pay normally occurring bills to various creditors. The Financial Paper Products division vends several financial payment instruments. These include Money Orders and Official Checks. The Money Orders group represents the second biggest supplier of such money orders in the world. As an official check provider, Money Gram provides outsourcing services for bank checks to financial institutions, such as banks located within the United States. Such official checks are required by individual consumers if their payee needs a bank check or cashiers check that is actually drawn on the bank. Financial institutions also utilize them to pay their own bills. In 1996, Integrated Payment Systems evolved into its own publically traded corporation. As such it was already the second biggest non banking consumer money transfer operation in the U.S. The company renamed itself MoneyGram Payment Systems Inc. as part of the spin off into independence. Rapid growth of the new corporation occurred under the leadership of James Calvano who came to the new company in 1997. He had formerly been the Western Union President before moving to the Chief Executive Officer role at MoneyGram Payment Systems. It was in 1997 that MoneyGram Payment Systems Inc opted to change its name yet again to MoneyGram International Limited. When MoneyGram International arose, the company had two owners. MoneyGram Payment systems controlled the group with 51 percent stake in the renamed firm. Largest British travel agent firm in the world the Thomas Cook Group owned the remaining 49 percent. In the year 2003, Travelers Express entered the picture by obtaining 100 percent ownership of the

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MoneyGram International and MoneyGram network. Travelers Express recognized the power of the MoneyGram brand name and changed its own name to MoneyGram International Inc in January of 2004. By the year 2006, this firm had grown overseas to comprise more than 96,000 individual agents. Their network now covered such high growth regions as Eastern Europe, Asia-Pacific, and Central America. MoneyGram was nearly destroyed during the Global Financial Crisis of 2007-2009. The company suffered losses of $1.6 billion in 2008 because of its various investments in mortgage backed securities which turned out to be highly risky instruments. The firm had to sell a controlling interest to Goldman Sachs and Thomas H. Lee Partners then in order to receive a desperately needed cash infusion to continue ongoing operations. As the company was in limbo, U.S. Bancorp moved their money transfer business services over to rival largest money transfer company in the world (and financially far more stable) Western Union. By 2009, MoneyGram had stabilized and returned to profitability. The company agreed to be acquired by Ant Financial Services Group on January 26th of 2017, pending regulatory approval.

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Monopoly Monopolies refer to markets where a single producer or supplier controls all or nearly all of the market. This means that they have the ability to set prices for the good or service they produce. For there to be a true monopoly, there can not be any near substitutes for the product in question. The term monopoly has also come to represent the company which dominates the market of the good or service. Monopolist is another better name for the supplier who controls the market. When a monopoly exists, there is no competition in the price of the good or service. The monopolist is able to set the price. They will usually choose to make it as high as the market will bear. Monopolies usually occur because there are particular factors that prevent other companies from competing effectively against the monopolist. These factors are called barriers to entry. There are a number of different barriers to entry which can cause a monopoly to arise. Sometimes a company exclusively owns a critical resource that companies need to produce the product. This can help it to become a monopoly. Exclusive knowledge of a process to make something would also count as sole ownership of a critical resource. This is what makes pharmaceutical companies monopolies in various types of medicine which they develop and first release. Government protected ideas can also create monopolies. This can exist in the form of copyrights and patents. In these protections, the government guarantees these companies a minimum period of time to produce the goods or services without any competition. This creates a temporary monopoly until the intellectual property protection expires. Markets where a good or service is new typically see these types of monopolies. Governments justify copyrights and patents as the means to encourage invention and innovation. Without this temporary protection, many companies would not invest resources needed to create new inventions and products. A related monopoly is a government franchise. Governments create these types of monopolies when they give the exclusive ability to operate in an industry to a single business. This could happen with a business that is owned by the government or a private company. Train operators and mail delivery companies like the postal service are good examples of this type of government franchise. Natural monopolies sometimes arise on their own without government help or intervention. This is most often the case when the costs are lower for a single company to service the whole market. Numerous smaller companies competing against each other could actually raise costs and prices in these instances. Some companies have limitless economies of scale. This means that they are so large and powerful in an industry that no new players could compete with their prices. This could be because the costs to enter the industry are so high that no one will bother. They also represent natural monopolies. There are a number of technology infrastructure companies in this position. Some of the more common industries where these types of natural monopolies occur include telephone operators, Internet service, and cable television providers.

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It is not always clear if a company possess a monopoly in a given industry. Some people consider certain brands to be monopolies because of how popular they are. This is true even when they do not control all of the product market share. The Coca Cola Company has a monopoly on producing the soft drink Coke. This is not the only soft drink on the market, but there is no exact substitute for it. Even though rivals Pepsi Cola and Dr Pepper Snapple Group control a large share of the soft drink market, neither of them produces Coke. This is why the debate for monopolies continues to rage on about what constitutes a close substitute. Anti-monopoly regulators constantly wrestle with the question.

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Monte dei Paschi di Sienna Bank Monte dei Paschi di Sienna Bank is the oldest bank in Italy, Europe, and the world. It is also among the most important financial institutions in Italy as the third largest Italian bank. As the flagship brand of the MPS Group (Monte Paschi Sienna), it leads the domestic market and lending market in market share percentages. It trades on the country’s most impressive and respected index, the FTSE MIB in Milan, the nation’s financial center. The bank is affectionately known as “il Monte” by millions of Italians who are customers, investors, or creditors to it around the country. Founded in 1472 by merchants in the then Republic of Sienna, the bank has evolved into the ideal reminder of the once-glorious medieval banking and mercantile traditions of both Sienna and the formerly independent Italian city states. Unfortunately for Monte dei Paschi di Sienna Bank, the world’s oldest lending institution has lost its luster and is no longer solvent. Il Monte’s financial woes began back in the wake of the American-bank caused financial crisis of 2007. Since then, the Monte dei Paschi di Sienna Bank has announced bad loans to the tune of an eye-watering 28 billion Euros (almost $30 billion US). It has been recapitalized three previous times and yet still desperately trying to secure 5 billion Euros in new capital in order to fund continuing operations. As of end of December 2016, the bank had failed to successfully come up with more than half that amount. Its shares ceased trading on the Italian stock market on the news on December 22nd, as Italian lawmakers urgently approved a 20 billion Euros rescue package fund for the listing bank. Despite the fact that European Union regulations frown on public bank bailouts since the banking law reforms enacted following the financial and European Sovereign Debt crises, Italy is doggedly pursuing such a rescue. The reason is because of contagion fears to the rest of the Italian banking system, which may easily also spread beyond the national boundaries into the continental European bank powerhouses of embattled German largest financial institution Deutsche Bank, French titans BNP Paribas and Societe Generale, and Swiss behemoths UBS and Credit Suisse. The Italian banking system is critically important because it is the life blood of the third largest economy in the Euro Zone. Italy is at the same time the second biggest debt to GDP ratio holder in Europe. This is also a scary concern for investors, who know all too well that Italy is the world’s third largest sovereign bond market after the United States and Japan. Millions of investors and financial institutions in Italy, the EU, the U.S., and the rest of the world even have exposure to the Italian government bond markets. Besides this, Italy is a member of the G7 great nation economies of the world, with a trillion dollar plus economy whose health and financial future has a very material impact on both the EU and the world economy as a whole. The global economy can not survive an Italian banking crisis. Italy has become too big to fail as a nation. Italy’s largest bank Unicredito remains one of the world’s systemically critical global banks. Yet the country is fully in a banking crisis anyway you look at the situation. If Monte dei Paschi di Sienna Bank can not be saved, the resulting Italian banking system crash could cause the entire Euro zone to unwind and the world economy to enter yet another Great Recession as in 2007-2009.

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Despite feeble attempts to curb their government debt, the Italian government has only watched it grow to 133 percent of their entire GDP. The most current Bank of Italy provided data proved that the nation’s total public debt increased to an astonishing €2.22 trillion through October 2016. With this enormous public debt burden saddling down Italy, the nation faces a literal ticking time bomb thanks to the boiling bank crisis. This is why the fate of Monte dei Paschi di Sienna may rule the futures of not only its countless Italian pensioner investors and creditors, but also citizens of the whole world. Two decades before Christopher Columbus found the Americas, the bank that holds the key to the stability of the world banking system today first arose. Now the venerable Tuscan-based lender is threatening to overturn the very Western world economies it helped to usher into the modern era of banking and finance as people know it today.

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Moody's Moody’s is a company that creates credit ratings, analysis, research, and tools which help to make markets easier to understand and more transparent for investors and clients around the world. Moody’s Corporation acts as parent company to the two divisions of Moody’s Investors Service and Moody’s Analytics. The Investors Service offers research and credit ratings on securities and debt instruments for a large range of companies, cities, municipalities, nations, and supra national organizations. The Analytics division provides customers with cutting edged advisory services, software, and research for economic and credit analysis and managing financial risk. In 2015 the company itself boasted a staff of nearly 11,000 individuals with offices in 36 countries that generated $3.5 billion in revenues. The company is best known for its famous system for rating securities that they originated over 100 years ago. John Moody created this method for securities ratings back in 1909. The idea behind such ratings is to offer investors an easy to understand grading system that they can use to gauge securities’ creditworthiness in the future. Moody’s Investors Services grades credit using ratings symbols. Every symbol was deigned to categorize a group where all of the elements of the credit worthiness are generally similar to one another. The company limits the system to nine different symbols. The ones with lowest credit risk start with A and gradually decrease to C to show the securities with the highest credit risk. These ratings grades are Aaa (highest possible), Aa, A, Baa, Ba, B, Caa, Ca, and C (lowest possible). Besides these the Investor’s Service also adds the numbers 1, 2, or 3 to all of the classifications of ratings from Aa through Caa. Sometimes there are no ratings given out to a company. Other times the company has ratings that have since been withdrawn. This does not mean that the issue has problems with its credit worthiness. It could be that the company placed the issue privately. There may not be enough important information available on the issuing company or their actual issue. Other times the issuing company or its particular issues are part of a group that the company simply does not rate. Finally, applications for ratings may not have been turned in to the Investor’s Service or may not have been approved for one reason or another. Ratings can also be withdrawn. It might be that the Investor’s Service can no longer perform adequate analysis to update a rating. The data could be out of date so that proper judgments may not be formulated. When bonds are redeemed or called in, ratings are also withdrawn. Moody’s Investor’s Service also changes the ratings it issues on securities, companies, and governments. This is because for the majority of issuers the quality of their credit improves or deteriorates naturally over time. This is why the service is interested in updating the ratings to properly reflect any changes in the strength of the issuing entities and their various obligations. With individual issues, these ratings changes can happen at any time. When Moody’s discerns that there has been a significant change in the quality of credit or that the earlier rating did not accurately reflect the actual quality of the issue, then they may intervene with a new rating. Bonds with lower ratings tend to receive more frequent changes than would bonds that possess superior ratings. Holders of any quality of

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bonds are encouraged to check the ratings consistently to make sure that their credit rating has not changed. Moody’s also rates sovereign countries, cities, counties, municipalities, and supranational organizations for their debt. Very few countries anymore qualify for the coveted Aaa rating since the financial crisis of 2008 and Great Recession destabilized the finances and debt positions of even some of the most dependable developed country economies in the world.

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Morgan Stanley Morgan Stanley is one of the two major American investment banks (along with Goldman Sachs) that survived the financial crisis of 2008/2009. It is an international financial services company that has headquarters in New York City in the Morgan Stanley Building. The firm has over 1,300 offices and employs around 60,000 staff. The group has operations in 24 countries. The company boasted $1.454 trillion in assets under management for 2014. This impressive figure represented a gain of 17.5% over the 2013 numbers. The investment bank originally arose on September 16, 1935 as a venture of the partners of J.P. Morgan & Co, Henry S. Morgan (grandson of legendary J.P. Morgan) and Harold Stanley. The company was forced to split off its investment banking business from the commercial bank operation because of the Glass Steagall Act. This first year of the new investment bank saw it gain a 24% market share of both private placements and public offerings, amounting to $1.1 billion at the time. These days Morgan Stanley offers financial institutions, governments, and individuals investment products and services. Today the firm has three principal areas of business. These are Institutional Securities, Global Wealth Management, and Investment Management. In recent years, the Institutional Securities division has proven to be the biggest profit maker for the company. This component offers services like raising capital and financial advising services to institutions. This includes help with restructuring, advising mergers and acquisitions, corporate lending, and project and real estate financing. Global Wealth Management delivers the company’s investment advising and brokerage services and products. The present division came about when the group’s wealth management merged with Smith Barney. Citigroup originally held a 49% stake in this joint venture until Morgan Stanley bought out its stake entirely. The segment offers high net worth clients wealth planning and financial services. The group’s Investment Management division offers products and services for asset management across a variety of asset classes. These include fixed income, equity, real estate, alternative investments, and private equity. Both retail and institutional clients are able to participate in these offerings that the group delivers through their institutional distribution network, intermediaries, and third party retail distribution networks. During the financial crisis, the firm swung bank and forth between hero and victim in the saga that rocked traditional banks and investment banks to their core. The U.S. Treasury originally contracted them to provide advice on a possible means of rescuing Freddie Mac and Fannie Mae in August of 2008. Yet the company itself proved to be in trouble as its market value plunged more than 80% between 2007 and 2008. As its stock price continued to slide and the company suffered heavy losses on home building related companies, it began to consider merger possibilities with a variety of other banks. Among these were HSBC, Standard Chartered, Wachovia, Citigroup, Nomura, and Banco Santander. When the investment bank fell into serious trouble during the height of the financial crisis, Treasury Secretary Hank Paulson offered to hand Morgan Stanley over to JPMorgan Chase for free. CEO Jamie Dimon turned

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down the offer. On September 22, 2008, Morgan Stanley and Goldman Sachs the last of the big American investment banks declared they would change into traditional bank holding firms which the Federal Reserve would regulate. The Fed approving this bid to become traditional banks brought an end to the power of the securities firms 75 years after the events that segregated them from traditional lenders. It also ended a number of weeks of market chaos that had caused Lehman Brothers to file for bankruptcy and Bank of America to rush purchase Merrill Lynch & Co. Ultimately Morgan was saved both by a $107.3 billion loan from the Federal Reserve, which represented the largest loan taken by any bank, along with a $9 billion investment by largest Japanese bank Mitsubishi UFC Financial Group.

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Mortgage Mortgages are loans made on commercial or residential properties. They commonly use the house or the property itself as collateral. These mortgages are paid off in monthly installments over the course of a pre determined amount of time. Mortgages commonly come in fifteen, twenty, and thirty year periods, though both longer ones and shorter ones are available. A variety of differing mortgages exist. All of them have their own terms and conditions that translate into advantages and disadvantages. Among the various mortgage types are fixed rate mortgages, adjustable rate mortgages, and balloon payment mortgages. The most common kinds or mortgages, especially for first time home buyers, prove to be fixed rate mortgages. This is the case because they are both simple to understand and extremely stable. With such a mortgage, the regular monthly payments will be the same during the entire life of the loan. This makes them very predictable and manageable. Fixed rate mortgages have the advantages of protection against inflation, since the interest rate is locked in and can not go up with the floating interest rates. They allow for longer term planning. They come with very low risk, since you are always aware of both the payment and interest rate. Adjustable rate mortgages, also known as ARM’s, have become more popular since they begin with lower, more manageable interest rates that result in a lower initial monthly payment. The downside to them is that the interest rate can and likely will go up and down in the loan’s life time. Factors to consider with ARM’s are the adjustment periods, the indexes and margins, and the caps ceilings, and floors. The adjustment period is the one in which the interest rate is allowed to reset, commonly starting anywhere from six months to ten years after the mortgage begins. The interest rates change based on the index and margin. The interest rates are actually based on an index that is published, whether it is the London Interbank Offered Rate, or LIBOR, or the U.S. Constant Maturity Treasury, or CMT. The margin is added to this index to determine the total new interest rate on your mortgage. The amount that these ARM rates are capable of going up or down in a single adjustment period and for the life of the loan is called a cap, a ceiling or a floor. The third common type of mortgages is balloon reset mortgages. They come with thirty year schedules for repayment, with a caveat. Unless you pay are willing to allow the mortgage to reset to then current interest rates at the end of either a five year or seven year term, then your entire balance will be due at this point. This gives you the benefits of the low monthly payment plan as a person with a thirty year loan would have, yet you will have to be willing to pay off the whole mortgage if you do not take the reset option when the term is up. Because of this, many people refer to this type of a mortgage as a two step mortgage.

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Mortgage Backed Obligations (MBO) Mortgage Backed Obligations are also called mortgage backed securities, or MBS. These are real estatebased financial instruments. They represent an ownership stake in a pool of mortgages. They can also be called a financial security or obligation for which mortgages underlie the instrument. Such a security offers one of three different means for the investor getting paid. It might be that the loan becomes paid back utilizing principal and interest payments that come in on the pool of mortgages which back the instrument. This would make them pass through securities. A second option is that the security issuer could provide payments to the investing party independently of the incoming cash flow off of the borrowers. This would then be a non-pass through security. The third type of security is sometimes referred to as a modified-pass through security. These securities provide the security owners with a guaranteed interest payment each month. This happens whether or not the underlying incoming principal and interest payments prove to be sufficient to cover them or not. Pass-through securities are not like non-pass through securities in key ways. The pass through ones do not stay on the issuer of the securities’ or originators’ balance sheets. Non-pass through securities do stay on the relevant balance sheet. With these non pass through variants, the securities are most frequently bonds. These became mortgage backed bonds. Investors in the non-pass through types often receive extra collateral as a letter of credit, guarantees, or more equity capital. This type of credit enhancement is delivered by the insurer of the mortgage backed obligation. The holder of the MBO will be able to count on the security which underlies the instruments in the event that the repayments the pools of mortgages make are not enough to cover the payments (or fail altogether) for the bond holder investors. These offerings of Mortgage Backed Obligations, Mortgage Backed Bonds, or Mortgage Backed Securities are all ultimately backed up by mortgage pools. Analysts and investors usually call these securitized mortgage offerings. When such types of investments are instead backed up by different kinds of assets and collateral then they have another name. An example of this is the Asset Backed Securities or Asset Backed Bonds. They are backed up with such collateral as car loans, credit card receivables, or even mobile home loans. Sometimes they are referred to as Asset Backed Commercial Paper when the loans that underlie them are short term loan pools. With these Mortgage Backed Obligations, they are often grouped together by both risk level and maturity dates. Issuers, investors, and analysts refer to this grouping as tranches, which are the risk profileorganized groups of mortgages. These complicated financial instrument tranches come with various interest rates, mortgage principle balances, dates of maturity, and possibilities of defaulting on their repayments. They are also highly sensitive to any changes in the market interest rates. Other economic scenarios can dramatically impact them as well. This is particularly true of refinance rates, rates of foreclosure, and the home selling rates. It helps to look at a real world example to understand the complexity of Mortgage Backed Obligations and Collateralized Mortgage Obligations like these. If John buys an MBO or CMO that is comprised of literally thousands of different mortgages, then he has real potential for profit. This comes down to whether or not the various mortgage holders pay back their mortgages. If just a couple of the mortgagepaying homeowners do not pay their mortgages while the rest cover their payments as expected, then

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John will recover not only his principal but also interest. On the other hand, if hundreds or even thousands of mortgage holders default on their payments and then fall into foreclosure, the MBO will sustain heavy losses and will be unable to pay out the promised returns of interest and even the original principal to John.

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Mortgage Backed Securities (MBS) Mortgage backed securities turn out to be a special kind of asset which have underlying collections of mortgages or individual mortgages that back them. To be qualified as an MBS, the security also has to be qualified as rated in one of two top tier ratings. Credit ratings agencies determine these ratings levels. These securities generally pay out set payments from time to time which are much like coupon payments. Another requirement of MBS is that the mortgages underlying them have to come from an authorized and regulated bank or financial institution. Sometimes mortgage backed securities are called by other names. These include mortgage pass through or mortgage related securities. Interested investors buy or sell them via brokers. The investments have fairly steep minimums. These are generally $10,000. There is some variation in minimum amounts depending on which entity issues them. Issuers are either a GSE Government Sponsored Enterprise, an agency company of the federal government, or an independent financial company. Some people believe that government sponsored enterprise MBS come with less risk. The truth is that default and credit risks are always prevalent. The government has no obligation to bail out the GSEs when they are in danger of default. Investors who put their money into these mortgage backed securities lend their money to a business or home buyer. Using an MBS, regional banks which are smaller may confidently lend money to their clients without being concerned whether the customers can cover the loan itself. Thanks to the mortgage backed securities, banks are only serving as middlemen between investment markets and actual home buyers. These MBS securities are a way for shareholders to obtain principal and interest payments out of mortgage pools. The payments themselves can be distinguished as different securities classes. This all depends on how risky the various underlying mortgages are rated within the MBS. The two most frequent kinds of mortgage backed securities turn out to be collateralized mortgage obligations (CMOs) and pass throughs. Collateralized mortgage obligations are comprised of many different pools of securities. These are referred to as tranches, or pieces. Tranches receive credit ratings. It is these credit ratings which decide what rates the investors will receive. The securities within a senior secured tranche will generally feature lesser interest rates than others which comprise the non secured tranche. This is because there is little actual risk involved with senior secured tranches. Pass throughs on the other hand are set up like a trust. These trust structures collect and then pass on the mortgage payments to the investors. The maturities with these kinds of pass throughs commonly are 30, 15, or five years. Both fixed rate mortgages and adjustable rate ones can be pooled together to make a pass through MBS. The pass throughs average life spans may end up being less than the maturity which they state. This all depends on the amount of principal payments which the underlying mortgage holders in the pool make. If they pay larger payments than required on their monthly mortgages, then these pass through mortgages

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could mature faster.

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Mortgage Broker A mortgage broker is a firm or sole proprietorship that performs a role as an intermediary between banks and businesses or individuals who are looking for mortgage loans. Even though banks have always vended their own mortgage products, mortgage brokers have gradually taken a larger and larger share of the loan originating market as they seek out direct lenders and banks that have the specific products that a customer wants or needs. Nowadays, sixty-eight percent of all loans begin with mortgage brokers in the United States, making them by far and away the biggest vendors of mortgage products for banks and lenders. The remaining thirty-two percent of loans come from banks own direct marketing efforts and retail branch efforts. Mortgage broker fees are separate from the bank mortgage fees. They are based on the loans’ amounts themselves and range from commonly one to three percent of the total loan amount. Mortgage brokers are mostly regulated in order to make sure that they comply with finance laws and banking rules in the consumer’s jurisdiction. This level of regulation does vary per state. Forty-nine of the fifty states have their own laws or boards that regulate mortgage lending within their state’s borders. The industry is similarly governed by ten different federal laws that are applied by five federal agencies for enforcement. Banks find mortgage brokers to be an ideal means of bringing in borrowers who will qualify for a loan. In this way, a mortgage broker acts as a screening agent for a bank. Banks are furthermore able to shift forward a portion of the fraud and foreclosure risks to the loan originators using their contractual legal arrangements with them. In the originating of a loan, a mortgage broker will do the footwork of collecting and processing all of the necessary paper work associated with real estate mortgages. Mortgage brokers should not be confused with loan officers of a bank. Mortgage brokers are typically state registered and also licensed in order to work as a mortgage broker. This makes them liable personally for any fraud that they commit during the entire life span of the loans in question. Being a mortgage broker comes with professional, legal, and ethical responsibilities that include proper disclosure of mortgage terms to consumers. Mortgage brokers come with all kinds of experience, as do loan officers, who are employees of banks. While loan officers commonly close more loans than mortgage brokers actually do because of their extensive network of referrals within the bank for which they work, the majority of mortgage brokers make more money than loan officers make. Mortgage brokers generate the lion’s share of all loan originations within the country as well. Mortgage brokers are all represented by the NAMB, which is the acronym for their group the National Association of Mortgage Brokers. The NAMB’s mission is to represent the industry of mortgage brokers throughout the U.S. It also offers education, resources to members, and a certification program as well.

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Mortgage Costs Mortgage costs are fees that real estate transactions incur when it is time for them to close. The point for closing comes as the seller transfers the title to the property over to the buyer. Mortgage costs can be absorbed by the seller or the buyer. A number of different expenses go into these overall costs. The amount for mortgage costs ranges dramatically based on the property the individuals are buying and where they live. They cover many different expenses. There are fees for such things as credit reports, attorney costs, and appraisals. A survey fee pays for the expense of confirming where the property lines are. Pest inspection fees pay to check for termites and other home damaging insects. Credit report fees pay for running the borrower’s credit. Inspections may be requested by the lender or the buyer, and there is a fee for these. With the loan origination fee, lenders receive their compensation for handling all of the loan paperwork on behalf of the borrower. They receive a separate amount called an underwriting fee when they evaluate the application for the mortgage loan. Other mortgage costs have to do with discounts, titles, and escrows. Discount points turn out to be optional fees that borrowers pay to receive a more favorable interest rate on the loan. A title search fee pays to have a background check performed on the title to ensure that there are no problems like tax liens or unpaid mortgages attached to the property. Lenders also insist on title insurance. This insurance protects them against a title that turns out not to be clear. The recording fee goes to the county or city to compensate them for adding the update to the land records. There could also be an escrow deposit. This provides for several months of the private mortgage insurance and property tax costs. Even though mortgage costs vary wildly from one region to another, it is still possible to estimate how high they will be. Home buyers can anticipate commonly paying somewhere between two percent and five percent of the final price of the house in closing fees. This means that if a house costs $200,000, the mortgage costs could run from $4,000 to $10,000. The law requires that lenders provide home buyers with a Loan Estimate that covers the amount that these fees will approximately be. They must do this in three days or less of accepting the loan application. These are estimates that will change on a number of the fees. Three business days or more before the closing occurs, the lender will provide borrowers with a Closing Disclosure statement. This covers the actual closing fees. It is a good idea to hold this up to the original Loan Estimate to contrast the expenses. The lender should explain every item on the fees, why they are important, and why they differed from the original estimate. In many cases, a significant number of these costs can be negotiated. Some of them can even be removed as unnecessary. This includes fees such as courier, mailing, and administrative costs that the lender is attempting to collect. Borrowers always have the option of walking away from this particular loan if the fees seem high and unreasonable. Other lenders will be agreeable to provide competitive loans with more reasonable fees.

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There are also no closing cost mortgages. In these, borrowers are able to sidestep the fees upfront when they close on the loan. Lenders still make money by exacting a higher interest rate or by rolling the costs into the whole mortgage. This last method causes borrowers to pay interest for the mortgage costs as well. Sellers can occasionally be persuaded to absorb the fees at closing.

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Mortgage Servicing Mortgage servicing refers to the organization that handles the administration of a given mortgage loan. When many individuals obtain a mortgage, they mistakenly believe that their lender is going to keep and service this loan until they repay it in full or alternatively sell the house. This is not true much of the time, if not most of the time. In the competitive mortgage market of today, the loans a bank makes and its rights to service them it will commonly sell or buy. This simply means that in many instances, individuals send their payments in to a different company than the one which actually holds their loan. It is useful to understand the definition of a mortgage servicer. These entities carry the responsibility of managing the daily needs for a given account on a mortgage loan. This includes a number of different services which they perform for the loan. The mortgage servicing model includes receiving and applying the every-month loan installment payments. Servicers also manage the escrow account for any mortgage that possesses one. It is this servicer who homeowners will call or email if they have questions regarding the mortgage itself or any particulars of the loan account. This administration involved in mortgage servicing revolves around administering the loan from the time the loan proceeds are paid out all the way through the repayment of the loan in full. Besides the obvious tasks that a servicer will perform on a mortgage account, there are several other critically important ones. The servicer must collect and make payments on both insurance and taxes for the borrower. They have to deliver the received funds to the holder of the mortgage. Finally, they have the unpleasant but necessary task of dealing with any delinquencies on the mortgage accounts. The mortgage servicers receive their compensation for these services in a particular way. They get to keep a fairly small percentage of every loan installment payment. This is called the servicing strip or servicing fee. It typically amounts to between .25% and .5% of the amount of the periodic interest payment. Looking at an example of how this compensation works out in practice is helpful. When a remaining balance on a given mortgage proves to be $200,000 and there is a servicing fee amounting to .50%, the mortgage servicer will keep .005 divided by 12 months times $200,000 to arrive at a servicing amount of $80. They will retain this $80 from the coming periodic payment and then turn in the rest of the payment amount to the holder of the mortgage. These mortgage servicing rights can be bought and sold on the secondary market. This happens in a similar fashion to the MBS mortgage backed securities trading. In fact, the mortgage loan servicing value works out to be much like the MBS IO strips value. This is referred to as MSR Mortgage Servicing Rights. Such servicing rights are actually contracted. They provide the rights to service the original mortgage. The initial lender will often sell these off to another firm that specializes in servicing mortgages. The contract will then specify what percentage amount the servicer will keep from each payment. Though it is hard to believe, the United States national banking laws permit these lending institutions to sell their mortgages and/or servicing rights to any other institution they wish without having to first obtain the consent of the borrower or even to alert them of the change. This is because the interest rate, payment amount, kind of loan, and other terms will stay the same regardless of who services the mortgage. The

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only difference is that the company and address where the borrower sends the payments will be different. Lenders might choose to sell these mortgage servicing rights in order to make available additional funds to more borrowers who wish to obtain mortgages. This is necessary as the majority of loans on homes take from 15 to 30 years (or even longer) to repay. Banks would requires billions of dollars in funds to loan out in order to meet the mortgage market demand if they had to keep all of their loans on the books ad infinitum. By selling the loans and/or servicing rights, they are able to help more individuals into homes.

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Moving Averages Moving Averages are an indicator that is heavily used in technical analysis. They represent average prices spread out over a period of time. They are more useful because the changes in price action are smoothed out as any random price movements become filtered out. There are a number of different variations. Two of them prove to be the most commonly used. These are the simple moving average, or SMA, and the exponential moving average, or EMA. A simple moving average is a straight average compiled over a certain number of different time periods. With the Exponential Moving Average, prices that are more recent tend to have a greater amount of weight given to them than prices that are farther back. Moving Averages are most commonly used to find the direction of the overall trend. They also help to set the levels of resistance and support. Moving averages are also heavily used to create a number of other technical indicators. One of the better known that is based upon the moving averages is the MACD, or Moving Average Convergence Divergence.

Moving Averages tend to be lagging indicators themselves. This is because programs and charts derived them from historical prices. They are useful even despite this lagging nature. The longer a time frame that an individual considers with a moving average, the bigger the lag will be. For example, 200 day moving averages would lag significantly more than 100 day moving averages and even more than 20 day moving averages. Different Moving Average time frames are employed depending on the trading needs. Investors who are practicing short term trading will be most interested in shorter time-frame Moving Averages. Investors who pursue long term trading will find longer time frame moving averages to be more helpful. Many different traders and investors find the 200 Day Moving Average to be a useful and significant benchmark and tool. When there are breaks to the top or bottom it sends major trading signals. For example, if a 200 day moving average acting as a support were convincingly broken, then the underlying security would likely continue moving down. Conversely, if the same important moving average was functioning as a resistance point, then a break of this average to the topside would likely signal the instrument would continue moving up significantly. Moving Averages deliver a variety of critical signals for trading by themselves. When two of them cross, it can be even more significant. Moving Averages that are going up demonstrate that the instrument or security is trending higher as part of an uptrend. A Moving Average that declined would show the security to be trending lower and involved in a downtrend. A bullish crossover is another confirmation of movement to the upside. This happens as a shorter time frame Moving Average crosses over and above another Moving Average that is longer term. Similarly, a bearish crossover signals that there is more momentum to the downside. It happens as the shorter time

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frame Moving Average makes the cross beneath a Moving Average which is longer term. Another important usage surrounds supports and resistances. When stocks or other securities are trending up, moving averages function as supports. A shorter term uptrend would look to 20 Day Simple MAs. These are a part of Bollinger Band indicators as an example. The longer term uptrend often looks for support at the popular 200 Day Moving Average. Conversely when securities trend downwards, these moving averages act as resistances. An interesting point about 200 Day Moving Averages is that they are so widely followed that they work in many cases either as support or resistance simply because so many people watch and give them significance.

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MSCI EAFE The MSCI EAFE is a stock market index. The acronym of EAFE means Europe, Australasia, and the Far East. It was first conceived of as a way to measure the developed equity markets of the world besides Canada and the United States. The manager of this index is MSCI Barra, whose combined indices have over $1.9 trillion in total ETFs, funds, and mutual funds indexed to them. The firm proves to be an investment decision tools provider which owns and manages numerous indices. This index turns out to be weighted by market capitalization. This means that the securities it tracks and follows are weighted utilizing their various market cap amounts. To this effect, the index lines up all of the stocks in the applicable countries’ investment world according to biggest to smallest using the market cap amounts. The biggest of these (70 percent largest market cap ranked companies) make up the MSCI EAFE Large Cap, a newer index. The biggest 85 percent will comprise the MSCI EAFE Standard. The biggest 99 percent make up the MSCI Investable Market Index, or IMI. The index considers a basket of the largest stocks taken from the major 21 developed nations’ markets (besides both Canada and the United States) as part of its definition. The index itself has a long history stretching all the way back to December 31st of 1969. This makes it the longest running actually international index of global stocks. In no small part because of this, the index has become by far the most typically utilized and referenced benchmark for the range of foreign stock funds listed within the United States. The MSCI EAFE index includes 21 different major developed nations and their important largest capitalization companies. Countries which are represented in the index itself include all of the following states: Australia, Austria, Belgium, China, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. This means that fully 15 of the countries whose companies comprise the index are European. These nations are the identical ones included in the MSCI World index minus Canada and the United States. This EAFE index has become so important that a huge number of the North American based managers of international stock funds employ it as their benchmark for fund performance. The international fund, or I Fund, by the Thrift Savings Plan follows the index in its net form. There are a number of other funds and ETFs that are based upon this EAFE benchmark. iShares MSCI EAFE is one of them traded on the NYSE Arca exchange under the symbol of EFA. It represents the fourth biggest Exchange Traded Fund on earth. Besides this massive ETF, iShares MSCI also maintains the EAFE Small Cap (traded under symbol SCZ) with only the smaller cap companies. The Core MSCI EAFE fund trades under the symbol of IEFA and utilizes the index’s IMI version. While the fund is much like EFA, the portfolio itself comprises practically all of every relevant nation’s market capitalization. EFA only includes the biggest 85 percent, leaving out the overwhelming majority of the stocks which are small cap. Another index fund based on this EAFE index proves to be the TIAA International Equity Index Fund. Vanguard runs its Vanguard Developed Markets Index Inv mutual fund as well as its Vanguard FTSE

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Developed Markets Exchange Traded Fund. For years the two of them were utilizing the EAFE as their basis and benchmark. Now they have switched over to the London based FTSE Developed ex North America Index. It is much the same as the EAFE only it also brings in companies from South Korea (which would permit the inclusion of companies such as Kia Motors, Samsung, and LG among others). Because so many ETFs and mutual funds have their basis on the EAFE Index, several different futures exchanges have arranged licensing agreements to trade futures based on the index on their own exchanges. These include the exchanges ICE Futures, ICE Futures Europe, and CBOE Chicago Board Options Exchange.

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Mt. Gox Until 2014, Mt. Gox used to be the largest bitcoin exchange operator in the history of virtual digital currency and its poster boy bitcoin. The Japanese-based company arose in July of 2010. By the year 2013, it had grown to dominate the bitcoin exchange market by handling an astonishing 70 percent of all bitcoin transaction in the world. In less than a year later in February of 2014, the company was forced to suspend stock trading, close down its exchange service and website, and to file for bankruptcy protection known as civil rehabilitation. The courts began looking for a buyer of the stricken exchange at this point. By April of 2014, the firm had started official liquidation procedures under the auspices of a court-appointed bankruptcy trustee. This is when the news, which was only unconfirmed rumors before, emerged that nearly 850,000 bitcoins which belonged to company customers had been missing and probably stolen. The value of said bitcoins at this point proved to be $450 million. The good news for account holders is that fully 200,000 of the supposedly stolen coins were found. In the beginning it was unclear whether the coins had been fraudulently mishandled, stolen, mismanaged, or some combination of all of them. By April of 2015, WizSec produced evidence which showed that the majority of the missing digital currency units were actually stolen right out of the Mt. Gox hot wallet gradually and over several years. This theft began consistently in 2011. The company initially grew out of a fantasy gaming community project. Its humble origins dated back to late 2006. Programmer Jed McCaleb famous for his games and apps Stellar, Ripple, Overnet 1, and eDonkey2000, came up with the idea to develop a website for the players of Magic: The Gathering Online. This would enable them to trade various cards like stocks, which already traded online. He bought the domain name mtgox.com as an acronym for Magic: The Gathering Online eXchange. When the developer lost interest in what he assumed would never be a profitable project, he later sold it off to investor-developers who had visions for its platform as a bitcoin exchange. By 2013, the site was by far and away the largest bitcoin exchange operator in all the world, dealing in 70 percent of the global bitcoin trade. By May in 2013, Mt. Gox was trading an impressive 150,000 of the digital currency units each day, as demonstrated by the Bitcoin volume charts. It was only one month later that suddenly Mt. Gox suspended all client withdrawals in U.S. dollars. Tokyo’s Mizuho Bank which handled their U.S. transfers began pressuring them to close out the account from this moment. Transactions were restored on July 4, but there were consistent problems through the rest of the summer and fall. Wired Magazine broke the story in November of 2013 that Mt. Gox clients suffered from several weeks to even months of delays when they attempted to cash out their bitcoins for other currencies or take out bitcoins in the forms of withdrawals. The article claimed the company was “effectively frozen out of the U.S. banking system because of its regulatory problems.” By February of 2014, client complaints had mounted regarding the long delays in withdrawal processing. February 7 saw the final halting of all bitcoin withdrawals by the company.

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The news just continued to grow worse from this point. February 23 witnessed the resignation of CEO Mark Karpeles from the Bitcoin Foundation. The next day, Mt. Gox had suspended all trades. Its website went dark a few hours later and never came back online. A leaked document on the company’s crisis management insisted that the company had become insolvent after the loss of 744,408 bitcoins in a theft that had been ongoing and undetected for literally years. At this point, six of the other major bitcoin exchange operators issued a joint press release asserting that they had no connection with the fallen former giant of the industry. The last communication from the company came out on February 25 when they reported that all of their transactions had been closed out until further notice thanks to recent reports and their impacts on the operations of the firm.

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Municipal Bonds Municipal bonds prove to be counties’, cities’, and states’ debt obligations. They issue these in order to raise money against future tax revenues for building highways, schools, sewer systems, hospitals, and numerous other public welfare projects. When you as an investor buy a municipal bond, you are actually loaning a state or local government or agency money. They agree to pay you back your principal, along with a certain sum of interest that is generally paid out twice a year. The principal is commonly given back on the pre arranged maturity date of the bond. The advantage that is most commonly touted to municipal bonds is their tax free nature. The truth is that not every municipal bond actually provides income which is tax free on both state and federal levels. Many municipal bond issues are exempt from taxes from the state and local authorities but still have to pay taxes on earning to the federal government. Municipal bonds that come without any federal taxes as well are generally known as Munis. These Munis prove to be the most appealing bonds for many investors since they are generally exempt from all Federal, state, and local taxes too. Besides this, Munis are commonly investments made in the local and state infrastructure, impacting your daily quality of life and that of your community. Projects including highways, hospitals, and housing are all covered by these types of municipal bonds. Municipal bonds can also be further subdivided into one of two general categories. These are general obligation bonds and revenue bonds. With a general obligation bond, the interest and principal that is owed to you is commonly backed up by the issuer’s own credit and faith. They typically come underpinned by the taxing power of the issuer. This can be based on their limited or unlimited powers of taxing. General obligation bonds usually come approved by the voters who will pay the taxes that support their repayment. Revenue bonds on the other hand are backed up by specific revenues for the project in question. Their interest and principal payment amounts have supporting revenues that come from tolls, rents from the facility that they build, or charges to use the facility that is built. Many different public works are built with revenue bonds. These could be airports, bridges, roads, sewage and water treatment plants, subsidized housing, and even hospitals. A great number of such bonds come issued by authorities which are specifically launched to create such bond issues in the first place. Municipal bonds and notes commonly come with minimum investment amounts. These are typically denominated by $5,000. They can come in multiples of $5,000 increments as well. If you want to buy a municipal bond, you can buy them directly off of the bond issuer when they come out on the primary market, or alternatively off of other bond holders after they have come out, from the secondary market.

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Murray Rothbard Murray Rothbard has been called the last of the great universally influential Austrian School of Economics champions. He was a personal disciple and student of the legendary economist Ludwig von Mises, attending his lectures at New York University in the 1960s and 1970s until Mises eventual retirement and death. In 1963, Rothbard released his still widely read Man, Economy, and State. This work tightened and improved on Mises’ original Austrian School economic ideas. Next Murray Rothbard turned his attention on to the Great Depression. He studied and then produced an economic treatise of this terrible period in human geopolitical history, applying the Austrian business cycle theories to demonstrate that the Black Monday stock market crash and subsequent economic collapse could be blamed on the previous over- expansion and –extension of bank issued credit. He followed this up with a series of studies and papers on government policy in order to craft groundwork to examine all sorts of government interventions within the markets. Murray Rothbard himself deserves the credit for finally entrenching the Austrian School and liberal economic ideologies within the United States after several generations of failed Keynesian economic policies and arguments. His four volume history of colonial America (and its eventual declaration of independence from Britain) was known as Conceived in Liberty. Subsequent works of his included The Ethics of Liberty and the two volume work Logic of Action, itself a part of the important “Economists of the Century” series produced by Edward Elgar. These still influential works produced by Rothbard became the bridge between the earlier generations of von Mises and Hayek and the younger Austrian School economists and students who were striving to advance and improve upon the growing tradition. Thanks to Rothbard’s deep and wide level of scholarship, encyclopedia-like personal knowledge base, unquenchable personality, and eternallyoptimistic outlook, he fostered unknown numbers of up and coming students to focus their attention on the cause of liberty as it pertained to economics. It is no exaggeration to claim that the once-despised and even -ridiculed Austrians have taken center stage in today’s Anglo-American economics policy universe. They had not enjoyed this position and level of influence since the 1930s and earlier. This resulted at least in significant part because of the Rothbardassisted founding and leadership of the Mises Institute in 1982. Legendary Austrian economists Hayek, Hazlitt, and widow Margit von Mises combined their powers, influence, and resources to create a host of new opportunities for the Austrian School and Murray Rothbard via this increasingly important institute and think tank. These included continuously hosted instructional seminars, academic conferences, monographs, books, newsletters, studies, and even movies produced by Rothbard and his disciple contemporaries. Rothbard (as leader of and with the support of the Institute) led the Austrian School on into the post-socialist era with an enthusiastic following of young economists charging in his wake. The Review of Austrian Economics began publishing in 1987 with Rothbard as editor-in- chief. It evolved into a semiannual publication by 1991 and eventually a quarterly by 1998 under the revised name of The Quarterly Journal of Austrian Economics. Each year from 1984 on, the Mises Institute has hosted its

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influential Instructional Summer School. For a great number of years, Rothbard himself presented his latest research on the history and development of economic thought at this program. It led to his two volume magnum opus, An Austrian Perspective on the History of Economic Thought. In this seminal achievement work, Rothbard brought the discipline full circle by covering literally centuries of important writings relevant to the Austrian School and the study of economics. Today’s Mises Institute is an ongoing concern and critically important supporting organization. It provides fellowships to students, bibliographies, study guides, and hosts and sponsors conferences around the United States and English-speaking world. Thanks to this now thoroughly grounded institute and the years of tirelessly effective leadership of leading modern era Austrian School economist Murray Rothbard, the Austrian School thought and practice today is influential on every level of developed nation government policy and in all academic departments of social sciences and economics throughout both the United States and many foreign countries too.

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Mutual Funds Mutual funds prove to be collective investment pools that are managed professionally. They derive their sometimes enormous capitals from the contributions of many different investors. These monies are then invested in a variety of investments and securities comprised of bonds, stocks, other mutual funds, money markets, and commodities like silver and gold. Mutual funds all have a fund manager. His responsibility is to sell and buy the holdings of the fund according to the guidelines spelled out in the particular mutual fund’s prospectus. U.S. regulations require that all mutual funds registered with the governing SEC, or Securities and Exchange Commission, make distributions of practically all income and net gains made from selling securities to the investors minimally once a year. The majority of these mutual funds are furthermore overseen by trustees or boards of directors. Their job is to make certain that the fund is properly managed by its investment adviser for the investors of the funds ultimate good. There are really a wide variety of different securities that mutual funds are permitted by the SEC to purchase. This is somewhat limited by the objectives spelled out in the prospectus of the fund, which is comprised of a great amount of useful information on the fund and its goals. While cash instruments, stocks, and bonds are the more common types of investments that they purchase, mutual funds might also buy exotic types of investments like forwards, swaps, options, and futures. The investment objectives of mutual funds explain clearly the types of investments that the fund will purchase. As an example, if a fund’s objective claimed that it was attempting to realize capital appreciation through investing in U.S. company stocks regardless of their amount of market capitalization, then it would be a U.S. stock fund that purchased U.S company stocks. Other mutual funds purchase specific market sectors or different industries. Utilities, technology, and financial service funds are examples of this. Such a fund is called a sector fund or specialty fund. There are also bond funds that purchase different kinds of bonds, like investment grade corporate bonds or high yield junk bonds. They can invest in the bonds issued by government agencies, municipalities, or companies. They might also be divided up according to whether they purchase long term or short term maturities of bonds. These funds may also buy bonds or stocks of either domestic companies or global companies, or even international companies outside of the United States. Index funds are another type of mutual fund that attempts to match a certain market index’s performance over time. The S&P 500 index is an example of one on which index mutual funds are based. With this type of index fund, the mutual fund would find derivatives based on the S&P 500 stock index futures so that they could match the index’s performance as identically as possible. To help investors better understand the type of fund that they are getting into, the SEC came out with a particular name rule in the 40’ Act that makes funds actually invest in minimally eighty percent of securities that actually match up with their name. So a fund called the New York Tax Free Bond Fund would have to use eighty percent or more of its funds to purchase investments of tax free bonds that New York State and its various agencies issued.

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Mutual Funds Dividends Where mutual funds are concerned, dividends are quite different than they turn out to be for stocks. Mutual fund dividends are actually required distributions of both income as well as capital gains that are realized that have to be paid out to investors in mutual funds. Mutual funds often bring in varying types of income. The challenge lies in the fact that all of these incomes come with varying tax treatments. In the majority of cases, such differences in taxes are passed through to the investors in the mutual fund. As an example, should a mutual fund own a stock for longer than a single year and then sell it to realize a capital gain, then a portion of the investors’ mutual fund dividends would be classified as a long term capital gain. This would permit you to realize the advantages of such types of income’s lower tax rates. There are varying types of dividends paid out by mutual funds. One of these is ordinary dividends. These cover every type of taxable income besides the long term capital gains. This does not mean that they are always treated as ordinary tax rate income, since some of these dividends will be qualified dividends that receive preferential tax rate treatment. Some of the distributions that come from your mutual fund could be long term capital gains. These do get the better form of tax treatment. Shorter term capital gains in these funds are generally distributed along with the regular dividends. Some mutual funds buy into state or local government debts or municipal bonds. This results in a portion of your mutual fund distributions being treated as interest that is tax exempt. These interest payments might still impact social security benefits though, so it is wise to consult a tax professional concerning them. Should your mutual fund be investing money into the Federal Government’s debt obligations, then these distributions can often be treated as interest paid by the federal government. Such income is not given favorable Federal income tax treatment. It does become exempt from state income types of taxation. From time to time, mutual funds will issue payments that are not income at all. This is a non dividend distribution. All that it represents is a portion of the money that was invested by you in the first place being returned to you. These distributions usually do not even have to be reported. They must be used in determining the amount of loss or gain incurred when you sell the mutual fund shares, though. A final mutual fund dividend paid out is a capital gain allocation. These are highly unusual, since the overwhelming majority of mutual funds do capital gain distributions instead. While it is highly uncommon to see such a capital gain allocation, if you do get one, then you will have to use the special Form 2439 that your mutual fund sends to you in dealing with the particular tax rules.

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MyRA Account MyRA Account is a new form of retirement plan that the government set up under the auspices of the U.S. Department of the Treasury. They intended it for workers who do not have access to any other form of retirement plan through their workplace and who do not have a convenient vehicle of their own for saving for retirement. It is a Roth IRA and is governed by the Roth IRA rules. It offers several advantages other forms of retirement accounts do not. There are no fees or costs to set it up or maintain it. The account is automatically invested in a government Treasury fund and pays the simple rate, so there are not any complex investment options or decisions to make. Because it is based in Treasuries of the United States government, there is no risk of losing any money. The Obama administration created and issued this MyRA account plan in 2015. As with other types of retirement plans and accounts, participants are able to set up automatic payroll contributions to this account. When they change jobs to work for a different company, the account stays with them as it is their own personal retirement account. The accounts also provide the distinctive advantage in allowing participants to take out the money they placed in the MyRA account whenever they wish. There is no additional tax levied or penalties assessed at any point when they do this. This means that there is no early withdrawal penalty associated with the MyRA accounts, making it more like a savings account than a government approved retirement plan. Participants in the MyRA Account like that their money is invested in safe U.S. government Treasuries. The investment is fully backed by the United States Treasury. They state that the account will earn (with no risk) an interest rate of 1.5% APR for the month of July 2016. This is based on the Government Securities Fund. This particular fund earned a 2015 average return of 2.04% and a 2.94% average annual return in the ten year period that concluded in December of 2015. As a starter retirement account, the MyRA account provides the unmatched benefit of no charges to set up or open it and no ongoing maintenance fees for account owners. It also allows savers to contribute any amount they like with no minimum, even $2 contributions. The investments grow with the same tax advantages as a Roth IRA with after tax dollars. This means that the interest and principle will not be taxable when it is withdrawn from the account at any point between now and through retirement. The MyRA account does come with maximum contribution limits as do all types of retirement savings vehicles. For tax years 2015 and 2016, participants may contribute no more than $5,500 in the year. If they are older than 49 years of age, this amount increases to $6,500 for the year in catch up contribution amounts which the IRS permits. Besides the annual contribution limit amounts, there are also the same lifetime contribution limits that apply to standard Roth IRA accounts. Critics of this account have warned that this plan represents an all too easy mark and tempting target for the U.S. government if it runs into financing troubles. In the event that Treasury needs ready to access funds, it would not be able to find any that were easier to seize than the ones it is holding itself on behalf of American account holders. They also accuse the government of setting up a plan that props up and creates demand for Treasuries using Americans’ retirement funds as the vehicle to do this.

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National Association of Securities Dealers (NASDAQ) The NASDAQ is the acronym for the National Association of Securities Dealers Automated Quotation Systems, though the organization has dropped the Automated Quotation Systems part of the name as obsolete. This NASDAQ is the country’s second largest stock exchange. It represents the principal rival to the NYSE, or New York Stock Exchange, which is the largest stock exchange in the country and only one larger than it. The NASDAQ is also the largest equity securities trading market in the U.S. that is based on an electronic screen. When market capitalization, or the value of its stock per share multiplied by the number of outstanding shares, is considered, it is the fourth largest trading exchange in the world. The NASDAQ actually records a higher trading volume than does any competing electronic stock exchange on earth with its actively traded 2919 ticker symbols. NASDAQ became established in 1971 by the NASD, or National Association of Securities Dealers. The system originally represented the successor to the OTC, or Over the Counter traded market. It later developed into an actual stock exchange of sorts. By 2000 and 2001, the NASD sold off the NASDAQ into the NASDAQ OMX Group, who presently own and operate it. Its stock is listed under the symbol of NDAQ since July 2 of 2002. The FINRA, or Financial Industry Regulatory Authority, oversees and regulates the NASDAQ stock market exchange. The NASDAQ made major contributions to the world of electronic stock exchange trading as the first one of its kind on earth. When it began, it started out as a computer bulletin board system that did not literally put buyers and sellers in touch. Among its great achievements, the NASDAQ proved to be responsible for decreasing the spread, or the bid and the asking prices’ difference for stocks. Many dealers disliked the NASDAQ in the early days, as they made enormous profits on these higher spreads. In subsequent years, the NASDAQ evolved into a typical stock exchange through adding volume reporting and trade reporting to its new automated trading systems. This exchange became the first such stock market in America to advertise to the public. They would highlight companies that traded on the NASDAQ, many of which were technology companies. Their commercials closed out with the motto the stock exchange for the nineties and beyond, that they eventually changed to NASDAQ, the stock market for the next one hundred years. The NASDAQ is set to become a trans Atlantic stock exchange titan with its purchase of the Norway based OMX stock exchange. This will only enhance its European holdings that presently include eight other stock exchanges throughout Europe. Besides its NASDAQ stock exchange in New York City, the group possesses a one third stake in the Dubai Stock Exchange in the United Arab Emirates. With its double listing arrangement in place with the OMX exchange, the NASDAQ OMX is set to become the major competitor for NYSE Euronext in bringing in new listings.

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National Bank Act The National Bank Act refers to three different congressionally passed acts which set up a regime of national banks for the disparate state banks across the United States. These three Federal Banking Acts enabled the U.S. National Banking System to arise. The idea was to foster the creation of a nationwide currency which would be backed up by U.S. Treasury securities held by banks. The Office of the Comptroller of the Currency under the umbrella of the U.S. Department of the Treasury wanted to be the sole issuer of American currency. To this effect, Treasury authorized the Comptroller of the Currency to start examining and regulating the nationally chartered U.S. banks. These series of acts were responsible for determining the system of national banks in place today and supporting a cohesive banking policy for the United States as a whole. The first such effort to create a central bank since the First and Second Banks of the United States had failed began with the National Bank Act of 1863. This became the model which was used in the Federal Reserve Act of 1913 eventually. This first act permitted national banks to be created, gave the Federal government permission to sell securities and war bands, and established a plan for creating a unified national currency backed up by government securities. The Federal government itself directly chartered these subsequent national banks which became subjected to tighter regulation than other banks were at the time. The national banks had to maintain larger capital requirements and could not loan out in excess of 10 percent of their total deposits. The government discovered they could discourage the competition by levying a burdensome tax on the state banks. It only took until 1865 for the majority of the state banks to apply for national charters or to fail altogether. In 1864, the Federal government waded into the realm of active supervision of all commercial banks. They did this using the National Bank Act of 1864, which was itself based on a law from New York State. This important act created the Office of the Comptroller of the Currency. This office carried the responsibility for chartering, supervising, and examining every national bank. A year later Congress added still more to this new legislation in the form of the Banking Act of 1865. This July 13, 1866 passed legislation expanded the law to more than simply mandating a 10 percent tax on all of their own state bank proprietary notes. It extended the tax from state banks, national banking associations, and state banking associations so that individuals who utilized such proprietary state bank notes would also be subjected to an additional 10 percent tax. The act became challenged and subsequently strengthened as a result of the court case known as Veazie Bank versus Fenno, supra. Thanks to the Chief Justices of the Supreme Court electing to rule with Congress on the matter, all final resistance offered by the state banks to the National Bank Acts of 1865-1866 collapsed. The 10 percent taxed proved to be so onerous that the majority of state banks chose to change their charters for national ones in order to sidestep the heavy handed tax. This led to the decline for a few years of state banks. In the 1870’s and 1880’s, state banks saw a resurgence once again as state bank created checks allowed them to get around the failing profitability and importance of their own proprietary bank

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notes.

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National Bureau of Economic Research (NBER) The NBER National Bureau of Economic Research is an organization whose purpose centers on creating and disbursing economic research. They are committed to encouraging better understanding of the way the economy functions for individuals, businesses, and policymakers. As part of this they write and distribute unbiased economic reports. The NBER got its start in 1920 as a not for profit, private, non-political group. Their objectives from the start were undertaking research on economics and sharing it with business people, politicians, and academics. The researchers who are connected with NBER study a great range of different economic and business subjects. Along with this they utilize numerous research methods in their studies. The group focuses on numerous different topics. Chief among them are creating quantitative economic behavior models, coming up with new ways to measure statistics, and studying the impacts that public policies cause. The history of the NBER shows they covered many important ground breaking economic issues within American society. Their early efforts centered on longer term growth for the economy, the full business cycle, and the aggregate economy. In the formative years Wesley Mitchell wrote an important paper about the business cycle. Simon Kuznets pioneered the topic of national income accounting. Milton Friedman researched and argued for money demand and what determined consumer spending. All of these proved to be in the earlier studies performed by the National Bureau of Economic Research. In 1984, Solomon Fabricant wrote a summary of their initial work and development entitled Toward a Firmer Basis of Economic Policy: The Founding of the National Bureau of Economic Research. The NBER has greatly expanded and grown in influence over the years. Today it is considered to be the foremost group for not for profit research on economics in the United States. Among the economists who were affiliated with NBER are 25 Nobel Prize winners. There have also been 13 heads of the Presidential Council of Economic Advisers among their affiliated members. NBER researchers today include over 1,400 business and economics professors who teach throughout universities and colleges around the U.S. and Canada. These researching scholars are considered to be the leaders within their own fields. The vast majority of those researchers who hold NBER affiliation have a title of RA Research Associates or FRF Faculty Research Fellows. These Research Associates are tenured by their home university or college. Their appointments to this senior status must be NBER Board of Directors approved. Faculty Research Fellows usually prove to be junior scholars in their fields. The NBER does not receive direct tax dollar support. It operates based on a variety of research grants. These supporting grants come from private foundations, government agencies, corporate and individual contributions, and investment income. The NBER is well organized and run by a board of directors that governs it. Its headquarters are based in Cambridge, Massachusetts. The group also maintains a branch office in New York City. The members of this board come from and represent both important national economics entities and foremost American

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researching universities. The board also hosts members who are important economists at academia, trade unions, and corporations. Being a board member of this national economics group is a prestigious honor. In 2016 the Chief Executive Officer and President of the NBER is James Poterba. He is served by 45 personnel who staff the organization. These employees are besides the Faculty Research Fellows and Research Associates located around North America. The research group is governed by various important documents. These include their NBER by-laws, incorporation certificate, and the conflict of interest policy for directors and officers.

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Negative Income Tax A negative income tax is a tax regime that is considered to be extremely progressive. In this system, those individuals who earn less than a minimum specified amount obtain additional income from their government rather than have to pay the government taxes into the system at all. This type of forward thinking system has been bandied about by various economists over the years and yet never fully realized in a developed economy. In the 1940’s, British politician Juliet Rhys-Williams became among the first to make the political discussion serious. In the 1960’s in the United States, American legendary free market economist Milton Friedman became a major proponent of the idea. The function of a negative income tax can be two fold. It can institute a minimum income level. It might also be utilized to provide supplemental income to families earning too little to survive. In this capacity, it would serve the function of providing a system with a guaranteed income minimum. In such a negative income tax regime, those individuals who bring home a particular income amount would not pay any taxes. Others who earn over this threshold would then pay a percentage of the income they earned over that pre-determined level. Those individuals on the margins of society who realized incomes lower than this amount would receive payments to supplement at least a part of their income shortfall. The amount of money by which their income was below that pre-set level would equal in theory the amount of payments they received from the government and its taxing authority. In 1962, renowned American economist Milton Friedman first seriously put forward the plan for a guaranteed minimum income in the United States. He envisioned a nation where subsidies provided in the form of federal income would be dealt out to families or individuals whose income was lower than a minimum level. This negative income tax would ensure that potential claimants could simply and easily obtain the money by filling out their annual tax returns instead of having to apply for and receive welfare benefits. The advantage to such a system would be that it eliminated more or less the requirements of having a complicated welfare system bureaucracy. Despite the income distribution benefits for the poor that a negative income tax system offers, it is not without its substantial share of vocal critics. This main critique stems from the fact that some low income workers would be discouraged from working at all when on this system. The reason is because if the government will provide one with $2,500 per year without working at all when the individual might only earn $5,000 annually in working dozens of hours per week, many consumers would opt instead to not work at all. They would prefer to enjoy the leisure time which they could spend working, even if this means that they ultimately might have a smaller amount of money which was insufficient to cover their essential costs of living. Another criticism centers on accountability and potential abuse of such a negative income tax system. These critics argue that it is impossible to completely eliminate a large and costly welfare system infrastructure by doling out negative income tax payments. The other taxpayers who are in effect paying for the subsidies will insist on accountability being instituted for those citizens who are receiving what are

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ultimately subsidies from their income. Such a demand would necessitate a complicated combination of oversight and rules that were necessary to stop possible abuses of the negative income-welfare system.

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Negative Interest Rates Negative interest rates are those that fall below 0%. In the past, negative interest proved to be only a theoretical discussion that economists played around with for the sake of argument. In 2010 Sweden’s central bank put these rates into practice as a means of stemming the flow of outside money into the country. Denmark followed suite in 2012. Since then, minor to major central banks have moved into the mostly uncharted waters of these negative rates. The reason that central banks would be interested in such negative interest rates is that they help the economy. Central banks cutting the rates into negative territory creates a similar effect as simply lowering interest rates. Lower rates help consumers to spend and businesses to invest more. They also boost prices in the stock markets and other risk assets. They reduce the level of the nation’s currency. This helps exports to be more competitive against other country’s goods. Finally lower rates cause people to expect higher inflation rates in the future. This encourages consumers to spend their money now as opposed to later when it will be worth less. The world has many decades of knowledge of what happens when central banks influence economies by reducing rates from 3% to 2% because of downturns in the economy. In theory this shifting to negative interest rates is similar with the difference of a starting point at or below zero. Such NIRP negative interest rate policies are called unconventional monetary tools. The idea is to move benchmark interest rates into negative territory. Doing so means breaking the centuries’ long barrier of 0%. Deflation is what caused desperate central banks to pursue these negative interest rates and policies. In times where deflation pervades an economy, the businesses and consumers tend to hold their money rather than invest and spend it. Eventually this creates a reduction in total demand that in turn causes prices to fall even more. Output and production slow down and unemployment increases as a result. Stagnation like this is typically avoided when central banks pursue a loose monetary policy. The problem arises when the deflation becomes so powerful that dropping interest rates to zero is no longer enough to encourage lending and borrowing. The result of negative interest rates is profound. Central banks charge their commercial banks money (negative interest) in order to keep their deposits at the bank. Commercial banks then pass along these costs to their larger account holders as they are able. The financial institutions have not much stooped to official negative rates on their depositors. Instead they charge fees for keeping money in these current accounts. This amounts to negative rates under the guise of a different name. Central banks hope that the commercial banks will loan out money instead of paying to hold it. Instead many banks have been paying the fees themselves, and this has impacted bank profits. Banks fear passing along fees to small deposit account holders who may withdraw their money instead. As of 2016, the negative interest rate policy has been adopted by the European Central Bank, the Swiss

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National Bank, and the Bank of Japan besides the Scandinavian Central Banks. Early evidence suggests that the Euro zone did manage to reduce interbank loans with the negative interest rates. Companies have not so far much benefited from the negative interest rates. This is because the risk is perceived to be higher with corporations who borrow than with governments. One notable exception is with Nestle the Swiss food conglomerate that has issued negative interest rate corporate bonds.

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Negotiable Instruments Negotiable instruments are documents which agree to provide payment to a particular individual known as the assignee. The individual who receives this payment is called the payee. This party usually has to be named or somehow mentioned on the instrument itself. One type of negotiable instrument is a check. Checks are negotiable instruments that can be transferred. These signed documents promise that they will pay the check bearer the specified amount on demand or on a future specified date. There are other types of negotiable instruments that individuals and businesses use. Some of these are promissory notes, bills of exchange, certificates of deposit, and drafts. These negotiation instruments can be transferred which is part of what makes them so popular. The holder is allowed to receive the funds in cash or to utilize them in a different manner as they see fit. The dollar amount specified on these documents comes with notes regarding the exact amount that has been promised by the payer. The funds have to be rescinded in full as specified or on demand. Negotiable instruments are allowed to be transferred from one individual to the next. After the instrument is fully transferred, the bearer gains complete legal title to the instrument and its promised funds. Such documents can not be set with additional conditions or instructions regarding payment beyond the date and sum to be paid by order of the instrument. They do not deliver any additional promise from the group or person issuing the negotiable instrument besides the promise to pay that specific amount. After nearly 150 years of existence, the check still remains the most typical form of negotiable instruments. This draft is payable by the financial institution of the payer once received and for the precise amount that is clearly mentioned. There are various other kinds of checks too. Cashier’s checks also do the same task. They require that the funds be set aside or allocated for the person who will receive them before the check itself can be issued. They are guaranteed funds in essence and not simply a promise to pay someone an amount. Money orders are much like checks. The main difference is that they might or might not be issued by the financial institution of the payer. As with cashier’s checks, the money has to be paid in from the payer to the issuer in advance of the money order being printed up and finally issued. After the money order is in the hands of the payee, it can be changed in for cash according to the terms, policies, and conditions of the issuer in question. Traveler’s checks are yet another form of negotiable instruments. They have a tighter security mechanism than the other forms of instruments. Their system requires two full signatures in order for the transaction to be completed. These types of checks can also be replaced if they are lost or stolen. When the traveler’s checks are first issued, the payer has to sign on the document itself to offer a signature sample. After the payer decides to whom he or she will issue the payment, the individual must offer a countersignature in order for the payment to be made. These negotiable instruments are most often utilized when the payer is traveling abroad and needs a more secure form of payment which delivers a higher security feature in case they are stolen or defrauded while out of the country.

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Net Asset Value The Net Asset Value refers to a mutual fund and its per share value. It is also known by its acronym NAV. Exchange traded funds, or ETFs, can also be referenced by the NAV. These values which the companies themselves compute for investors only provide a snap shot of the NAV at a particular time and date. In either security type, the fund’s per share dollar value arises from the aggregate value of every security within its portfolio minus any liabilities the fund may owe. Finally this is expressed over the total number of outstanding shares in order to arrive at the shares’ ultimate NAV. Where mutual funds are concerned, the Net Asset Value is derived one time every trading day. They utilize the closing market prices for every security within the fund’s holdings in order to determine this. Once this is done, the fund is able to settle all sell and buy orders which are outstanding on the shares. These prices will be set by the NAV of the mutual fund in question for the value per the trade date. Investors will always be required to wait to the next day in order to obtain their actual trade-in or tradeout price. Because mutual funds do pay out nearly all their capital gains and income, such NAV changes are never the optimal gauge for the performance of the given fund. Instead these are better determined by looking at the yearly aggregate return, or total return. With ETFs, these are actually closed end types of funds. This means that they actually trade more like stocks do. The shares of these Exchange Traded Funds therefore constantly trade at the market value. It might be a literal value which is higher than the NAV. This would be trading at a premium to the Net Asset Value. It could similarly trade under the NAV. This would mean the prices were trading at a discount to the NAV. With these ETFs, the Net Asset Value becomes computed once at the markets’ close so that the fund can correctly report the ETF values. During the day however, these are figured differently than the mutual fund computations. This is because the ETFs will compile the during-the-day NAV in real time at numerous points in every minute of the trading day. It is helpful to consider an example of how the mutual funds compute their Net Asset Value calculations. The formula is actually very straightforward. It is simply that the NAV is equal to the mutual fund’s assets less its liabilities with the difference divided by the total number of shares outstanding. The assets in the case of mutual funds include cash equivalents and cash, accrued income, and receivables. The main portion of their assets commonly are their investments, which will be priced per the end of the day closing values. Liabilities equate to the complete longer-term and shorter-term money owed, along with each accrued expense. Among these expenses will be utilities, salaries of the staff of the fund, and various operational costs for running such a fund. Consider that the fictitious Diamond Stocks Mutual Fund counted $200 million in investments, figured utilizing the end of day closing prices of all their assets. Besides this, it has $14 million in cash equivalents and cash and another $8 million in receivables in total. The daily accrued income amounts to $150,000. Besides this, Diamond Stocks owes $26 million in its shorter-term liabilities and has $4 million of longer-term liabilities. The daily accrued expenses amount to $20,000. With 10 million outstanding

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shares, the net asset value would equate to $19.21 in the case of the Diamond Stocks Mutual Fund.

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Net Operating Income Net Operating Income can refer to two different concepts. It may be used in regards to companies and corporations, or to properties and their annual incomes. Where companies are concerned, Net Operating Income, also known by its acronym NOI, is the income after deducting the company’s operating expenses. It is figured up in advance of taking off interest and income tax deductions. When this number proves to be a positive number, it is called net operating income. If the number turns out to be a negative value, then it is referred to as a Net Operating Loss, also known by the acronym of NOL. Many analysts like to look at the Net Operating Income as a realistic picture of how a company is performing. They feel that this number is more difficult for management to manipulate than are other numbers in the income statements of a company. Pertaining to properties, Net Operating Income equals the annual gross income minus the expenses for operating. In this respect, the gross income is comprised of real income from rentals as well as other incomes like laundry receipts, vending receipts, parking charges, and every type of income that is related to properties. Operating expenses prove to be the expenses that are encountered in the typical maintenance and operating of the property in question. Among these expenses are insurance, maintenance, repairs, utilities, management fees, property taxes, and supplies. Some costs are not deemed to be operating expenses, such as capital expenditures, interest and principal payments, income taxes, depreciation, or amortization of the points on a loan. So, calculating the Net Operating Income on a property involves first taking the various forms of annual gross income and adding them all up. Then the operating expenses should be taken and added up. Finally, the operating expense total is subtracted from the operating income total to achieve the Net Operating Income figure. In real estate, Net Operating Income is utilized within two critical real estate ratios. The Capitalization Rate, also know as the Cap Rate, is employed to come up with an estimate of the actual value of properties that produce income. For example, maybe a property being considered for purchase possesses a market capitalization value of ten. Coming up with the market cap rate is achieved by considering the financial information from the sales of properties that produce income and are similar in a particular market. The other important real estate ratio that relies on Net Operating Income is the Debt Coverage Ratio, also know as the DCR. The Net Operating Income proves to be a critical component of this DCR ratio. Investors and lenders alike utilize the debt coverage ratio to determine if a property has the capability of covering both its mortgage payments and operating expenses together. A result of one is deemed to be the break even point. The majority of lenders want at least a 1.1 to 1.3 ratio in order to contemplate making a commercial loan to a given property. The higher this debt coverage ratio works out to be in a banks’ opinion, the safer the loan will ultimately be.

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Net Worth Net worth is a figure that represents a business, an individual, or another group’s difference between the assets that they have and the liabilities that they owe. Figuring up this net worth is done by first taking all of the entity’s debts and obligations and then subtracting that number from the entire sum of assets. If the total of all of these assets is greater than the sum of all of the debts and obligations, then a positive net worth results. Otherwise, when the debts are greater than the assets, then the entity has a negative net worth. When you sit down to determine the net worth figure, every asset should be totaled in the operation. There are many different kinds of assets. These are comprised of cash in the bank, holdings of stocks, real estate, bonds, and other types of investments, and major possessions like vehicles. Correctly figuring out the different assets’ values is done with the use of the up to date fair market value, not the cost paid for the item when it is purchased. You must also correctly add up the total of debts and obligations when you are attempting to get a correct net worth value. Liabilities cover many different obligations, like a car payment, mortgage, total of credit card debt outstanding, and any other forms of loans that have balances left on them. Both every asset and liability must be measured in order to come up with an accurate net worth. Knowing your present net worth is very useful and meaningful. If you are able to cover all of your outstanding debt obligations simply by selling of all of your assets, then you have a financial condition that is fairly stable and in order. If your assets are more than sufficient to cover all of your obligations, then your finances are in greater shape. Most businesses and people seek to reach a point that they have actual positive net worth. There are a few benefits from having a correct understanding of your net worth. It is essential that your present assets’ value is greater than your present debt load. A person who owes more money than they actually own presents a profile of a person who is not an especially good credit risk. Without a positive net worth, many lending institutions like banks will think twice about providing you with the most advantageous loan rates offered. This is because they feel that you present more of a risk to lend money. It is also good to know where your net worth stands because it is a helpful beginning point for your general financial planning. Should you discover that you hardly have sufficient assets with which to cover your present amount of debts, then this is a good sign that you should not engage in any other purchases until later, after you have eliminated several of your debts. This means that if you occasionally figure up your net worth, then you will comprehend not only where you stand now, but also when you will be in a better position to purchase a new car.

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New Deal The New Deal represented a new domestic economic program that American President Franklin D. Roosevelt put into place in the years from 1933 to 1939. The goals of this extensive program were to provide immediate and urgent economic relief to the unemployed along with much needed economic reforms in finance, agriculture, industry, labor, waterpower, and housing. These economic programs and reforms massively grew the scope of the federal government’s role. The term actually came from the Democratic nomination acceptance speech of Roosevelt on July 2, 1932. American voters had reacted forcefully to the unhelpful responses of President Herbert Hoover’s administration in dealing with the devastation brought on by the Great Depression. The American electorate massively turned out to vote for the democratic candidate’s pledge of creating a new deal for the country’s forgotten man. The New Deal stood in contrast to the general American political and economic ideas of laissez faire capitalism. Instead it brought in an economy regulated and participated in by the government. The goal was to bring harmony to economic interests that conflicted. The Hundred Days initial several months period of Roosevelt’s first term saw a great amount of the New Deal laws passed. His first goal was to help out the enormous groups of unemployed workers and to ease their suffering. He did this with his government entities the CCC Civilian Conservation Corps and the WPA Works Progress Administration. They provided short term emergency government assistance to the unemployed and offered construction project employment, temporary work, and youth employment in the national parks and forests. In the years leading up to 1935 the New Deal also aimed to restore the devastated agricultural and business communities. Roosevelt gave authority to the National Recovery Administration to encourage lost industrial activity. They could propose industrial codes that oversaw wages, trade practices, child labor, hours, and labor union collective bargaining. The New Deal made efforts to oversee the financial organizations so that there would not be repeats of the widespread bank failures and the catastrophic 1929 stock market crash. It created the SEC Securities and Exchange Commission in order to safeguard investors from deceptive investment marketing and sales. Bank deposits became insured by the new government insurance agency the FDIC Federal Deposit Insurance Corporation. All banks could become members of the Federal Reserve System under this program. The agenda also addressed farming and electrical power. The AAA Agricultural Adjustment Administration tried to raise the rates paid to farmers by giving them subsidies in order to produce the key staple crops. In 1933 the government founded the TVA Tennessee Valley Authority to deliver less expensive electricity and better navigation as well as to produce nitrates and stop floods. This covered seven states and made major improvements for Americans who lived in these areas.

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By 1935 the New Deal had moved on to help out working Americans living in the cities. Labor unions were substantially strengthened by the 1935 Wagner Act. This also gave the federal government more power in determining industrial relations as it founded the NLRB National Labor Relations Board to run the program. Forgotten homeowners received aid as well. Congress passed laws that helped refinance on the edge mortgages. Bank loans were also guaranteed for mortgages and for modernizing homes. The most substantial and lasting programs of the New Deal had to do with retirement and unemployment benefits. In 1935 and 1939 it established Social Security. This delivered benefits to the elderly and widows. It also provided disability insurance and unemployment compensation to those out of work. In 1938, minimum wages became established alongside maximum working hours in specific industries.

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New York Mercantile Exchange (NYMEX) The New York Mercantile Exchange proves to be the biggest physical commodity exchange for futures buying, selling, and trading in the world. Since they merged, it is comprised of both the NYMEX Division and the COMEX Division. At NYMEX, traders are able to trade platinum, palladium, and energy markets. COMEX is where they trade FTSE 100 index options as well as silver, gold, and copper futures. NYMEX still keeps a place for the open outcry system where traders shout and make hand gestures to indicate their purchases. This operates only during the day time. After normal business hours, the electronic trading system takes over for the night. The NYMEX origins go back to an association of Manhattan dairy merchants. In 1872, a group of them came together and formed the Butter and Cheese Exchange of New York. Once eggs joined the various dairy businesses handled on the exchange, they changed the name to Butter, Cheese, and Egg Exchange. By 1882 they had added canned goods, dried fruits, and poultry to the offerings. The name received its final change to reflect the broader product offerings as the New York Mercantile Exchange at this time. Though COMEX Commodities Exchange and NYMEX used to be separately owned and run exchanges, they merged together to become two divisions of the NYMEX Holdings, Inc. back in 1994. They listed on the New York Stock Exchange on November 17, 2006 trading under the NMX ticker symbol. In March of 2008, the CME Group of Chicago committed to a conclusive agreement to buy NYMEX holdings for $11.2 billion combination in cash and stock offerings. In August of 2008 the deal finished and NYMEX and COMEX began to function as DCM Designated Contract Markets for the CME Group. They joined sister exchanges the Chicago Board of Trade and Chicago Mercantile Exchange as part of the four DCMs. In 2006, the New York Mercantile Exchange became almost entirely electronically traded. NYMEX keeps a smaller venue operating for those traders who prefer to engage in the open outcry historic and sentimental form of trading. There they utilize complicated hand signals and shouting while standing on a physical trading floor to buy and sell. The hand signal system is being preserved by a project published on the subject. NYMEX’s headquarters is found in the Battery Park City area of Manhattan in Brookfield Place. They also maintain offices around the world in such cities as Washington D.C., Boston, San Francisco, Atlanta, London, Dubai, and Tokyo. The options and futures traded here on precious metals and energy commodities have developed into important tools for companies that are seeking to mitigate their risk through hedging their own positions. Because these various instruments are traded so easily and liquidly, companies are able to discern future prices and to hedge their future needs. This is why NYMEX has grown to become such a critical part of global activities in hedging and trading environments. Today the NYMEX manages literally billions of dollars in metals, energy carrier, and other commodities that companies and traders sell and buy every day for delivery in the future. This is handled on either the physical trading floor or the electronic trading system by computers.

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These prices on the exchange and its numerous transactions become the basis of pricing for individuals and companies who purchase commodities around the globe. The Commodity Futures Trading Commissions agency of the U.S. government actually regulates the NYMEX floor. Trading on the exchange is performed by independent brokers sent by specific companies.

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New York Stock Exchange (NYSE) The NYSE is the acronym for the world’s largest stock exchange, the New York Stock Exchange. With a market capitalization of companies listed on it totaling at $11.92 trillion dollars in August 2010, it also possessed an average day trading value of around $153 billion in 2008. By market capitalization, the NYSE has no rivals for size. The New York Stock Exchange is owned and operated by the NYSE Euronext company. This outfit came into being in 2007 when the NYSE merged with the completely electronic Euronext stock exchange. Four rooms make up the trading floor of the NYSE that is found at 11 Wall Street. Its main building is found at 18 Broad Street on the corners of Wall Street and Exchange Place. This building became a National Historic Landmark back in 1978, along with its sister 11 Wall Street Building. Occasionally known as “the Big Board,” the New York Stock Exchange allows for sellers and buyers of stocks to exchange shares in all of the companies that are listed for public trading. Its trading hours prove to be 9:30 AM to 4:00 PM on Monday to Friday. Holidays are spelled out in advance by the exchange itself. The NYSE has always operated as an in person trading floor since its inception in 1792. Today, this works in an auction format that is ongoing. Floor traders here are able to make stock transactions for investors. They simply gather together surrounding the particular company post where there is a specialist broker working as auctioneer in open outcry format to get buyers and sellers together and to oversee the auction itself. This specialist works directly for the company that is an NYSE member and not the exchange itself. These specialists will commit their own money to assist the trades about ten percent of the time. Naturally, they also give out information that serves to bring together sellers and buyers. In 1995, NYSE began making the automation transition for the auctions. This started with hand held computers that were wireless. Like this, traders were capable of executing and getting orders electronically. This ended a 203 year tradition of paper based trades. From January 24 of 2007, most every stock on the NYSE is able to be traded on the electronic Hybrid Market. With this ability to send in customer orders for electronic confirmation immediately, orders can also be sent to the floor for auction market trade. More than eighty-two percent of the NYSE order volume came to the floor electronically in only the first three months of that first year. Only those who own one of 1,366 actual seats on the exchange are permitted to trade shares directly on the exchange. Such seats are sold for enormous sums. The highest price paid for one amounted to $4 million in the tail end of the 1990’s. The highest price ever paid adjusted for inflation proved to be $625,000 in 1929, which would amount to more than six million dollars in terms of 2010 dollars. Since the exchange became a public company, the seats have been instead sold in one year licenses.

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Nielson Nielson Holdings PLC represents the British-based, truly global data, information, and measurement firm which was originally started in the United States. Today it operates in more than 100 countries around the world and counts 44,000 staff among its worldwide employees. In 2015, they announced aggregate revenues of $6.2 billion. As a company with enormous operations in the U.S., it is listed on the NYSE New York Stock Exchange and the London Stock Exchange. The company is presently an S&P 500 component. For 2016, the American Marketing Association named Nielson as its top firm out of the top 50 Market Research Firms active in the United States. Arthur C. Nielson, Sr. originally founded Nielson back in 1923. He remains famous for his invention of the idea to measure competitive sales which led to the concept of “market share.” He receives credit for coining and making famous this phrase that is ubiquitous within the United States and developed world today. Though the company existed separately in the United States and Europe (where it traded and was headquartered initially in the Netherlands), a merger of the two sister companies in August of 2015 led to the creation of the present day (sole surviving) version of the unified company Nielson Holdings PLC based in London. The cross border merger allowed by the European Cross-Border Merger Directive allowed for this combination to occur. Today’s Nielson Holdings remains headquartered in the United Kingdom in both England and Wales. Nielson has become the leading, multinational, independent data and measurement firm of consumer behavior, quick-selling consumer goods, and media. Its presence in over 100 countries means that its reach extends to over 90 percent of the world’s population and total GDP. Nielson delivers an exhaustive understanding of what consumers are looking at in advertising and programming to its customers. It also reveals what they purchase in products, brand names, and categories on a local, domestic, regional, and global scale and how these choices meet and intersect. As such, the firm is active in both developed and emerging markets throughout the world. It is interesting that the Nielson brand is usually thought of in connection with its famous Nielson TV ratings. Yet as a percentage of the company’s revenues and business it only comprises about a quarter of the total. The company has labored for years to simplify the organization of its vast and far flung, diverse business enterprises. As a result of these intensive efforts, they have reorganized their business lines along two reporting divisions. These are “Buy,” the consumer purchasing analytics and measurement division, and “Watch,” the media audience analytics and measurement division. The Buy division represents around 55 percent of this global behemoth’s revenues. It mainly assists retailers, packaged goods makers, and Wall Street analysts with understanding the interests and purchases of consumers in broad categories and specific products and brands. The aim of this division is to gather and measure all of the purchases consumers make even while their purchasing behavior is fragmenting continuously over both market segments and channels. This division’s data actually determines the amount of Diet Pepsi vs. Diet Coke and Diet Dr. Pepper which stores sell, as well as the amount of Colgate versus Crest toothpaste retailers vend. They do this in

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practice by buying and analyzing enormous quantities of retail data showing what the stores are selling. They combine this with their own data from household panels of surveys which gather information on what consumers bring home. This division’s most important clients include Nestle, The Coca-Cola Company, Unilever Group, Procter and Gamble Company, and Wal-Mart. The buy division extends over 106 countries now, though the U.S. remains the biggest market of this division. The other group is the Watch division. This segment represents around 45 percent of worldwide revenues. It mostly measures what consumers listen to and watch over the majority of devices and channels. This includes television, computers, radio, cell phones, over the top, and other mobile devices. As such, they measure consumers’ interest in both advertising and programming over all points of distribution. They call their proprietary data measuring machine the Nielson’s Total Audience Measurement system. This division’s most important clients include NBC Universal, CBS, The Walt Disney Company, and News Corporation. It measures media performances in 47 nations which collectively represent around 80 percent of worldwide advertising budgets.

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Nikkei 225 The Nikkei is an abbreviation for Japan’s foremost, best known, and most respected stock index of Japanese companies. Its full name is the Nikkei 225 Stock Average. This index is price weighted and made up of the top 225 industry leading companies which investors trade on the Tokyo Stock Exchange. The United States equivalent of this Nikkei is the Dow Jones Industrial Average. This stock index originally came into existence as the Nikkei Dow Jones Stock Average. Investors knew it by this name during the years 1975 to 1985. Today’s Nikkei 225 carries the name of the Japan Economic Newspaper “Nihon Keizai Shimbun” which is generally referred to as Nikkei. This newspaper is the sponsor for the index and its calculation. There has been a calculation of this index going back to September of 1950. There are many well known firms that make up this index. Some of the most recognized are Toyota Motor Corporation, Sony Corporation, and Canon Inc. The Nikkei 225 proves to be Asia’s oldest stock index in existence. The country founded it in its industrialization and reconstruction efforts that followed the end of World War II. Stocks which make it up are not ranked by market capitalization like in the majority of such indices around the world. Instead they are ranked and listed based on their share prices. The denominations of every stock’s value are in Japanese yen. Each September the Nikkei’s make up undergoes review so that necessary changes can be made effective for October. The actual Tokyo Stock Exchange began operating in 1878. This exchange received a major boost in the heat of World War II when the Japanese government decided to merge Tokyo’s Stock Exchange with five other exchanges to make a single, unified national Japanese Stock Exchange. This pan-Japanese exchange had to be shut down in August of 1945 towards the conclusion of the war. It finally opened again on May 16 in 1949 as part of the new legislation the Securities Exchange Act. An enormous asset bubble engulfed Japan during the late 1980s. The government bore responsibility for this as they employed both monetary and fiscal stimulus programs to attempt to offset the nation’s currency led recession. The yen had risen 50% in the beginning of the decade. From 1985 to 1989, both land and stock prices tripled in value. When the bubble reached its peak, Tokyo’s Stock Exchange comprised an astonishing 60 percent of all capitalization for global stock exchanges. This bubble exploded in 1990. That year alone the Nikkei 225 Index dropped by a third. This economic and stock market stagnation continued for decades so that in the midst of the Great Recession in October 2008, the Nikkei’s value had dropped below 7,000. This represented an astonishing plunge of over 80 percent from the high set back in December of 1989. The government worked to re-inflate the index powerfully from June 2012 to June 2015 as it rose 150 percent. The government’s economic stimulus programs coupled with efforts of the Bank of Japan assisted in this asset appreciation. Even at these loftier levels, this still proved to be almost 50 percent under the high set in 1989. Investors who wish to invest in the index may not buy it directly. A few different ETF Exchange Traded Funds track its performance. These include the Japan iShares Nikkei 225 by Blackrock and the Nikkei 225 Exchange Traded Fund by Nomura Asset Management. Investors can trade the index via ETFs in dollars on the New York Stock Exchange by purchasing or selling shares of the Nikkei 225 Index ETF by

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Maxis.

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Nonprofit Organizations Nonprofit Organizations represent entities whose reason for being is to provide help or value to members or the community at large. These are also called not for profit organizations as well as non-business entities. There are many reasons why an agency would incorporate as a not for profit. They are often interested in promoting points of view or social and charitable causes. Such outfits utilize excess revenues they obtain in order to promote their mission and purpose. They do not ever distribute the so-called profits to stakeholders in the form of dividend payouts. This unique feature of nonprofits is called the nondistribution limitation. When entities elect to become a Nonprofit Organization, there will typically be tax status ramifications involved. This is the case as not for profits generally seek out tax exemption because of their charitable or socially oriented nature. It is important to note that not all NPOs are charitable organizations, even though many individuals equate the two types of organizations. It is true that charities comprise the most visible component of the category, yet many other kinds of nonprofit organizations also exist. Founders typically design other kinds of not for profits to serve their communities or members. Among the ones which serve their communities are organizations that concentrate on delivering services to the general community on a local, national, or global scale. These could be those that provide human development and aid, human service projects and programs, health and education services, medical research benefits, and others. Member serving nonprofit organizations include such entities as cooperatives, mutual societies, credit and trade unions, industry associations, retired servicemen’s clubs, sports clubs, and advocacy or lobby groups. All of these kinds of not for profit organizations actually benefit a certain group of individuals. With many nonprofits, they are both member-serving and community-serving at the same time. Any grassroots-based support group for cancer victims would be such an example. It serves its members who have cancer by supporting them directly. It also benefits the community at large by providing much needed services to citizens who are also members of the general public. Though the nonprofit organizations are allowed to create additional revenues beyond their expenses, they have to keep such profit surpluses and use them for ongoing future operations, plans, or expansion efforts. They can not distribute them to any board member or director, organization participant, or beneficiary of the group. Not for profits have one thing in common with their for profit cousins. They both have boards of directors which exercise control over their respective organizations. Both will also typically have management and other staff which receive compensation for their efforts. Some NPOs utilize executives and volunteers who are not paid or who work for a token compensation. There are jurisdictions and nations that require a nominal fee be paid to directors and managers so that they can form a legally binding contract between organization and executive or board member. It is interesting to remember that because an organization receives the nonprofit designation, this does not signify that it will not try to turn profits. Instead it means that the entity will not have any owners who

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benefit from the revenues and/or profits earned. In many cases, the amounts of surplus revenues that NPOs are able to generate, keep, and even deploy are restricted by government laws and regulations within their jurisdictions. While many nonprofit organizations are service or charitably inclined, others organize and function like a trust or a cooperative. Supporting organizations are much like NPOs. They work as a foundation yet are more complex in their administration requirements. These supporting organizations also obtain a more advantageous tax treatment and commit to restrictions on the various public charities which they support. Such an organization’s goals are not to amass wealth, but instead are to provide help for and meaning to the peoples they support.

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Numismatics Numismatics refers to the collection and study of currency. This includes such objects as coins, paper money, tokens, and other objects used as money. Numismatists are often described as those individuals who collect or study coins. Included in the broader definition is the wider study of payment methods that settle debts and facilitate the exchanging of goods. In this sense, it could cover the study of objects beyond the traditional scope of money that have also been used for payment, such as gems, cocoa beans, and cowry shells. Traditional numismatics deals with coin collecting and study. This hobby began even in the ancient world. Roman Caesar Augustus gave away coins of ever type such as old ones that were foreign and from kings as gifts for Saturnalia festival. In the middle ages, Petrarch gained fame for becoming the first Renaissance era coin collector. He penned in a letter that vine diggers would often come to him seeking for him to identify the ruler on the old coins they uncovered or to buy them. In the year 1355, Petrarch bequeathed a numismatics gift of Roman coins to Holy Roman Emperor Charles IV. Two centuries later, the first book on coins became published. Guillaume Budé wrote his De Asse et Partibus in 1514. At this time of the early Renaissance, only kings and the nobility could afford to collect ancient coins. There were a number of them who became famous for their coin collections. These included Emperor Maximilian from the Holy Roman Empire, Pope Boniface VIII, King Ferdinand I, King Louis XIV from France, King Henry IV of France, and Elector Joachim II in Brandenburg. Joachim actually began the Berlin coin cabinet. These prestigious early collectors earned numismatics the nickname the hobby of kings. The hobby of numismatics became more structured as time passed. By the 19th century, groups began to organize into professional societies for studying and collecting coins. Britain’s Royal Numismatic Society began in 1836. It started right away with publishing its journal that became known as the Numismatic Chronicle. In the United States, 1858 witnessed the foundation of the American Numismatic Society. This coin collecting and studying group started to publish its American Journal of Numismatics a few years later in 1866. In the 20th century, pictures of ancient coins began to be published. The British Academy started the Sylloge Nummorum Graecorum publishing ventures on Ancient Greek coinage in 1931. In 1958 they published the first volume Sylloge of Coins of the British Isles. By this century coins had begun to be respected as objects of archeology. Scholar Guido Bruck from the Vienna based Kunsthistorisches Museum promoted their value for giving a context of time. Germany began an ambitious numismatics project following World War II. Their Coin Finds of the Classical Period attempted to register all coins that had been found in Germany. It became a model template that numerous other countries later successfully adopted. The U.S. Mint set up its first coin collection in 1838. The chief coiner Adam Eckfeldt gave his own collection to the mint to be their coin cabinet. This cabinet was well described by author William Du Bois in his work Pledges of History. The beginning of studying American historical medals came half a century later when C. Wyllys Betts wrote his work American Colonial History Illustrated by

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Contemporary Medals in 1894.

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OCC The OCC is the acronym for Office of the Comptroller of the Currency. This independent bureau falls under the United States Department of the Treasury. The U.S. President appoints an individual to serve as Comptroller of the agency for a term of five years. The American Senate must approve this appointment. The Comptroller serves as one of the directors of the Neighbor Works and the FDIC Federal Deposit Insurance Corporation. The OCC has its headquarters in Washington, D.C. They also maintain four district offices throughout the U.S. as well as London office to monitor the national banks’ international activities. The United States Congress created the agency with its 1863 National Currency Act. The group celebrated its 150 year anniversary back in 2013. There are important responsibilities that the OCC has regarding banks. It charters, supervises, and regulates every national bank and federal savings association. Besides this, it also manages the foreign banks’ federal agencies and branches. It has a mission to make certain that all of these financial institutions run according to sound, safe practices and abide by all relevant regulations and laws. It also ensures that there is sufficient access to financial products and services and that customers are treated fairly. This government agency operates as a foremost financial supervisor. Its vision is to improve the value of financial institutions by offering supervision that is both proactive and detects risks. It works to ensure a healthy and well rounded banking system that helps the economy as a whole and businesses, consumers, and communities. The group is frequently sought out for its expertise and knowledge. One of the main functions of the bank examiners who work for the OCC is to go on site to national financial institutions and hold on location reviews. They continue their supervision after this as well. The examiners study the funds management, investment and loan portfolios, earnings, capital, liquidity, and market risk for all of these organizations. Any national financial institution that has under $10 billion of assets falls under their enforcement of consumer banking laws. In pursuit of this, they examine external and internal audits and internal controls along with compliance to the laws. The examiners also check on the ability of the bank managements to identify and manage their own risk. Where these federal thrifts and national banks are concerned, the OCC has substantial powers. This starts with examining the institutions. They can then deny or approve applications the banks put in for new charters, capital, branches, and other forms of change to their banking or company structure. There are a number of actions this supervisor can take regarding national financial institutions. They can remove offending directors and officers at these banks. They may also deliver financial penalties and cease and desist orders when banks will not change their unsound or illegal practices. The agency prefers to negotiate changes to such practices first. The bureau has tremendous powers in implementing the banking laws. They may create regulations and rules. They also provide legal interpretations of them. Finally they issue binding decisions that govern bank lending, investments, and other activities.

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Congress does not provide the OCC with a budget. The agency derives all of its revenues from several activities. They receive assessments from the national financial institutions. Banks must pay the agency to conduct examinations that they undergo. Financial institutions also pay fees for having their applications processed. Finally the bureau has revenues that come in from their investments which are mostly U.S. Treasuries.

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Office of Financial Research (OFR) OFR is an abbreviation and stands for the Office of Financial Research. This government organization that has its headquarter in the Treasury Building works to supply information in support of the Financial Stability Oversight Council. The OFR strives to encourage financial stability throughout the United States. They do this by scanning throughout the American financial system in order to find, measure, and consider risks. They also engage in gathering critical research and then compile and homogenize the financial data so that it can be easily referenced, understood, and compared. The Office of Financial Research says about itself that its job revolves around illuminating the darkest parts of the financial system. As they do this, they are looking to see where the risks to the system are heading. They then determine the level of threat such risks pose to the system and the economy. Finally, they deliver financial analysis, data, and insight on these threats along with an available policy tools’ evaluation in order to effectively address and diffuse the threats. Congress created this Office of Financial Research back in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act. They established this new organization in order to provide material support to the all important new super regulatory entity the Financial Stability Oversight Council. The OFR was also to deliver useful information on the risks to the system to the member organizations of the Council as well as to any interested and concerned members of the public. The Director of the OFR is both appointed at the discretion of the President and must be confirmed by a majority vote of the Senate. In 2016, this Director was Richard Berner. The group was created to work around two offices of a Data Center and a Research and Analysis Center. The mission of the Office of Financial Research is to encourage American financial system stability via providing high quality financial standards, data, and analysis of the information on behalf of the Financial Stability Oversight Council, its various member organizations, and the general public. To this effect, they maintain the vision of a financial system that is efficient, effective, stable, and transparent. Every year, the Office of Financial Research produces several publications. Two of these that have become annual productions are the Annual Report to Congress on Human Capital Planning and the Annual Report to Congress. The Dodd-Frank Act itself requires that the OFR produces, compiles, and presents this general annual report once a year before Congress. Every general annual report must include a complete analysis of the various threats to the American financial system and overall stability, the progress in their endeavors to meet the mission of the OFR, and the critical discoveries regarding threats from their research and analyzing of the whole United States’ financial system. The 2015 Office of Financial Research Annual Report to Congress is the fourth such yearly report since the office became established under the requirements of the Dodd-Frank Act. This particular report

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reviewed and analyzed the possible threats to American financial stability, reported on their important discoveries of risk, detailed their progress in meeting the OFR overall mission, and laid out the agenda of The Office for 2016. The 2015 report stated that the various threats to United States’ financial stability increased slightly from the prior year’s report. They still consider the risks to be in the moderate to medium range. They did not change their threat assessment after the Federal Reserve FOMC raised the short term interest rates. A major portion of the 2016 agenda for the OFR is to affect a new programmatic approach in their work. They are striving to concentrate their initial efforts on the core areas of eight programs.

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Office of Price Administration The Office of Price Administration was a Federal agency created under the Office for Emergency Management within the U.S. Federal government. It was established by Executive Order number 8875 back on August 28th of 1941. The purposes of this OPA were initially to help keep a reign on the prices of rents and essential goods following the beginning of the American involvement in the Second World War. It was then-President Franklin D. Roosevelt who dusted off the thirty year old Advisory Commission to World War I Council on National Defense beginning on May 29th of 1940. His goal was to involve both the divisions of Price Stabilization and Consumer Protection. These he merged together into the Office of Price Administration and Civilian Supply, known by its acronym OPACS under the auspices of the Office for Emergency Management utilizing Executive Order number 8734 on April 11th of 1941. As a result of this move, he transferred civil supply functions over to the Office of Production Management. President Roosevelt’s Office of Price Administration was intended to nip any wartime inflation in the bud before it appeared. His organization decreed a general maximum price rule which made any prices being charged as of March 1942 the maximum ceiling prices for the vast majority of commodities. At the same time, the OPA similarly imposed ceilings on all residential rents which consumers were forced to pay. Such regulations became modified and expanded as necessary under various administrators of the OPA, most especially Leon Henderson from 1941-1942, Prentiss H. Brown in 1943, and Chester B. Bowles from 1943-1946. By the time they had finished these tasks, nearly 90 percent of all retail food prices had been frozen through the end of the Second World War. Despite these humanitarian aims and endeavors though, the prices kept creeping up steadily. The Office of Price Administration then initiated yet more attempts to force price and rent controls compliance on businesses and landlords. By the end of the war, the OPA was able to say with some satisfaction that it had mostly succeeded in maintaining generally stable prices throughout the second half of the war years for Americans. The Office of Price Administration had a second function during the war. This was to carefully ration hard to find consumer goods during the time of war. Rationing commenced with cars, tires, gasoline, sugar, coffee, fuel oil, meats, and even processed foods. By the conclusion of the war, the rationing gradually became abandoned. Price controls became abolished little by little. Ultimately the government disbanded the entire agency by 1947. The majority of the Office of Price Administration functions then transferred over into the newly created OTC Office of Temporary Controls under Executive Order number 9809 on December 12th of 1946. The Financial Reporting Division became a part of the Federal Trade Commission at this point. Eventually the OPA became entirely abolished as of May 29th of 1947. The March 14th of 1947 dated General Liquidation Order issued by the OPA Administrator was responsible for this closing up action. More important function of the ex-agency continued to be performed, albeit under the auspices of succeeding agencies.

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Sugar and refined sugar products were still distributed under the Department of Agriculture’s Sugar Rationing Administration thanks to the Sugar Control Extension Act of March 31st 1947. The Reconstruction Finance Corporation picked up the food subsidies from the war beginning on May 4th of 1947. The Office of the Housing Expediter assumed the rent controls policy beginning on May 4th of 1947. Any violations of price became litigated by the Department of Justice as of June 1st of 1947. Price controls on rice were assumed by the general Department of Agriculture as of May 4th of 1947 per Executive Order number 9841. Any other remaining OPA functions were assumed by the Department of Commerce’s Division of Liquidation as of June 1st of 1947. A number of important and famous individuals worked for the Office of Price Administration during the war. Among these were future President Richard Nixon, legal scholar William Prosser, and economist John Kenneth Galbraith.

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Offshore Account Offshore accounts are accounts that you have in a bank that is located in another country. The term originally came from banks and accounts that were found in the Channel Islands, which were literally off shore from Great Britain. Interestingly enough, the majority of offshore banks and offshore accounts are still found on islands to this day. Individuals and businesses might use offshore accounts for a variety of purposes. The popular conception of offshore accounts is that spies and criminals utilize them as places to store their cash. In fact, most offshore accounts are completely legitimate. People and even businesses have them as places to deposit their money, make investments, or use as trading accounts. When they are used as trading accounts, the person utilizes them to place online trades in stock markets. Offshore accounts can also be employed to hide assets from governments and taxes, even though this is not the case for most such offshore accounts. A number of offshore banking accounts exist, such as HSBC Offshore Banking in Gibralter, Barclays Offshore Banking in the island of Jersey, and Griffon Bank in the island of Dominica in the Caribbean. These accounts provide all types of services for the banking needs of people and businesses, one of which is Internet banking. Among the advantages of offshore accounts is privacy. Offshore banking institutions keep offshore account information secret. Such banks are forbidden to declare this information concerning the status of the account or any of its particulars to any individual or entity who is not the account holder. The only exception to this is when offshore banks believe the holder of an offshore account may be using the account for illegal purposes like drug trafficking, support of terrorism, or criminal money laundering. Another good reason for putting your money into an offshore bank account is because they typically offer better interest on money. It is a well known fact that offshore banks provide better interest rates for their customers. Such rates depend on the location and the offshore bank in question. Reasons for higher interest rates have to do with the lower operating costs in these islands or other locations, as well as the higher interest rates in the prosperous countries where they are based. Tax advantages prove to be another motivating factor for offshore banking and having offshore accounts. A number of countries will provide tax benefits to investors who are foreigners in order to attract their money. While this is different for every location too, many offshore banks and their hosting countries will not levy taxes on investment returns and interest earned in such offshore accounts.

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Offshore Banking Offshore Banking is a means of banking by keeping your funds in a bank that is outside of the country in which you primarily reside, or literally “offshore.” These days it has acquired a negative connotation consistent with money laundering, criminal activities, or tax evasion. Yet none of these mental pictures are accurate any longer. All an offshore bank account truly means is that it is overseas or international. When individuals choose to keep part of their bank deposits internationally, this is a sensible, legitimate, and legal practice. The old model of the Swiss Offshore Banking account has expanded to numerous other countries. Today places as far flung as Singapore, Hong Kong, Panama, Malta, Liechtenstein, Bermuda, Jersey, the Isle of Man, Gibraltar, and the Cayman Islands all participate in the concept. Some of the highest-rated and most financially stable Offshore Banking centers are Singapore, Hong Kong, and Liechtenstein. There are a number of good reasons why ordinary people (as well as wealthy clients) opt to move their checking and savings accounts overseas to an Offshore Banking center. For starters, this protects assets from legal or government malfeasance. It is not an exaggeration to claim that any individuals who choose to maintain all of their assets and funds within the exact same country in which they work and live are taking on substantial legal (and hence financial) risk. The United States proves to be by far the most litigious society and nation which has ever arisen in all of world history. It is the shocking truth that any government agency or court can freeze any individual’s private bank accounts with only one phone call and with no due process. A second good reason for using Offshore Banking concerns the fact that the banks in other countries outside of most Western nations are far safer and sounder financially. Many banks in the so-called first world or developed world are in perilous financial condition. This became painfully obvious back in 2008 during the Western-based Financial Crisis and Great Recession. Some of the largest American, British, and European banks failed or went to the brink of bankruptcy. Examples of this are Wachovia Bank, Washington Mutual Bank, Bear Stearns, Lehman Brothers, and Merrill Lynch. Many others would have gone under but for desperate and generous government support of the likes of Citibank, Royal Bank of Scotland, and Lloyds TSB. While many of them have recovered somewhat, others like Credit Suisse, UniCredito, and Deutsche Bank remain in dangerous financial condition. In fact in Europe there are even entire banking systems as in Italy, Greece, Spain, Ireland, and Cyprus that had to receive sometimes multiple bailouts in order to survive at all. The jury is still out on the large and too big to fail Italian banking system. American banks also keep dangerously low levels in their liquidity. This means that they do not have nearly enough cash and cash equivalent assets to pay their depositors back in the event of a customer “run on the bank.” Yet in Offshore Banking centers like Malta, Singapore, Hong Kong, and Liechtenstein, the banks are conservative to a fault. They practice extreme caution with their depositing customers’ money and keep huge and conservative liquidity and capital ratios. Many of these same jurisdictions are governments with little to no debt and highly solvent and very well-capitalized banking insurance funds. Finally, Offshore Banking centers often pay significantly higher interest rates for U.S. dollar deposits.

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While major Western central banks in the United States, Great Britain, Europe, and Japan have absolutely slashed their interest rates to historic low rates or even negative interest rates, others are still paying decent returns overseas. In some of these, investors can receive even in excess of four percent on U.S. dollar-denominated deposits in low to no risk banks and regulatory regimes and jurisdictions.

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Offshore Bonds Offshore Bonds are sometimes called offshore investment bonds. These investment vehicles allow individuals to gain control over what point they pay tax, to whom they will pay such tax, and how much they will ultimately pay in the end. These types of bonds are offered internationally from some of the mega global multinational life insurance firms like Britain’s Old Mutual International and Friends Provident International, Genarali Worldwide, RL360, and Zurich International. Such Offshore Bonds would not ever be domiciled in the United Kingdom or the United States. Rather they would be based in such offshore tax havens as Luxembourg, Guernsey in the Channel Islands, or the Isle of Man. More and more these days, international expatriates choose Dublin, Ireland for a domicile for these investments. This is because of the perception that Ireland offers tax efficiency and effective regulatory protection. When money like this is not brought back into most countries (beside the United States) where the citizen is from in the form of either capital appreciation or income, then it will not be subject to those jurisdictions’ taxes. This is why investors have to consider the tax jurisdiction where they are residents when they cash out their Offshore Bond. It means that selecting the best location and provider of the bond is extremely critical, since this will determine which access and taxation rules apply in the event of a cash out scenario. A great number of the Offshore Bonds prove to be inexpensive, completely transparent, and tax efficient planning investment vehicles. Investors still have to be careful that they are not abusing this type of tax and investment vehicle. Reality is that whether a bond is offshore or onshore, it truly is an investment masquerading as an insurance contract. This delivers to the investors an array of some helpful tax benefits. There are a number of good reasons for why investors (and especially those who are not U.S. citizens who can not escape from their own taxing regime the IRS no matter where they live unless they give up their citizenship) utilize such investment vehicles as Offshore Bonds. For starters, an offshore bond will not be considered an income generating asset. Because of this truth, trustees and individuals do not have to fill in any tax returns which require self assessment. Income which is reinvested in the Offshore Bonds will not produce income tax events. These bonds have advantages over pensions and retirement accounts as well, since investors can assign them to another individual or legal entity at will. Money kept inside of the bond may be switched around and still will not require any Capital Gains Tax payment or even tax reporting situations. There are similarly income tax-free events with these Offshore Bonds. It is possible to draw out as much as five percent of the premium originally deposited or paid without creating any taxing liability. This can be done over a span of 20 consecutive years. When owners make their five percent withdrawals, this is not an income-generating event, but instead simply a return of original capital to the bond holder. These bonds may also be put inside of a trust and then removed from it without creating an income taxing event. Without a doubt, these Offshore Bonds have proven to be enormously popular with expatriates living

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abroad. They provide tremendous possible tax advantages for anyone who will reside outside of their native country (besides for citizens of the U.S.). The reason for this is that investors are able to claim tax relief for those gains which they make when residing offshore. This significant benefit is known as time apportionment relief. For British residents as an example, they are able to lower the tax which must be paid commiserate with the amount of time they resided outside of the United Kingdom. So if they were bondholding residents of Spain for half the life of holding the bond, then this would lower the amount of taxes they had to pay for any income or gains in Britain by half. The danger of course is that some commission-based financial advisors will try to take advantage of the investors in this type of program. When they are not correctly established with extreme transparency, the unscrupulous financial advisor may draw out a significant amount of the savings percentage wise. This transfer of wealth is not illegal, as it is merely a case of high fees and commissions. These Offshore Bonds can be dangerously opaque if investors are not careful.

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Oil Sands Oil Sands prove to be a unique mixture of water, sand, clay, and bitumen. They exist in a few places throughout the globe, such as Canada, Russia, the United States, Kazakstan, and Venezuela. Bitumen is actually a form of oil which is so heavy (or thick) that it can neither be pumped out or flow naturally on its own. This is why bitumen must be either heated up or diluted. At temperatures such as 50° F/10° C, this bitumen is in a state of matter which is a solid. It is so hard at this temperature that it has been compared to a hockey puck. While this bitumen is occasionally discovered about 200 feet or less under the earth’s surface (70 meters down or less), the vast majority of it lies significantly deeper below the ground. The bitumen in oil sand becomes more viscous at room temperature. When it is this temperature, it flows at the speed of cold molasses. Thanks to the rapid advance in technology, a range of specifically developed methods of treating these sands exist today. Oil sands producers also benefit from the continuous advance of technology and ongoing research in this field which makes it more and more economical to produce traditional oil from this amazingly useful sand. While oil sand has been unearthed in places such as the United States, Russia, and Venezuela, the largest, best developed, and most technically advanced production site for it on earth is in the Alberta province of Canada at the Athabasca deposits. The oil sands for which Alberta has become synonymous and world famous lie beneath 54,800 square miles of land (or 142,000 square kilometers). Around three percent of this land, or 1,850 square miles (4,800 square kilometers), might be potentially impacted through mining operations for extracting the energy rich oil sand. The overwhelming balance of 97 percent of the surface area in this huge deposit will only be recovered using methods known as in-situ drilling. The advantage of this removal technique lies in the fact that it barely disturbs the surface land area. Canadians are relieved when they learn that the actively mined part of the oil sands mega field is only 346 square miles large (or 904 kilometers square). This amounts to a piece of land a little bigger than the city Calgary in Alberta. People and miners have been aware of these oil bearing sands for many years. In the past, it was utilized for paving and roofing tar, a practice that has become ineffective and outdated. This was never a great use for these sands, as they did not properly harden enough to be good material for the construction industry. Tar is actually quite different from an oil sand even though they look about the same to the untrained eye and observer. An oil sand represents a petrochemical which occurs naturally, while tar is a man made substance. Tar results from the by-product of hydrocarbons. As such it is truly the final waste product derived from degrading them. Tar makes an effective sealer for ropes and wood against the invasion of moisture. The oil sand is elegant enough to be refined to both commercially viable oil and finally fuels. The proven reserves of bitumen in the world hold around 100 billion barrels of oil equivalent. This amounts to approximately five percent of the proven world oil reserves. An astonishing nearly 71 percent of these proven reserves lie in Alberta, Canada, making this truly the world center for production both

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today and in the foreseeable future. The oil sand industry in Canada has suffered somewhat thanks to the predatory practices of Saudi Arabia and their global OPEC oil cartel. Along with their assault on the U.S. shale oil industry, the Saudi’s plot to drive down oil prices in order to force their newer competitors out of the business affected Canadian Oil Sands. While Canadian oil sands are still effectively produced in the $40’s and $50’s per barrel, they are not much profitable at these lower prices.

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Oil Shale Oil Shale, sometimes called shale oil, refers to an unconventional form of oil that exists in shale formations. This shale oil can be used to describe two separate forms of oil. The first is crude oil which has become trapped within shale formations. The second refers to the more traditionally accepted definition. This is oil which the companies extract out from the shale itself. This shale oil is only a particular kind of sedimentary rock. It exhibits several unique characteristics. These are a lower permeability and contents of solids that are similar to bituminous material. In an extraction process, this oil may be super-heated and vaporized so that it becomes removable and transformable into the traditional viscous form of oil. What made it conceivable to extract such unusual oil resources in the first place is the advancement of both hydraulic fracturing, known as “fracking” and the improvement of various techniques for horizontal drilling. This has made it technologically possible for the oil majors and minors to pull oil out of the shale rock and other forms of rock formation that have the characteristics of lower permeability. These cutting edged techniques began to develop and grow starting in the decade of the 50s. It was not until the decades of the 70s and 80s that such shale formations within the continental United States could effectively be tapped. The biggest shale formations which yield up this shale oil in the U.S. lie on the Western coast, in the Monterey-Santos shale formations. These oil shale and other gas shale rock structures exist all over the planet. The nations which are fortunate enough to have huge amounts of technologically recoverable shale oil are some of the usual suspects for natural resource abundance. This includes Russia, China, The United States, Libya, and Argentina. The United States Energy Information Administration (US EIA) did an estimate on shale oil reserves back in 2013. They determined that an estimate of around 345 billion barrels of this shale oil could be recovered now or in the future. This means that such reserves comprise around 11 percent of all crude oil resources in the globe. Obtaining this shale oil out of the unique rock formations has never been easy. This also makes it typically more costly to do than simply drilling for conventional stocks of crude oil. Extracting oil shale may also lead to more negative and pronounced effects on the natural environment. The reason for this is that shale oil must be super-heated to force the oil to become a vapor. Once this occurs, the producers then have to process the vapor with various potentially harmful to the environment chemicals in order to separate the oil vapor from the natural gas. Within the oil and natural gas universe, the major and minor producers commonly make reference to “tight oil” instead of oil shale when they come up with their resource and production estimates. The reason for this is that oil shale can be derived from such rock structures as carbonate and sandstone, not only traditional shale oil formations. The tight oil estimates are therefore always higher than the conventional shale estimates will be. The oil shale industry had become a massive contributor to American oil production and exports, thanks to the rapid growth of this industry in the years following the new millennium. For several years, it

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contributed literally millions of barrels of oil products and production per day. The United States briefly became the world’s largest oil producer. Once Saudi Arabia targeted this industry as a threat to its own dominance of the world oil markets in conjunction with its puppet organization the OPEC cartel, they went after the American oil shale industry. By driving down oil prices to lower levels than the more expensive cost to produce the shale oils, they were successful in forcing many of these operations to close up either temporarily or permanently within the U.S. and Canada.

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Oligopoly An oligopoly represents a type of market where only a couple of companies dominate the majority of market share. As only a few firms share markets between them, they are called highly concentrated. Even though just several firms are dominant, numerous smaller companies can also compete in such a market. Major national airline carriers like British Airways and KLM-Air France may dominate their routes and have only a handful of major competitors. There are still numerous smaller airline travel operators that provide trips and special services within the market. Economists like to identify such an oligopoly by focusing on its concentration ratio. These determine the percentage of aggregate market share which only a few companies control. If high concentration is present in such an industry or market segment, economists will call these industries oligopolies. When such oligopolies merge together, the concentration becomes even higher. It makes monopoly control even more likely. This is why regulators in developed countries review such mergers to investigate their impact on market share and control. There are several main characteristics that effectively describe the conditions which exist in an oligopoly market. These include interdependence, common strategy, and barriers to entry. Oligopoly companies are interdependent on each other. Such corporations that have only a handful of effective competitors have to consider their near rivals reaction when they engage in their own decisions. If an oil company wanted to gain market share through price reductions, it would have to contemplate how its rivals would similarly lower their prices in response. Oligopoly companies’ strategies are related to this interdependence idea. These firms have to predict how their rivals will respond to their price changes or other activities which are not price related. They must establish plans which take into consideration the options they will use based on how their rivals retaliate. This means that oligopolies’ members have to decide whether they will collude with their rivals or compete with them. They also have to decide whether to make any industry leading decisions or simply react to those their rivals make. This is the distinction between a first mover and second mover posture. First movers may gain the advantage of profits from a head start. Second movers have the benefit of waiting to see how their close rival’s strategies work out before attempting to counter them or improve on the ideas. The barriers to entry in an industry are a key component of why oligopolies exist in the first place. Such companies can dominate the market segment simply because it is so hard and expensive for new rivals to begin operating within the market. These barriers to entry might be natural or they could be artificially erected by the dominant firms to maintain their positions. Among the main natural to entry barriers in oligopoly industries are economies of large scale, control of scarce resources, high start up costs, and high research and development costs. Some markets require large economies of scale in order for a company to be price competitive. This keeps out new participants if the existing companies have taken advantage of them. High start up and high research and development costs mean that new companies will take a long time to

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become profitable. A number of these costs can not be recovered if a firm decides to abandon the market. Besides R&D, this includes advertising, marketing, and other costs which are fixed. Firms which wish to become involved in research and development intensive industries will require enormous financial reserves so that they can outspend the established oligopoly members.

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OPEC OPEC is the globally famous acronym for the Organization of the Petroleum Exporting Countries. This permanently standing and frequently meeting intergovernmental entity arose over fifty years ago at the Baghdad Conference held back from September 10th through the 14th of 1960. Founding meeting nations at the time were Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. These five original Founding Members later found company as nine other states joined them. These were Qatar in 1961, Libya in 1962, United Arab Emirates in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973, Gabon in 1975, and Angola in 2007. Indonesia is the ninth member. They have experienced a tumultuous history recently with OPEC. The Southeast Asian nation originally joined in 1962 but suspended its membership in January of 2009. They reactivated it once again in January of 2015 then again decided to suspend membership in November of 2016. The original headquarters of OPEC lay in Geneva, Switzerland, but only for the first five years of the organization’s history. After this, the group moved the home base of operations to Vienna, Austria as of September 1, 1965. They have remained there to this day. The objective of OPEC lies in unifying and coordinating the diverging petroleum production and sales policies of the member nations. Their goal in doing this is to ensure that petroleum prices realized by the producers are both stable and fair. They are also interested in delivering and guaranteeing an effective, uninterrupted, and economically affordable supply of petroleum and petroleum products to the wealthy consuming nations of the world. Finally, they seek a fair return on investments for those who support the industry with capital. Their mission is nearly the same as the above defined statute. They look to make certain oil markets remain stable so that the producers are able to receive a dependable and steady income stream and consumers are able to rely on routine, economic, and efficient supplies of the crude commodity. The formative years of OPEC in the 1960s were interesting times for the member producing states. Many of them were only achieving their independence from protectorate overlords Great Britain or France at the time. Decolonization meant that many new fully independent nations arose throughout the developing world. At the time, the world oil markets were controlled by the so called “Seven Sisters” multinational corporations. They existed almost independent from the former communist Soviet Union (the FSU) and the other communist nations of China, Vietnam, North Korea, Eastern Europe, and Cuba. OPEC came together and refined its group vision, established their Secretariat, and created their objectives. In 1968, it adopted its “Declaratory Statement of Petroleum Policy in Member Countries.” This laid out the irrevocable rights of all nations to permanently control their own natural resources for the best interest of their own national development. By the end of the decade, OPEC had expanded to ten member states. It was actually in the 1970s that OPEC came into its own. In this decade, they gained international notoriety as they assumed full control over their own internal petroleum industries. This allowed them to

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gain a huge influence over the crude oil prices on global energy markets. Thanks to their Arab oil embargo of 1973 the were able to inflict dramatic pain for national governments as well as individual consumers and businesses throughout the United States, Great Britain, and most of the wealthy developed nations of the world. By 1975, 13 countries had become members of OPEC. Throughout the 1990s and 2000s, OPEC’s influence and great power over world oil and energy markets gradually declined as the organization fell from prominence. This happened because of ineffective coordination of policy as the years dragged on, and as other non-OPEC nations such as Norway, Great Britain, the newly revived Russia, Canada, Mexico, and the United States became major oil producers in their own rights.

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OPEC Fund for International Development (OFID) The OPEC Fund for International Development, or OFID, proves to be the developing world assisting, intergovernmental development financing organization. The member states of OPEC organized this group in 1976. They actually conceived of the idea while they were at a meeting in Algiers, Algeria in March of 1975. The Solemn Declaration of the Conference stated that it “reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment.” They sought ways to build up cooperation between the two groups of fellow developing nations. The goal of the OPEC Fund for International Development seeks to establish stronger financial ties and coordinate projects between the various OPEC Member Nations and other non-OPEC developing states. They work to deliver financial assistance to these poorer fellow developing nations in order to aid their socioeconomic progress. This makes the primary mission of the group to encourage South on South Partnerships with those other developing nations throughout the globe in order to finally eradicate poverty. They pursue this noble goal from their global headquarters in Vienna, Austria. Today’s Director-General is Saudi Arabia’s own Suleiman Jasir Al-Herbish. This is his third term heading the OPEC Fund for International Development. The man was unanimously re-elected in June of 2013 by the Ministerial Council, the highest authority within the institution. Because of the decision at the First OPEC Summit held in Algiers, the capital of Algeria, back in 1975, the Member Nations had their various Finance Ministers from the Member Nations meet to create the OPEC Special Fund. This pool permitted the Member Nations to funnel aid to those developing countries most in need of financial and developmental assistance. In 1976, this OPEC Special Fund began life with a then-impressive $800 million reserve. By the conclusion of 1977, the OPEC Fund for International Development had provided 71 loans to a substantial 58 nations. They had also funneled donations from the Member Nations to various other developmental intergovernmental organizations including the IMF International Monetary Fund and the IFA International Fund for Agricultural Development. The fund performed so spectacularly that the Member Nations chose in 1980 to change the temporary capital facility into a permanent legal organization renamed the OPEC Fund for International Development. They achieved the status of international development agency by May of 1980. The member nations of OFID are 13 separate countries. These include the following: Venezuela, United Arab Emirates, Saudi Arabia, Qatar, Nigeria, Libya, Kuwait, Iraq, Iran, Indonesia, Gabon, Ecuador, and Algeria. Ecuador had suspended its membership in the developmental organization in the early 1990s. They returned to full membership status in June of 2014, 22 years later. The OPEC Fund for International Development has at least five different ways they have disbursed their largess to help fellow developing nations most desperately in need of financial - developmental assistance. They offer developmental loans for programs and projects, trade financing, and support for balance of payments needs. They also offer grants to support food aid, technical assistance, research, and

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humanitarian relief in disasters and emergencies. A third operation has them finance activities of the private sector in developing nations. The group similarly makes generous contributions to developmental institutions and their resource bases when their work helps out developing nations. Finally, they represent the various OPEC Member Nations internationally when they find themselves in the global financial arena in need of a collective action. The resources of the OFID come from a build up of the reserves of the operations of the organization itself as well as voluntary member state contributions. In June of 2011 in response to the many and growing developing world needs brought on by the global financial crisis, the OPEC Fund for International Development replenished their funds with an additional $1 billion U.S. dollars.

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Operating Expenses In the world of business and corporations, operating expenses is the term that pertains to the continuous costs of running a business. This makes operating expenses the expenses for everything happening behind the scenes. Such operating costs include any expenses incurred for the literal operation of the business. You occasionally see the words operating expenses written as OPEX. This is especially true in internal memos and documentation that are relevant to the earnings of a company. The most frequent operating expenses are those having to do with employee benefits and salaries. These commonly make up the biggest individual expenses for a corporation. Other operating costs could be office supplies, marketing budgets, licensing and legal fees, raw material expenses, costs of research and development, accounting fees, and office utilities. Another key operating expense is depreciation. Depreciation proves to be the quantity of value that diminishes in an asset over a period of time. This means that accounts can take equipment, vehicles, and other assets and subtract out the lower value off of the initial value to come up with depreciation as assets gradually lose value. This depreciation can be counted as an operating expense so long as the asset is still employed by the business in its operations. Some expenses are deemed to be capital expenses instead of operating expenses. This is generally the case for single event expenses, like buying replacement equipment for completely depreciated existing equipment. This division of costs allows both the firm and its investors to have a more realistic snap shot of for what the money is used before it is able to be put to profits. When you are self employed, then you may count both CAPEX and OPEX as business expenses. Operating expenses have to be included in the annual reports of both not for profit outfits and corporations that are publicly traded. This kind of information commonly comes with charts that compare the operating expenses of several years. In this way, a reader is able to obtain a good understanding of how the expenses are progressing with time. By tracking operating expenses in an ongoing fashion all year long, the information is easily at hand for a company to include it in their reports. Accountants, or alternatively programs that do financial management, are generally used to help with operating expense tracking and calculation. When operating expenses go up and down every year, investors will want to know why this is the case. Detailed records provide good explanations for the final numbers to satisfy the questioning parties. Corporate treasurers are generally responsible for answering these queries and coming up with answers.

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Option Spreads Option spreads are option combinations which have traders combining two different options contracts with varied strikes but identical expiration dates. They do this in a strategy to limit their overall risk. The idea behind these option spreads is relatively simple, but the possible effects of some spread constructs can become slightly more complicated. Reducing the concept of option spreads to their most intuitive elements involves the discussion of the two legs, or option contracts, which comprise the spread itself. Putting on two legs refers to traders combining as an example a call option purchase with one which they sell at the same time. In other words, the traders who enter this strategy will take on both sides of the market when they make options spreads. It will either be in buying the one and selling the other, or selling the one and buying the other option contract. The idea behind buying and simultaneously selling two options with the same expiration but different strikes is that this action reduces the risk. When traders sell a call and also buy a call, they are less exposed to a fall in the market or the option premium time decay thanks to the option which they sold, for which they received a premium. The net cost of the spread is therefore less than that of simply buying a call. Another way of looking at this maneuver is that the cost of the one call is subsidized by the sale price of the one which the traders sell. The one sold is further out of the money than the one bought, which reduces the cost of the overall spread options. This effectively limits aggregate risk, exposure to the relentless time decay factor, and the penalty for the price movement potential to the downside. Consider a real world example. If HSBC bank stock is trading at $53 per share and traders believe that the stock price will rise in the short term, they might decide to put on a bull call spread. They might construct this spread by buying a $55 strike price call at the same time as they sell a $60 strike price call. The expiration date in this example is irrelevant so long as the two call contracts have the same expiration date. In this example, the traders pay $500 for the $55 strike call and receive $250 for the $60 strike price call. The net cost of the spread position is $250 then. In this example, the maximum risk is limited to the $250 net cost of the spread. Instead of having a $500 risk from only buying the single $55 strike price call, risk is reduced in this case by half for also selling the $60 strike price call. The trade off for this lowered risk is a reduced maximum potential profit. The reason is that as the stock price reaches $60 per share, the spread owners realize their maximum profit point. This is $500 gross realized for a $250 maximum net profit (maximum $500 gross proceeds minus the $250 spread cost). Even if the stock price were to rise to $65 per share, it would not change the profit possibility, since the sold call with a strike at $60 means that the spread owners can not capture any additional gains in the price of the stock beyond the strike price which they already sold. If the price of the stock moves against the spread owners, they can not lose any more money than the maximum $250 net cost of the spread, regardless of how low the underlying stock price moves against them. This makes these bull call and bull put spreads very popular with options traders, since they are effective at reducing risk while still allowing for large profit potentials.

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Options Options are contracts on stocks, indexes, currencies, commodities, or debt instruments. There are two principle types. These are call options and put options. Call options give holders the ability to purchase a set amount of the underlying instrument for a specific price in a certain amount of time. This specific price is known as the strike price. Put options grant holders the ability to sell the exact amount of the underlying instrument at a fixed price in a given period of time. With options on stocks, the set amount of the underlying shares that calls and puts cover are typically 100 shares. Option contracts have two parties to them. The first are the sellers who are also known as writers of the option. The buyers are the holders of the option. Option values are made up of two components. These are intrinsic value and time value. Intrinsic value is the amount that the option is in the money. For an option to be in the money, the stock price must be higher than the strike price for calls. For puts, the stock price has to be lower than the strike price. The value that is left after subtracting intrinsic value is the option’s time value. When an option has no intrinsic value, one hundred percent of its value is time value. Investors can buy and sell options until they run out of time. At this point, they expire either with some intrinsic value or worthless. They can also be exercised. When an option is exercised, the seller must transfer the underlying shares to the holder of the option. When the instrument is not able to be transferred over, then the parties settle in cash instead. Investors like this financial tool because they give buyers peace of mind. The most an option holder is able to lose is the total price that they paid when they bought the contract. If options are not exercised or sold within the given time frame, then they expire. An option that expires worthless does not involve any exchange of shares or cash. Buyers and sellers have different potential profits with options. Profit potential is limitless for the buyers. For the sellers, the profit is limited to the price which they receive for the contract. Sellers have unlimited loss potential unless they own the underlying shares or instrument. When a seller of an option holds the underlying instrument, the option is covered. There are two main reasons that investors buy options. These can be to gain leverage or to obtain protection. The leverage benefit means that the option holder can control a larger amount of equity for a much smaller price than it costs to actually buy the shares. This exposes the buyer to a far smaller potential loss. Options provide protection to investors who own the shares that underlie the contract. While the owners of the option hold the contract, they gain protection against adverse price movements in their shares. This is because the contract provides the ability to obtain the stock at a certain price during the option’s contract time-frame. In this case, the cost of the option is the premium that the owner pays. There are several downsides to options. The trading costs for options are higher than with buying the underlying shares of the stock or other instrument. This is because the spread between the bid and ask is

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higher for options. Option commissions also cost more than do stock commissions. Option trading is more complicated than stock trading too. Options also have to be watched more closely than do stocks generally. The time involved to trade and maintain option strategies can be significant.

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Orderly Liquidation Authority As part of the Dodd-Frank Act that Congress passed following the Financial Crisis and Great Recession of 2008, they accepted that there are financial firms that will ultimately fail. This is despite the fact that the new regulatory and supervisory framework scrutinizes banks and non banking financial entities more carefully than ever before now. In the crisis and the years that followed, many policymakers decided that the U.S. Bankruptcy code and process did not quickly and effectively wind down institutions which were systemically important as they became insolvent. The FDIC had the role of seizing such failing banks in order to resolve them. Their method for doing this has been seen as the best way to stop runs on banks and eliminate financial panics in the process. The FDIC maintains full discretion on which claims that are not deposits to pay and according to the priority that it sees fit. The FDIC generally subordinates debtors and creditors to the U.S. government and its interests. Congress decided that a new way of winding down these failing institutions was in order to help regulators mitigate risks to the system. Because of this increasingly prevalent view in Washington, D.C. the Dodd-Frank Act set up a new mechanism mostly following the FDIC’s existing process for resolving failing institutions. This new Orderly Liquidation Authority is designed to help liquidate financial firms that are systemically important and fail. All entities that fall under the new regulation provided by the Financial Stability Oversight Council and the Federal Reserve will be resolved under this new mechanism. This includes not only companies who pose a systemic risk. It also covers financial entities whose failure can lead to negative consequences for the remainder of the United States’ financial system. The Orderly Liquidation Authority is also known as simply the Liquidation Authority. For the remainder of financial companies, the standard United States’ Bankruptcy Code and judicial process continues to apply. Only in the cases where financial company failure threatens risk to the entire system as determined by the judgment of the Financial Stability Oversight Council will the Orderly Liquidation Authority mechanism supersede the traditional bankruptcy process. Where the new Liquidation Authority takes precedence over the traditional bankruptcy rules and process, the FDIC is able to utilize this mechanism in order to seize a failing financial entity and move forward to liquidate it. This way, the company and its various creditors will not ponderously and slowly engage in typical restructuring agreements that the U.S. Bankruptcy Code envisions. Because of these provisions contained in the Dodd-Frank legislation and now enforced by the Financial Stability Oversight Council, financial firms that may fail and threaten the system as a whole will be treated differently than other non-systemically important financial firms. This means that rating agencies, lenders, and various counterparties to financial firms should remember that there will be different results from companies wound down under the mechanism of the Liquidation Authority versus that of the standard United States’ Bankruptcy Code.

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In order for financial firms to be handled by the Orderly Liquidation Authority, the Treasury Secretary as head of the Financial Stability Oversight Council must intentionally designate these companies to be “covered financial companies.” The secretary must first decide that the company will default or be at a substantial risk of default and that it also presents a risk to the financial system as a whole. This authority gives the federal government the ability to put any financial entity under the auspices of the Liquidation Authority as they deem fit. Insurance companies that become insolvent will continue to fall under the authority of state regulators. Insured thrifts and banks will still be dealt with by the FDIC and its present system for winding down failed institutions.

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Origination Fees Origination fees are also known as activation fees. These are the costs pertaining to setting up an account with a mortgage broker, bank, or other firm that will go through the tasks of collecting and processing all documents and requirements for getting a loan, in particular a mortgage on a house. These origination fees are generally amounts that are pre determined for any new account. Origination fees can range from half a percentage point to two percentage points of the entire loan total. This variance has to do with where the loans come from, off of either the prime or the subprime loan market. On a subprime mortgage for $200,000, the origination fee would likely amount to two percent, equaling four thousand dollars in this particular case. The average origination fee comes in at approximately one percent of the total mortgage loan dollar amount. This fee goes to the firm that originates and processes your loan. It defrays their expenses that arise from developing, putting together, and finally closing on your mortgage. The rise of the Internet has allowed for an alternative compensation scheme for companies that put together and originate mortgages. While the vast majority of mortgage brokers and banks still charge these loan origination fees, there are some Internet based brokers who use a different model. These entities do no charge origination fees at all; instead they pass the savings directly on to you the customer. The way that they get paid is by selling your loan to an investor once it is closed. The investor pays them a premium for the packaged loan, which covers the origination fees, and the online mortgage broker is compensated for his or her work and time. The origination fees can be deducted from taxes. The year that the transaction closed and the origination fees were charged, they can be used to reduce actual income on income tax forms. The Internal Revenue Service permits this reduction to income no matter who pays the origination fees, meaning that a person who employs a broker that does not charge them origination fees will still be able to deduct the fees that the investors who later buy the loan are subsequently paying to the mortgage broker. This means that if you take out a $200,000 mortgage, then you are able to deduct the $2,000 in loan origination fees, even if you did not have to pay them, but an investor in the loan did instead. Origination fees are listed on the HUD-1 Settlement form. They are tallied beneath the sub-heading of lender charges. Discount points that are used to bring down interest rates either permanently or temporarily are also listed on this form under the category.

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OTC Bulletin Board (OTCBB) The OTC Bulletin Board (OTCBB) proves to be a service for electronic trading that the NASD National Association of Securities Dealers maintains and provides to investors and dealers. It delivers live quotes on volume and pricing data to both investors and traders on stocks which trade OTC over the counter. Every company which is listed on this backwater exchange has to be current in its filings of financial statements with regulatory oversight group the SEC Securities and Exchange Commission or some other applicable regulatory body. Other than this, there are no minimum listing requirements on the OTC Bulletin Board exchange; unlike with sister monster exchanges the NYSE New York Stock Exchange or the NASDAQ. The OTCBB turns out to be a fairly young stock quoting system. It began in 1990 following the passage of the Penny Stock Reform Act of 1990. This legislation mandated that the SEC had to come up with some form of system for electronic quotes for those firms which were not able to qualify for listing on one of the rival major stock exchanges such as NYSE or NASDAQ. Those securities which trade on the over the counter basis does so between individuals who are utilizing either phones or computers to place trades. Every stock which trades on the OTCBB contains an “.OB” in its suffix. It is important for potential investors in OTC Bulletin Board stocks to remember that this is not an extension of any major stock exchange. Instead, it is because these stocks are not well known, heavily traded, or largely capitalized that they are trading on the over the counter electronic quoting system basis in the first place. These stocks are well known for their substantial risk and rampant instability and volatility. This is why the very few of the OTCBB stocks which enjoy great success eventually migrate over to the NASDAQ or even NYSE once they are able to meet the strict listing requirements of the relevant larger exchanges. The bid-ask spreads on OTCBB are commonly much higher since the volume is so much less. OTC Bulletin Board serves a critically important role and fills a much-needed vacuum with its existence and services. In truth there are many individual tiny companies which will never qualify for the stronger listing requirements so that their issues are allowed to trade on the major national stock exchanges. The OTCBB gives them another avenue to float stock shares to a national investor audience so that they can obtain significant capital for their expansion needs. As long as investors recall that this is not a true exchange in any practical sense of the word, but merely an electronic quotation system, then investors will go into a potentially severely loss-making investment scenario with their eyes wide open. These securities which trade through the OTC Bulletin Board are actually a bunch of shares that exist in a tangled web of market makers who are trading them using the various quotes the system provides on a secure network computer which is only accessible by pay to play subscribers. Another form of exchange network trading is via the so-called Pink Sheets. There are some parallels between the two systems. They are not at all related in fact though. Pink Sheets is an individually and privately held company which offers its own proprietary system of quotations. Companies whose securities trade as part of the Pink Sheets are not required to file any financials with the SEC. They also

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do not have to make any certain minimum docs available to members of the public or investing community at large. This is why some smaller firms prefer the simplicity and anonymity provided by the Pink Sheets operations and service.

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Over The Counter (OTC) OTC is the acronym for Over the Counter. In the business and financial world, Over the Counter trading is also known as trading off of the exchange. Such OTC trading goes on when financial instruments of various kinds, including stocks, commodities, bonds, or derivatives, are traded literally between the buying and selling party themselves, without having an exchange in the middle of the transaction. Over the Counter trading can be said to be the opposite of exchange trading. Exchange trading happens in facilities or over electronic market places that are specially created for the trading of these instruments. Stock exchanges and futures exchanges are the places that exchange trading takes place and Over the Counter trading does not. Within the United States, Over the Counter stock trading is done via market makers who ensure that there are markets in both Pink Sheet and OTCBB, or bulletin boards, securities. They do this through the utilization of quotation services that are between dealers, like Pink Quote, run by the Pink OTC Markets, and OTC Bulletin Board for the OTCBB. While Over the Counter stocks typically do not either list or trade on any form of stock exchange, stocks that are listed on exchanges may be traded on the third market over the counter. OTCBB quoted stocks have to follow the reporting rules as set out by the United States SEC, or Securities and Exchange Commission, regulatory body. Pink Sheet stocks are not governed by such reporting requirements. Still other stocks that are traded as OTCQX meet different disclosure guidelines that they are permitted to work under in the OTC Pink sheet markets. OTC can also relate to contracts created between two entities. In these contracts, the two parties concur on the way that a specific trade will be settled at a certain future point. These typically come from investment banks and go out to their own clients. Good examples of these types of OTC arrangements are swaps and forwards. Such contracts are typically arranged over the phone or via computer. Derivative OTC contracts fall under the governance of an agreement provided by the International Swaps and Derivatives Association. This type of OTC market is sometimes called the Fourth Market. In the Financial Crisis of 2007-2010, many of these OTC derivative contracts created and wreaked havoc in international financial markets specifically because they were traded over the counter, and no one exactly knew what risk and credit were entailed in the contracts that totaled in the tens of trillions of dollars and were made between mysterious partners. To address this critical problem, the NYMEX, or New York Mercantile Exchange, set up a mechanism for clearing many of the most frequently traded energy derivatives that were previously traded only OTC. Now, many of these customers can simply hand over the trade to the exchange’s clearing house ClearPort. This removes the dangers associated with both performance and credit risk that were previously seen in these OTC transactions. Other exchanges are endeavoring to do the same thing to try to take derivatives and credit default swap contracts away from the shadowy world of Over the Counter trading. The G20, or Group of Twenty Industrialized and Industrializing nations, is considering ways of rewarding parties for bringing such OTC derivative transactions onto regulated exchanges as well.

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Oversight Oversight is a critical regulatory concept. Thanks to the Congressional act the Sarbanes-Oxley Act of 2002, independent oversight became a major new requirement for occupations pertaining to accounting at public companies. This act and trend in government regulating led to the creation of the PCAOB. PCAOB stands for the Public Company Accounting Oversight Board. This organization proves to be a not for profit entity which oversees the auditors at publicly traded corporations. The aim of the board lies in safeguarding both stakeholders and investors in public firms. They do this by making certain that the company financial statements and auditor statements follow a rigorous set of guidelines. The PCAOB also has borne the responsibility since 2010 of overseeing broker-dealer audits. This means that any compliance reports which auditors file according to the requirements of the federal securities laws must foster protection of investors. It is up to the United States SEC Securities and Exchange Commission to approve all standards and rules of this particular regulatory entity. This organization has brought about the historical first time oversight (via both independent and external means) of American public company auditors. Before this Sarbanes-Oxley Act passed in 2002, the profession and industry was self-regulated from within its own ranks. There are four main functions of the Public Company Accounting Oversight Board. These include overseeing auditors in the specific capacities of standard setting, inspection, registration, and enforcement. They do this to ensure that there will be accurate, highly informative, and completely independent audit reports prepared for the good of the investing and buying public. Today’s Public Company Accounting Oversight Board counts five members on its continuously standing board. The Chairman is the head of this governing and steering body. They receive appointments for five year terms of service which are staggered for continuity in and stability of the board composition. It is the SEC Securities and Exchange Commission who appoints the board members. They do this after consulting with the Secretary of the U.S. Treasury and the Board of Governors for the Federal Reserve System’s Chairperson. Besides approving the composition of the board members for the PCAOB, the SEC has other important functions. They must also sign off on the board’s budget as well as their standards and rules. The PCAOB activities are paid for through means provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act. This provided a means of funding for all of their functions. The money mostly is derived from annually assessed accounting support fees. Public companies are required to pay these fees. The amounts are set by the size of their average monthly market capitalization relative to other publicly traded firms. Broker dealers are also now assessed fees (since 2010) that go to the PCAOB’s support. These are determined by the firms’ average quarterly tentative net capital on a relative basis to the other broker-dealers in the industry. The vision for this Public Company Accounting Oversight Board is to establish itself in the tradition of a model organization for regulation. They do this by employing cost-effective means and tools which are innovative. They seek to better the quality of audits overall and to lessen the dangers of auditing failures

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for the United States’ public markets. They are also working towards improving public trust surrounding the auditing profession in particular and the process of financial reporting in general. This Public Company Accounting Oversight Board arose because of a constantly increasing series of restatements from the accounting filings of American public firms during the 1990s. There were especially a number of embarrassing and highly damaging accounting scandals that decade which led to horrific and record-making bankruptcies of huge public firms. Among these were the two major scandal examples of Enron and WorldCom. Arthur Andersen was the big five accounting firm that was incriminated in helping to make these scandals possible. They became complicit in signing off on the financial statements and filings of the two companies in question. Before the PCAOB became founded, it was up to the AICPA American Institute of Certified Public Accountants to self-regulate the industry. The board became dissolved officially on March 31st of 2002. SEC Chairman Harvey Pitt appointed William H. Webster as official first chair of the PCAOB.

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Paine Webber Paine Webber was an independent and large United States-based stock brokerage firm that boasted an impressive and nationally comprehensive 8,500 brokers located in 300 different offices throughout the United States. The firm catered successfully to wealthy clients and accredited investors. The company counted an important money management business as well. For years it was the subject of rumors regarding takeover possibilities. The CEO Mr. Marron fended these off and stubbornly clung to the firm’s rare brokerage operation independence until he finally received a takeover offer too good to refuse from Swiss Banking Giant UBS (Union Bank of Switzerland). In July of 2000, this longstanding independence of Paine Webber finally came to an end. Union Bank of Switzerland paid approximately $12 billion worth of both cash and stock to acquire this the fourth largest brokerage in the United States. The price meant that UBS valued the American stock broker at over $73 per share. This represented a hefty premium of around 46 percent more than the share closing price the day before the announcement, which had traded at the then-current share price of $49.94. Two parties in particular benefited massively from the merger deal. General Electric Company, better known as GE, was the foremost beneficiary. As they had sold their Kidder Peabody brokerage subsidiary to Paine Webber in exchange for company stock, GE controlled approximately 31.5 million shares, or nearly 22 percent of the entire Paine floating stock issue. This stock became valued at $2.3 billion at the proposed merger price. The other big winner from the deal turned out to be the two decades long CEO Mr. Marron who held shares which then became valued at $85 million. The deal closed with UBS providing half of the purchase price in cash and the other portion in UBS stock. It represented the largest Wall Street firm deal up to that point as of mid year 2000. When UBS bought out Paine Webber, they mimicked the Merrill Lynch model that had worked so well for them for so very long up until the Global Financial Crisis ended the long-standing independence of the largest stock brokerage firm in the U.S. The model was to both package up securities to sell them to investors in the activity of investment banking all the while also distributing them to individual retail investors directly using their own proprietary network of in-house stock brokers. In fact the two largest financial service operations in the country at the time of this merger in the year 2000 were Citigroup and Morgan Stanley Dean Witter & Company. Both were created by mergers of brokerage firms and investment banks. The much-touted combination of Paine Webber and UBS proved to be ideally complementary. Because of this lack of business overlap, few jobs were lost in the acquisition. UBS was the $1 trillion asset manager for European institutions that also controlled its own American investment banking arm business they established with their purchase of firms Warburg and Dillon Read, which they acquired during the 1990s. Though Paine Webber failed to be truly competitive against the other Big Three Wall Street investment banking firms of the day, Merrill Lynch, Morgan Stanley, and Goldman Sachs, they did boast impressive trading operation and stock research businesses. UBS also concentrated efforts on trading and research of European currencies and securities prior to the acquisition of this American fourth largest stock brokerage.

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The ultimate motivation behind this takeover of Paine Webber by UBS lay in its long- running ambition to be a big player in both the financial services arenas of Europe and the Americas. To this effect, UBS had listed shares on the New York Stock Exchange only two months before announcing the acquisition. The chairman of UBS admitted that the overriding purpose of such a listing lay in coming up with a stock shares currency which they could deploy to pursue important acquisitions within the United States. Ironically, even a month before the official revelation of the takeover, Paine Webber had just finished completing its own significant regional brokerage purchase in the form of Nashville-based J.C. Bradford for $620 million. UBS was fortunate to obtain an incredibly valuable financial products and services distribution network within the U.S. at a price far less than they would have to pay to reproduce such a successful network (per Keefe, Bruyette, & Woods analysts). UBS intended to and did run the American brokerage as its full brokerage arm after the take over, keeping the Paine name alive in the process, though the firm’s independence was no more.

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Panic of 1907 The Panic of 1907 is also referred to as the Knickerbocker Crisis and the 1907 Bankers’ Panic. This represented an earlier financial crisis within the United States. It occurred during a three week long time frame that began mid October of 1907 as the NYSE New York Stock Exchange plummeted nearly 50 percent from the prior year peak. Naturally this touched off a first regional and then nationwide panic since this happened in a period of economic recession. This led to numerous runs on both national and regional banks, as well as trust companies. In time, this Panic of 1907 spread all across the country as a number of the state-chartered and local community banks as well as businesses throughout the region went into bankruptcy. Leading causes of the panic and bank runs were due to a pull back of the market makers in the NYSE that caused liquidity from a great number of New York City banks to dry up. This led to a rapid deterioration in confidence with bank depositors. The under regulated bucket shops and side bets on the market only made matters worse. The event which triggered the Panic of 1907 turned out to be a botched effort from October in 1907 in which speculators failed to corner the full market on the United Copper Company stock. As the bid went awry, many of the banks that had loaned out money in the cornering the stock market scheme became victims of runs on the bank that next infected affiliated trusts and banks. A week after this seminal event, the Knickerbocker Trust Company failed because of the bank runs. This represented the third biggest trust in New York City at the time of its sudden collapse. The fall of Knickerbocker then caused fear to spread all throughout the city’s many trust companies as the regional banks immediately began to withdraw their cash reserves from the New York City based banks. Throughout the U.S., panic ensued with huge numbers of savers attempting to pull out their own bank deposits from the regional and local banks. This turned quickly into a self-fulfilling prophecy. The Panic of 1907 actually started in the summer of 1907. The American economy had already demonstrated consistent signs of weakness as a range of Wall Street-based brokers and business had declared bankruptcy. When both the Westinghouse Electric Company and Knickerbocker Trust of New York City also failed, investors spooked and began the chain reaction of events that rocked the nation in the infamous Panic of 1907. As these critical businesses failed completely, the levels of stock markets began to collapse all the while depositors engaged in their panicked run on the country’s many banks. The American Treasury Department began pumping millions of dollars into the wounded banks in a desperate effort to save them all from collapse, yet still a string of failed institutions mounted around the United States. It was the legendary and respected J.P. Morgan who took the effective action which ultimately restored order to the markets and the national economy. He called on all of the country’s important bankers and financial experts alike. They came to his home and met in his library as if it were a war room office. For three weeks, Morgan and colleagues strove to move money from the stronger banks to the weaker ones to try to provide them with a much needed lifeline to keep them financially afloat.

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In the several weeks which followed, the combined efforts of J.P. Morgan and his business leader colleagues alongside that of the Treasury Department massively improved material conditions in the U.S. The crisis passed eventually and the blame game began in earnest. Reformers in both main political parties felt that the banking system of the United States had become flawed at the core and required a sea change. Roosevelt and Congress enacted some progressive banking legislation such as the AldrichVreeland Act of 1908 and the Owen-Glass Federal Reserve Act of 1913 as a result. The leaders of big business became embittered as they believed that over-regulation had overturned the economy’s natural rhythm.

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Paper Assets Paper assets have three different meanings depending on whether you are discussing business, investments, or fiat currencies. Where business is concerned, paper assets are assets that you can not easily use or change in to cash. These paper assets possess extremely low liquidity, meaning that they are difficult to sell too. The term in this case literally arises from assets that are valuable on paper, or that have a paper only value. In investments, paper assets mean something entirely different. They refer to assets that are representations of something. Paper assets in investments literally are pieces of paper that define ownership of an asset. Classic examples of investing paper assets prove to be stocks, currencies, bonds, money market accounts, and similar types of investments. For paper assets to have a tangible value, there must be a working financial system in order to back them up and exchange them. In the cases where a financial system collapses, paper assets commonly sharply decline along with it. The majority of Americans have placed an overwhelming percentage of their money in paper assets, and as the Financial Crisis of 2007-2010 showed, this makes them extremely vulnerable to economic calamities. Paper assets stand apart in contrast to hard assets. Hard assets contain actual value in the nature of the item itself. There are many forms of hard assets, but among the most popular are gold, silver, diamonds, oil, platinum, land, and other such physical holdings. While financial collapses can cause a set back for the value of hard assets, these types of assets almost always hold up far better than do paper assets. Many people are shocked by the fact that the U.S. dollar is also a paper asset, as are all Fiat currencies in the world except for the Swiss Franc. These paper currencies are no longer backed up by the long running gold standard. Instead, they only have value because their respective issuing governments, as well as the underlying currency users, say that they do. The Swiss Franc is a lonely exception. The Swiss constitution requires that for every four paper or electronic currency Swiss Francs in existence, there must be one Swiss Franc worth of gold in the Swiss National Bank vaults. Since the Swiss only value their gold holdings at around $250 per ounce, and gold has been trading between $1,300 and $1,400 per ounce for some time now, the Swiss actually have a greater gold backing to their currency than one hundred percent.

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Paper Investments Paper investments can be several things. Where businesses are concerned, paper investments turn out to be investments in commercial paper. Commercial paper investments prove to actually be money market instruments that companies and banks sell to raise money. There are many large issuers with good credit who offer these types of paper investments to interested investors. They represent inexpensive other sources of short term funding as opposed to standard bank loans. Commercial paper investments come with a fixed maturity of from one day to two hundred and seventy days. These types of paper investments are generally regarded as extremely secure, although they are unsecured loans. The companies that take advantage of them are commonly utilizing these short term operating funds for working capital or inventory purchases. Corporations like to utilize commercial paper because they are able to quickly and effectively raise significant sums of money without having to get involved with costly SEC registration through selling paper investments. This can be done through working with independent dealers, or on their own efforts directly to investors. Institutional buyers commonly prove to be significant buyers of these types of paper investments. Such notes come with amounts and maturity dates that can be specifically crafted to meet particular needs. The key features of these types of paper investments are that they are of short term maturity, commonly ranging from only three to six months of time. They liquidate on their own, with no action being required by the investing party in question. There is little to no speculation involved in their intended use as well. This gives them an appeal of clarity. Offering this type of paper investments offers several advantages for the issuer as well. The issuer is able to access cash at rates that are lower than those offered at the bank. Companies taking advantage of commercial paper are able to leave open reserves of borrowing power at their area banks. Finally, they are capable of getting cash on hand which will allow them to benefit from trade creditors who offer special discounts for those who pay for supplies and other needs with cash. Where traditional investments are concerned, paper investments also prove to be investments whose value is stated on and represented by paper. A number of different kinds of popular investments in the United States qualify as paper investments. These include stocks, bonds, mutual funds, certificates of deposits, and money market accounts. Shares of stock are pieces of paper that relate a certain percentage of ownership in a publicly traded company. Most any type of investment that does not have a physical component of the investment associated with it is considered a paper investment. Commodities, as well as futures and options on futures that permit you to take delivery of the underlying commodities if you wish, represent examples of investments that are not only paper investments. These types of investments, along with real estate holdings, are considered to be physical, or hard, investments.

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Passive Income Passive income refers to money that, once it is arranged and established, does not require additional work from the person getting it. A variety of different types of passive income exist. Among them are movie, music, book, screenplay, television, and patent royalties. Other samples of passive income include click through income, rental income, and revenue from online advertising. Activities that lead to passive income have something in common. They usually need a great amount of money, time, or both invested in them upfront to get them started. There are financial means to establishing passive income as well. You could purchase a rental property or choose to invest in a partnership or other form of company where you are a silent partner. The income that you derive from these investment activities is deemed to be passive. Various other kinds of passive income do not need a great deal of financial investment made in them, but instead require great amounts of effort, time, and even creativity to achieve. More than a year can be required to either build up a popular website that can contribute passive income from advertising or to write a great novel. Making money from such passive income that is actually profit may take longer. Books are a good example of how long it can take to actually make money from passive income. Publishers generally get to recover all of their printing and promoting costs, as well as any advance monies given to authors, before royalties are created and paid. Books that sell poorly could turn out to pay the author little to nothing. Websites have a different set of challenges for their creators. There has to be more than simply good content to make money from them. They must similarly rank high in the search engine results for the necessary amount of visitors to find and go to the website. Unless a great number of visitor hits are recorded on a website, the passive income that is generated will be negligible or even none. People are willing to put in such a huge amount of time with little assurance of results because they know that the passive income generating activity will create money for them around the clock for years to come, if it is successful. This means that passive income money is constantly being made, even when the person is asleep or on vacation. If you are able to get one passive income project up and running well, then you can attempt others. This way, you might hope to develop a few different income streams that result in a significant annual revenue which can even support you. Many investors believe that passive income is the most superior kind that you can achieve. This is why rental properties can be so popular. Even though they can require a significant amount of maintenance work and tenant management, they can provide substantial income once several such properties are owned and made profitable.

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Paul Volcker Paul Volcker is the former Chairman of the Board of Governors of the Federal Reserve Board who continues to be influential in policy and in an advisory role to the President of the United States. He is one of the few living individuals to have an economic policy rule named after him. Throughout his lengthy career of public service, Volcker has worked for the U.S. Federal Government for nearly 30 years. He became Chairman of the Federal Reserve from 1979 to 1987. Besides this, the man split his earlier career between the Treasury Department, Federal Reserve Bank of New York, and Chase Manhattan Bank. It was President Jimmy Carter who elevated Paul Volcker to the role as Chairman of the Federal Reserve in 1979. He did a quality job and received reappointment from President Ronald Reagan in 1983. During his tenure in the big chair at the Fed, Volcker was forced to fight 10% yearly inflation. He did so using controversial contractionary monetary policy. This took real courage, as he had to double the Federal Funds rate from an already high 10.25% in 1979 to 20% by March of 1980. After tinkering with the rates up and down for a year, Volcker maintained them at over 16% through May of 1981. This period of stunningly high interest rates became known as the Volcker Shock. It served its intended purpose to stop the inflation in the U.S. Regrettably, it also directly led to the recession of 1981. The Volcker shock worked once Paul Volcker successfully convinced businesses and members of the public that he was serious in his unparalleled action to tame inflation. Former President Richard Nixon had caused the inflation when he abandoned the gold standard back in 1973. He crashed the value of the dollar and promoted inflation in the process. Nixon’s futile efforts to stop the inflation by instituting wage-price controls in 1971 only led to slower growth with continued inflation that became known as stagflation. Fed chairman of the day Alfred Hayes lowered and raised interest rates like a see-saw in his efforts to defeat Nixon’s inflation and recession simultaneously. In the end this simply confused businesses and consumers about what Fed policy really was. After the end of wage-price controls in 1972, businesses increased their prices to try to keep ahead of higher interest rates. Consumers also participated by purchasing more goods before firms could again raise prices. The Fed had lost all credibility. Inflation attained double digits as things spiraled out of control. Paul Volcker was responsible for helping global central bankers to understand how import it was to manage expectations regarding inflation. He had forced consumers to stop their runaway spending habits when they understood that he was serious about beating inflation. Businesses similarly quit raising their prices, and this put an end to high inflation. Paul Volcker served in a variety of important capacities after retiring as head of the Fed. He led a committee looking into Swiss bank held assets of Nazi victims from 1996 to 1999. He worked as the International Accounting Standards Committee Chairman from 2000 to 2005 where he helped to create an international accounting standard that all nations could uphold.

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In 2004 he chaired the Independent Inquiry into the United Nations’ scandalized Oil-for-Food Program. President Obama again called on the expert services of Paul Volcker in November of 2008 as he asked him to head up the President’s Economic Recovery Advisory Board. Eight years later, he remains Chairman of the Board (as of 2016). In this capacity, he fought for and achieved stricter banking regulations that became known as the Volcker Rule.

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PayPal PayPal is a U.S. based company that runs a global payment system for online transfers and payments. Their online money transfer service has become invaluable as an alternative to more traditional paper payment means such as money orders and checks. In the years since they arose in 1998, the company has grown to become among the biggest companies for Internet payments in the world. They function as a payment processing operation for auction sites, online vendors, and other commercial users. They charge commercial entities a fee for these services. PayPal maintains its corporate headquarters in San Jose, California. They also have an operations center found in Omaha, Nebraska that they have run since 1999. The company operates in the European Union under the license of a Luxembourg located bank since July of 2007. Their European operations and headquarters are still based in Luxembourg, while their international headquarters are located in Singapore in Southeast Asia. PayPal Holdings launched its Initial Public Offering in 2002. By the end of that year, they had been bought out by eBay and became a wholly owned subsidiary. The company regained its independence when eBay spun it off as a stand alone company on July 18, 2015. Two days later, they launched their second IPO which placed a hefty value of $46.6 billion on the payment processing company. This did not come as a huge surprise to analysts, as the company had created $7.9 billion in revenues in 2014 by moving $228 billion through over 190 countries via 26 different currencies. PayPal employs rigorous methods of protecting their customers’ information online as befits a company that does most of its business over the Internet. They combine anti-fraud technology with sophisticated data encryption to safeguard the information of users. This helps to alleviate the chances of online fraud or theft. PayPal also serves its customers as a gateway for paying with their debit or credit cards via secure online transactions. Once customers register their cards within their online account with the service, it is easy to complete the transactions. When people check out online, they are able to select the PayPal payment option logo. They are then directed to login to their account to confirm and complete the payment. They will process the funds out of whichever card or bank account the user prefers, or directly from the account itself if its customers desire. The company offers its own proprietary online credit with promotions including six months same as cash. PayPal.Me is a newer peer to peer payment mobile setup the company launched in September of 2015. This convenient service permits its customers to dispatch customized links to others in order to request money using email, text, or alternative messaging platforms. This service debuted in 18 different nations. These included the U.S., Britain, Australia, Germany, Russia, France, Turkey, Spain, Italy, Sweden, Poland, Norway, Denmark, Belgium, Austria, Switzerland, the Netherlands, and Canada. As of September 2015, PayPal counted 170 million users across the globe. The goal in setting up PayPal.Me lay in establishing an experience geared first to mobile users. It offered quicker means of sharing payments than the traditional platform on the website.

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The company continued to grow on its earlier successes, making the Fortune 500 list of companies for its first time in June of 2016. The company’s payment methods are now accepted by millions of vendors and merchants throughout the world.

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Payroll Tax Payroll tax refers to the specific withholding tax that employers take from their employees’ checks. They do this for their employees so that they can pay it to the national (and sometimes also state or provincial and local) government. These tax amounts are deducted based upon the salaries or wages of the employees in question. In the majority of nations such as the U.S., the federal government (and many provincial or state governments as well) levy some kind of a payroll tax. Such governing bodies deploy the revenues they gain from their payroll taxes in order to pay for specific government services and programs such as health care, retirement benefits (like Social Security income), workers compensation, and more. Besides these large scale national programs, local governments sometimes also levy smaller payroll taxes so that they can improve and maintain in good condition the area specific programs and infrastructure. This would includes such vital services and programs as road maintenance, first responders’ emergency services, and parks and recreation programs, among others. A payroll tax which is deducted is generally itemized out for the employees on their payroll stub. On such an specific breakdown as this, it usually denotes the amounts which Social Security and Medicare programs took from their pay, along with the municipal and/or state taxes held. The Federal payroll taxes within the U.S. include contributions for Medicare and Social Security. In the year 2016, employers were required by law to hold back 6.2 percent of all employee earnings as a payroll tax. Besides this, the employers themselves are required to match these amounts from all employee payrolls and then turn in the two amounts to the IRS Internal Revenue Service. As an example, for those employers who pay their workers $2,000, they will be required to hold back $124 in the federal component of payroll taxes. The employing company also must match this dollar amount. They send in an aggregate amount of $248 for the employee in this case directly to the IRS. Employers only had to do withholding on payroll taxes for the initial $118,500 of employee earnings as of 2015. On income amounts higher than this, they withhold another .9 percent of all net earnings. This is a special extra Medicare tax. Employers are not mandated to do their matching portion of this additional tax on employee income. With all those who are self employed, the procedure is different. Self-employed individuals such as small business owners and independent contractors have no employer who can withhold and turn in their payroll tax for them. This means that they will have to be their own accountants and pay these taxes directly. These are known as self-employment taxes, even though they are basically the same as payroll taxes. Because the self employed do not have any counter-party to match their payroll deductions, they have to pay a punishing 12.4 percent of all earnings to the Social Security Trust Fund and another 2.9 percent to the Medicare Trust Fund, as of 2015. These taxes are levied by the IRS on all earning up to $118,500. Beyond this dollar amount, the extra .9 percent Medicare tax still applies, as with the payroll taxes. Payroll taxes should not be confused with income taxes. The main difference is that such payroll taxes

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cover particular programs. They are kept separate from the government primary revenues collected through the national income taxes that go instead into the government’s general coffers. All employees have to pay their flat payroll tax, even though this is regressive. Income taxes are instead progressive, meaning that the rates increase along with higher earnings. Income taxes are never matched by employers either. Self-employed people will not pay higher income taxes than their employed counterparts as they must with the payroll tax.

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PCE Index The PCE Index stands for personal consumption expenditures. This economic index is used to quantify the changes in the prices of consumer services and goods. The expenditures which are included in the index are real expenditures that the U.S. government claims actual households in the U.S. spend. The index measures data that covers non durable goods, durable goods, and services. It does share some important characteristics with the CPI Consumer Price Index, though it filters out wildly swinging commodities’ prices. The Department of Commerce’s Bureau of Economic Analysis includes the PCE in the personal income report which it issues. Many officials and economists consider the PCE Index to be very predictable. This is one of the features they like about it. Other analysts favor the CPI over the PCE because they claim that it helps to discern if there is economic stability or not. CPI utilizes a fixed, set basket of goods in its calculations. The Department of Commerce likes that PCE smoothes out the inflation numbers to eliminate speculative trading based price changes in commodities. The Federal Reserve also prefers the PCE Index to CPI. CPI may be the better known economic indicator. The Fed still chooses the PCE as its favored index as it considers the conditions in the economy. The PCE helps the American central bank to determine its plans of action which will influence employment and inflation. The Fed has a reasoning for choosing the PCE Index. It likes the variety of expenditures which the PCE covers. CPI is more limited in utility to them precisely because its basket components are always fixed. In contrast, the PCE manages to consider a wide range of expenses that actual homes spend money on around the United States. The PCE data comes from business surveys, which are usually more reliable than those consumer based surveys that the CPI employs. The formula of the PCE Index is also useful. It takes into account alterations in the consumers’ behavior over the short term. The competing CPI does not factor in such an adjustment. All of these characteristics when taken together lead to a better rounded and all inclusive measurement of inflation. The Fed relies on the slight nuances which the PCE divulges. To them, even tiny quantities of inflation represent an economy which is healthy and expanding. While the PCE Index breaks down to two main categories of goods and services, it subdivides the primary category of goods into two further ones. These subdivisions within goods are called durables and non durables. Durable goods refers to those which a household will be able to utilize for over three years. They come with higher price points. In the durable goods category are televisions, cars, furniture, and refrigerators. Non durable goods are those referred to as transitory. This means that they have a life expectancy which is shorter than three years. Such items cost less and are constantly consumed. Examples of non durables include clothes, food, gasoline, and makeup.

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Peer to Peer Lending (P2P) Peer to Peer Lending helps consumers who have some extra money to invest to help out those who need to borrow it. It is often abbreviated as P2P Lending. The idea behind peer to peer lending is not a new one. It has grown exponentially online in the past ten years thanks to the Internet. The benefits of this form of lending are that it reduces usurious interest rates dramatically. This means that both consumers and the overall economy benefit as it decreases the amounts of payday loans. Prosper is one of the largest P2P lending companies in America. It loans out amounts as high as $35,000. For this they charge a closing fee of 5%. Their interest rates range from 5.9% for extremely good credit to 30% for credit that is only fair. These rates are often lower than what credit card companies charge and substantially lower than payday loan companies which can command over 600% in a single year. Loans with Peer to Peer Lending companies like Prosper are unsecured. The applicants’ credit history earns the approval, though it does not require perfect credit to obtain them. The money itself comes from surplus money which normal people across America wish to invest. These Peer to Peer Lending companies generally allow their loans to be utilized for most any type of need. They encourage ones that are financially responsible. Debt consolidation is one of the big reasons why individuals take out these loans. The interest rate is often more affordable than the ones the credit card companies charge. Such a loan helps individuals to pay off loans quicker and with a larger amount of the money attacking the principal rather than interest. Home improvement is another commonplace reason that consumers employ these peer to peer loans. The traditional means of financing such loans comes from bank issued home equity loans or lines of credit as well as from credit cards. The home equity loans often require a great amount of time for approval and commonly include expensive fees. This has encouraged smart home renovators to seek out Peer to Peer Lending companies. Small businesses like these loans which help them to increase their capital for expansion. Traditional banks will often require a lot of paper work and documentation in order to issue an approval. P2P lending operations such as Prosper only need credit scores that are decent. Many consumers have turned to these companies for financing for car loans as well. Having this money pre-approved and in hand can save more than just dealer approved financing costs. It can strengthen the buyer’s hand in negotiating the final price on the vehicle as the money for the purchase is effectively offered to the dealer in cash instead of financing. One of the many advantages to these Peer to Peer Lending companies is that they do not charge early repayment penalties. This makes them effective financing vehicles for many different types of needs. Individuals have employed them in place of short term loans and to pay for surgeries not covered by insurance, among other uses. Besides this, P2P lenders do not require the prime credit scores that most banks do. Consumers can access substantial loans of as much as $35,000 with credit scores that start at a fair 640.

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Penny Stocks Penny stocks are those securities that usually trade for comparatively lower prices, off of the big stock exchanges, and with smaller market capitalizations. Many analysts and investors look at these securities as higher in risk and extremely speculative. This is because they feature significant bid and ask spreads, less liquidity, smaller followings, and lesser capitalization and disclosure requirements. Many of these smaller stocks trade on the pink sheets or OTC Bulletin Board in what is known as the “over the counter market.” Penny stocks used to be those which traded for under a dollar, but thanks to the SEC this is no longer the case. The SEC altered the definition so that all stock shares which trade for less than $5 are now considered to be a penny stock. These companies have fewer listing requirements, regulations, and filings which govern them. It is important to remember that penny stocks best suit investors who can stand more risk. They come with greater amounts of volatility which can lead to steep losses or possibly greater returns. The lower volumes and greater amounts of risk are why the moves in these stocks can be staggering. These companies struggle with fewer resources and less cash, but sometimes achieve breakthroughs that can catapult their share prices higher. It is safer to trade or invest in penny stocks which are listed on the NASDAQ or the AMEX American Stock Exchange because these exchanges more vigorously regulate their constituent companies. Four factors make these micro cap stocks so much riskier than traditional blue chip stocks. The information which the public has access to is usually lacking. It is harder to make well informed decisions on companies that do not provide sufficient information. Other information that is offered on such micro cap stocks can come from less than reputable sources. Another feature that makes penny stocks so risky is that they do not have a common set of minimum standards. Neither the pink sheets nor the OTCBB require these companies to live up to minimum requirements to stay listed. They will have to file certain documents in a timely manner with the OTCBB, but not with the pink sheets. These standards traditionally offer a safety cushion that helps to protect investors. They are a benchmark for other smaller companies to achieve. A third difficulty with these micro cap stocks is they lack history. A great number of such companies could be nearing bankruptcy or recently founded. This means that their track records are either non existent or poor at best. A lack of historical data compounds the difficulty of assessing a company’s future and their stock’s near and long term possibilities. A final danger with penny stocks is their lack of liquidity. This creates two problems. An investor may not be able to sell out of the stock at an acceptable price. With low liquidity, there may be no buyer available at any price. Lower liquidity also leads to the possibility for traders to manipulate the prices of the stocks themselves. They can purchase enormous quantities of the issue, promote it themselves, and then sell it at higher prices to other investors who become stuck with it. This is called a pump and dump strategy.

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Pension Entitlements Pension entitlements are the monies that have been promised to employees who are guaranteed a pension by the company for which they work. The majority of newly issued pensions anymore come from Federal, state, and local government employees. Some companies still offer pension entitlements to their employees who serve a minimum number of years with the firm, such as from twenty to thirty years. These companies are becoming fewer and farther between as more and more corporations switch over to matching 401K retirement plans that cost them far less money and entail significantly lesser liabilities every year. This is because with pre set limit matches to 401K contributions, companies can know for certain how much money they will have to come out of pocket, whereas with pensions, it has much to do with how long the retirees live. Pension entitlements are at risk as they become larger every year. Many companies are struggling to keep up with their pension entitlements as their retiring employees live longer and longer. Because of the danger to failing pensions that many retirees count on, the PBGC was set up. This entity acronym stands for Pension Benefit Guarantee Corporation. The government created this entity in the Employee Retirement Income Security Act in 1974. Today, it safe guards in excess of forty-four million American retirees and workers pensions, covering the pension entitlements against default from the companies underlying them. These are held in greater than twentynine thousand multi employer and private single employer defined benefit pension plans. The PBGC does not derive money from the general tax revenues in protecting the pension entitlements. Insurance premiums that Congress sets are paid by the sponsors of defined benefit plans, assets from pension plans that PBGC trustees, investment income of the PBGC, and recoveries made from companies who are no longer handling their own plans. As a result of the financial crisis of 2007-2010, many private pension funds have suffered disastrous losses. In 2008 alone, this amounted to tangible losses of in excess of twenty-six percent. Even though the markets recovered somewhat, many pension funds had locked in their losses by selling the underwater investments. As a result of these terrible financial events, even more pension entitlements in the United States are now under funded. In order to help make up for these, businesses will have to make substantially larger contributions in the future. It remains to be seen if the Pension Benefit Guarantee Corporation will be able to keep up with and cover all of the unfunded pension entitlements that have been promised to retirees and workers. Some experts have speculated that the PBGC itself will require bailouts in the hundreds of billions of dollars in the near future.

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Pension Funds Pension funds are retirement plans which mandate that an employer must do contributions for the benefit of their employee’s future. They contribute such money into a pool of funds. This pool then becomes invested for the employee’s benefit. All earnings which the investments make accrue to the workers once they reach retirement. Besides these mandatory contributions, there are pension plans which have components of voluntary contributions. Pension plans can permit workers to contribute a portion of their wages and income into the investment plan to help prepare for their retirement. It is also customary and encouraged for an employer to match some part of the yearly contributions of the employees. The limitations on this amount which they can contribute by matching funds are set by the Internal Revenue Service or IRS. Two primary kinds of pension funds exist today. With defined benefit plans, the companies promise their staff will obtain a minimum benefit amount when they retire. These kinds of plans deliver the minimum regardless of how poorly the investment pool that underlies the fund actually performs. This means that the employer will be required to make a particular pension payment guarantee for their retired employees in these cases. There is a formula that determines the precise amount. It is typically built on the combination of years in service and aggregate earnings. In the cases where the pension plan assets are insufficient to pay out the defined and guaranteed minimum benefits, then it is the firm which will have to make up the balance of the minimum payment. Such employer sponsored pension plans and pension funds in the United States hail from the decade of the 1870s. At their peak in the roaring 1980s, they amounted to a participation rate of almost 50 percent of the total workers in the private sector. Around 90 percent of all public employees as well as approximately 10 percent of the private ones receive the coverage of this kind of defined benefits plan nowadays. The second type of pension funds are defined contribution plans. With these, the employing company engages in particular set contributions to the retirement plans of their employees. They typically will match to some degree their employees’ contributions to the plan. The ultimate payouts which the staff receive while retired come down to the investment results of the plan. In these cases, the firms which sponsor them do not have additional minimum payout liability after they make their pre-set contributions. The reason these are so much more popular now is that they prove to be far less costly for employers than do traditional forms of pensions. This is because companies are not backing whatever benefits the funds are unable to produce. More and more private corporations and firms have moved over to this form of plan and have closed out their defined benefit plans. While there are a number of defined contribution plans, the 401(k) plan is the most well-known one. For the benefit of not for profit workers, the equivalent plan turns out to be the 403(b) plan. When the phrase is utilized, “pension plan” typically refers to these more traditional forms of defined benefit plans. These payouts remain established, controlled, and ultimately funded 100 percent by the

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sponsoring employer. There are corporations which provide a choice from both plan types. Some will even permit their workers to roll over their 401(k) plan balances to their defined benefit or “pension” plans. A final version of these is the pay as you go pension plan. Employers set these up themselves. Such plans are entirely funded during the accumulation phase by the workers. They may choose to make either a lump sum contribution (as with an annuity) or regular salary-deducted contributions. Besides these capabilities, such plans prove remarkably similar to other 401(k) plans. One disadvantage to them is that they lack a company matching participation program.

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Personal Assets Personal assets are items of value that belong to an individual. There are many examples of such tangible personal assets. Among these are houses, real estate, cars, and jewelry. Personal assets can also be any other thing with cash value. When individuals go to a bank or other institution to apply for loans, such personal assets and their values are often considered. These assets are also the bedrock of the formula for net worth for consumers. The value of people’s personal assets can be higher than they expect and surprise them as so many different items can be included under this label. There are many personal assets that are material and easy to measure. These include such financial assets as savings accounts, checking accounts, and retirement accounts. Assets that have a value that can not be easily accessed are also included in the personal assets category. This includes life insurance policies and annuities that have cash values. Other items of value which would be included in a list of personal assets cover such items as antiques, art collections, electronics, personally owned businesses, and other valuable items. Personal assets can do more than simply help people get loans and count towards net worth. They are also sometimes able to create income for their owners. Bank accounts and savings accounts accrue interest. Holders of real estate are able to lease or rent it out. This brings in rent or lease fees. Individuals who have personal assets should educate themselves in the best practices for managing them so that they are able to increase their total wealth by generating the highest income possible from them. It is important to keep a careful track of rent or other income obtained from personal assets as the money will be taxable. Income that is not properly reported to the government on the correct tax forms can incur penalties from the Internal Revenue Service. It is also important to know the value of an individual’s personal assets. There are two different methods of learning this. In the first method, individuals examine the item’s market value. This is the value for which the asset would sell if a person were to put it straight on the market. Another way to determine the value of these assets is to have a personal asset appraised. Appraised values can be substantially greater than market values. This is because an appraisal value relies on the possible future price of the item in question. This difference matter significantly, particularly when having an item insured. Individuals generally have to obtain appraised value insurance coverage. This means that they will likely have to pay for a greater amount of insurance. When properly managed, personal assets can greatly contribute to an individual’s personal financial situation. It is also true that these assets can prove to be a liability if they are not well taken care of or managed. Part of managing assets well involves asset allocation. Financial experts warn against placing all or the majority of personal assets into a single asset type or location. This type of practice causes people to take on additional risk than is prudent. Instead, it is better to spread around an individual’s wealth into a variety of different assets so that if one suffers or decreases

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in value, some of the other assets may offset this by outperforming or increasing in value. Taking care of personal assets is also an important part of maintaining their value. Individuals can break expensive electronics if they are not careful. Not engaging in proper maintenance for works of art can also lead to their value declining over time.

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Philanthropy Philanthropy refers to the action of donating something. It comes from the Greek word for the love of humanity. While many people consider the term to equate to large gifts from wealthy people, this is not necessarily the case. Any type of donation is actually an act of philanthropy. This could be giving money, services, or property. It is not the amount of the donation that makes a gesture philanthropic. Instead it is the giving itself. This is equally true for a few dollars given to a person in need or several million dollars offered to an organization that is not for profit. Philanthropy is sometimes pursued by institutions and corporations. It is most generally correlated with families or individual persons. Philanthropists are people who engage in the act of donating. This term is usually reserved for individuals who give away huge amounts of resources, as in millions. Even though individuals who give lower amounts of resources are often sacrificing more to do so, they are not usually as obvious to other people as wealthy people making contributions. This is why smaller donators seldom receive the honorific title. Monetary donations are the most obvious forms of philanthropy. It can be given right to people who need help. Other times it is donated to charitable organizations to disperse. This category of giving can also include other financial assets like stocks or bonds. Sometimes philanthropists give these to a beloved university or research organization. A number of these donors give away their money in their will. They can provide instructions there as to what organization or group they wish it to go. Warren Buffet is an example of a generous philanthropist who has pledged to give away all of his multi-billion dollar fortune. Property is another common type of donation philanthropists make. It is not so simple to give away as money. There is more involved with receiving property, and some charities are not able to accept each type of donation. When it is land or vehicles, a charity will need a purpose for the donation unless they will sell it later to obtain the cash value. Other forms of property people donate are new or used clothing and items that charity stores known as thrift shops can sell. Even non perishable food items people or organizations give individually or by truckloads count as philanthropic property donations. Individuals or businesses give these to charity center, shelters, or soup kitchens. Sometimes people overlook the category of services when considering philanthropic activity. Many people need help in various forms. A person might volunteer their time to visit sick people in hospitals or nursing homes, or to help serve or deliver soup kitchen meals. Lawyers and accountants can provide their services to individuals who can not afford them. Teachers can offer to tutor children who need help. Even helping to fix another person’s house is a benevolent philanthropic act. Angelina Jolie is a wealthy actress who gives not only money but also her time helping the poor in other countries as an ambassador to humanity for the United Nations. Gifts from an individual’s body are also philanthropic. Donating blood is such an act. This saves injured people’s lives and is critical when blood transplants are required. Some individuals will donate a kidney to save another person. Organ donors are those philanthropists who give their bodies’ vital components after they die. Their organs can be transplanted to save individuals who will die without them. This makes

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such donations among the most philanthropic possible.

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Philips Curve Philips Curve is a concept in economics which A.W. Philips created. This curve demonstrates that the relationship between unemployment and inflation is predictable, inverse, and stable. Philips’ theory explains that when economies enjoy growth, inflation appears alongside it. This may sound like a negative side effect, but it is not necessarily according to Philips. The growth coupled with inflation is supposed to create a greater number of jobs and lead to lower unemployment. The idea was generally accepted until the 1970s. At that point, stagflation brought on high unemployment along with inflation. This real world empirical data has at least partially disproven the idea under these circumstances. The theory that underlies Philips Curve claims that when unemployment changes in an economy, this causes a predictable impact on the inflation of prices. This relationship is said to be inversely related. On the curve, this means that the correlation between unemployment and inflation shows it as a concave (outward) and downward sloping curve. Unemployment is demonstrated on the X axis while inflation is depicted on the Y axis. It pictorially shows how inflation increasing lowers unemployment. The reverse is also shown as higher unemployment reduces inflation. In the 1960s, economists believed that the result of fiscal stimulus would lead to a higher total demand in the economy. This would case the demand for labor to grow. The total number of workers who were unemployed would diminish, causing firms to increase their wages to be able to competitively vie for the tinier pool of talent. Higher wages would boost costs at corporations. Companies would then choose to pass through these costs to the individual consumers. This would translate to higher prices and finally more inflation as the Philips Curve demonstrates. Because many governments believed in these ideas, they chose to implement a so called stop-go strategy. They would affect this by establishing a target inflation rate. To attain the desired rate of inflation, they would adapt their monetary and fiscal policies as needed to contract or expand the economy. It no longer worked for them in the 1970s as the once stable and predictable model between unemployment and inflation broke down as stagflation appeared. This caused economists and governments to question the relevance and value of the Philips Curve. Stagflation happens as economies suffer from poor economic growth at the same time as they have high inflation and more unemployment. Such a case directly contradicts the Philips Curve theories. Until the 1970s, the United States had never suffered from stagflation where such increasing levels of unemployment did not come along with reducing inflation rates. This is because demand typically falls when economies are stagnant. It makes sense that workers who are unemployed will purchase less. This causes companies to lower their prices to encourage consumer spending. Yet from the years 1973 to 1975, the American economy managed to provide six different contiguous quarters where the GDP declined as inflation tripled. Economists now show that the 1970 occurring minor recession which policymakers aggravated with price and wage controls caused the stagflation to occur.

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It was then United States President Richard Nixon who implemented such controls. His imitation of a stop-go strategy caused companies to be confused as to how to react. Because of this, they kept prices elevated more than they would have otherwise. The government no longer employs stop-go strategies since this episode of stagflation. Central banks maintain strict and rigorously enforced inflation targets now so that stagflation is less likely for the future. In the majority of economic circumstances, the Philips Curve is otherwise a true representation of the real world relationship between unemployment and inflation.

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Pivotal Points Pivotal Points refers to a system for predicting stock price movements that Jesse Livermore created and developed. Time Magazine described him as the most incomparable living American trader of his day. In the 1920’s, he used the system to amass a fortune that at its peak valued $100 million. As a share of the U.S. GDP of the time, this amounts to $14 billion in current dollars as measured against today’s GDP. This represented the first time that any investor had documented using Pivotal Points. Livermore famously wrote about it in his book, Reminiscences of a Stock Operator. These Pivotal Points are so useful because more than 90 years after Jesse created them investors still utilize and teach them. Pivotal Points are the levels at which stock prices find support and resistance. In fact they are the primary levels of both support and resistance, depending on whether they are higher or lower than the price of the stock. Because of the importance of these Pivotal Points, they are the levels where the greatest price movement generally happens. There may be other resistance and support levels. Other levels are less important than the pivotal ones.

There are two principal ways that Pivotal Points are utilized today as they were in the 1920’s when Livermore first created them. In the first case, investors can employ them to decide what the general market trend is. Market trend is important because it tells investors which way the market is generally moving. Should the Pivotal Point price be broken to the upside, then the stock or market proves to be bullish. If instead the Pivotal Point is broken in a downward movement, then an individual investor considers the case to be bearish for the stock or market. A second way to utilize the Pivotal Points is as a price level for either entering or exiting a trade. Finding the right level to open a position or close out an existing one is critical. Investors can place buy limit orders based on the Pivotal Point resistance level breaking. They might also use the Pivotal Point support level as their stop loss to exit a trade should this critical support line fail. Nowadays it is easy to figure up Pivotal Points. Computer programs and charting software can find the levels easily. When Jesse first created them, these points had to be manually figured out with no more than a calculator, pencils, and paper. There are a number of formulas that can be used to determine them. Jesse Livermore made his own charts by hand. He looked for the levels where the stocks tended to bounce several times to find them. Many traders today consider Pivotal Points to be shorter term use indicators. Because a number of investors use them for a single day trading, they have to recalculate them every day. Despite this fact, even day trading Pivotal Points is considered to be helpful. This is because a person can quickly calculate up important levels where there will be significant price movement.

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Plunge Protection Team (PPT) The Plunge Protection Team is a nickname given to the President’s Working Group on Financial Markets. It came into existence to make economic and financial recommendations on the economy when there are periods of economic chaos. On the team are the heads of the most critical U.S. financial regulatory organizations. This includes the Secretary of the U.S. Treasury, the SEC Securities Exchange Commission Chairman, the Chairman of the Federal Reserve, and the Chairman of the CFTC Commodity Futures Trading Commission. The Washington Post newspaper created the nick name Plunge Protection Team only a decade later in 1997. President Ronald Reagan originally convened the team as a response to the terrible Black Monday stock market crash. The government was desperate to restore investor confidence in U.S. financial markets. President Reagan called together the group to improve on the efficiency, integrity, and order of them. The Working Group on Financial Markets was instructed to find out what happened with the financial markets in the U.S. on and around trading day October 19, 1987. They were told to come up with government actions for coordinating efforts and making contingencies to prevent them from happening again when possible. To carry this out they were told to talk with various representatives from the business world. This included individuals from clearing houses, exchanges, significant market players, and regulating bodies to learn what the market might suggest for non-government solutions. Finger pointing at first characterized the investigation. The NYSE held the various futures exchanges responsible for the crash. The CME group engaged in a number of studies to refute this by having market experts rationally analyze the events. They refuted the accusations for the problems with these studies. One positive mechanism came from these initial meetings with the Plunge Protection Team. NYSE and CME group worked to establish circuit breakers between the securities and futures markets. This slowed down or stopped wildly erratic moves in the market. These circuit breakers remain in effect to this day. The PPT had 60 days from the Executive Order to give this initial report to the President. They were to report from time to time after this as they reached more findings and solutions for recommended changes to the legislation. When the report and finished recommendations were completed, the President did not disband the group as many had expected. Instead it stayed together to be reconvened on any subsequent crisis and threat to the financial system. This caused some observers to believe that the group had a secret purpose to manipulate markets and ensure they stayed higher. The group covered such issues as the almost collapse of Long Term Capital Management, Terrorism Risk Insurance from September of 2006 and Over the Counter Derivatives Markets and the Commodity Exchange Act in November of 1999. Most famously the group reconvened during the financial crash of the Great Recession in 2008. In March, 2008 they issued their Policy Statement on Financial Market Developments. It had the PPTs analysis and

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report on what continued to plague the markets and cause the ongoing market turmoil. Their final conclusions had to do with the subprime market mortgages. The determined that the main cause of the destructive chain of events started with the rise in delinquencies of these mortgages. They issued another statement on the continuing crisis on October 6 of 2008. In this they announced that the situation in worldwide financial markets continued to be very strained. They assured investors that they were working with global regulators and market participants to take on the problems and restore stability and confidence to markets.

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Poison Pill Strategy Among the best defensive mechanisms for companies who are being unwontedly pursued by acquiring companies on the prowl is the colorfully but appropriately named poison pill strategy. Poison pill refers to a strategy whereby targeted companies are able to effectively discourage or outright prevent a hostile takeover. Companies which are targeted for such a takeover employ this type of a poison pill defense in order to help their stock shares appear undesirable to the firm pursuing the acquisition. Two different forms of poison pill strategy exist. The “flip-in” permits the stock’s shareholders to buy more shares of stock for a discounted price. The only parties not allowed to participate in this maneuver are the acquiring company. This particular strategy gives the company investors immediate profits. It also serves the primary purpose of diluting the stock shares that the acquiring company holds. It makes the takeover effort considerably more difficult and costly, most importantly. The “flip-over” strategy allows share holders to buy shares of the acquiring company for a discounted price once the merger has transpired. As an example, the shareholders might obtain the ability to purchase the acquirer’s stock in later mergers for a two shares for one special deal. This phrase poison pill strategy is the common man’s expression for a particularly set up shareholder rights plan. These unique defensive strategies that a company’s board of directors creates make hostile takeover parties pause for thought. In their most successful application, a poison pill strategy can defeat potential takeovers completely. The famed poison pill strategy was first designed and employed to fight off unwanted mergers and acquisitions back in the first years of the corporate raiding 1980s heydays. At this time, corporations needed to devise a means of short circuiting takeover firms and funds from directly arranging share price takeover with the stakeholders rather than forcing them to deal directly with the appropriate party the company’s board of directors. These plans of shareholders rights are commonly distributed by the company board as an option or warrant connected with pre-existing stock shares. Such poison pill plans may only be cancelled out by a decision of the board itself. Though there are two different types of poison pills in existence, the flip-in form proves to be by far and away the most typical. Flip-in’s like these are generally established with a triggering mechanism clause. The clause will state that if a single share holder purchases a greater amount than a pre-set percentage, pre-existing shareholders will be allowed to purchase more stock shares at a discounted cost. An example of this flipin strategy might be triggered at 30% of the company stock. When this threshold is met, all shareholders less the one who just bought the 30% stake are allowed to buy into a new class of shares for the discounted price. The more shareholders who choose to exercise their rights to purchase additional shares, the greater the dilution of the bidding company’s interest proves to be, resulting in a greater ultimate price for the acquirer to pay for the bid. When bidding outfits know there are these types of poison pill strategies that can be tripped, they are far more likely to pass on a hostile takeover. Instead, they will discuss their

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interest amicably with the board of directors of the company, the way which companies prefer to do business.

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Ponzi Scheme Ponzi Schemes prove to be frauds surrounding investments that are related to the pay out of returns to investors in the scheme that are covered using contributions from new investors. The individuals who run Ponzi schemes are able to attract newer investors through boasting of tremendous opportunities that will guarantee terrific investment returns, typically with little to no risk. With a great number of these Ponzi Schemes, the managers of the scheme concentrate their efforts on constantly bringing in new sums of money in order to be capable of giving out the payments that they promised investors from earlier time periods. Besides this, they utilize the new money for their own personal expenses. Rarely does any energy actually go into real investment opportunities and strategies. Ponzi schemes always fail at some point in time. This eventually happens since there are no real earnings to distribute. Because of this problem, Ponzi schemes need constant money flowing into them from newer investors in order to survive. As attracting newer investors becomes more challenging, or if a great number of currently involved investors request their money back, then the Ponzi Scheme will likely fall apart. Ponzi Schemes actually earned their name from a famed early con artist Charles Ponzi. He became famous after he tricked literally thousands of well to do New Englanders into pouring their money into his speculation in postage stamps in the 1920’s. The allure of his scheme proved to be hard to resist, since bank accounts were paying only five percent annual returns while he offered investors incredible returns of fifty percent in only ninety days. In the early days, Charles Ponzi really did purchase a small quantity of international mail coupons to support his investment scheme. Before long, he decided to employ the money that came in to cash out earlier investors. The most successful Ponzi Scheme of all time proved to be the one run by Bernie Madoff. Madoff ran an over thirty year, over thirty billion dollar investment scheme that tricked thousands of investors out of their money. Madoff proved to have a different angle on his Ponzi scheme in that he did not offer his investors who were short term amazing returns. Rather than this, he sent out fake account statements that constantly demonstrated moderate but always positive gains, no matter how turbulent the market proved to be. Bernie Madoff is presently undergoing a one hundred and fifty year sentence in federal prison for his activities. His investment advisory company began back in 1960 and did not come down until the end of 2008. All during the years that his scheme ran, he served as Vice Chairman of the National Association of Securities Dealers, and even as a member of the board of governors and chairman for the NASDAQ stock market. The Securities Exchange Commission is ultimately responsible for discovering and prosecuting Ponzi Schemes. They typically utilize emergency actions to freeze assets while they break up the schemes. In 2009 as an example, the SEC actually pursued sixty different Ponzi schemes, the highest profile one of which turned out to be Robert Allen Stanford‘s $8 billion Ponzi scheme.

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Portfolio In the world of business and finance, a portfolio stands for an investment collection that a person or institution holds. People and other entities put together portfolios in order to diversify their holdings to reduce risk to a manageable level. A number of different kinds of risk are mitigated through the acquisition of a few varying types of assets. A portfolio’s assets might be comprised of stocks, options, bonds, bank accounts, gold certificates, warrants, futures contracts, real estate, facilities of production, and other assets that tend to hold their value. Investment portfolios may be constructed in various ways. Financial entities will commonly do their own careful analysis of investments in putting together a portfolio. Individuals might work with the either financial firms or financial advisors that manage portfolios. Alternatively, they could put together a self directed portfolio through working with a self directed online broker such as TD Ameritrade, eTrade, or Scott Trade. A whole field of portfolio management has arisen to help with the allocation of investment money. This management pertains to determining the types of assets that are appropriate for an individual’s risk tolerance and ultimate goals. Choosing the instruments that will comprise a portfolio has much to do with knowing the kinds of instruments to buy and sell, how many of each to obtain, and the time that is most appropriate to purchase or sell them. Such decisions are rooted in a measurement for the investments’ performance. This usually pertains to risk versus return on investments and anticipated returns of the entire portfolio. With portfolio returns, various types of assets are understood to commonly return amounts of differing ranges. Portfolio management has to factor in an individual investor’s own precise situation and desired results as well. There are investors who are more fearful of risk than are other investors. These kinds of investors are termed risk averse. Risk averse portfolios are significantly different in their composition than are typical portfolios. Mutual funds have evolved the act of portfolio management almost to a science. Their fund managers came up with techniques that allow them to prioritize and ideally set their portfolio holdings. This fund management reduces risk and increases returns to maximum levels. Strategies that these managers have created for running portfolios include designing equally weighted portfolios, price weighted portfolios, capitalization weighted portfolios, and optimal portfolios in which the risk adjusted return proves to be the highest possible. Well diversified portfolios will contain many different asset classes. These will include far more than just stocks, bonds, and mutual funds. They will feature international stocks and bonds to provide diversification away from the U.S. dollar, as well as foreign currencies and hard asset commodities such as real estate investments, and gold and silver holdings.

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Portfolio Income Portfolio income proves to be money that is actually brought in from a group of investments. The portfolio commonly includes all of the various types of investments that an investor owns. These include bonds, stocks, mutual funds, and certificates of deposit. These various financial instruments earn a variety of different types of passive income, such as dividends, interest income, and capital gain distributions. Such portfolio income returns are generated by the holdings of the various investment products in the portfolio. Portfolio income varies with the types of investments that an investor picks. You as an investor will commonly look at two different factors when assembling a portfolio for portfolio income. These turn out to be the money that the investment itself will produce, which is also known as an investment’s return, and the investment’s risk level that it contains. As an example, stocks are frequently deemed to be investments with considerable risk, yet the other side of the risk return equation is that they provide income from a company’s dividends, or distribution earnings returned to the shareholders, as well as an increase in the stock price as the stock value gains with time. Certificates of deposit and bonds create interest income that is paid out on the investment that you hold. Still different kinds of investments produce other types of income, although this depends on the characteristics of the investment in question. To maximize the portfolio income while reducing the amount of risk involved, individuals commonly choose to invest in numerous different kinds of investments. This is known as diversifying your portfolio and portfolio income. This way, you can combine both safer investments that provide lower real returns with riskier investments that offer greater investment returns. Your total collection of investments is the portfolio that makes your portfolio income for you. This portfolio income is also classified as passive income, or income that does not require you to perform any work in order to make the money. The upfront investment actually creates the income without you having to be actively involved in the money making process. This stands in contrast to incomes that are earned through active involvement, or active income that you must expend both energy and time to create. The ultimate goal for you with your portfolio income will probably be to build up enough of it that you are capable of living off of only the income that the portfolio generates. Once this point is reached, you would be able to not receive a payroll check any longer. Instead, you would support yourself in retirement from the dividends, interest, and capital gains created by the investments in the form of portfolio income. The best and safest way to do this is to only draw on the portfolio income itself, without drawing down the original principal. By not touching the investment principal, you allow your portfolio and resulting portfolio income to build up over time. If you do not take out the portfolio income, then the total value of the portfolio will grow faster with time, allowing you to compound your investments for retirement. It is critical to have enough money saved for retirement that you do not need to take out this principal to support yourself. Sufficient portfolio income should be generated to cover the monthly retirement expenses. In this way, you will not

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be reducing your principal and risking the very real danger of your portfolio running out of money while you are still alive to need it.

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Portfolio Manager Portfolio managers are individuals who invest the assets of a fund. They generally handle either an ETF exchange traded fund, a mutual fund, or a closed end fund. Their responsibility is to carry out the daily trading of the portfolio and to put into practice the fund’s investment strategy. When investors are considering different funds in which to invest, among the most critical elements to think about is the name, reputation, and track record of the portfolio manger. This is especially true if they are involved in active portfolio management as opposed to passive management. Though there are numerous active fund managers in the markets, the track records of historical performances are not encouraging. Only a small minority of them are successful in beating the main market indices. These managers engage in portfolio management as part of their daily routines. This is the science of making difficult decisions regarding the funds objectives. They must weigh investment mix against objectives, carefully balance the fund risk versus performance, and allocate the assets for the funds customers. The management of a given portfolio revolves around opportunities, risks, weaknesses and strengths of various categories. These include deciding between equity investments as opposed to debt instruments, international versus domestic securities, and safety as compared to growth. There are numerous trade offs involved in this type of management as a manager makes tough choices in an effort to increase returns to the optimal point for the risk the investors are willing to take. Passive management is the form of managing a portfolio where the holdings of a fund track an index in the markets. This is most often known as index investing or indexing. Active management is the opposite form. It requires that either one manager, a few managers working together, or even a management team strive to try to outperform the market’s return. They try to do this by managing the portfolio actively. They make choices and investment decisions utilizing research on individual securities and positions. Among the different actively managed funds are closed end funds and many mutual funds. In passive management, the style is to have the holdings of the fund identically reflect the benchmark index. This is the direct opposite of an active style of management where the managers are buying and selling securities in the portfolio according to different investment strategies. Passive managers and the followers of this particular management type hold with the efficient market hypothesis. This idea says that the markets always reflect and factor in all relevant information all of the time. It believes that picking stocks out individually is a waste of time. Followers of this premise believe that the best method for investing is to put investment funds into index funds. History shows that these funds have performed better than most of the funds which are actively managed. Active management still has a significant following. It utilizes the human efforts of the management team, co managers, or single portfolio manager to manage the funds portfolio on a daily, weekly, and monthly basis. These active managers work with forecasts, analytical research, and their own personal experiences and judgments to engage in the buying, selling, and holding decisions of the various securities.

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The sponsors of these actively managed funds and their investment companies hold that a really good manager can beat the market. This is why they employ professional fund managers to actively handle the portfolio funds. Their goal is to beat those returns of their benchmark. For a large cap stock fund this would mean outperforming the S&P 500 index. Despite the best efforts of a considerable majority of active fund managers, they have not been able to do this successfully.

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Power of Attorney A power of attorney is an agreement in writing that grants another individual the authority to make some choices if the grantor is not available. This person who receives the power does not have to be an attorney. Attorneys are typically only involved in drafting up or potentially witnessing such an agreement. The phrase comes from an individual receiving status as an agent or attorney in fact. When people implement such a power of attorney they do not lose the ability to make their own decisions. Instead they are allowing another individual to act for them in matters specified within the written text. This can be very helpful if people are out of the country or in the hospital as an example. Someone else with this authority would be able to cash checks at the bank or pay bills on their behalf. It is simply a matter of sharing power with another person. The agent is only carrying out the grantor’s wishes, not actually making choices for them, so long as they are coherent and mentally capable. People who will be out of town for an extended period of time might find these arrangements particularly useful. With a power of attorney, the agent could carry out major decisions such as selling cars or other personal assets. The Internet has eliminated the need for some of these functions as computers and mobile devices make it possible for people to buy and sell stocks and handle many financial transactions from anywhere they have an online connection. There are still cases where a transaction will require an in person agent to handle them. There is also a special kind of power of attorney that is used by individuals who lose their ability to handle decisions for their personal financial affairs. This is known as a durable power of attorney. In this case, the word durable refers to the ability of the agent to make the choices on the grantor’s behalf when he or she can not mentally do them. This type of arrangement grants the agent the legal authority and responsibility to make the best possible physical and financial decisions for the grantor. It means that the agent is able to spend the individual’s money as appropriate, cash checks, deposit checks, and even withdraw money from the personal bank accounts. The agent further gains the authority to sign contracts, sell personal property, take legal actions, and file and follow up on insurance claims. When people decide to enter a durable power of attorney arrangement, a notary public or lawyer should witness the document before they sign and execute it. If such individuals need to have a durable agreement established and are not mentally able to do it, courts can do this for them as they deem necessary. Agents who become appointed to this position are expected to keep correct and segregated records on each transaction they perform. The records must also be easily available at all times. When the individual dies, his or her power of attorney becomes null and void. The will is responsible for the dispensation of the deceased person’s estate. Powers of attorney can be rescinded. If individuals feel unhappy in the ways that their agent is managing their personal affairs, they can simply revoke the authority back at any point. It is always wise for people to choose an individual to be agent whom they know and implicitly trust.

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Precious Metals Precious metals are greatly prized elemental metals. For thousands of years they have been highly valued. These four metals are gold, silver, platinum, and palladium. Most of them have been heavily utilized in jewelry for their resistance to corrosion. Several of these have been used as currency over the centuries. Today all of them are available as an investment in bullion form. They are widely esteemed as a tangible way to protect the purchasing power of individuals against central banks’ unscrupulous money printing activities that debase national currencies. All of the precious metals are rare. Gold has always been the most readily recognizable of the precious metals. This is because it has a yellow color that is almost unique. The yellow metal has long been beloved for its luster, malleability, and ductile nature. A single ounce of gold can be hammered into sheets that cover 108 square feet (10.03 square meters) and drawn into a thread or wire that stretches 50 miles (80 kilometers). China has become the world’s largest gold producer in recent years. Other major producers of it include South Africa, the U.S., and Australia. For much of the past, only royalty and the very rich could afford to possess gold. From the 1700’s until the 1970’s, the world’s paper money supplies were backed up by gold according to a gold standard that maintained a stable value of money internationally. There has been talk begun by former Federal Reserve Chairman Alan Greenspan of reviving a gold standard in a new international agreement. Silver is the other ancient member of the precious metals family. It is not only used in coins and jewelry. The grey metal has many uses in industry. This is because it possesses the greatest thermal and electrical conductivity of all elements along with the lowest contact resistance and high reflectivity. This makes it a popular choice in a wide range of electronics, wiring, batteries, antimicrobial demands, dentistry, solar cell panels, RFID devices, and much more. Silver is actually in much higher demand than gold relative to its available supply. Today silver is most heavily produced by Peru, Mexico, China, and Chile. Silver mining began around 5,000 years ago in modern day Turkey in Anatolia. The Spanish revived its popularity after finding it in the New World. Their mining operations from 1500 to 1800 in Mexico, Peru, and Bolivia amounted to 85% of all global production. It has also served as a standard for paper currencies as the British Empire issued Pound Sterling notes based on the ability to exchange to silver. Platinum is the rarest of the precious metals on earth. Despite its many industrial uses, it is almost 15 times rarer than gold. Platinum finds use in catalytic converters, weapons, electronics, dentistry, jewelry, and other areas. It has often been more highly priced than gold because of its unique merger of functionality, rarity, and beauty. Platinum is only found in significant quantities in South Africa, Russia, and Canada. The first people known to mine and work platinum were the South American Indians. They used a smelting process kept secret to the end of the 18th century to produce jewelry and nose rings. Today platinum is sought after in both coin and bullion form by investors and collectors. Palladium is the least well known of the precious metals group. It is a part of the platinum metals

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complex. Palladium shares many of platinum’s characteristics and properties. It is stable at extreme temperatures, malleable, and rare. Industry uses it for catalytic converters, electronics electrode plating, and to make white gold jewelry. Palladium is produced mostly by Russia, South Africa, Canada, and the U.S. It has become a growing choice as an investible bullion metal as well.

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Preferred Stock Preferred stock is referred to as preference shares or preferred shares as well. Preferred stock is the name used for a particular equity security which exhibits both characteristics of a stock equity as well as an instrument of debt. Because of this, preferred stocks are commonly deemed to be hybrid types of instruments. In the claims on a company’s assets in the event of default or bankruptcy, preferred stocks prove to be higher ranking than mere common stocks, yet subordinated to bonds. Preferred stocks have a number of interesting properties. They typically come with a dividend that is often fixed. They also enjoy preference versus common stocks where dividend payments are concerned and at any liquidation of the company’s assets. A downside to preferred stocks is that they do not include voting rights as do common stock shares. Some preferred stocks offer convertible features that turn them into common shares of stock at a certain time. There are preferred stocks that may be called in early at the wishes of the issuing company. All terms for a preferred stock are listed out specifically in the Certificate of Designation. Since preferred stocks are somewhat like bonds, the big credit rating companies all rate them for quality of credit. Preferred stocks generally garner lower ratings than do bonds, as the dividends of preferred stocks are not guaranteed as are bonds’ interest payments. Preferred stocks are also subordinated to all of the creditors, making them less secure. Dividends are a key feature of preferred stocks and the main motivating factor in acquiring them. Preferred stocks come with dividend payment preference over other shares. While this does not guarantee that the stated dividends will be paid, the company has to pay such dividends to the preferred share holders before they are allowed to issue any common stock shares’ dividends. These dividends for preferred stocks might be either noncumulative or cumulative. Cumulative preferred stocks mandate that companies who neglect to cover stated dividends up to the full rate must cover them fully at a later date. In each passing dividend time frame, the dividends continue to accumulate. This might be on an annual, semi annual, or quarterly basis. Dividends that are not paid on time are labeled dividends that have passed. These passed dividends for cumulative stocks are called dividends that are in arrears. If a stock does not possess these cumulative features, then it is called a straight preferred stock, or a noncumulative dividend stock. With these types of non cumulative preferred stocks, the dividends that become passed simply vanish for good if they are not paid on time. Besides these preferred stock features, they have various other rights. Some types of preferred shares do include a particular group of voting rights for the approval of unusual events like the ability to issue and sell extra shares, to approve the company to be sold, or even to choose the board of directors’ members. In general, preferred stocks do not have voting rights. Many preferred shares also come with a liquidation value that states what sum of money was put into the issuing corporation as the shares became issued.

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Price Controls Price Controls turn out to be government decreed standards for maximum or minimum prices which they set on specific goods. These are typically put into place in order to intervene directly in an economy so they can arrange for essential goods to be made affordable. Governments are interested in affecting these controls on staple goods. These include such critical things as foodstuffs and energy. Within these types of controls, price ceilings are those which decree maximum prices which can be charged, at the same time as price floors are such controls which determine minimum prices. Governments have a lengthy sordid history with attempting to implement price controls. Their attempts have demonstrated that the effects of these measures work only effectively for short time frames. In the long run, such controls always cause great difficulties like rationing, shortages, poor quality product declines, and black market transactions which become popular as an alternative means of providing the goods which are price controlled via unofficial distribution systems. As prices are alternatively set by free market forces of supply and demand, the prices naturally rise and fall in order to maintain the equilibrium between such demand and supply. There has never been a successful effort by governments over the long term to defeat the all powerful forces of supply and demand. Governments which impose their controls end of creating either too much demand when price ceilings are established or too much supply when price floors are enacted. As a method of government intervention, these controls have been proven to never work in practice, even when governments have established them with the very best of end goals. Examples of failed and botched efforts at price controls abound in the United States. Rent controls are a classic example of these and how ineffective they usually are. New York City widely implemented such rent controls to try to enable a sufficient supply of housing which is affordable. The real world impact has actually been to lower the total supply of rental units. This has caused still higher costs for rental in the rental housing market. The true net effect of such rent controls has been that they discouraged entrepreneurs in real estate from getting into the landlord business. It has led to a supply crisis which means that a significantly lower amount of rental housing is now available than would have been the case if they had simply left the free market forces to work out the fair prices. Another problem that has arisen from these rent controls is that landlords do not have the necessary motivation to improve the rental properties or even to properly maintain them to an acceptable standard for the tenants. This has caused a significant deterioration in the quality of the available rental housing stock as well. The U.S. also implemented price controls in the wake of the Japanese bombing of Pearl Harbor, Hawaii, which led to the outbreak of World War II in America. The feds began to expand existing controls and to establish new ones to preserve the critical elements of the economy. President Franklin D. Roosevelt on January 6, 1942 detailed his new production goals which were necessary to support the war effort he claimed. Practically all of the national economic industries were placed ever increasingly under direct control of the government. Economists are typically dead set against these types of controls, but everyone agreed this was a national

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state of emergency at the time. To do this more effectively, the Federal Government created the agencies like the Office of Price Administration (OPA) and the War Production Board (WPB) in 1942 to help boost overall production output and to control prices and wages as well. The National War Labor Board arose as the result of President Roosevelt’s executive order on January 12, 1942. This implemented price and wage controls along with the firing and hiring of employees. This agency approved increases to wages and adopted what became known as the Little Steel formula to make wartime changes because of the increasing cost of living. A final recent example of such botched price controls centered on the Nixon administration implementation of controls on gasoline products. This finally caused massive supply shortages, rationing of fuel, and lengthy, tedious lines at gas stations.

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Price Gouging Price gouging involves businesses charging higher prices than those that are considered to be fair or normal. It is most often done when there are crises or natural disasters strike. This gouging could also result from temporary boosts in demand that are not matched by supply. If suppliers’ expenses rises, this is not considered to be a form of gouging when they pass it along to customers. Because price gouging is usually considered to be unethical, it is generally treated as strictly illegal in a great number of places. Interestingly though, this gouging originates from what many economists call an efficient market outcome. As demand goes up for a given product, this signifies that consumers will and are able to pay more to purchase an additional quantity of the good at the fair market price. Increases in a good’s demand generally lead to short term product shortages. Suppliers are tempted when they see extended lines of people forming (to purchase their product) to both raise their prices and to increase the amount of their product that is available. Suppliers who are retailers will attempt to bring in more product into their stores. Supply and demand return to balance at a higher price in many examples. When demand increases, everyone can not have the amount that they want for the initial market price. This means that if the price does not go up, shortages will occur. It is because the supplier needs an incentive to provide a greater amount of the goods in question. As supply and demand return to balance, all people who are capable of paying the market price can obtain as much as they need. The supply and demand balance proves to be efficient economically. The goods go to all individuals who want the product for a greater price than they cost to make. Companies can maximize their profits as well. With shortages, there is no set way that the goods become rationed. Though usually this is on a first come, first serve basis, it might be resolved through bribes to the owner of the store. Such a bribe would amount to raising the price anyway. It is critical to realize that in times of excessive demand, everyone can not obtain their full demand for the product at the original price. Higher prices will generally increase the amount of good supplied so that those who wish most to have them can. This should not be confused with price gouging per se. There are many critics of price gouging, including most governments. These critic argue that short term supply can not be adequately resolved by higher prices. Demand increase in cases like natural disasters do not allow for suppliers to provide more of the product. They only lead to increases in the price or shortages. This is because supplies in these cases are limited to the inventory a store has on hand. The critics say that such short term shortages and accompanying price gauging only leads to suppliers realizing excessive profits at the consumer’s expense. Though higher prices are often illegal in such cases, these prices serve a purpose. They distribute the goods more efficiently than prices which prove to be artificially low will since they lead to shortages. As a classic example, when there is an increased demand, higher prices will reduce hoarding by the people who arrive first at the store. This means that there should be more of the demanded good

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remaining for others who arrive later and are willing to pay more than the original price.

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Prime Brokerage A prime brokerage refers to a particular category of different financial services which a number of brokerages provide to their important clients. Services they deliver under this umbrella cover a number of different types. Among these are leveraged trade orders, loaning of securities, and cash management assistance. The majority of the bigger brokerages offer such prime broker services. This includes Goldman Sachs, Morgan Stanley, and Paine Webber. The demand for such prime brokerage services originally came from the hedge funds. These special investment pools often place enormous trades. Because of this fact, they require particular attention from the major brokerages. These prime brokerages are also called prime brokers sometimes. They are usually comprised of enormous financial institutions. They tend to have business transactions with similarly large financial institutions as well as the hedge funds. Prime brokers and their services are not mutually exclusive. While these financial services broker companies provide a wide range of such services, the clients do not have to participate in all or even most of them. The large clients have the choice to receive some of their financial services at other institutions that best suite their needs. There are many such prime brokerage services the broker dealer may deliver to its best clientele. Whichever brokers are assigned to these important accounts will be expected to offer services as settling agent and gratuitous financing for leveraged trades. They could provide assets custody and even everyday account statement preparation. These prime brokers have the advantage of enjoying substantial and varied resources that smaller to medium-sized financial and brokerage institutions simply can not match within their own operations. This means that the prime brokers deliver a means for many of the bigger and more important financial institutions to “outsource” a range and host of their administrative investment activities so that they can instead concentrate their best efforts on strategy and on their investment goals and returns. As an example, there may even be concierge types of services offered by the prime broker. There are a wide range of such highly specialized offerings the broker might include in an effort to keep their largest, most important clients satisfied. Among these are cash financing, securities financing, capital introduction, and even risk management services. There are also services that go above and beyond what would be expected of a typical broker. These could include the ability to sublease space within their offices and to obtain free access to other benefits based within their facilities. These are non- traditional services, and participation in them is completely voluntary for any client. Some of these services require the hedge fund or other important client to post collateral. This is especially the case where brokerage securities are lent out to the customer. In this way, the prime brokerage is able to reduce its risk it takes on and also to obtain faster recourse to funds should they be required. The truth is that the overwhelming majority of such clients of the prime brokerage will be comprised of bigger financial institutions, funds like hedge funds, and bigger private investors. It is true that hedge funds and money managers are some of the most important clients which attain the minimum

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qualifications to participate. Others who might meet the threshold for participation in the program include a range of professional investors and those who engage in arbitrage. Hedge funds know all too well that the level of these prime broker services will often play a substantial part in the success or failure of their fund. Among the more common kinds of clientele that participate in and attain the standards for prime broker services are commercial banks and pension funds. Both of these groups will typically handle enormous quantities of money which they must invest. They also have in common that they lack the in-house resources to adequately invest and maintain such large dollar investments by themselves.

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Prime Rate The Prime Rate is the most typically utilized shorter term interest rate for the United State banking system. All kinds of lending institutions in the United States employ this U.S. benchmark interest rate as a basis or index rate to price their medium term to short term loans and products. This includes credit unions, thrifts, savings and loans, and commercial banks. This makes the Prime Rate consistent around the country as banks strive to be competitive and profitable in their lending rates which they provide to both consumers and businesses. A universal rate like this simplifies the task for businesses and consumers as they shop around comparable loan products that competing banks offer. Every state in the country does not maintain its own benchmark rate. This makes a California Prime or New York Prime identical to the U.S. Prime. Commercial and other banks charge this benchmark rate to their best customers. These are those clients who have the best credit ratings and loan history with the bank. Most of the time banks’ best clients are made up of large companies. The prime interest rate is also known as the prime lending rate. Banks typically base it on the Federal Reserve’s federal funds rate. This is actually the rate that banks loan money to each other for overnight purposes. Retail customers also need to be aware of the prime lending rate. It directly impacts the lending rates that they can access for personal and small business loans as well as for home mortgages. The federal government and Federal Reserve Bank do not set the prime lending rates. The individual banks set it. They then utilize this base rate or reference rate to set the prices for a great number of loans such as credit card loans and small business loans. The Federal Reserve Board releases a statistics called “Selected Interest Rates.” This is their survey of the prime interest rate as the majority of the twenty-five biggest banks set it. It is this publication which reveals the Prime Rate periodically. This is why the Federal Reserve does not directly set this important benchmark rate. The banks more or less base it on the target level of the federal funds rate that the Federal Open Market Committee sets and changes at their monthly meetings. Different banks adjust their prime lending rate at the same time. The point where they change it is generally when the Federal Open Market Committee adjusts their own important Fed Funds Rate. Many publications refer to this periodically changing reference rate as the Wall Street Prime Rate. A great number of consumer loans as well as commercial loans and credit card rates find their basis in the prime lending rate. Among these are car loans, home equity loans, personal and home lines of credit, and various kinds of personal loans. The rates above the prime lending rate that banks charge their less then prime (or subprime) customers depend on the credit worthiness of the borrower in question. The banks attempt to correctly ascertain the risk of default for the borrower. For the best credit customers who have lower chances of defaulting, banks can afford to assess them a lower interest rate than others. Customers with higher chances of defaulting on their loans pay larger interest rates because of the risk associated with their loans not being

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repaid. As of June 15, 2016, the Federal Open Market Committee voted to maintain its target fed funds rate in a range of from .25% to .5%. As a result of this, the U.S. prime lending rate stayed at 3.5%. Once per month the Federal Reserve committee meets to determine if they will change the fed funds rate.

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Private Equity Firm A private equity firm is a company that provides capital which is not from public stock exchanges. It is instead made up of private investors and funds. They invest their money directly into private companies or public companies via buyouts. When they take over a public company in this way, the entity becomes delisted from its stock exchange. The capital or money for a private equity firm comes from a combination of retail and institutional investors. This money can be used for a variety of purposes. Some of these include acquiring other companies, funding startups and new technologies, improving an existing company’s balance sheet, or improving working capital. Private investors who contribute money to these private equity firms must be accredited. This means they can prove by their income and assets that they can afford to tie up significant amounts of money for longer time periods. Many of these investments require substantially longer holding periods for distressed companies to be turned around. Similarly it can take years for start up ventures to reach the status of a liquidity event like an IPO initial public offering or sale to another firm. The private equity market has grown to be powerful quite rapidly since the decade of the 1970s. Nowadays, more than one private equity firm will often work together to pool funds so that they can buy out enormous publicly traded companies. When these come together to do this it is often referred to as an LBO leveraged buyout. An LBO provides huge amounts of funds to finance a massive purchase. Once they have completed this transaction, the private equity firms will work to improve the company’s balance sheet, financial health, and profits with an eye on ultimately reselling the bought out firm to another company or spinning the company back off using an IPO. A private equity firm commonly receives two types of income from its investors. These are performance and management fees. Many of these companies assess an annual two percent management fee for all assets they handle. On sales of bought out companies, they commonly get 20 percent of all profits made. Investment professionals are always interested in obtaining jobs with these private equity firms. The salaries can be enormous. With only a billion in AUM assets under management, such companies will usually employee two dozen or fewer investment professionals. These companies earn millions of dollars in fees between their management and performance fees. Medium level volumes of from $50 to $500 million in deals will earn employees salaries in excess of $100,000. Vice presidents at such companies bring in around half a million dollars’ pay. Principals can easily surpass $1 million in salary. Bonuses can be on top of this when the companies realize good years. Transparency calls began to ring out in the private equity world starting in 2015. This was because the earnings, bonuses, and incomes of practically all employees at almost all of these companies were enormous. This led a few different states in 2016 to start working on regulations and laws for a greater clarity on the inside dealings of these private equity firms. The American Congress in Washington has

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been resisting these efforts and trying to limit the amount of information which the SEC Securities and Exchange Commission is able to access.

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Private Equity Fund A Private Equity Fund refers to a fund that is not carried by a public stock exchange and which does not have to be regulated by the SEC Securities Exchange Commission. Private equity itself is made up of the range of investors and funds who choose to invest directly in privately held companies. They might also pursue mergers and acquisitions to cause public companies to be delisted by taking private the companies which were public. The capital for such private equity comes from retail and institutional investors. Such funding is useful for many types of purposes. It might bolster working capital, make possible research into a new technology, provide for acquisitions of public or other privately held companies, or simply improve a given company’s balance sheet. Such private equity funds derived most of their resources from accredited investors and institutional investors. These deep pocketed entities are able to allocate enormous amounts of money into an investment (that might possibly fail) for longer term time frames. Generally these longer investment holding time frames become necessary for such private equity investments. This is because working with distressed companies or waiting on liquidity events like IPO initial public offerings or selling the private company to a public one needs time. This private equity fund market has grown rapidly from the 1970s to date. Nowadays, funding pools can be started by private equity firms so that they can take enormous public companies private. A substantial quantity of these private equity operations engage in what analysts call LBO leveraged buyouts. With an LBO, large purchases can be affected in the markets thanks to the pooling of enormous resources. Once the transaction is completed, the private equity firms will do their very best to better the profits, prospects, and all around financial condition of the newly privatized company. Their greatest hope and plan is to resell the company back via an initial public offering or alternatively through selling the company to another larger firm. It is worth noting that the fee arrangements of these private equity funds are different from one fund to the next. They generally start with a management fee and add a performance-based fee to the costs as well. Some firms will assess an approximately two percent management fee each year based on the value of the assets under management. They usually also get 20 percent of all profits realized when selling any companies. When investors hand over their money to one of these private equity funds, they are throwing their lot in with an adviser that is actually a private equity firm. These funds are something like a hedge fund or mutual fund in many respects. All three of them are comprised of pooled resources that an advisor combines to utilize for investment purchases for the common good of the fund. There are differences between these types of pooled funds though. Private equity firms will usually concentrate their efforts on longer term time framed investment possibilities. They will often look for those assets that require significant amounts of time in order to sell investments. This given investment horizon will require many times at least 10 years and sometimes significantly longer than this.

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A common strategy of investing with these private equity funds proves to be engaging in minority stake investments in startups or companies which are rapidly expanding in a promising industry. Others focus solely on the previously mentioned leveraged buyouts. In either case, transparency of these funds is an issue that has been growing since 2015. The high incomes for these funds have raised questions about what they are doing with the enormous sums of money they receive. From 2016, some states began to pursue regulations and bills that provided more clarity on what the inner workings of such private equity firms is really like. The congress has so far resisted these investigations and tried to limit the ability of the SEC Securities and Exchange Commission to access the funds’ privately held proprietary information.

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Private Mortgage Insurance (PMI) PMI is the acronym for Private Mortgage Insurance, also known sometimes as Lenders Mortgage Insurance. PMI proves to be insurance that is paid to a lending institution that is required much of the time when an individual gets a mortgage loan. Such insurance is used to cover any losses that arise if a person is not capable of paying back their mortgage loan. Should the lender not be able to recoup all of its costs in foreclosing on and selling the mortgaged property, then PMI insurance covers the remaining losses that exist on the balance sheet of the bank or other lender. The general rates for this Private Mortgage Insurance turn out to be around $55 each month for every $100,000 that is actually financed. On a $250,000 loan, this amounts to $1,875 each year in premiums. Private Mortgage insurance yearly costs range though. They are usually given out in comparison against the entire loan’s value. This depends on a number of factors, such as loan type, loan term, actual coverage amount, amount of home value that the person finances, the premium payment frequency that might be monthly or yearly, and the individual’s credit score. While PMI can be paid in advance with closing costs, it can also be worked into the loan payments with single premium PMI. Private Mortgage Insurance is generally only necessary when the down payment proves to be smaller than twenty percent of either the appraised value of the property or alternatively of the sales price. When then loan to value ratio is greater than eighty percent, you can expect to be required to carry it. As the principal is reduced with monthly payments, or the home value rises through real estate appreciation, or a combination of the two occurs, then this Private Mortgage Insurance might not be required any longer. At this point, the home owner is allowed to discontinue paying for the PMI insurance. There are some banks and lenders who will insist that PMI be paid for minimally for a pre fixed period of time, such as two to three years. This is regardless of whether the principal value of the property exceeds eighty percent in a shorter amount of time. Banks do not have to permit a person to cancel this insurance legally until the loan has amortized down to a Loan to Value ratio of seventy-eight percent of the original price for which the house is purchased. A cancellation request must originate from the mortgage servicer. They must send it to the issuing company that made the PMI policy in the first place. Many times, such a mortgage servicer will insist on a current home value appraisal being done in order to ascertain the actual loan to value ratio. Premiums paid for mortgage insurance were not tax deductible according to the Internal Revenue Service in the past. In 2007 this changed. Now all PMI premiums are considered to be fully reducing of your income for the year in question.

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Profit Sharing Plan Profit Sharing Plans are not all the same. These plans can come in a range of different formats. Many times they are utilized as a supplement to another kind of retirement account. These defined contribution plans prove to be a significant benefit with tax advantages for a number of American employees. The reason that employers establish these types of plans is to provide valuable employees with another method of compensation. This particular one permits the employees who participate to receive a portion of company earnings from a trustee. Individuals who have the benefit of a profit sharing account will enjoy contributions made by their employers to their personal plan account. They can then invest these funds and increase them tax free. Maximum individual employer contributions per year are limited to $53,000. There is a caveat to many of the retirement plans that are employer sponsored. They typically require the employees to become vested in the plan over a period of pre-defined years in which they participate. It might be the employees gain 20% vesting per year over five years. While Money Purchase Plans set up a pre-arranged percentage of yearly earnings which become contributed to the accounts, profit sharing works differently. These plans and their contributions are based on the profitability of the company. The rules that are typical of these defined contribution plans apply to profit sharing as well. Withdrawals can not be taken before the account owner reaches 59 ½ years of age. If they do take distributions earlier than this, the withdrawals will be fully taxed like personal income. They will also have the standard 10% early withdrawal penalty assessed against them. The money from profit sharing plans is commonly invested by the trustee administrators into one of several investments. These include variable annuities, mutual funds, company stock, or life insurance. In rare cases with specific job scenarios, the individual employee may be allowed to manage the investment vehicles within the profit sharing account. Rollovers have a specific set of rules that govern them with profit sharing accounts. The only money from these accounts that can be rolled over is that which has become fully vested. It is important to understand completely the schedule for vesting before account holders think about moving retirement funds to another qualified type of account. The IRS has no unusual restrictions on transferring vested profit sharing account funds. The plan administrator will have to mail out specifically detailed explanations to the account holder of how this can be done without incurring any taxes or penalties. This is important because if the distribution is not properly rolled over, then the disbursed funds may be treated by the IRS as an early withdrawal. In this case, they will be taxed as ordinary income and suffer the 10% penalties for being taken out ahead of minimum retirement age. This is why transfers such as these should be done as direct rollovers in lieu of indirect rollovers whenever possible. Withholding requirements apply to indirect rollovers besides the danger of experiencing penalties for accidental early distribution. Plan providers determine what specific investment choices an account owner may pursue with the money from their profit sharing plan. Much of the time, account holders do not have the ability to determine the

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investments that their profit sharing money participates in at all. The IRS allows investments for these funds that include individuals stocks, government and corporate bonds, mutual funds, options, and exchange traded funds shares. While these choices may be available to a profit sharing plan account owner, investing in physical gold bullion and the other precious metals is not. Gold ETFs and gold mining company stock shares may be an alternative option for those who wish to diversify away from dollar based assets.

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Progressive Taxes Progressive taxes exact a larger pound of flesh from the income of higher income earners than they do from lower income contemporaries. The idea is a tax system which is based upon the ability of an income earner to pay. In other words, the system demands a bigger percentage and absolute amount in taxes from the larger earners than from the lower income workers. The American income tax system has long been considered to be progressive in practice. For the taxing year 2016, those persons who possess under $9,275 in income pay only 10 percent in income tax. The taxpayers who bring in over the benchmark highest income level of $415,050 are grouped in the maximum tax system bracket. These people will pay rates as high as 39.6 percent of their income to the tax man. These progressive taxes gouge the higher income groups for a substantially higher tax rate percentage and absolute amount than they do the lower income earners. It is based more on the ability of the earner to pay than a simple flat percentage tax would be. Progressive tax systems could hit the lower earners at 10 percent, while assessing middle income earners at 15 percent and higher income workers for over 30 percent. This is the basis of the United States taxing model and system. A tax structure’s actual progressivity is dependent on how fast the rate rises in correlation with the income increases of the earner in question. A tax code with a lowest rate of 10 percent and a highest bracket of 30 percent would be less progressive than one that offers rates of income taxes which vary from a low of 10 percent to a high of 80 percent. These kinds of radically progressive tax systems are most famous in the countries of Scandinavia and Northern Europe. There are some obvious advantages to progressive taxes. They lower the relevant tax burden on those working poor and the families which can not afford to pay them at all. This is why such taxing systems leave as much money in the lower wage earners’ accounts as possible. These people will in fact spend all they make from their paychecks and stimulate the economic activity of the country. Such progressive taxes also possess the unique ability to bring in a greater amount of tax income to the governments than do the regressive or flat income tax plans. This is because the tax rates climb as does the relevant earned income. With a progressive tax system, those wage earners who have the highest possible resources to contribute will fund a larger share of the public services and goods which all citizens equally enjoy and utilize. This includes snow and debris removal, national park usage, first responder activity, and roads and other forms of national infrastructure. There are also some disadvantages to progressive taxes as well. The critics of this form of taxing system say that they unfairly discriminate against earners based on how much they earn or if they are wealthy through business, investments, or inheritance. Such critics feel that the U.S. progressive system of income taxes is actually a sneaky and covert way of redistributing income. This is based on the incorrect notion that the majority of taxes go to pay for social welfare programs in America. In truth, only a tiny proportion of actual government spending is directed at welfare programs and their income redistributing payments.

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Promissory Note Promissory notes are negotiable instruments that are called notes payable in accounting circles. In such promissory notes, an issuer writes an unlimited promise that he or she will pay a certain amount of money to the payee. This can be set up either on demand of the payee, or at a pre arranged future point in time. Specific terms are always arranged for the repayment of the debt in the promissory note. Promissory notes are somewhat like IOU’s and yet quite different. Unlike an IOU that only agrees that there is a debt in question, promissory notes are made up of a particular promise to pay the debt. In conversational vernacular, loan contract, loan agreement, or loan are often utilized in place of promissory note, even though such terms do not mean the same things legally. While a promissory note does provide proof of a loan in existence, it is not the loan contract. A loan contract instead has all of the conditions and terms of the particular loan arrangement within it. Promissory notes contain a variety of term elements in them. Among these are the amount of principal, the rate of interest, the parties involved, the repayment terms, the date, and the date of maturity. From time to time, provisions may be included pertaining to the payee’s rights should the issuer default. These rights could include the ability to foreclose on the issuer’s assets. A particular type of promissory note is a Demand Promissory note. This specific kind does not come with an exact date of maturity. Instead, it is due when the lender demands repayment. Generally, in these cases lenders only allow several days advance notice before the payment must be made. Within the U.S., the Article 3 of the Uniform Commercial Code regulates most promissory notes. These negotiable forms of promissory notes are heavily used along with other documents in mortgages that involve financing purchases of real estate properties. When people make loans in between each other, the making and signing of promissory notes are commonly critical for the purposes of record keeping and paying taxes. Businesses also receive capital via the use of promissory notes that are sometimes referred to as commercial papers. These promissory notes became a finance source for the creditors of the firm receiving money. Promissory notes have functioned like currency that proved to be privately issued in the past. Because of this, such promissory notes that are bearer negotiable have mostly been made illegal, since they represent an alternative to the officially sanctioned currency. Promissory notes go back to well before the 1500’s in Western Europe. Tradition claims that the very first one ever signed existed in Milan in 1325. Reference is made to some being issued between Barcelona and Genoa back in 1384, even though we no longer have the promissory notes themselves. The first one that we still have dates back to 1553 where Ginaldo Giovanni Battista Stroxxi issued one that he created in Medina del Campo, Spain against the city of Besancon.

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Proportional Taxes Proportional Taxes are a type of income tax system. In this taxation system, the identical percentage of taxes is applied to all taxpayers in an economy. It does not matter how much or how little they earn. This type of tax simply levies the same rate on all high income, middle income, and low income workers as well as businesses. This stands in direct contrast to a more widely utilized progressive tax system. In this competing type of tax plan, those taxpayers who enjoy greater income levels pay at higher income tax rates than the unfortunate bottom income earning citizens. Proportional taxes are also often known as the flat tax since it is a one tax plan fits all sizes means of collecting revenues for a government. Besides proportional taxes and progressive taxes, there are also regressive taxes. A regressive tax takes a larger share of income from the lower classes than they can afford. Sometimes flat taxes are considered to be regressive in nature. The difference between these three types of tax structures comes down to the way the tax addresses the tax base (of a business income or household income) as the income level is significantly different. In these proportional taxes systems, every tax payer, regardless of income level or job, will pay the identical percentage of their earnings in taxes. If this given proportional rate is set up at 20 percent, then the earner at $10,000 gives $2,000 of income to the taxing authorities, while the worker making $50,000 will pay in $10,000. At the same time, the higher earner with $1 million in annual income will pay the same rate for a grand total of tax payment amounting to $200,000. This system is so much simpler and eliminates the needs for large, wasteful, and bureaucratic taxing agencies. Sales taxes are another example of proportional taxes. This is the case because every consumer, regardless of the amount of money which he or she makes, will pay the sales tax at the identical fixed sales tax rate. It is almost a given that sales taxes will be proportional. Since all goods and services are affected by them, a government can not simply alter the rate based on a person’s actual income. Buying a good does not factor in the income of the buyer in the transaction, and so far there is no known way to change this to a more progressive form of tax. Many economists and analysts consider these proportional taxes to be a form of regressive tax by accident. Since the rate never goes up regardless of how high the income of the person in question goes, the higher burden remains on the lower income earners. They can least afford to pay the flat rate tax, while a high income earner has the ability to pay his or her elevated but still same percentage share. With the same example from above, the earner who garners $10,000 only has $8,000 left on which to live after paying his or her share of taxes. The worker bringing down $50,000 gets to keep fully $40,000 after taxes. The million dollar stunner holds on to $800,000 after paying his or her share. The percentage of the tax is the same in every scenario. Many people call this the epitome of truly fair. The problem is that the low income earner suffers from a severe after-tax hangover effect because the burden makes it impossible for him or her to live on what remains. This is how the critics of such a flat tax are able to insist that higher income people should be forced to pony up a larger percentage in income taxes than the poorer workers who outnumber them so

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vastly anymore. Those in favor of proportional taxes insist that they are more fair since they encourage workers to go for greater earnings without punishing their results with higher income tax brackets and rates, as a progressive tax system inherently would. They argue that when everyone receives the same treatment, this is the ideal definition of the concept of fair. Proportional tax systems have the additional advantage of being simple for everyone to grasp and to practice. This is because there is no room for debate on the tax rate in question for any business, individual, or family.

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Proprietary Trading Proprietary Trading refers to a type of trading in which the bank or other financial institution invests its own funds for its own benefit. They do this instead of investing the money of and for their clients and gaining a commission fee for trading for their customers. Such trading happens as a firm makes the choice to engage in market profiteering instead of existing on the tiny commissions which they realize for taking and processing others’ trades. Those banks and companies which pursue such proprietary trading feel certain they enjoy some from of competitive advantage. It is this which provides them with the confidence in their own abilities to make outsized returns versus other traditional investors. Proprietary trading is actually a dangerous and risky type of trading. Rather than safely carrying out the orders of their clients and collecting their fair commissions, the bank traders take on real positions using the capital of the company. In other words, they will enjoy the entire profit or suffer from the brunt of the full loss of such a position. These firms will do this entirely electronically to boost their speed of execution. They will employ the firms’ own leverage in order to multiply the size of their positions as well as the hoped for returns or actually realized losses which they incur. This actually occurs because the company’s own trading desk at these huge financial institutions decides they can do it for themselves. These companies are typically investment banks or brokerage firms. They will then utilize their own corporate balance sheet and capital of the company in order to make transactions in the financial or stock markets. Such trades are commonly speculative. The products in which they trade are commonly complicated and dangerous investment vehicles such as derivatives and credit default swaps. Naturally these financial companies receive benefits from proprietary trading on their own behalf. The biggest one is that they often do enjoy higher profits, at least until a financial crisis hits like with the one in 2007-2009 that nearly overthrew most of the American, British, and continental European banking system financial institutions. With these proprietary trades, the brokerage firm or investment bank gets to keep all of the investment gains which they realize from their investments. A second benefit which these large financial firms enjoy is that they will be capable of inventorying an impressive array of securities. It allows them to offer their speculative inventory directly to their clients who could not have obtained it any other way. It also helps the institutions to be well-supplied with securities in the event of illiquid or declining markets when it is more difficult to buy such securities on the free markets. The last benefit pertains to the second one. With such proprietary trading, financial firms can evolve into an important market maker. They gain the ability to offer liquidity for a particular security or even range of securities through dealing in such investments. They can realize profitable spreads and fees when acting in this capacity. The ugly truth is that this proprietary trading has led to enormous losses for the investment banks in particular. Thanks to the likes of such one time investment banking firms as Merrill Lynch, Bear Stearns,

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Lehman Brothers, and others engaging in such dangerously over-leveraged proprietary trading schemes before the outbreak of the financial crisis, they nearly brought down the entire financial system. The Lehman Brothers moment refers to the point where the company failed completely. All other investment banks began to crater at this point. Bear Stearns ceased to be a going concern. Merrill Lynch the one-time largest investment bank and brokerage had to be bought out by Bank of America in order to survive. Both Morgan Stanley and Goldman Sachs, the only remaining two of the big five, were forced to change into traditional banks, backstopped by the FDIC, This helped them to stave off total collapse at the height of the Global Financial Crisis of 2008/2009. Because of these unmitigated disasters, the Dodd-Frank Legislation and Volcker Rules were passed. These made it increasingly more difficult to engage in such trading for a financial firms’ own benefits and with their leveraged balance sheets and company capital.

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Prospectus In the world of finance and investments, a prospectus proves to be a legal document. This document is utilized by businesses and institutions who must describe in great detail the type of stock or bond securities that they are issuing for potential buyers. Such a prospectus generally offers great information to investors concerning stocks, mutual funds, bonds, and even other types of investments. The information contained in a prospectus will be reports like the financial statements of the company, a detailed description of their business, biographies of directors and other officers along with their pay packages, lists of properties and assets, and information concerning any lawsuits with which they are involved. When stocks are first being issued as in an IPO, or initial public offering, such a prospectus is given out to the interested parties of investor prospects by brokerages and underwriters. This prospectus should always be read by an interested investing party in advance of putting capital into their security. This is especially important so that you will know the risks that are inherent in the company’s business and their stock or bond issue in advance of becoming involved with their securities. In the U.S., securities may not be offered to the public until after a prospectus has been first placed on file with the SEC, or Securities and Exchange Commission. This is a component of a registration statement. Once the SEC states that the registration is in effect, the stock or bond issuing company is then allowed to utilize the prospectus to help finalize the shares of stock or the bonds in question. The SEC examines a prospectus to ensure that is maintains the appearance of abiding by the disclosure rules. Some corporations are allowed to work with a simplified prospectus to issue stock and bond securities. These companies must be up to date with their Form 10-K filings with the SEC for a given amount of time, keep their level of market capitalization over a minimum amount, and engage in some procedures. Some scenarios do not mandate that an offering has to be SEC registered. In these cases, a prospectus is called either an offering circular or offering memorandum. A good example of this is the offerings of municipal securities. These turn out to be exempted from the majority of federal security laws. Such municipal types of issuers usually make up a disclosure document type that is referred to as the official statement instead. This would not offer the depth and scope of a standard prospectus, but will still contain a great deal of helpful and useful information on the particular offering. Companies generally do not have the time to put together a prospectus entirely on their own. Since this is the case, they commonly engage the help of an issue manager who is also the underwriter of the new issue. These issue managers are also known as book running managers.

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Protective Tariff A protective tariff is a choice by a national government to create a financial barrier or tax on the imports of one or more nation’s imports into the country. In many cases, such tariffs are not intended to raise additional national revenue as much as they are to artificially increase the prices of said imports. This helps to protect the sales and production of domestic goods and services so that they will continue to be manufactured and sold successfully in the host nation. Some critics argue that these types of tariffs are a real threat to free trade. Others argue that they provide two important benefits. The first benefit is to trap domestic spending within the national economy rather than bleed it out to a foreign competing company and country. The second benefit lies in stopping cheap imports from crushing local business and industry. The import of oranges is a classic example of such a protective tariff. Not every place is able to grow citrus. South American countries are ideally situated and acclimated to grow huge amounts of citrus fruits to export. While a nation may produce its own oranges but might instead simply import them from South American countries at a cheaper price than growing them internally, they could decide to apply a protective tariff to the price of foreign oranges and other citrus produce. Such a tariff is guaranteed to raise the price of the potentially imported oranges in order to level the playing field for domestic citrus producers. The tariff will make sure that these foreign oranges are similar to or more expensive than the prices of the locally grown variants. Such a protective tariff proves to be a true tax on goods which a country chooses to import. These taxes make the prices of the foreign imports higher than the prices for typically more expensive goods and services. A piece or cloth might cost $5 in the United States and similarly $5 in Great Britain. If the American government wanted to encourage domestically-produced cloth over British manufactured cloth, they would need to set up a tariff on British cloth so that the cost was higher than locally produced cloth. They might add a $1 per piece tariff to the British cloth with a 20 percent rate. The ultimate goal of such a protective tariff is to protect the native industry from its foreign competition. The very first American to suggest utilizing these protective tariffs to encourage American industrializing proved to be founding father and Treasury Secretary Alexander Hamilton. He wrote the important “Report on Manufacturers” to further this agenda. Hamilton believed that imposing a tariff on textile imports would help American industrial efforts to build up manufacturing facilities in order to one day compete effectively with the dominant in the world British companies. Following the War of 1812, inexpensive British products began to flood the American markets. This undercut and even threatened to destroy the young industries in the U.S. Congress complied with Hamilton’s wishes and established tariffs in 1816 so that they could deter British goods from dominating in the country. They followed this up with another tariff in 1824. The much debated Tariff of Abominations of 1828 culminated these early efforts. It was President John Quincy Adams who approved the final Tariff of Abominations following the majority vote approval of the House of Representatives. The goal of this 1828 tariff actually lay in protecting both Western and Northern agricultural products from foreign competitors. The setting of this kicked off a national debate regarding how constitutional it

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was to slap tariffs on foreign imports unless the goal was to raise revenues from duties. Included in the case in question were molasses, iron, flax, distilled spirits, and various other completed goods. Critics of these policies claim that tariffs are unethical. They argue that the expenses involved with shipping would be the only equitable cost to add on to a final good’s price. Applying such protective tariffs threatens fair and free trade they correctly claim.

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Prudential Financial Prudential Financial proves to be a Fortune 500 company and Fortune Global 500 firm based in the United States. This company’s hundreds of subsidiaries deliver insurance, financial services and products, and investment management for institutional and retail level clients living in the U.S. and more than thirty different nations. Among their mainstay services and products they offer are annuities, life insurance, mutual funds, retirement investments and pension products, stocks and bonds securities broker services, asset management and administration, and even residential and commercial real estate (in a number of American states). Prudential Financial has impressive operations beyond the United States, in Europe, Asia, and Latin America. Their main operations fall into the two divisions of Financial Services Businesses and Closed Block Business. They deliver these extensive services and products to both institutional and individual clients utilizing financial services industry- based distribution channels. With over $2 trillion worth of life insurance holdings, the company is well-known and -regarded throughout the world by its Rock of Gibraltar logo. The global multinational corporation numbered 48,384 employees back in 2014. They are headquartered in the Prudential Plaza in Newark, New Jersey. The company did not start out under the name of Prudential Financial. When it began life in 1875 Newark, New Jersey, the company existed under the name The Widows and Orphans Friendly Society. Its next name was the Prudential Friendly Society. John F. Dryden established the company before becoming a United States senator. The firm counts thousands of products in its line up today, but in the first days it only sold burial insurance. Founder Dryden remained Prudential President through 1912. His son Forrest F. Dryden continued the family legacy as president of the insurance company through 1922. When the 20th century dawned, Prudential and the competing major American insurance companies earned the majority of their corporate profits from the sales of industrial life insurance. These were insurance contracts which solicitors sold door to door in the poor inner cities. Industrial workers were forced to pay twice as much what financially more secure individuals paid for standard life insurance. With high policy lapsing rates, only around nine percent of these workers had policies in force when they died. The mixed history of this insurance giant is detailed in the book Three Cents A Week, which was the early policyholder premium members paid for insurance coverage. Today’s Prudential has morphed from its relatively humble early days as a mutual insurance company (as of 1915) which its many policyholders owned into a joint stock company. It trades today on the famed New York Stock Exchange by the symbol PRU. This stock began trading on NYSE in December of 2001. The company joined the Fox 50 Index of the Fox Business Channel in October of 2007. In August of 2006, the company ran afoul of both state and federal securities regulators. They and the Department of Justice revealed dual settlements totaling $600 million in sanctions against Prudential Financial subsidiary Prudential Securities, Inc (today called the Prudential Equity Group). This was the largest such fine levied on a securities business up to that time. They paid these fines for their improper market timing misconduct. These represented the latest in a string of scandals for investor fraud that stretched back to the 1980s and involved investors in 49 states.

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Prudential survived its various fraud charges and class action lawsuits from impropriety in the 1980’s, 1990’s and 2000’s and eventually emerged both admired and respected. It is recognized as the number one ranked insurance (life and health category) company in the 2016 “World’s Most Admired Companies” list compiled by Fortune magazine. Corporate Knight calls it a member of the “Global 100 Most Sustainable Corporations in the World” for 2016 and 2015. Prudential Financial is also a constituent member of the British FTSE4 Good Index Series for 2016 and five years before this.

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Public Company Accounting Oversight Board (PCAOB) The Public Company Accounting Oversight Board turns out to be another regulatory group that Congress established to provide oversight on the auditing of public companies. This not for profit corporation is not a government agency. It does provide protection to the public and investors who are interested in the independent, accurate, and revealing audit reports that this group encourages. Besides this, the PCAOB oversees dealers and brokers’ audits in order to foster protection for investors. This includes oversight of compliance reports that federal security laws require from public corporations. This accounting oversight board arose as a result of the Sabanes-Oxley Act of 2002. It mandated that the firms which audit public companies in the United States endure independent and external oversight for the first time ever. Before Congress passed this 2002 regulatory law, auditors were completely self regulating. The PCAOB Board and chairman of this board are made up of five members who receive appointments to five year terms each from the SEC Securities and Exchange Commission. They select these individuals after consulting first with both the Secretary of the U.S. Treasury and the Federal Reserve System Chairman of the Board of Governors. Given this SEC appointing role, it is not surprising that the SEC also maintains oversight responsibilities for the PCAOB. As part of this oversight, they must approve the Board’s various standards, budget, and rules before they become final. The SOX Act became amended by the Dodd-Frank Act. It created the necessary funding for all PCAOB pursued activities. This money mostly comes from the accounting support fees assessed annually on all publicly traded companies. These fees are actually figured from their average monthly market capitalization. Brokers and dealers are instead levied fees which are dependent on their quarterly average tentative net capital. The mission of the PCAOB lies in providing oversight of public companies’ audits. This ensures that they prepare and deliver reliable, honest, and unbiased audit reports for the benefit of both the interested investors and members of the public. Along with this oversight role, the PCAOB monitors the broker dealers and their audits to encourage protecting investors from fraud. This includes monitoring their federal securities law required compliance reports filing. PCAOB has a particular vision they seek to fulfill. Their overriding goal is to prove themselves a model for regulatory organizations everywhere. They seek to reduce the numbers of audit failures throughout the public securities markets in the United States, to improve the overall quality of audits, and to foster the public’s trust of auditing as a profession and the process of financial reporting itself. They aim to do this while utilizing cost efficient and cutting edged tools. The PCAOB maintains two special advisory groups as part of its mandate. The first of these is the PCAOB Investor Advisor Group, also known by its acronym IAG. It presents advice and viewpoints to the general board pertaining to investor concerns and regarding work related matters and important policy issues. The board is able to count on the IAG to deliver it expert and quality insight and advice for carrying out its important mandate to safeguard investors as outlined in the Sarbanes-Oxley Act.

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The board also relies on its Standing Advisory Group, refereed to by its acronym SAG. The SAG advises the board regarding standards of professional practice and continuing developments within the world of auditing. Among the members of the Standing Advisory Group are investors, auditors, executives of publicly traded companies, and other individuals. This SAG group holds meetings between two and three times each year. They are chaired by the Chief Auditor and Director of Professional Standards of the PCAOB.

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Purchasing Power Parity (PPP) Purchasing power parity is a method for comparing the various standards of living of different countries and through different times. It also allows economists to compare one nation’s economic productivity to another nation’s. This economic theory believes that it is possible to compare the various currencies of different countries by analyzing the cost of a basket of goods. The idea states that two currencies are at a fair market value to each other when the basket of goods becomes priced identically in the two countries. There is a formula for calculating purchasing power parity. It is S= P1/P2. S stands for the exchange rate of a first currency against a second one. P1 is the symbol for the price of goods in the first currency. P2 symbolizes the price of goods in the second currency. Coming up with a meaningful comparison of goods requires that a considerable range of services and goods should be analyzed. This requires gathering a great amount of information. To help make the process easier, the United Nations worked with the University of Pennsylvania in 1968 to establish the International Comparisons Program. The purchasing power parity numbers which come from the ICP uses price surveys from around the world which compare and contrast costs for literally hundreds of different goods. These results give international economists the tools they need to create global growth and productivity estimates. The World Bank compiles a special report on PPP once each three years to compare the nations of the world by both U.S. dollars and their PPP values. Both the OECD Organization for Economic Cooperation and Development and the IMF International Monetary Fund base their recommended policies and economic predictions on the purchasing power parity measurements. Forex traders have also been known to employ PPP to scout for undervalued and overvalued currencies. Finally investors with foreign corporation stocks or bonds can consider these figures to forecast how exchange rate fluctuations will impact the economy of the country where their investments are based. When individuals or companies employ PPP, they are utilizing it in place of the market determined exchange rates. This figure provides them with the quantity of currency required to purchase the basket of goods and services used in the equation. This means that inflation rates and cost of living ultimately determine a nation’s PPP. Economists are also able to utilize purchasing power parity to determine which countries have the largest amount of purchasing power. To do this, they take the GDP gross domestic product of countries as a starting point. This is the aggregate dollar amount of every good and service a nation produces in a particular year. The number is among the preferred means of analyzing the economy of a country. Economists can determine this in either market exchange rates or PPP terms. The PPP measurement will consider the costs of localized services and goods of a given nation as measured in U.S. prices. It contemplates both the inflation rates and the exchange rates in this calculation. The GDP using PPP demonstrates a citizen’s purchasing power compared to that of the citizen in another. Since a shirt will usually cost more in one nation than in the other one, purchasing power parity helps to

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make the calculation fairer. While the 2016 rankings for GDP by market exchange terms show the top five countries as the U.S., China, India, Japan, and Germany, when PPP is used, China ranks ahead of the U.S.

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Put Option Put options are financial contracts that are entered into by two parties, the buyer of the option and the seller, or writer, of the option. They are generally called simply puts. A purchaser is able to establish a long position in a put option by buying the right to actually sell the instrument that underlies the put. This is done at a particular price called the strike price and is only valid with the options’ seller for a certain amount of time. Should you as the buyer of the option choose to exercise your rights, then the seller has to purchase the associated instrument off of you at the price that was set in advance, whatever the present market price proves to be. In consideration for the buyer gaining this option, you pay an option premium amount to the seller of the option. Put options are a form of insurance against loss. This is because they offer a guaranteed price and purchaser for a given amount of time for an associated instrument. Put option sellers also benefit when they obtain profits for selling you options that you do not choose to exercise. Options are almost never exercised if the instrument’s market value stays above the strike price within the put option contract time frame. You as a buyer of a put option also have the ability to make money. This is done by selling the associated instrument for a higher price and buying back the position for a significantly lower market price. When an option is not sold or exercised, it expires worthless, representing a total loss of the premium paid for it. When you purchase a put, you do so with the idea that the associated asset price will decline by the expiration date. The other reason for taking on such a put option is to safe guard a position that you own in the asset or security. Purchasing a put option provides an advantage as compared to selling a stock short. The most that you can lose with a put option is the money that you have paid for it, while those who sell short have an unlimited loss potential. The downside to a put is that the gain potential is restricted to a certain amount. This turns out to be the strike price of the option minus the spot price of the associated asset and the premium that you pay for the option. A seller or writer of a put feels confident that the associated asset price will go up or remain the same but not decline. Sellers of puts engage in this activity in order to collect premiums. A writer of a put has a limited loss equal to the strike price of the put minus the spot price and the premium that has already been obtained. Put options can similarly be utilized to reduce a risk in the option seller’s investment portfolio. They can be part of complicated strategies called option spreads. A put option that is not covered by owning the underlying security or asset is referred to as a naked put. In these types of put scenarios, the investor might hope to build up a position in the stock that underlies the options so long as they can get a cheap enough price. If you the buyer do not exercise these options, then the seller of the put gets to keep the premium that you paid for the option, representing a profit to the seller. Should the associated stock’s actual price be lower than the strike price of the option when the expiration date comes, then you as a buyer have the ability to exercise the put option in question. This makes the seller of the put option purchase the associated stock at the strike price of the option. You as a buyer

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would profit to the amount of the difference found between the market price of the stock and the strike price of the option. Yet, should the price of the stock prove to be higher than the strike price of the option on the expiration day, this option becomes worthless. The loss to the owner of the option is restricted to the money that you paid for it, which then becomes the profit to the put option seller.

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Quantitative Easing Quantitative easing is the policy where the government purchases bonds and financial instruments by printing money in order to stimulate the economy. Quantitative easing proves to be a monetary policy that the Federal Reserve and other central banks around the world utilize in order to grow the money supply. They do this by boosting the cash reserves in the banking system. This is accomplished via purchasing the government’s issued bonds in order to raise their prices. Since prices and interest rates of bonds move inversely, higher bond prices lead directly to lower long term interest rates. Quantitative easing is commonly employed only after other more traditional means of dominating the supply of money have not worked. These other methods involve lowering discount rates, bank interest rates, and even interbank interest rates to around zero. Once these traditional means have failed to stimulate the economy, the Fed then steps into the market and directly buys financial instruments. The assets that they purchase include agency debt, government bonds, corporate bonds, and mortgage backed securities, which they purchase from banks and institutions. This entire process is called open market operations. By depositing electronically created money into the banks’ accounts, the banks gain additional reserves that permit them to create still additional money from thin air. The Fed hopes that this multiplication of deposits accomplished through the fractional reserve banking system will allow greater amounts of loans to be made to businesses and individuals in order to stimulate the economy. This quantitative easing policy is not without its risks. It could be too effective or not sufficiently effective, should banks decide to hoard their extra money to boost their capital reserves. This is particularly the case in an environment of rising defaults in the banks’ mortgage and other types of loans’ holdings. Recent examples of quantitative easing abound. This subtle form of printing money became more and more common as the financial crisis of 2007 to 2010 grew worse. In these years, the United States engaged heavily in it, tripling the world wide dollar reserves by creating money both at home and abroad. Other Central Banks, such as those of Great Britain and the European Union, similarly engaged in the practice to help mitigate the effects of the crisis and resulting Great Recession. These countries and economic blocks had all already lowered their interest rates to zero or near zero amounts, and they found quantitative easing to be their best remaining option for restarting economic growth.

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Quantitative Risk Management (QRM) Quantitative Risk Management represents the discipline which deals with the ability of an organization to quantify and manage its risk. This scientific approach to business is becoming increasingly critical in today’s world as organizations need to satisfy stakeholders who demand it. Government regulators similarly insist on clarity within organizations now, especially regarding the amount of capital financial institutions are holding. The firm executives are hunting for the best allocation of capital. Corporations and their boards are seeking justification to control expenditures. Project managers need to be assured they will make their timelines and meet budgets. All of these individuals and entities are looking for effective QRM nowadays. These QRM capabilities give decision makers the facilities to both analyze their applicable risk data as well as to forecast the likely positive and negative effects in the future. It provides the organization with enormous advantages. Analyses that are more dependable and finely detailed will deliver information which management requires to make superior decisions that are ultimately better informed. As the Quantitative Risk Management process yields higher quality information and becomes more easily accessible to the relevant organizational members, the decision makers are able to more effectively utilize the techniques of QRM to decrease the amount of guesswork involved in the daily decisions of their business operations. This allows them to obtain valuable insights into possible risks, so they can estimate their overall exposure to them and discern any weaknesses in their oversight controls. It also permits them to determine how practical new services and products will be and to consider the opportunities for up selling and also cross selling of company goods, information, and services. Finally, organization leaders will be able to evaluate any degrees of variance in their company cash flow so that they can streamline and better their ultimate operations. Quantitative Risk Management is important as every one of those activities just mentioned contains at least some degree of risk. By quantifying and considering them all using a combination of techniques such as trending, modeling, stress tests, and metric evaluations, company decision makers can create faster and more effective responses. This allows them to benefit from any uncovered opportunities and simultaneously to deal with any possible negative effects before they actually materialize and cause significant damage. There are numerous examples of the uses of and needs for Quantitative Risk Management in business organizations. Cash flow at risk, or CFaR, represents one of the most significant drivers of business. Company leaders require effective prognoses of their future cash flow in order to firm up important decisions for the business. These include confirming or pushing off investments, reducing expenses, reinvesting capital in the business model, or choosing to reengineer their critical operations. Correctly extrapolating cash flow involves proper understanding of such underlying factors as currency changes, sales, pricing of products and services, vendor viability, and operational costs. Value at Risk, or VaR, is another critical measurement in an organization that benefits from Quantitative Risk Management. Bigger, international, and more complicated financial institutions such as JP Morgan

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Chase, Citigroup, HSBC, Standard Chartered Bank, BNP Paribas, and Banco Santander have to constantly evaluate where their risk exposures are in order to appropriately allocate the correct capital amounts to be capable of absorbing losses which they do not anticipate. Project risk management is another area where this Quantitative Risk Management can save the day. So many projects exceed their allocated budgets, deadlines, and milestone markers simply because there is not a sufficient evaluation of the variables, uncertainty, and risk involved with the project itself. This is where the process of QRM can save enormous amounts of time, frustration, and ultimately resources by delivering on deadlines and budgets.

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Quota Effects Quota Effects refer to the economic consequences of a government body imposing an import quota in a national economy. Such import quotas are the legal limitations on the quantities of specific imports that companies are allowed to bring into a given nation. As an example, the United Kingdom might decide to restrict the quantities of Japanese cars that may be imported to 1 million vehicles each year. The simple answer to the question on effects this causes in a specific country which enforces them is that they will lower foreign imports to the benefit of domestic producers and suppliers. At the same time, this causes more complicated, unintended, and undesirable side effects. Consumers will pay higher prices for their goods, the overall economic well being of the nation may decline, and nations which have been targeted with the import quotas may choose to retaliate with quotas of their own on the imposing nation’s exports. Rising prices occur as Quota Effects come into play. It is always helpful to consider a concrete and real world example of this concept. If a nation which is a major sugar producer controls around 55 percent of the entire market, they may decide to impose sugar import quotas. This would cause the aggregate available supply of sugar in the domestic market to decrease. Additional demand for sugar would lead to sugar prices rising. The purchasing power of consumers in this nation would suffer. It may be that the domestic sugar producers are able to increase production and meet the demand. If not, the prices will stay high so long as the import quotas are in place. Demand destruction (loss of demand because prices are simply too high) may occur as well. Increases in domestic production can also be positive Quota Effects. The national producers will have the opportunity to fill the gap of foreign sugar producers and suppliers. If the quotas have reduced the individual sugar imports from four pounds per individual to two pounds, then domestic producers of sugar will need to boost their inputs, production, and labor participation hours in order to fill in the missing two pounds of sugar per consumer. This is particularly beneficial for those domestic industry producers who have the factory capacity and employee numbers to expand their production. They only thing they might be lacking is the incentive to produce additional sugar as the foreign imports of the good are cheaper than what they can additionally produce. Import quotas such as these also have dramatic and typically negative consequences for the large international multi-nation corporations. These companies have high priority on their international production and trade capabilities. Only the domestic consumption within their nations would not be enough to meet their production and sales targets. Look at General Motors as a classic example of this fact. For the year 2008, they produced around seven million vehicles in total which they sold. Yet a mere three million of such sales occurred within the United States. Had one of their major international country buyers chosen to impose an import quota on American cars, then they would have been forced to rapidly develop an alternative market for the cars, or to reduce production and the resulting income and profits alongside it. The primary reason that countries resort to such import quotas is that they wish to safeguard one of their important industries from free market failure against the major international MNC players. This is the same thing as putting failing industries on government assistance to keep them going. What many

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economists believe is that countries should allow their failing industries to disappear and try to focus instead on ones at which they have a competitive and comparative advantage. As an example, the United States is unable to directly compete with China for clothing articles production. The U.S. should instead focus its efforts on maintaining its effective market domination in the computer software development business.

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Rate of Return In the worlds of finance and business, the rate of return, also known by its acronym ROR, proves to be the ratio of money lost or gained pertaining to an investment and the sum of money that is originally invested in it. This rate of return is also called the rate of profit or more commonly the return on investment, or ROI. The sum of money that is lost or gained could be called the loss or profit, interest, or even net loss or net income. Regarding the money that is actually invested, it is sometimes called the capital, asset, or principle. It is also referred to as the cost basis of an investment. Rate of return or Return on Investment is commonly stated as a percentage and not a fraction. This rate of return is one measurement of how much cash is made or lost as a direct result of the investment in question. It quantifies the amount of income stream or cash flow that moves from the investment itself to the investor as a percentage of the original amount that the investor put into the investment. Such cash flow that accrues to the investor comes in a number of forms. It might be interest, profit, capital gains and losses, or dividends received. These capital gains and losses happen as the investment’s sale price is greater or less than its initial purchase price. The use of the term cash flow includes everything except for the return of the original invested money. Rates of return can be figured up as averages covering a number of different time periods. They may also be determined for only one time frame. When these calculations are being made, it is important not to mix up annualized and annual rates of return. Annualized rates of return prove to be geometric average returns figured up over several or even numerous periods. Annualized returns might be the investment return on a period less than or greater than a year, for example for six months or three years. The rates of return are then multiplied out or divided in order to come up with a one year rate of return that can be compared against other annual rates of return. As an example, if an investment possessed a one percent rate of return per month, then this might be more appropriately expressed as an annualized rate of return of twelve percent. Or, if you had a three year rate of return amounting to fifteen percent, then you could say that this is a five percent annualized rate of return. Annual rates of return are instead returns figured up for single time frame periods. These time frames are commonly one year periods running from the first of January to the last day of December. Alternatively, they could cover any year long period, regardless of what month and day they started and ended.

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Real Estate Real estate turns out to be a phrase that is used legally to describe property and the structures on such property. It refers to the land and the residential, commercial, or industrial structures on the land. Other improvements to the property can also be covered by the term, such as wells, fences, and other immobile objects fixed on the property. The natural features of the property are also included in the phrase, like lakes, streams, and trees. Real estate can be natural land, residential property, commercial property, and even industrial property. Real Estate is governed by real estate law. This represents the legal codes and regulations that have to do with real estate in a given jurisdiction. It covers such elements as the specifics of transactions of residential and commercial real estate. Real estate attorneys practice this form of law. Realtors are the principal professionals who work in the field of selling real estate. Realty is the term that pertains to realtors and their firms. Real estate and realty companies are often equated with real property. This stands in contrast to personal property and personal property law. As real estate property has developed and become more complex, it has evolved into an important part of business. This is referred to as commercial real estate. Commercial real estate can be buildings and office spaces used by businesses. Buying real estate is an expensive proposition requiring large investments. As every type and zoning of land has its own characteristics, the real estate industry has developed into a variety of different fields. There are people who specialize in valuing different kinds of real estate and helping the transactions to come together. Many different types of real estate related businesses have developed as a result. Brokers are third parties who collect a fee in exchange for mediating real estate transactions between two different entities or individuals. Appraisers perform professional level evaluations of properties. Developers improve a land’s value, typically by building or rebuilding structures on it. Property managers handle the management of a given property on behalf of the owner. Real estate investors handle real estate investments. Real estate marketers handle the promotion and sales aspects of any property business. Corporate real estate people deal with the real estate portfolios of a company in support of its main businesses. Relocation servicers function to move businesses or individuals to a different part of the country or internationally from one real estate property to another. The different types of real estate involve specialists in the various branches of real estate. In each of the different fields, real estate businesses commonly focus on a single type of real estate. This might be residential realty, commercial property realty, or industrial property realty. Construction businesses are involved significantly with sometimes either one branch, or sometimes even two or all three branches of real estate. They develop and build real estate to an end user’s specifications.

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Real Estate Appraisal Real estate appraisal refers to the procedure where an expert real estate appraiser creates a professional opinion on the value of a house, land, or other real property. It is also called land valuation and property valuation. The value the appraiser comes up with is typically the market value for the house or land in question. Many times real estate purchases and sales need an expert to perform an appraisal since they do not otherwise happen very often. Besides this, each property is totally unique, as is there location and condition. Properties can not change their location, however they may benefit from improvements and upgrades. Real estate appraisal takes such modifications into consideration when formulating a value. The resulting appraisal report is what they produce in the end. Such reports prove to be the underlying basis for mortgage and property loans, some forms of taxes, divorce and estate settlements, and other important legal and financial transactions. Appraisal reports can even be (and often are) utilized to set the property’s ultimate sale price. The majority of countries mandate that their professionals who perform real estate appraisals must be certified, licensed, or both. These appraisers have a number of titles in different nations and jurisdictions, including “land valuers” and “property valuers.” British English calls them “valuation surveyors.” Real estate appraisals within the U.S. report on Uniform Residential Appraisal Reports. For those appraisals of commercial properties such as land or income producing ones, Certified General Appraisers complete and report these in a running narrative version. Real estate appraisals can produce a few different kinds of value. The most typical of these are the market value, investment value, use value, insurable value, and liquidation value. Market value is also called fair value or open market value. It is the approximate amount at which the real estate should change hands between willing sellers and buyers on a given valuation date in an official and legally binding transaction. Investment value is the value of the property in question for a certain investor. This could be or might not be greater than the market value for the house, land, or commercial property. It is the difference between the market value and investment value that offers an incentive for people to buy or sell their property in the first place. Use value refers to the NPV or net present value for cash flow of the asset. This is the revenue it creates from a particular use for the specific owner. It could be higher or lower than the given home or property’s market value. Insurable value will be the one that relates to the insurance policy coverage on a given piece of real property such as a house or commercial office building. This will typically not include any site value for the land and/or location. It is also a form of replacement cost value. Liquidation value relates to the price of a property typically when it is sold during bankruptcy proceedings. It might be determined as either a part of an orderly liquidation or a forced liquidation. The price will reflect the fact that the seller is made to sell the property in a shorter than typical market time frame. This means that the liquidation value on a given house, building, or piece of land is commonly

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lower than the market value. At times it can be substantially lower because of the desperate circumstances which warrant a near-immediate sale. This gives rise to the phrase a “fire sale” of property or assets. It is worth noting that there are often significant differences in the relevant market value and purchase price. Sometimes buyers are able to obtain the property for less than the market value. This could be because of a personal connection between the buyer and seller or other mitigating factors. When the price given for a property is not the fair market value as shown by the real estate appraisal, then this value is referred to as the market price.

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Real Estate Bubble A Real Estate bubble occurs as housing prices rise because of increased speculation, actual legitimate demand, and irrational exuberance all working in concert. These bubbles generally begin because of a legitimate rise in demand for housing and Real Estate at the same time as the housing supply is quite limited. Because of this limit in supplies, it needs quite a significant amount of time in order for the available housing stock to be replenished and grow. In such a climate, speculators appear on the market and begin to really encourage demand. Finally, demand will stagnate and even decrease as the supply is finally increasing to catch up to the prior demand. This results in a catastrophic bursting of the bubble in the form of disorderly, rapid, and sharply decreasing prices that finally become a self-fulfilling prophecy. In the past, housing markets did not suffer as often from such bubble phenomenon as did other kinds of financial markets like stocks and bonds. This was because the carrying costs and purchasing prices of homes are significant barriers to investment entry for smaller and medium sized investors. Thanks in large part to historically low interest rates and an unfathomable loosening of credit standards, borrowers were able to enter the market in record demand and drive massive orders for houses. Conversely, raising interest rates and tightening up on standards for credit reduces demand effectively, which leads to the Real Estate bubble bursting quickly. These Real Estate bubbles are also referred to commonly as housing bubbles or property market bubbles. These economic bubbles can inflate either in worldwide real estate markets or only on small local markets. They generally come after the buildup of a land boom. Land booms prove to be the quick growth in market price of houses and land to the point when they attain levels which are ultimately unsustainable and then lead to a sharp decline in said bubble. The financial crisis and Great Recession of 2007-2009 evolved out of the Real Estate bubble bursting that had inflated from the early 2000s in all major countries of the world. It took years for this bubble to rise as investors abandoned the global stock markets in record numbers following the bursting of the dotcom bubble and resulting 2000 stock market crash. They poured their capital instead into real estate and house properties during the following six years. The craze which surrounded homeownership rose to frightening levels while interest rates were crashing and responsible lending underwriting all but disappeared. Analysts have estimated as many as 56% of all house purchases in those six years came from individuals who could not have afforded to buy a house under traditional lending requirements. These people became known as the infamous and economy-wrecking subprime borrowers. The overwhelming majority of such loans were issued as adjustable rate mortgages, or ARMs, that carried an upfront lower interest rate with a punishing schedule set to adjust the prevailing interest rate massively upward after from three to five years passed. The government was much to blame for the irresponsible encouragement of universal homeownership which they pressed banks to allow in those years. Banks responded to the directives by slashing their interest rates and tough requirements. This encouraged a home purchasing bonanza that had not been witnessed in American history heretofore. Prices increased by as much as from 50 percent to 100 percent

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in various parts of the nation. The bubble sucked in financial speculators who started flipping houses in order to earn even tens of thousands of dollars of profits with only two weeks of holding such properties. Analysts have further estimated after the fact that fully 30 percent of the housing prices were based on purely speculative endeavors from the zenith of the Real Estate bubble in 2005 to 2007. As the interest rates began to gradually rise while stocks finally rebounded, adjustable rate mortgages started resetting at massively higher interest rates in a show that the economy was beginning to slow down by 2007. Home prices already sat at impossible to justify and sustain levels and the risk premium had finally risen to be too high for the speculators who suddenly ceased buying houses without warning. Home prices started to plummet after home buyers realized that the prices could in fact drop. This led to an enormous sell off in the associated and now-infamous mortgage backed securities, or MBS market. The home prices finally dropped by over 40 percent in parts of the country that had been the most overheated, like Florida, Nevada, Arizona, Colorado, and California. This led to incredible default rates on mortgages that caused as many as tens of millions of homes to be foreclosed upon by the banks in the following several years.

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Real Estate Investment Trusts (REIT) Real Estate Investment Trusts are also known as REITs. These turn out to be investment companies which finance or outright own real estate that produces income. REITs were created along the model of mutual funds. They give all levels of investors the access to the benefits that real estate typically provides. This includes diversification, income streams, and capital appreciation longer term. Usually these REITs pay their investors 100% of their taxable income in the form of dividends. The shareholders are responsible for paying taxes on the dividends as income tax. The beauty of Real Estate Investment Trusts lies in the ability for any investor to participate in major properties. They are able to do this by buying shares of stock to become involved as they would with any other industry Just as a shareholder obtains benefits through stock ownership in companies, the stock holders in a REIT gain a percentage of the income that the underlying real estate produces. They do not have to locate, purchase, or finance any of the properties in the process. The majority of Real Estate Investment Trusts trade on the bigger stock exchanges. Despite this, some of them are privately held or public companies that are not exchange listed. With these REITs there are two principle types, Mortgage and Equity REITs. The mortgage REITs buy mortgage instruments or outright mortgages that are connected to residential or commercial properties. The Equity REITs produce their income by collecting rent from and selling properties they hold over longer time frames. Real Estate Investment Trusts have expanded into practically every part of the economy today. There are REITs connected to timberlands, student housing, storage centers, shopping malls, company offices, nursing homes, infrastructure projects, industrial facilities, hotels and resorts, hospitals, and apartments. Every state in the United States has properties which are owned by REITs. Ernest and Young has funded a study that shows REITs provide for around 1.8 million jobs in the United States every year. These American REITs have become so successful that they are now a model for other countries. Over 30 nations throughout the globe have approved legislation that allows the Real Estate Investment Trust. Real Estate Investment Trusts offer diversification that does not correspond to the overall stock market and its performance measured longer term. Their dividends give investors a reliable stream of income. They are so liquid because these stock exchange based ones may be simply and quickly purchased and sold. Their performance is standout. REITs which are publically listed and traded have outperformed the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite when measured over the longer term. Like publically traded companies, they offer the transparency and oversight of quarterly financial reporting and commonplace regulatory standards. There are many qualifications a company must meet to be considered a Real Estate Investment Trust. They have to place minimally 75% of all assets they possess into real estate. They also must obtain 75%

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or more of their gross income from sales of real estate, rents on property, or interest on mortgage holdings that finance property. These companies have to pay out a minimum of 90 % of their taxable income as dividends to shareholders every year. The prospective REIT must have the status of corporation that is taxable. It must also have either trustees or a board of directors that manage it. They can not have over 50% of their entity shares owned by less than six individuals. The REITs also must possess at least 100 different shareholders.

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Recession A recession is literally defined as the declining of the nation’s GDP, or Gross Domestic Product, by a smaller amount than ten percent. This drop in GDP has to occur over greater than a single consecutive quarter in a given year. Gross domestic product stands for the total of all goods and services that a country produces, or the actual total of all business, private, and government spending on the categories of investment, labor, services, and goods. The terms recession and depression are typically confused and sometimes used interchangeably. They are quite different from each other. Recessions are typically less severe than are depressions. Recessions are generally corrected in significantly less time and with less economic pain for individuals. Depressions furthermore involve drops in GDP of greater than ten percent. There is no universal consensus on what makes a recession within an economy. Most economists agree on a few different factors that are commonly involved in causing such recessions. Prices might decrease substantially, or alternatively they could go up substantially. The decrease in prices shows that people are spending smaller amounts of money, and this will cause the Gross Domestic Product to go down. Conversely, higher prices can diminish the amounts of public and private spending, similarly causing the Gross Domestic Product to decrease. As much as governments, individuals, and businesses hate recessions, many economists feel that they are normal for economies to go through, particularly mild ones. They claim that such economic pull backs are a built in part of society and economics. Prices go up and down, and spending and the amount of consumption similarly decreases and increases over time as well. Still, natural decreases in spending are not sufficient to provoke a recession into occurring. Some other factor changes suddenly and leads to sharp spikes or drops in real prices. For example, the early 2000’s recession came about as a result of the dot com industry suddenly and precipitously decreasing in activity. One day, the demand that they had anticipated turned out to be far less than expected. This created enormous failures of companies and significant layoffs that led to production decreases and finally spending cuts. This dot com drop created a shock effect on the gross domestic product, leading to a significant fall in production and output as spending dropped. The recession had ended by 2003, yet the consequences of it turned out to be dramatic and can still be felt. High paying jobs suddenly disappeared, only to be outsourced to foreign countries. These jobs will likely never return to the United States. Still, as the Gross Domestic Product began growing again, the recession was deemed to have ended. This does not change the fact that numerous individuals still feel the impact of it in their own personal lives. Similarly, the Great Recession that you saw stem from the financial collapse of 2007-2010 came about as a sudden seizure in the banking industry and credit markets. It has led to the highest levels of real unemployment since the Great Depression, reaching nearly twenty percent when measured by the formula that had been used until President Bill Clinton changed it. Even though this recession has been called over, the unemployment levels have not declined meaningfully. This means that for several more years at least, a great amount of economic pain and hardship will continue to be felt by those countless millions

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who have lost their jobs in the recession.

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Refinance When the word refinance is used, it is referring to the act of refinancing, or canceling out a currently existing debt with another debt that a bank or refinance company issues under alternative terms. By far and away the most popular refinancing that pertains to consumers is for mortgages on houses. Debt replacements that are performed in conditions of financial distress are also known as debt restructuring. Home owners might choose to refinance their mortgage for a variety of reasons. It can assist them in meeting a range of end goals. You as a home owner might be interested in lowering your monthly payments on the mortgage through attaining a better interest rate or lengthening the terms of the loan. You could lessen the amount of interest that you pay during the loan’s term and expand the equity build up by going through a refinance to get a loan with a shorter life. You could also decrease your exposure to the risk of rising interest rates through obtaining a fixed term loan in place of a balloon mortgage or adjustable rate mortgage. Finally, you might be interested in drawing out home equity in order to do debt consolidation or to cover the costs of major expenses that you are encountering elsewhere. The act of refinancing eliminates the original mortgage loan. This is then replaced with a new loan. There are many factors that you will have to decide in obtaining this new loan. This includes what type of loan is most ideal for the circumstances, which lender you will utilize, which term and rate are most advantageous, and the fees that you feel are reasonable. Because of these complicated decisions that must be made, consumers should seek out advice in their refinancing. If you do not possess a clear comprehension of all that is involved with the refinancing procedure, then you could accidentally put your house or your finances in danger. There are risks associated with refinancing. These are principally penalty clauses that are also known as call provisions. When you pay off a mortgage loan early, these penalties would be triggered along with closing fees. The refinancing itself will entail transaction fees. All of these fees should be figured up and considered before you begin a project to refinance your home loan. This is especially the case since all of the fees together may eliminate any potential savings that you hoped to realize through the refinancing. Another possible downside to refinancing loans is that they may provide you with lower payments every month on the same amount of money to be repaid. In this case, you will pay a greater amount of interest throughout the loan term. You would also pay on the debt for a great number of additional years over the original mortgage’s terms. This is why it is so important to determine not only the upfront charges, but also the variable and ongoing costs involved in refinancing as a factor in the decision on whether to pursue it or not.

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Refinancing Boom A refinancing boom refers to the points in the market where the share of the refinance mortgage applications is greater than 50% of the total applications. This is the definition that home lending agency giant Freddie Mac employs. They determine both the start and the end of ref booms based on this 50% of MBA’s survey figure for the weekly applications. This information provides data for both government and nonconforming loans alongside the traditional loans making it a good all inclusive basis. Under this Freddie definition, the refinancing boom began in 2008 in the third quarter. It lasted almost six years into 2014. This made it the longest lasting refi boom since Freddie Mac began issuing its quarterly report on refinance activity back in 1990. It was actually during the week of May 2nd that the share of refi applications declined under 50%. The week before this gave a warning that volume would drop below that critical level as total application volume reached its lowest level since December in 2000. Even though refi applications rose above 50% the following week May 9th, this still represented a break in the statistics that Freddie Mac utilizes. This explains why they described the end of the long lasting refi boom in May of 2014. Because of this it is not easy to concretely define when these refi booms start and finish as the market share of loan volume that is refinancing can fluctuate. Besides this overall mortgage activity volume can be down in total, and yet the market still can be called a refi boom if the refi percentages exceed 50%. This is why there are other competing definitions of what constitutes a refi boom. Another popular rival definition that has gained some traction on defining refi booms has to do with the volume of overall originations. When the all around origination volume rises on a year over year basis and this happens because of a boom in refinance activity, this better signifies that a refi boom is underway. This can still be somewhat misleading. There could be a seemingly greater number of refinance applications at a given time if home sales are less than impressive. This would lead to a decline in mortgage purchase applications. Despite these alternative definitions, Freddie Mac continues to use the one it pioneered on refi booms. According to this traditional definition of the booms, Freddie Mac called the end to the longest refinance boom in history during 2014 in the second quarter. This happened in part because the market shifted to one that was dominated by purchases that exceeded 50% of total applications for the first time since the year 2000. Freddie Mac compiled interesting statistics on this longest refi boom in American history. They saw more than 25 million different American homeowners engage in refinancing their mortgages during the boom. This equated to the total savings in interest payments of more than $70 billion. A number of industry observers felt that the refi boom actually ended a year earlier than Freddie Mac’s official call. Many watchers claimed that cooling of refinance and origination loan activity in 2013 in the spring signaled the end of the refi boom. By that point the market had already taken hits to refinance applications and activity because of the quick increase in the mortgage interest rates.

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The higher interest rates removed the incentive for homeowners to continue refinancing their mortgages. This is why many economists called the end of the refi boom a full year before Freddie Mac did.

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Regressive Taxes Regressive taxes are those which exact a greater percentage in income off of the lower income wage earners than they do from the fortunate higher income earners. This stands in direct contrast to a progressive tax that instead grabs a bigger percentage of taxes from the higher and highest income wage earners. A regressive tax is typically one which is equally applied to all residents in whatever their situation may be. It does not matter what the financial condition of the payer turns out to be. The problem with a regressive tax is that it most harshly impacts those who can least afford to bear it, the lower income segment of society. The higher income individuals do not mind such taxes, as they can most easily afford to pay the flat rate percentages which are common in regressive taxes. It might actually be fairer for all people to pay in the identical tax rate, yet this proves to be most unjust in some scenarios. The majority of developed nations’ tax systems actually utilize a more progressive schedule which over taxes the higher income persons more than the lower wage earners. Some other kinds of tax are more equally levied. There are many examples of real world regressive taxes. Among these are sales taxes, property taxes, and user fee taxes. Sales taxes are nearly always equally levied on all consumers in a given economy. Their ability to pay is not a factor so much as is the amount of money which they spend on taxed items. The tax is equitable as a flat rate for all consumers, yet it remains a fact that those lower income earners are most dramatically impacted and even materially harmed by it. Take the case of two separate individuals who both buy $200 in groceries every week. They will each pay $14 in sales tax on their grocery bills. The first person in this example makes $2,000 every week, translating to a sales tax rate for the groceries of .35 percent of all income. The other worker only brings home $320 each week. This amounts to a grocery sales tax of a whopping 2.2 percent of actual income. While the literal tax rate may be the same in the two scenarios, the individual with the significantly lesser income is paying a far greater share of his or her income on the regressive sales tax. Property taxes are another classic example of regressive taxes in theory. Assuming two property owners reside in the same taxing jurisdiction and own similar properties with identical values, they will both pay the identical dollars in property taxes to the local taxing administration. This is the case no matter how much they make. The lower wage earner would pay a substantially greater share of his or her income on the property taxes in this case. One caveat is that different wage earners do not usually have identically valued properties. The poorer people and families typically live in cheaper homes, which help to index property taxes to relevant income. This is why property taxes are not purely regressive in practice. User fees taxes are those which the government assesses in a regressive tax form. These might cover admissions to government-owned and -operated state parks, national parks, and museums. They might also include tolls on bridges and roads and drivers’ license and identification cards fees. As an example, when two families go to the Grand Canyon National Park, they each pay the same $30 fee for admission to the nature park. The higher income family is actually paying in a significantly lower percentage of total income than is the poorer family. The fee may be identical literally, yet it represents a substantially greater burden for the family which has the lesser income.

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Regulatory Compliance Regulatory Compliance refers to companies choosing to incorporate standards that meet certain government requirements. It could also be thought of as the specific set of regulations which a firm has to observe when it meets the given requirements. Because of the ever growing burdens of regulations, companies are increasingly finding they must become more transparent operationally. This is why they find the need to adopt a universal set of controls for compliance. The idea is to measure up to all government mandated requirements while avoiding any wasted resources or duplicated activities in the process. Even when done effectively and efficiently, this level of compliance is often both costly and burdensome for businesses and other organizations to meet. There are a number of organizations that produce a set of standards to make such Regulatory Compliance simpler. ISO is the International Organization for Standardization. They create such internationally observed standards as the ISO/IEC 27002. Another group which develops the electro-technology arena international standards is the IEC International Electro-technical Commission. There are other specialized compliance issuers in various countries and industries. One of these is the ASME American Society of Mechanical Engineers. The SEC Securities Exchange Commission issues and enforces standards of regulation compliance for publically traded stock companies. The CFTC Commodities and Futures Trading Commission handle the compliance for the commodities trading industry. There have been numerous triggers for greater amounts of Regulatory Compliance over the past several decades. Many of these revolved around corporate failures and scandals which could have been easily prevented had more regulation been part of their various industries. A classic example of this is the Enron failure from 2001. Thanks to this and the WorldCom scandal, the United States Congress enacted the Sarbanes-Oxley Act for setting standards for greater compliance and regulation for upper level corporate management reporting accurate and truthful financial statements. The Consumer Protection Act and DoddFrank Wall Street Reform Act also followed after a need for still more regulation compliance became evident in events like the Global Financial Crisis and subprime mortgage meltdown from 2007-2009. In the United States, Regulatory Compliance generally revolves around regulations and laws. Such legal statutes come with civil and/or criminal penalties for violating the relevant regulations. There are a number of agencies within the United States government which handle and enforce the issues of regulation compliance. Among these are the OFAC Office of Foreign Assets Control, the U.S. Small Business Administration, and the OSHA Department of Labor, Occupational Health and Safety Administration. OFAC is the agency which deals with Regulatory Compliance for trade and economic sanctions. They operate under the Department of the Treasury’s Terrorism and Financial Intelligence division. The goal of this regulatory agency is to handle and enforce U.S. foreign policy- and national security policy-based trade sanctions and economic embargoes. They target foreign organizations, countries, and individuals who are on the Treasury Department list. The U.S. government maintains many Regulatory Compliance statues pertaining to businesses. The Small Business Administration offers its services to help small companies with information and access to

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various government services under its Business.USA.gov website. The United States OSHA is a congressionally created agency for enforcing healthy and safe working conditions for all people in the country. They erect and enforce various standards pertaining to education, outreach, training, and assistance. This agency is responsible for Regulatory Compliance in the areas of recordkeeping, agriculture, maritime law, and construction. Such laws are not the same in every country however. As an example, the United Kingdom has its own laws for Regulatory Compliance. These are among the most similar to the United States’ own laws in many ways. Among the compliance acts and frameworks for organizations and businesses in Great Britain are those created by the Data Protection Act of 1998 and the Freedom of Information Act 2000. Their FRC Financial Reporting Council lays out standards for appropriate practices of company leadership pertaining to accountability and effectiveness for the shareholders. They issue the UK Corporate Governance Code, which is most like the United States Sarbanes-Oxley Act.

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Repayment Penalty A repayment penalty is commonly associated with paying back a loan before the end of its term. If you are contemplating paying off your loan balance in advance of its due date, then you should be aware that a number of loans come with these repayment penalties for liquidating the balance early. Different types of loans utilize different names for these same fees. Repayment penalties can also be called redemption charges, early redemption fees, prepayment penalties, or financial penalties. The fees associated with repayment penalties vary depending on the loan in question. These repayment penalties are commonly stated as a percentage of the balance that is outstanding when prepayment is offered. Alternatively, they might be figured up as a certain number of months of interest charges. In general, when they are figured up using months of interest, they are comprised of one to two months’ interest in fees. The sooner in the loan’s life that you choose to repay the loan, the greater amount of charge you can expect to pay. This is because the anticipated interest portion of the loan comprises a great part of the repayment earlier in the loan’s time frame. Early repayment penalties might increase the total cost of your loan significantly. If you wish to avoid a repayment penalty in paying off your loan in advance of the term’s end, then you will have to be aware of the loans that come with these fees and the ones that do not. Even if you change a currently existing loan into a loan for debt consolidation, you will have to cover the early repayment penalty if one is in the terms. The only way to avoid early repayment penalties is by selecting loans that specifically do not have ones attached to them. It is ironic that some of the least expensive loans out there do not include repayment penalties for early pay off actions. Another factor of repayment penalties involves a gradual disappearance of the provision over time. With many mortgages, these repayment penalties gradually go down over the years of the mortgage. After the fifth year, the majority of repayment penalties no longer even apply. In many cases, repayments of as much as twenty percent of the original balance are permitted in a given year without you having to be penalized. Besides this, there are different kinds of penalties for repayments. Penalties that only apply to your refinancing of the mortgage are called soft penalties. Penalties that include the sale of the house and a refinancing are known as hard penalties.

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Repayment Split A repayment split refers to the ways that payments are allocated on a split mortgage. These repayment splits might allow you to take out a mortgage where part of the loan is a fixed rate loan, while the remainder of the loan is a variable rate, set against a tracking rate for the life of the loan. Home buying borrowers are able to fix their rate at twenty-five percent, fifty percent, or even seventy-five percent of the total mortgage amount. The balance of the loan then tracks a certain rate, like the Prime Rate or Bank of England base rate alongside the fixed part of the loan. The interest rate charged varies along with the percentage of the mortgage balance that is at a fixed rate. For example, with only twenty-five percent of the home loan balance fixed, the fixed part of the rate might amount to 3.49% interest. If the split is done at a fifty percent rate of split, then the interest rate might instead be at 3.69% on the fixed rate. With seventy-five percent of the mortgage total fixed, the interest rate on the fixed portion could come in at 3.99% instead. These sample rates assume a loan to value ratio of only seventy percent, meaning that a thirty percent down payment would be expected. With only a twenty percent down payment made, the rates would likely be a half percentage point higher. The interest rate on the balance of the loan total is variable and is adjusted periodically. The repayment split then determines which portion of the payments applies to which interest rate balance. This form of repayment split and split mortgage is most commonly seen in Great Britain. A second way that repayment splits are used has to do with split mortgages that involve first and second mortgages. This split mortgage technique is commonly used in America to reduce the amount of the principal mortgage to no more than eighty percent of the purchase price so that Private Mortgage Insurance will not be required. With this technique, a second mortgage or home equity line of credit to the amount of five to ten percent of the home purchase price is used to come up with enough cash to keep the first mortgage to eighty percent or less. In this version of the split mortgage, the repayment split refers to which portion of the payments goes against the first mortgage and which against the second mortgage.

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Representative Money Representative money refers to any form of exchange that stands for a backing store of value. Yet this representing money itself usually has little to no value intrinsically, or by itself. This is a different concept from fiat money which might or might not possess a valuable store underlying it. For money to be legitimate representative money, it must have a valuable asset or item underlying the face value it carries. Throughout history, representative money actually goes back further than even the use of coins. In ancient Babylon, Egypt, China, and India, palaces and temples maintained warehouses of commodities. These would issue deposit certificates as proof of a value claim on some of the goods kept in the warehouse. This made the certificates for deposit a true and very early form of this representative money. In 1875, William Stanley Jevons the economist wrote that such representing money became popular as a result of the practice of noticeably clipping or depreciating the value of metal coins. When the precious metal coins remained in banks to guarantee their genuine physical value, these representations ensured the worth of the money. He reaffirmed the historical tradition of utilizing both paper and other forms of materials as representative monies. Subsequently William Howard Steiner the economist write in 1934 that the phrase for representative money signified that a particular quantity of bullion was on storage with the U.S. Treasury. The paper bills which were circulating represented this bullion. This term has also been extensively utilized to refer to money which was backed by a commodity like silver or gold. This existed in the United States as silver certificates or gold certificates. The original British pounds were redeemable for their face value in pounds of silver at the Bank of England. Later gold on demand from the BOE came to back these. Representing money can also mean an item (that is not currency) which pledges the presenters’ intention to settle a debt or pay for a good or service. Checks which investors write to make deposits in Forex trading accounts against their own checking accounts represent a typical deployment of this kind of representative monies. It proves the holder wishes to pay for an item, and it can be easily changed for the underlying fiat cash money. Fiat money should never be confused with representative money. This is because it is paper money and coins with nothing backing them whatsoever. The only reason such money holds any value at all is because people choose to accept the nebulous promise from the government that they will back it with their full faith, credit and trust. Representative monies on the other hand represent the pledge to pay real money back. While fiat money is only backed by promises of governments, representing monies could be backed up by a wide variety of things. Personal checks are representative for promises to pay the check from underlying money in a checking account. The fact remains that such money needs backing to have any value at all. This gives it some similarities to fiat money, which relies entirely on the promises and backing of a sovereign government for any and all of its value.

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The days when people could take their paper certificates or bills to a bank and change them for something valuable such as silver or gold are long gone (since 1971 in the United States). Bills are no longer restricted in their printing by the amount of gold (or silver) which backs them. This gold standard system collapsed largely because the U.S. government gave into the temptation to overprint their paper money supply beyond the gold which backed it in their vaults. It caused rampant inflation in the 1970s until people finally became accustomed to government creating new paper money out of thin air whenever it suited their purposes. The reality is that if the government were to fall on difficult times financially and fiscally, their much-touted fiat money (and its unprecedented experiment) would rapidly become worthless.

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Repurchase Agreements Repurchase agreements refer to types of short term time borrowing. It is the government securities dealers who engage in them. The appropriate dealer will first sell such government securities to institutional investors or financial institution investors. They usually do this for overnight. After this, they will purchase them back the next day. Those parties who sell the security and agree to subsequently buy it back in the near future are involved in such a transaction as a repo. The opposite end of the transaction parties who buy the security and consent to sell it back in the near future are engaging in a reverse repurchase agreement. Economists and analysts consider repurchase agreements to be money market instruments. They are typically utilized to raise shorter time frame capital. In these arrangements, the buyer functions as the short term time frame lender. The seller carries on like the shorter term borrower. The collateral is the security itself. In this way, both entities involved in the transaction meet their goals to secure liquidity and funding. Repurchase agreements typically rank as safe forms of investments. This is because the security being traded is also collateral. It also helps to explain why the majority of such agreements have Treasury bonds as their security. Besides this, the United States Federal Reserve uses these types of agreements themselves. They deploy them to control the amount of bank reserves and the overall money supply. Individual investors like these agreements for financing debt security purchases. In any case, the repurchase agreement is always and only a shorter term investment. The term or rate refers to the maturity period of the repo in question. Even though they are many similarities between these agreements and interest paying loans which are short term in nature, repurchase agreements are different. They represent true purchases. Yet the buyers keep such instruments only temporarily. This is why both accounting and taxing authorities treat them as loans. Those agreements which specify their maturity date represent term agreements. In the majority of cases, these agreements will reach maturity either the next week or alternatively the following day. Other Repurchase agreements are open ones. This is because they do not have a maturity date specified by and in the contract. It means the sellers or buyers can complete the terms of the agreement and then renew them or instead choose to terminate them. Almost all such open arrangements will wind down in from one to two years. Three different kinds of repurchase agreements exist. The first is called a specialized delivery repo. These financial transactions mandate that the agreements and maturities must have a guarantee of bonds. Such an agreement is uncommon. There are also the held in custody repos. With these, sellers get cash for the security sale. They still keep it within a custody account on behalf of the purchaser. Such an arrangement is still less common than the specialized delivery repos. This is because there is a chance that the seller could declare bankruptcy, leaving the borrower unable to access the collateral as a result.

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The most common kind of repurchase agreement is the third party repo agreement. Such arrangements involve either banks or clearing agents which act as intermediaries of the transaction between sellers and buyers. They safeguard each party’s interest this way. By taking possession of the securities involved, they make certain that the seller will obtain cash when the agreement commences and the purchaser will transfer over the funds for the seller and also make delivery of the securities when maturity occurs. Such arrangements as these make up more than 90 percent of the total repo market. In 2016, this market contained around $1.8 trillion.

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Required Minimum Distribution (RMD) The Required Minimum Distribution is a concept that pertains to retirement accounts and IRS rules which govern their distributions. Many individuals are not aware that they can not simply choose to hold retirement money in their retirement vehicle forever. They must begin accepting withdrawals from their traditional IRA, SEP IRA, Simple IRA, or other type of retirement plan and account after they turn age 70 ½. The notable exception to this rule is for Roth IRAs, which do not mandate disbursements while the owner is still alive. The required minimum distribution is literally the minimum legal dollar amount that account holders have to take out of the retirement account every year. Naturally most people choose to withdraw a larger amount than this required minimum. Withdrawals that are received must be detailed in the individuals’ taxable income. The exception to this is for any income that had been previously taxed as with Roth IRA contributions or any earnings which accrued on a tax free basis. This relates to distributions from Roth IRA accounts. Figuring out the actual amount of the RMD is not so easy. The simplest way to do it is to work with the IRS published Uniform Lifetime Table. In this method, people figure their RMD in any given year by taking the balance from the end of the prior calendar year and dividing this amount by a distribution period taken from the Uniform Lifetime Table. There is also a different table to be utilized if the owner of the account’s spouse is the only beneficiary and he or she is at least ten years younger than the owner. The IRS provides worksheets on their website to help account holders figure up the mandated minimum amount. They also provide several tables to help with this. As mentioned, the Uniform Lifetime Table is for every IRA account owner who is figuring up his or her own withdrawal. The Joint Life and Last Survivor Expectancy Table is for those whose spouse is at least ten years younger and who is the only beneficiary. The initial date for the first RMD on an IRA is figured out by taking the April 1st of the year that comes after the calendar year in which the account holder turns 70 ½. With a 401(k), 403(b), profit sharing plan, or similar defined contribution plan, either this same April 1st deadline applies or the April 1st that follows the calendar year in which the owner actually retires. The individual turns 70 ½ on the calendar date which falls 6 months following his or her 70th birthday. The plan terms themselves govern whether the individuals can wait until the year in which they actually retire to take the initial RMD. Other plans will require distributions begin on the April 1st following the year of turning 70 ½ whether or not the person has retired. Once account holders have received the first RMD, they must take their subsequent ones on or before December 31st. It is possible to avoid having the first and second RMD’s included in a single tax year. In the year individuals turn 70 ½ they can simply go ahead and take that first RMD by the end of the year to avoid the double distribution taxation in one calendar year. People who do not take their full minimum required distribution will suffer an IRS penalty. Any amount which they do not take as the law requires will suffer a 50% excise tax that will be levied on it. This

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failure to take the RMD must be reported on a Form 5329, Additional Taxes on Qualified Plans.

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Reserve Currency Reserve currency proves to be that particular currency which central banks (and sometimes important international financial institutions) hold. They keep such currency so that they are able to have an influence on their own country’s exchange rate or to pay down their debt obligations which are international in nature. A substantial number of global commodities remain priced according to the reserve currency. This includes such heavyweight items as gold and oil. Nations require this currency to acquire these commodity goods. There is an advantage to keeping quantities of a reserve currency. It allows nations or international companies to reduce their risk of changing exchange rates. The purchaser that possesses the currency reserve will not be forced to exchange their own currency to be able to complete the purchase. Since the last years of World War II in 1944, the American dollar has enjoyed the status of being the principle reserve currency which other countries use globally. This has caused other nations to carefully watch the monetary policy the U.S. pursues to make certain their reserve values do not suffer too much from inflation and currency debasement. The second reserve currency of the world is the euro used by countries of the euro zone. Countries also can use the SDR Special Drawing Rights created by the International Monetary Fund to settle some international obligations, making it a third currency reserve. Increasingly, nations like China and Russia are trying to shift other nations away from the U.S. dollar as their currency reserve. China is going about this by signing currency exchange swap agreements with as many countries’ central banks as it can to settle in Chinese Yuan. The U.S. originally gained its status as dominant reserve currency because it came out of World War II as the globe’s main economic power. This had enormous impacts on the economy of the world. In the immediate aftermath of the war, the U.S. GDP comprised 50% of global output. This made it inevitable that its currency the dollar would emerge as the world’s currency reserve as happened in 1944. After this event, a number of other nations decided to peg their exchange rates up to the dollar. The dollar had the backing of gold in those days, making it comparatively stable. This pegging move helped other nations to stabilize their own volatile currencies. In those early decades, the world as a whole gained advantages from such a stable and strong dollar currency. The U.S. benefited significantly and prospered as it enjoyed the most favorable exchange rate for the dollar. America began to undermine this arrangement when it printed extra dollars. The currency reserve had gold backing it, but the U.S. was able to get around this by issuing dollars that its Treasury debt backed. In time the gold which backed the dollars became less valuable as the dollars multiplied to finance U.S. deficit spending. Other nations’ dollar currency reserves’ value began to decline along with the gold value of paper U.S. dollars. This eventually had to come to an end. With the U.S. printing and flooding markets with huge quantities of paper dollars to pay for the Vietnam War and Great Society spending, other countries became wary. They started converting their dollar reserves for the gold backing them. This central bank run on the American gold became so severe that President Nixon had no choice but to de-link the dollar from gold and float dollars against other currencies.

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This led to the present day system of floating exchange rates. Gold skyrocketed as the dollar commenced its multi decade decline in value which has seen gold prices reach as high as over $1,900 USD per ounce. The dollar still remains the dominant currency reserve mostly because other nations had built up such large amounts of it and U.S. dollar denominated Treasuries.

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Reserve Requirement The reserve requirement proves to be the quantity of funds which banks are required to hold on hand each and every night. This is expressed as a percentage of the bank’s total demand deposits. A country’s central bank is responsible for setting out the effective percentage rate. Within the United States, it is up to the Federal Reserve’s Board of Governors to determine the member banks’ reserve requirements. Such a requirement is applicable for commercial banks, savings and loan associations, savings banks, credit unions, Edge corporations, U.S. based branches or agencies of foreign banks, and agreement corporations. The banks are allowed to keep their cash physically within their proprietary on-site vaults or keep them deposited with their area Federal Reserve Bank. When banks lack sufficient cash to fulfill their reserve requirements, they are able to borrow cash from other banks with extra to spare. They could also obtain a loan from the discount window of the Federal Reserve alternatively. Money which banks lend or borrow from one another in order to meet their own requirements is called the Federal funds. Among the many tools which the Fed counts at its disposal, the reserve requirement is the underlying basis for all of them. They are able to employ this to precisely control cash liquidity within the economy. Smaller reserve requirements prove to be expansionary types of monetary policy. This is because they permit a greater amount of money to flow through the banking system into the real economy. Higher reserve requirements conversely are contractionary. They soak up money from the pool of available liquidity and tamp down on economic activities. It is also true that the greater a reserve requirement is, the smaller the profits will be for a bank deploying its customers’ money. Higher requirements are particularly challenging for smaller banks. This is because they begin with a smaller pool from which to lend out money. Because of this reality on the ground, small banks are usually exempted from such onerous requirements. Smaller banks are those which have fewer deposits than $12.4 million. The Fed does not often actually change the reserve requirement. This is because it is expensive to do so. Banks are forced to rectify their policies to compensate when this is done. Because of this, the board avoids changing the requirements on its member banks. It is far easier for them to tweak the amounts of deposits which are subjected to the various reserve requirements every year. For example, since October 12, 2012, the Federal Reserve has mandated that every bank possessing greater than $79.5 million in deposits must keep a minimum reserve amount of 10 percent of total deposits. Those banks which count under $79.5 million but still greater than $12.4 million only have to keep three percent of deposits on hand. Again those banks with fewer than $12.4 million in deposits fall under the pre-determined exemption amount. They enjoy a zero percent reserve requirement. The Federal Reserve does raise the levels of deposits which are subject to its various ratios each year. This provides the banks with an incentive to become larger. From June 30 to June 30, the Fed is able to raise its low reserve tranche and accompanying exemption amount by 80 percent of the amount that deposits increase in the previous year.

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Deposits which are considered for these reserve requirements include a number of different types. These are automatic transfer service accounts, demand deposits, NOW accounts, telephone or authorized transfer accounts, share draft accounts, ineligible bankers’ acceptance, and affiliate-issued obligations which mature in seven or fewer days. Banks are only required to accept the net amount. They are not expected to cover any amounts owed to them by other banks or any cash that remains outstanding. As of December 27, 1990, deposits do not comprise Euro-currency liabilities or non personal time deposits.

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Residual Residual refers to residual income. Residual income can have several different meanings depending on the context that you use. For an individual, residual income proves to be the money that remains at the end of a month after all financial responsibilities for the month are covered. These include living costs, taxes, and housing costs. Where business is concerned, residual incomes are the operating income that is additional as compared to the typical minimum amount of operating assets that are controlled. Residual income furthermore refers to passive income that is earned. In this form of the term, it relates to all income that is created as a result of activities that are indirect. These might include royalties, rental income, investment portfolio returns, website revenues, or passively managed businesses, all of which qualify as residual income. The word residual is a variation on the word residue. Residue means anything that stays behind because of some other substance or cause. So, residual income proves to be additional money made because of another activity like penning a novel and collecting royalties for the sale of every book. Rental incomes are residual as they remain from the action of buying a house and then renting it to a tenant who pays you a monthly rental fee. Work is involved in this activity, although a property management company can do it on your behalf. The rewards for this rental project can be significant, as you enjoy the continuous rental stream as well as any increases in the value of the real estate property underlying it. Rental income can be utilized to pay for potentially an entire mortgage. Income from investment portfolios is similarly considered to be residual income. Both dividends and interest are acquired as an additional, passive benefit of possessing stocks, bonds, mutual funds, and other instruments. This residual income is not guaranteed from these investments, but it is common for investors. A form of residual income that is growing in popularity these days is website, or Internet based, revenues. Internet revenues are commonly those that you make from having advertising on a given website. The dollar value of the advertising is mostly based on the number of visitors to the page. A significant amount of start up work is required to create the website and get it highly ranked on the major search engines. After this, you can see continuous monthly profits that you earn as a result of the advertising, which builds up a residual income. This amount of money could be as little as a few dollars a month to possibly thousands of dollars per month. A last form of residual income can result from a business. If your company becomes large enough, you may be able to hire a manager to run it. The income that supports you while the manager runs the business is then considered residual income.

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Resource Holdings Resource Holdings, also known as Resource Land Holdings and RLH, is a private equity firm which focuses on purchasing huge pieces of real estate which are rich in natural resources. The company’s ultimate goal with these acquisitions is to sell off those parts of the properties that do not generate cash flow so that they can reduce the cost basis of the property to as nearly zero as they can. At the same time, the work to maintain and improve the cash flow of the remaining piece of property to share this out to their investors. They also enter a number of partnership arrangements with original owners so that these parties remain actively involved in the management and success of the operations. The company is headquartered in Colorado Springs, Colorado in the United States. Resource Holdings arose in 1998 because its founders wished to provide opportunities for and to invest themselves in timber, agricultural, and mining properties and operations throughout the United States. They work with a variety of local operators, brokers, and entrepreneurs in order to invest in this range of land parcels across a wide range of asset classes which are rich in resources. As of time of publication of this article, RLH had created and managed two individually funded entities along with four different private equity funds. The first Resource Land Fund I they capitalized with $20 million worth of committed equity. It entered its first investment back in December, 2001. Their second Resource Land Fund II they established using $51 million in equity. It purchased its initial investment in July, 2003. Their Resource Land Fund III received a larger $175 million. It obtained its first investment March of 2006. Each of these investment funds received full investment and then was closed in turn. The Resource Land Fund IV closed with $316 million in committed funds back in August of 2010. The firm seeks out investments in land across a range of asset classes. Their primary focus has always been on regional timber, agriculture, quarry, mining, and other resource rich properties which have typically been ignored or overlooked by the massive institutional investment world. Such regional entrepreneurs that require significant capital intense investment have found that the needed funds are often not available to them as economic cycles create financial and funding challenges for these medium sized operations. In these particular scenarios, Resource Holdings appears on the scene as a life saving potential source of capital. They often invest right along with local entrepreneurs and partners. As part of their specific portfolio of investments and property holdings, Resource Holdings owns or invests in properties across 20 different states in the U.S. spanning from Florida, to Texas, to California. At time of publication, they had 46 different properties within their various funds and portfolios. Among these were a limestone quarry in Texas, a citrus operation in Florida, timber operations in California, sand quarrying in Alabama, a large coal surface mine in the Midwest, and apple orchards in Washington state. As an example, Resource Holdings saw that there were positively growing trends within the building stone market. They used this basis to seek out and invest with two long standing operator-owner partners of two different limestone quarries found in the center of Texas. The owners continue operating the limestone quarrying firm with RLH as the capital partner. In another instance, the investment firm saw an opportunity to become involved in a successful Florida

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citrus business a few years ago. They arranged a unique sale-leaseback with the owners which guaranteed the investment company both a minimum yearly return and a profit split with the operating partnerowners. Thanks to their sympathizing and working with the various concerns of the owners, they were able to obtain a high quality property that the markets never had an opportunity to seize. The final arrangement which the company struck with the owner operators allowed both of them to sit on one side of the table to share economic objectives and interests.

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Retail Banking Retail banking is also called consumer banking. This form of banking is most easily described as the common everyday activities of financial service firms. In this definition their individual clientele utilize the local area branches of the more significant and bigger commercial banks. They provide a wide range of services to their customers through this division of financial services. These include checking and savings accounts, personal loans, mortgages for homes, lines of credit, credit cards and debit cards, and CDs certificates of deposits investment opportunities for customers. The main concentration is on the one on one consumer relationship. Within the United States, the phrase commercial bank refers to a traditional bank. This term distinguishes it from the competing concept of investment bank. Following the Great Depression of the 1930s, the American Congress mandated that banks were only allowed to participate in traditional deposit and lending banking activities as opposed to investment activities. This Glass Steagall Act similarly required that investment banks could only participate in activities pertaining to the capital markets. This important separation prevented another severe financial crisis like the Great Depression from erupting. Unfortunately for Americans everywhere, the Congress chose to repeal these protections afforded to markets and individuals by Glass Steagall when they canceled out the act in the 1990s. This allowed commercial banks to once again dabble in investment bank activities with depositors’ money. It was considered to be a main factor which led to the financial collapse of the Great Recession in the years 2007-2009. Commercial banking also relates to a division of a bank, or even an entire bank, that focuses on larger businesses and corporations. They handle these huge entities’ loans and deposits. This would separate the concept from retail banking which only addresses the ordinary individuals along with their banking needs and accounts. The idea behind retail banking is to be a one size fits all, single stop shop which provides all the financial services which they possibly can to their retail customers. Bank clients demand a full lineup of essential banking services from these retail operations. Included in this are such expected products as savings and checking accounts, lines of credit, personal loans, home loans, credit cards, debit cards, and CDs. The majority of retail banking customers visits their local bank branch in order to receive these services. Such centers deliver the consumer demanded onsite client service to provide for each of these retail customer requirements. Financial representatives also work in these local area branches. They offer their clients of the bank both financial advice and customer service. Such financial reps prove to be the primary contact for garnering credit related applications for these products which help the banks to generate their revenues and profits. These types of banks have begun to offer expanded retail services so that they can capture more business from their retail customers. Besides the typical bank accounts and accompanying customer service that the in branch financial reps deliver, banking centers have added various combinations of financial advisors. They provide a wide array of product offerings. Some of these are investment services like stock brokerage accounts, wealth management services, retirement planning, and even private banking for High

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Net Worth Individual clients and families. There are occasionally insurance products and services offered through the in-branch retail banking network as well. Sometimes, such ancillary products and services will be provided out of third party affiliated institutions like insurance companies and investment firms. The idea behind such broadened offerings is to both provide customers greater convenience and to develop more points of financial interaction between them and the bank. This allows for clients of the bank to have greater and more convenient access to their funds and to engage in personal banking transactions both faster and easier. The Internet has also made possible online retail banking. Many banks now offer partial banking services online. A few are actually banks which are entirely structured to provide banking services over the Internet alone. Among these are GoBank, Moven, and Simple. They offer lower fees as they have significantly smaller overheads with no in-branch personnel, buildings, and networks to support. The top five biggest American commercial banks possessed more than half of the retail bank customer deposits for the entire country in the year 2015. These five largest institutions were JPMorgan, Bank of America/Merrill Lynch, Wells Fargo, Citibank, and U.S. Bank.

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Retained Earnings Retained earnings are a component of the earnings categories of corporations. They describe the portion of a company’s net earnings that they do not give out to shareholders as dividends. Instead these earnings are kept by the firm so that they can pay down debt or reinvest in their core operations and business model. Balance sheets note earnings which are retained as part of the shareholder’s equity column. There is a formula for figuring out retained earnings. It adds the initial earnings with net income or subtracts net losses from it. Dividends must then be subtracted out from these earnings as they are paid out to stockholders. Corporations have their reasons to keep a portion of their earnings. In the majority of scenarios, they wish to invest them into segments of the market where the firm is able to build opportunities or growth. This could be by spending money for additional research and development or in purchasing new plants, equipment, or machinery. Companies can also use these earnings to purchase other firms. Such acquisitions allow them to expand their market share or product offerings in this method of non organic growth. It is possible for such earnings to become negative. This happens when the firm’s net loss is larger than the initial retained earnings. Such a case creates a deficit. The general ledger for these earnings becomes adjusted each time an entry is placed for the expense or revenue accounts. At the conclusion of the company’s accounting period, such earnings that are retained become reported. This could be in the quarterly report or the annual report. They will either continue to be accumulated and be positive, or they can shift into negative territory and be recorded as a deficit. These changes in earnings from one accounting period to the next are not directly noted. It is easy to infer them by looking at the totals of ending and beginning retained earnings for the accounting period. Increases or decreases to the accumulated totals happen because of dividend payouts and net losses or net incomes for the period. Every period, a firm’s revenues and expenses must be closed out. This is done into an income summary that shows the total net income or loss. Finally these are closed out into the retained earnings column. Net income directly boosts or decreases these earnings this way. Dividends are the other major item that decreases the retained earnings number. Such dividends can be paid out as stock or cash. Either type reduces the earnings which are retained. This is because cash dividends come out of the net income ultimately. The greater amount of dividends that a company distributes, the lower amount of earnings it will retain. Dividend accounts are also temporary in nature and are closed out to the earnings which are retained at the end of the accounting period. Though newly issued shares given out as dividends do not reduce the net income, they must be reconciled on the balance sheet. This is done in the accounts for additional paid in capital on the balance sheet. The earnings which are retained category decreases by the identical amount as this paid in capital column.

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Return on Equity (ROE) Return on equity proves to be a useful measurement for investors considering a given company. This is because it takes into account three important elements of a company’s management. This includes profitability, financial leverage, and asset management. Looking at the effectiveness of the management team in handling the three factors gives you as an investor a good picture of the kind of return on equity that you can expect from an investment in such a company. Return on equity is very easy to calculate. You can figure it up by collecting two pieces of information. You will need the company earnings for a year and the value of the average share holder equity for the same year. Getting the earnings’ figure is as simple as looking up the firm’s Consolidated Statement of Earnings that they filed with the Securities and Exchange Commission. Alternatively, you might look up the earnings of each of the last four quarters and add them up. Determining share holder equity is easiest by looking at the company’s balance sheet. Share holder equity, which proves to be the difference of total liabilities and total assets, will be listed for you there. Share holder equity is a useful accounting construct that reveals the business assets that they have created. This share holder equity is most commonly listed under book value, or the quantity of the share holders’ equities for each share. This is also an accounting book value of a corporation that is more than simply its market value. To come up with the return on equity, you simply divide the full year’s earnings by the average equity for that year. This gives you the return on equity. Companies that produce significant amounts of share holder equity turn out to be solid investments, since initial investors are paid off using the money that the business operations generate. Companies that create substantial returns as compared to the share holder equity reward their stake holders generously by building up significant amounts of assets for each dollar that is invested into the firm. Such enterprises commonly prove to be able to fund their own operations internally, which means that they do not have to issue more diluting shares of stock or take on extra debt to continue operating. The return on equity can also be utilized to determine if a corporation is a cash generating machine or a cash consuming entity. The return on equity will simply show you this when you compare their actual earnings to the share holder equity. You can learn at almost a glance how much money the company’s present assets are producing. As an example, with a twenty percent return on equity, every original dollar put into the company is creating twenty cents of real assets. This is also useful in comparing subsequent cash investments in the company, since the return on equity percentage will demonstrate to you if these extra invested dollars match up to the earlier investments for effectiveness and efficiency.

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Return on Investment (ROI) ROI is the acronym for return on investment. This return on investment is among the most often utilized methods of determining the financial results that will arise from business decisions, investments, and actions. ROI analysis is used to compare and contrast both the timing and amount of investment gains directly with the timing and amount of investment costs. Higher returns on investment signify that the results from investments are positive when you compare them against the costs of such investments. Over the past couple of decades, this return on investment number has evolved into one of the main measurements in the decision making process of what types of assets and equipment to buy. This includes everything from factory equipment, to service vehicles, to computers. ROI is similarly utilized to determine which budget items, programs, and projects should be both approved and allocated funds. These cover every type of activity from recruiting, to training, to marketing. Finally, return on investment is often employed in choosing which financial investments are performing up to expectations, as with venture capital investments and stock investment portfolios. Return on investment analysis is actually used for ranking investment returns against their costs. This is done by setting up a percentage or ratio number. With the vast majority of return on investment calculation methods, ROI’s that are higher than zero signify that the returns on the investment are higher than the associated expenses with it. As a greater number of investments and business decisions compete for funding anymore, hard choices are increasingly made using the comparison of higher returns on investment. Many companies believe that this yields the better business decision in the end. There is a downside to relying too heavily on the return on investment as the only consideration for making such business and investment decisions. Return on investment does not tell you anything regarding the anticipated costs and returns and if they will actually work out as forecast. Used alone, return on investment also does not explain the potential elements of risk for a given investment. All that it does is demonstrate how the investment or project returns will compare against the costs, assuming that the investment or project delivers the results that are anticipated or expected. This limitation is not unique to return on investment, but similarly plagues other financial measurements. Because this is the case, intelligent investment and business analysis also relies on the likely results of other return on investment eventualities. Other measurements should also be used along side the return on investment to help measure the risks that accompany the project or investment. Wise decision makers will demand more from return on investment figures than simply a number. They will require effective suggestions from the person making the return on investment analysis. Among these inputs that they will desire are the means of increasing an ROI’s gains, or alternatively the means for improving the ROI through decreasing costs.

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Revenue Revenue refers to the amount of money which firms generate in receivables within a certain time frame. It includes deductions for merchandise which is returned as well as any applicable discounts. This is also known as the gross income or sometimes the “top line” amount. Net income can be figured out by subtracting the costs from the revenue. Analysts and accountants determine the amount of revenue simply by taking the price for which services and goods sell and multiplying this by the quantity of units or the actual amount which the firm sells. Sometimes revenue is referred to as “REVs.” There are a number of other definitions and synonyms for revenues. Some call it sales in layman’s terms. Whatever name businesses and individuals refer to it by, revenue proves to be the total amount of cash which a company garners through its aggregate business activities. The price to sales ratio is one measurement in business that relies on revenues for the denominator. This contrasts with the competing measurement of price to earnings ratio, which utilizes the profits instead for its denominator. Revenue can be figured up by several different means. It is really up to the method of accounting which companies and corporations choose to employ. With accrual accounting, sales which the firm makes using credit also count among the revenues so long as the customers have taken delivery of the services or goods. This is why investors and analysts must review the company’s cash flow statement in order to evaluate how effectively a firm actually collects on the money which its customers owe it. The other primary form of determining a company’s revenues is through cash accounting. This form of accounting utilizes only sales for the revenues’ quotient once the money a customer owes has been collected by the firm in question. When a customer gives the money to a corporation or company, the firm recognizes it as a receipt instead of the general category of revenues. Companies can actually have receipts that do not include revenues. This is possible if a customer were to pay for a service in advance of receiving it or for purchased goods which they have not yet received. Revenue can also be called “top line” since income statements display them first on the report. Analysts then take revenues and deduct the expenses so that they can come up with the “bottom line,” which is also called simply profit or alternatively net income. Many times investors evaluate both a firm’s net income and revenues independently of one another so that they can ascertain how strong a business’ health really turns out to be. The reason for this is that net income can increase while revenues remain flat. Cost cutting can actually cause this phenomenon. This scenario is not a positive sign for the longer term growth potential for a firm. Analysts and investors often further subdivide the revenues from a given company or corporation according to the groups which generate the money. Company accountants can also divide up the receipts of the firm into several categories of operating revenues, the core business of the firm’s sales, and nonoperating revenues that come from secondary sources. Such non-operating variants are typically not recurring or can not be forecast successfully. This is why these are sometimes known as one-time gains or events. Examples of this could be money gained through lawsuits, investment windfalls, or receipts from

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selling an asset. Where a government is concerned, revenue refers to the receipts they obtain as a result of fees, taxation, fines, securities sales, transfers, intergovernmental grants, resource rights and mineral rights, or any sales of government assets or state-owned and -run companies which they might make. In the world of not for profit organizations, such revenues are commonly referred to by the phrase of “gross receipts.” Among the components that make up these receipts are donations from companies, foundations, and individuals; investment returns; grants out of governmental agencies and entities; membership dues and fees; and fundraising endeavors.

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Revenue Bonds Revenue Bonds are municipal bonds. Their payments on principal and interest come from a special project’s revenue. This could be from a highway toll, toll bridge, or area stadium receipts. Whatever the specific project may be, its revenues are what support the underlying bond issues. These revenue bonds are utilized to finance projects which will eventually produce income for the issuing authority. Generally any government agency or even government fund which they run like a business will be able to issue these types of bonds. Such bonds stand in contrast to those competing types called general obligation bonds, or GO bonds. General obligation bonds may be paid back by drawing on a number of different tax sources. Those investors who purchase such GO bonds are relying on the “full faith and credit’ by which the municipality promises to repay them with any means necessary. This makes the revenue bond issues riskier. They only can promise the revenues from a particular project. Because of this fact, the revenue bonds pay a higher interest rate than do the GO bonds. Municipalities structure revenue bonds in a particular way. They possess maturity dates of from 20 to 30 years most of the time. The issuers offer them in standard $5,000 even increments or amounts. There are a number of these bonds which include maturity dates that stagger. This means their maturities will not be on the same day and year. Bond aficionados call these serial bonds. A toll road is a classic example of such revenue bonds. A municipality might issue this in order to pay to construct a new toll road. The revenue which would secure this issue would be the tolls they collect in the future from those drivers who utilize the road. The construction expenses will have to be covered before the bond holders are completely paid off at maturity. These revenue bonds became popular because the issuing authorities’ debt limits are set by legislation. They may only borrow so much money according to the laws. These types of bonds allow them to side step the legal debt limit restrictions so that they can build new improvements within their jurisdiction. This also means that government groups which rely only on only tax dollars can not issue such bonds. Public schools are one example of this. They would not be able to pay off a revenue bond since they would not have any income off of a specific project. These revenue bonds should not be confused with combination bonds. The combination ones are usually municipal bonds with two sources of financial backing. On the one hand, they enjoy revenue off of an existing or a future project. At the same time, they are covered by the full faith and credit of the issuing municipality or agency. This makes them a true combination of both revenue and general obligation bonds. Naturally, these types of bonds are deemed to be considerably safer. Such lower perceived risk results in the agency paying a lesser interest rate than they would have to give investors on comparable revenue or even general obligation bonds. It is helpful to consider a real world example of a revenue bond. The MTA Metropolitan Transportation Authority of New York chose to float Green Bonds back in February of 2016. MTA announced it will put

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this $500 million in total proceeds towards covering the costs of renewal projects on infrastructure. This includes upgrades to their various railroads. The bonds were issued by the Transportation Revenue Bond of the MTA. They received backing from the income of the MTA transportation service. This income comes from two sources, subsidies which the State of New York provides and operating revenues of the agency.

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Reverse Annuity Mortgage A reverse annuity mortgage has several different names. Industry insiders call them reverse mortgages or home conversion loans. The government and finance companies created them to assist retirees who find themselves in a condition of being rich in assets but poor in cash. There has become a greater need for this type of product as more and more individuals find themselves increasingly retiring with only the significant asset of their house. A greater number of individuals now only receive social security payments after they retire. This amounts to less than $20,000 for an individual or perhaps around $30,000 for married couples. It means that there usually will be a massive need for more money coming in during the retirement years. This gave rise to the concept of the reverse annuity mortgage. This specially tailored reverse annuity mortgage allows homeowners to sell part or all of their house now but to remain in it until they die. It provides money that retirees are able to utilize for a variety of needs. This could be to supplement the monthly income. It might also be used for medical expenses, long term care, home maintenance, or even the overseas trip of a lifetime. The way these reverse mortgages work is fairly straight forward. Finance companies provide a set dollar amount of money. Homeowners can receive monthly income as with the reverse annuity mortgage. They might also get a lump sum amount from the option for home equity conversion. The borrowers do repay the loan principle along with interest. What makes these vehicles unique is that there is no physical repaying of the funds. The debt accrues to be paid back after the owners sell the house. This is usually after the retirees have passed away or gone into a permanent care facility. When retirees choose the annuity option, they utilize the funds from the house to purchase a lump sum annuity. This pays out every month so that they can count on monthly payments that continue until they die. It provides tremendous security for struggling retirees who have only their house to help out their situations. Scams are a significant and real concern with a reverse annuity mortgage. Retirees are often taken advantage of and cheated. There are companies that charge even thousands of dollars in exchange for information which the HUD provides for free. They disguise these fees under their estate planning service contracts. Fees can amount to from six to ten percent of the full amount the retirees borrow. This can cost even tens of thousands of dollars depending on the reverse mortgage amount. HUD has advised reverse mortgage lenders to not work with such companies. Other companies are using reverse mortgages as a way for retirees to pay for a significant purchase such as insurance or annuities which they sell. They often hide unethical and exorbitant fees or unfair terms in their contracts. Some lenders will include share appreciation or share equity terms. This can ravage the retirees’ equity position and not give them any benefits in return. Individuals are able to protect themselves from such scams in the reverse mortgage field. The simplest and most effective means is to work with a reverse annuity mortgage counselor that the HUD has approved. They will evaluate the retiree’s scenario as well as the contracts on a reverse mortgage. These

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specialists will find any possible problems and make it clear what needs to be changed or avoided.

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Reverse Mortgages Reverse mortgages are special types of loans. They are limited to homeowners who are at least 62 years old. These mortgages permit the owners to take a portion of their home equity and convert it to cash. The seniors may use these mortgage proceeds in any way that they like. The government came up with these unique products because they were looking for a way to help out retired individuals who did not have enough income. The idea was that they might unlock the wealth they had built up in their houses to provide for health care, outside home care, or ordinary monthly costs of living. These loans are referred to as reverse mortgages because the home owners do not send a lender monthly payments. These are the opposite of traditional mortgages. Lenders provide the borrower with payments instead. The home owners have several advantages. They do not have to repay the loan until they either no longer live in the home or sell it. They also do not make any regular monthly payments against the balance of the loan. The borrowers are required to keep up with their homeowners insurance, property taxes, and any association or homeowner fees. The most common type of reverse mortgages are known as HECM Home Equity Conversion Mortgages. The U.S. HUD Housing and Urban Development designed and oversees these. These are not loans from the government. Rather they are mortgage loans that lenders provide with insurance from the FHA Federal Housing Administration. In these particular types, borrowers accrue a 1.25% insurance fee as part of the balance on the loan. This increases the loan balance annually. This insurance is useful for two protections. In case the lender can not make the monthly payment, it provides for it. Should the house resale value be insufficient to pay back the final loan balance at the end, it makes the lender whole. The government and its insurance fund would then clear any balance that remained. These HECMs comprise the majority of such reverse mortgages in the United States. Included in their regulations is that the senior borrowers must undergo third party counseling to help them with all of the documents and agreements. The other type of reverse mortgage is a Proprietary Reverse Mortgage. The mortgage lenders that provide these also insure them privately. This means that they do not have to follow the regulations as with the HECMs. The majority of firms that offer these mortgages choose to honor the identical consumer protections featured in the HECM program. This means that mandatory counseling is usually a part of their programs. These types are also known as jumbo reverse mortgages. Seniors with larger value houses go with these kinds since there is a $625,500 maximum loan limit on the government’s HECMs. Two companies in the country presently offer these types of PRMs. These are the Orange, California based American Advisors Group and the Tulsa, Oklahoma based America Reverse Mortgage. Regardless of the type of reverse mortgage, the lenders have to put potential borrowers through a

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financial assessment before making the loan. This is so that they can be certain the seniors will be able to pay the future homeowners insurance and taxes and afford to live in the house for the loan’s life. To do this, lenders consider all of the income streams of the borrower. This includes their Social Security, investments, and any pensions. The home owners are also required to give the lender their tax returns and bank statements so that expenses and income may be properly documented.

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Reverse Split A reverse split is also known as a reverse stock split. Reverse splits are used to reduce the total outstanding number of a given company’s shares. This action boosts the value of its stock and the resulting earnings per share. Not everything concerning a stock changes in a reverse stock split. One thing that remains the same is the market capitalization. Market capitalization refers to the value price of the total outstanding number of shares. A reverse split works by a certain process. In this scenario, a company involved will actually cancel out the presently existing shares for every share holder. They will replace these with a smaller number of new shares. These new shares will be issued in an exact proportion to your original stake in the company. Such a reverse split proves to be the exact opposite of a stock split. Reverse splits can also be called stock merges, since they literally reduce the total number of outstanding shares and proportionally increase the price per share. Companies commonly issue the reverse split shares according to an easy to understand ratio. You might receive one new share for every two old shares, or possibly four new shares for every old five ones that you owned. Looking at an example of the way that a reverse stock split actually works is helpful. Say that a company in which you own stock shares decided to affect a one for ten reverse split. If you had one thousand shares of the company, then you would only own one hundred shares of the resulting issue. This would not change the value of the shares that you held though, as the price of the shares would increase by ten times. If the shares had been worth only four dollars per share, now they would be valued at forty dollars per share. There are several reasons why companies choose to do a reverse split of their stock shares. They might feel that the actual price per share of their stock is so low that it is not appealing to new investors. Some institutions are only allowed to buy shares that trade at a certain minimum value, such as five dollars per share or higher. Reverse stock splits can also be used to reduce the number of share holders, since they can force smaller shareholders to be cashed out, which means that they no longer possess any shares of the company. In this case, you would receive the value of your shares in cash. There is a negative connotation associated with engaging in reverse stock splits. Because of this reason, they are not done lightly by companies. A company might find that its share price has declined so precipitously that it becomes in danger of having its shares de-listed from the stock exchange. They could quickly boost the share price with the reverse split. Stocks that have undergone a reverse split will usually have the letter D added to the end of their symbol tickers. A board of directors for a given company is allowed to perform a reverse split without consulting with its share holders to obtain their approval. The Securities and Exchange Commission also does not have any say over such reverse stock splits. They are instead regulated by a state’s corporate laws and the company’s own articles of incorporation, along with the company’s by laws.

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Richard Cordray Richard Cordray worked as the first director for the new federal agency the Consumer Financial Protection Bureau, often referred to by its acronym CFPB. Before his appointment he headed the Office of Enforcement. In the years in advance of his coming to work for the bureau, he led the battle lines of consumer protection in his role as Attorney General of Ohio. In that time, Cordray recovered over $2 billion for the investors, retirees, and business owners of Ohio. He also pursued the necessary steps to assist in protecting its consumers from illegal foreclosures and financial predator organizations. Back in 2010, the office of Richard Cordray reacted to numerous, record-making numbers of complaints from consumers. He took it a step beyond this by starting a new process up to help not for profit and small business groups to aid consumers in protection. The Better Business Bureau was so impressed with Cordray’s work as Ohio Attorney General, they awarded him an Ethical Marketplace Promotion award. Richard Cordray proved to be a nationally unknown figure before President Obama announced his appointment to the country. In Ohio, he was revered as the people’s champion. He had held the important position of state attorney general from 2009 for two years and had been a critical part of Democratic party politics in the state since the early years of the 1990s. The economic crisis of 2008 had thrust Ohio into the unenviable position of high foreclosure rates. Out of every 608 homes in the state, one stood in foreclosure. Cleveland was especially hard hit, with foreclosures having fully tripled since the year 1998. The situation became so much worse because of the mass Robo signing scandal the big banks engaged in after the financial crisis collapse. Big banks had begun to regularly foreclose on houses even though they lacked the legally required documentation and necessary paperwork. Richard Cordray jumped in and became the very first attorney general of any state to actively sue a mortgage lender for foreclosure fraud, setting up a new national precedent and trend by the forceful example of his leadership. He went after Ally Financial and parent company GMAC Mortgage. He also insisted on a meeting with other major lenders throughout Ohio, such as JP Morgan, Bank of America, Wells Fargo, and Citibank. The intrepid Richard Cordray also worked as Treasurer of Ohio and Franklin County Treasurer. He was elected to both of these important positions where he oversaw activities in the county and state for investments, banking, financing, and debt. While Ohio Treasurer, he revived a failed state economic development program which offered low interest rate loan offers to small business who were willing to provide new jobs. He also rebranded the former concept as the GrowNOW program, funneling hundreds of millions of dollars into credit offers for small businesses. Cordray created at the same time a new Bankers Advisory Council in order to broadcast his own ideas on the program out to the various community bankers found throughout the state of Ohio. Still earlier in his working life, Richard Cordray worked as an Ohio State University College of Law adjunct professor, became a state representative, served as the first solicitor general in all of Ohio history, and worked as the only counselor and practitioner to Kirkland & Ellis. In this final capacity, Cordray argued seven different court cases in front of the U.S. Supreme Court as a special appointment to both

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Bush and Clinton Justice Departments. He graduated from Oxford University, the University of Chicago Law School, and before that Michigan State University. He also clerked for the two U.S. Supreme Court Justices Anthony Kennedy and Byron White.

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Richard Dennis Richard Dennis was a long time commodities trader who earned the nickname the “Prince of the Pit.” Born in 1949 in Chicago, Illinois, he borrowed $1,600 from family and turned it into $200 million within ten years. He became more legendary still when he embarked on a famous experiment to teach ordinary people with no trading backgrounds how to trade. The movie “Trading Places” was based on this real-life story. Dennis started his notorious career in commodities as a floor trader order runner at the Chicago Mercantile Exchange when he was only 17 years old. In only a few more years, he started to trade his own account at the Mid America Commodity Exchange using mini contracts. At the age of 24, Richard Dennis earned $100,000 in profits in 1973. The next year, he capitalized on a runaway soybean market to capture $500,000 in profits. At the end of that year 1974, he had already become a millionaire while only 25 years old. The style of Richard Dennis turned out to be about enormous home runs with many more small strikeouts. His secret lay in the belief that traders had to learn to take losses physiologically and psychologically. While other floor traders were scalping their trades for little gains multiple times in a trading day, Dennis would take a position on and keep it for longer time frames. He rode out short term price fluctuations to hold positions for the intermediate term. He would pyramid his positions frequently. By the last years of the 1970s, he became so successful that he purchased a full membership over at the gold standard Chicago Board of Trade exchange. Dennis decided to open up his own office over the exchange so that he could trade still more markets. Earning $200 million in the markets from his initial stake of $1,600 did not prove to be enough to satisfy Richard Dennis. He felt strongly that successful trading was not a natural ability, but that it could be taught to anyone who was willing to learn it. A fellow trader and friend of his William Eckhardt debated him on this idea to the point that Dennis made a social experiment which is now legendary. He hired and trained 21 different men and two women. Dennis did this in two separate groups, forming one group in December of 1983 and the second in December of 1984. The two groups received two weeks of personal hands on training from Richard Dennis. He showed them how to use an easy to understand and relatively basic trend following system so that they could trade a wide variety of commodities, bond markets, and currencies. He taught them to buy when the prices rose outside of their short to medium term ranges. They would sell them as they dropped underneath their recent range. He instructed them on how to cut their positions amounts when they were losing and to add on to aggressively when they were winning. He never permitted them to expose more than 24% of their total capital at any given point. The system is well- known. It encounters losses when the market remains trapped in a range as they can even for months on end. When the market makes a major move, it earns huge profits. Dennis then gave each of the so-called “Turtles,” his traders, real accounts to trade these systems he had taught them. The few of them who had traded successfully in his one month trial received accounts to manage from his personal money. These accounts ranged from $250,000 to $2 million. At the end of his

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experiment five years afterward, his Turtles had made total profits amounting to $175 million for him. Two separate books have published the precise system he taught these Turtles. For some reason, the system failed to perform well over the years 1996 to 2009, according to back testing of the data. Despite this fact, several of his turtles launched careers as successful managers of commodity trading firms. They utilized techniques that were like (but not the same as) his Turtle System to accomplish this. In later years of his career, Richard Dennis suffered severe setbacks. He managed large pools of capital for other firms and individuals in the various markets. He lost $10 million during the Black Monday crash in the stock markets and an overall amount of $50 million between 1987 and 1988. His company also had to settle in the amount of more than two and a half million dollars with a group of investors. They claimed he did not follow his own system rules faithfully when managing their money. During the mid to late 1990s, Dennis managed some other funds but chose to close them after his substantial losses during the summer of the year 2000. Besides his trading endeavors and teaching, Richard Dennis has written numerous op-ed pieces for the Wall Street Journal, The New York Times, and the Chicago Tribune. He serves on the Cato Institute Board of Directors and the Reason Foundation Board of Trustees. Dennis has worked actively in the political causes of Libertarian and Democratic campaigns, especially campaigning against the prohibition on recreational drugs.

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Right of First Refusal Right of First Refusal refers to a right, but not an obligation, to enact a transaction regarding an asset with another party ahead of any competitors. It is similar to possessing a particular call option on the asset in question. Such a contractual right will typically be negotiated after a party to a transaction wishes to first see how its business will go. The participant could easily decide it is better to have the option to become involved in the asset or opportunity later on instead of having to commit to and pay for it in advance. There are some significant advantages and benefits to having a Right of First Refusal. It represents a true insurance policy for the contract holder to not lose the possibility of later acquiring the valuable asset which may help to build up the business. It is always helpful to consider a concrete example to better understand this. The commercial tenant of a building might wish to lease or re-lease their office space. It might be willing to purchase the space if the alternative was to be thrown out in favor of a new tenant. This is a good instance when a tenant would want to obtain a first right of refusal as part of the lease contract. At the same time, such a Right of First Refusal is an inconvenience for the owner of the office building and property. This is because it restricts the capability of seeking out buyers for the building or selling it off. The landlord for the building in this example will discover how hard it is to entice buyers for the property when they learn that the present tenant has the right to match any offer which they decide to make on the property. Yet for building owners, getting the right tenant can be worth providing the first right of refusal incentive in order to secure the lease deal. There are many cases in the business world where such Rights of First Refusal are in evidence. This is especially the case with joint venture scenarios. Joint venture partners will usually have a true Right of First Refusal to buy out their partners’ interests in the venture when the partners wish to exit the business. Private companies also have common scenarios with their stockholder agreements that permit the preexisting stake holders to buy out the ones who wish for an exit event before any new stock holders are created. There are a wide range of other cases where these Rights of First Refusal apply in business and entertainment. This goes well beyond the world of corporate deals and boardrooms or even partnerships. In avenues as wide ranging as sports, real estate, or even arts and entertainment they are quite common elements of the business models and contract traditions. There are countless examples of this to consider. With Real Estate, buyers of land may obtain a first right of refusal from a property holder on the future sale of any adjacent land next to that which they are acquiring. In this case, the property holder would have to offer the original buyer the opportunity to add to their existing holdings by purchasing the adjacent property. In entertainment, large publishing houses sometimes require a new author to provide them with a Right of First Refusal on additional books they may write and seek to have published. The author would likely have to go along with this, as the publisher could simply refuse to take a chance on the unknown author if he or she is unwilling to accommodate the company. Publishers who put up significant resources into new authors look for this financial incentive of having sequels or additional hit books to help justify their risk.

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On the one hand, this likely guarantees the author will have subsequent books published by the same publishing house (unless the first book is a commercial failure). At the same time, the author may not be able to accept a more lucrative competing offer from a rival publishing house. This is because the original publisher will likely not have to meet competitors’ offers as part of the first right of refusal clause.

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Risk Arbitrage Risk arbitrage is also known as statistical arbitrage. It is different from pure arbitrage as it involves risk or speculation. It is also far more accessible to retail traders than real arbitrage. Because of the reasonably high probability that risk arbitrage offers traders, experts generally consider it to be playing the odds. Despite the risk involved, this form of arbitrage has grown to be among the most practiced type by retail traders. Three main types of this arbitrage exist, liquidation, merger and acquisition, and pairs trading arbitrage. Liquidation arbitrage is a kind that involves determining the liquidation value of a business’ assets. If a company possesses a book value of $100 per share and trades at $70 per share, it falls under this type. If the company determines it will liquidate, there would be an opportunity to make $30 per share on the dissolution of the company. When bigger companies practice this they buy companies whose parts are worth more than the whole of the company. They then sell off the various parts or assets to make money. Merger and acquisition arbitrage remain the most practiced form of the strategy. The goal is to find a company that is undervalued at its current share price. If it is selected by another company as a takeover target, then it presents opportunity. The offer for this target will raise the company share price to near this level. The earlier investors get in on such a prospect, the more they are likely to profit from it. If the merger does not go on as planned, the share prices will probably drop. Speed is the necessary factor to make this type of arbitrage work. Traders who practice this type usually receive streaming market news and trade on Level II trading. When a merger deal is announced, these traders attempt to buy in before everyone else does. An example of this type of a deal would be a company trading at $40 which received a takeover bid for $50. The share price will rapidly rise towards $50 but not reach it until the merger actually closes. It might move to $48 per share. Those who get in on it immediately have a chance to make as much as $10 per share, or a 25% return. Others who buy in at $48 only have a $2 per share arbitrage opportunity for 4%. So long as the takeover happens as planned, both parties will make their returns. If it fails in the end for some reason, they will both likely take losses. The amount they lose depends on the price they paid and how far the stock falls back down on the failed acquisition. Pairs trading arbitrage may be less common than the other two but it is especially useful in sideways trading markets. The idea is that investors find stock pairs which trade at a high correlation. They could be unrelated or related so long as their historical trading chart demonstrates that they trade in near tandem. Usually pairs with the greatest likelihood of success turn out to be larger stocks competing in the same industry. The goal is to wait until one of these pairs has a price divergence in the 5% to 7% range. The variance also needs to last for some significant amount of time like two or three trading days. Investors then buy the cheaper stock long and sell the more expensive one short. The last step is to wait for the prices to approach each other again. Once the prices are back in line, this type of arbitrage closes the trade and pockets the percentages they were apart initially. If the investor both

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bought the one long and sold the other short, then the gains can be twice the percentage the pair was apart.

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Risk Averse Risk averse investors are those who fear or are intolerant of risk. Given a chance to pick from two investments with similar returns they will go with the one that offers the lesser risk. This is because risk averse investors do not like risk. Because of this they will avoid investing in stocks and other investments that they consider to be higher risk. This means that they will likely miss out on greater rates of return as a result of their more cautious investing approach. These investors who look out for investments they perceive to be safer will tend to go with government bonds and index funds. Both of these typically offer lower returns. Studies have been done that show investors will tend to avoid risk that is unnecessary. This is a subjective measurement because every investor has a varying definition of what is unnecessary risk. Those investors who wish to obtain a greater return will understand that a larger amount of risk is necessary. Individuals who are satisfied with a lower return would consider this type of investment strategy foolhardy. The overwhelming majority of economic players are risk averse enough to choose an investment that is less risky if it offers the same return as a riskier investment. Risk averse markets are those which are afraid of geopolitical or economic events. When the markets are like this they favor safer havens such as gold and the precious metals, Swiss Francs, Treasury bonds, and U.S. dollars. In risk averse markets, investors tend to shun higher risk stocks and securities and try to preserve their investment capital from losses. The opposite of these are risk tolerant markets. Risk aversion is the representation of individual’s and investor’s all around preference to have certainty over uncertainty. Because of this, they attempt to reduce the repercussions of the worst potential outcomes that lie before them. Risk aversion means that people will prefer to stay in a low paying job that offers perceived job security rather than to become an entrepreneur who has the chance to make a great amount of money as well as to lose all of the money and time that is invested. Risk aversion will drive these individuals to seek out a lower rate of return with their investment and savings capital. They would rather have a savings account or certificate of deposit than equities. Even though equities offer much greater potential returns than these other instruments, they are far riskier and can deliver negative returns. A great number of risk averse investors will give extreme weight to the worst possible scenario. It does not matter that the probabilities of these occurring are low. They will shy away from these investments because losses could happen. Studies have determined that risk aversion comes from an individual’s experience. This is particularly true of the economic situation they experienced while a child. Those who grew up in harder economic times are more likely to handle and invest their money far differently from those who grew up in prosperous times. A classic example concerns Americans who grew up in the 1930’s Great Depression. This group has always tended to be extremely risk averse about career or job changes. They are typically extremely conservative with their money. They also avoid the stock market as much as possible as they remember the Black Thursday and Black Monday crashes of 1929.

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Financial advisers and planners must understand the risk tolerance and aversion of their clients clearly. They can not recommend the appropriate investments and risk level without this. They will invest the money of a risk averse individual far differently than that of a person who is risk tolerant.

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Risk Premium A risk premium turns out to be the surplus return over the risk free rate of return which investments are anticipated to provide. Any asset offers such a premium as a means of rewarding those investors who are willing to take on the additional risk as opposed to an asset which is risk free. Examples of this abound. Excellent credit rated companies’ corporate bonds do not entail much, if any, risk of default. This is because such businesses have a proven track record of paying their debts in a timely fashion and significant profits as well as cash flow. It is ultimately why these types of bonds deliver a substantially lower yield or interest payment than do bonds from companies which are less well established and have uncertain financials leading to a greater risk of default. Risk premium could be regarded as a form of hazard pay for investment portfolios. This is much like those employees who perform jobs deemed to be dangerous and obtain a hazard pay in compensation for the risks in which they engage on the job. Similarly, risky types of investments have to offer investors the possibility of greater returns in order to justify the higher risks which the investment involves. Investors only undertake such perilous investments because they anticipate receiving appropriate compensation for the level of risk they assume. They receive this in the form of a risk premium, or higher returns above the rates of return that such low risk investments as U.S. Treasury issued securities provide. Another way of putting it is that because investors might lose money thanks to the insecurity of a given investment, they receive higher returns as their reward should the investment work out successfully. The possibility of obtaining such a premium does not guarantee that investors will actually receive it. This is because the borrower could go bankrupt or default if the outcome of the investment is not at least partially successful. Such a risk premium may be a gratifying recompense because investments which are riskier are naturally more profitable if and when they turn out to be successful. Those investments which possess predictable and sure outcomes will not evolve into financial breakthroughs as they are already successfully performing in markets that are well developed. This is why risky and creative investment and business initiatives are the ones which could possibly provide returns that are better than average. The borrowing entity rewards its investors for taking on their risk in backing the idea or business effort. Because of this fact, some investors have been willing to seek out and fund riskier investments with the hope of obtaining significantly greater payouts. The truth is that such a risk premium is expensive for the companies who borrow. This is more the case if their various investments or ideas will not necessarily pan out as the most successful or lucrative ones. The greater the premium these companies promise their investors as compensation for the entailed risk, the higher a financial burden they experience. Such burdens can actually be detrimental to the success of their endeavors and lead to greater chance of a final default. This is why investors’ best interest lies in tempering the amount of risk premium they insist on from their investments. The alternative is that they will have to line up and battle against other debt collectors if the company they backed financially defaults in the end. The sad truth is that with many bankruptcies heavily mired in debt, most investors recover only a matter of cents on their dollars, regardless of how high the

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risk premium offered initially proved to be.

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Risk-Weighted Assets Risk-Weighted Assets refer to those which are utilized to decide on much capital financial institutions like banks must hold in order to decrease the chances of becoming insolvent. Regulators determine the capital amount required using a complicated risk assessment of every individual kind of asset the bank holds. As a simple example, the loans which have been secured by only letters of credit will be deemed to be far riskier than those loans which are instead backed up by tangible collateral. These would similarly require a greater amount of additional capital than the ones with real collateral. The concept of Risk-Weighted Assets is relatively new and only dates back to the aftermath of the Global Financial Crisis. At this time following the worldwide financial meltdown from 2007-2009, the banking industry faced stark and rigorous new regulation as a drastic change following the crisis. The government regulators, spurred on by Congress with their Dodd-Frank banking reform act, came out with massive new and complex capital requirements for the financial institutions in the United States, Great Britain, and Europe especially. As a direct result of this historical phenomenon, today’s banks must hold far greater capital cushion levels than ever before. The dilemma for them is that the accounting rules surrounding these new regulations are extremely complex. Few investors nowadays are able to understand them really, yet they are critically important for investors in banks to grasp. The central pillar of the revised and still fairly-new calculations is the Risk-Weighted Assets. It would be next to impossible to work out the numbers here, but it is instructive and helpful to concentrate on the general meaning of the idea and to show some examples of how it works generally in practice. Investors can not understand a bank’s balance sheet any longer without having some command of the topic. Because the 2007-2009 financial crisis occurred mainly as a result of the banks and other financial institutions choosing to heavily back the subprime mortgage home loans, they suffered from massively higher defaults than regulators, investors, and government officials conceived was possible. These massive consumer defaults led to enormous capital sums being lost by the banks, which were too highly leveraged at the time. This caused some of the largest of them to become insolvent. Among these were Washington Mutual Bank (the largest savings and loans institution in history), Wachovia Bank, Bear Stearns, Lehman Brothers, Merrill Lynch, and many more. So that this problem can be avoided in the future, regulators force every bank now to combine their assets into categories which are similar by asset risk level. The idea is to stop the greedy banks from suffering devastating capital losses again as a single asset class plunges severely in value. Regulators use a few different kinds of tools in order to determine the level of risk for a given category of assets. As a huge percentage of assets the banks hold are loans, the regulators look at the loan repayment sources and the collateral value which underlies them. For example, commercial building loans generate both principal and interest payments. They do this using income from tenants in the form of lease payments. When buildings are not completely leased out, it is possible that the property manager will be unable to service the loan payments due to a lack of enough regular income. The building itself represents collateral against the loan. The regulators will contemplate the building’s value as part of the determination for Risk-Weighted Assets.

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Another example surrounds United States Treasury bonds. These are backed up by the federal governments’ ability to generate taxes. Since these government securities come with a higher credit rating than do the commercial building loans, the regulators will expect less capital to be carried for the bonds than they would for the commercial loans. Regulators understood these differences in risk levels and so decided that the only sufficient way to guarantee sufficient capital for a bank is to make them vary their capital requirements according to the risk they were taking with different types of assets. This is how the risk-weighted assets came into being in the first place.

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Roaring Twenties The 1920s were the original national era of irrational exuberance. In this decade, huge numbers of Americans believed that they could earn enormous fortunes in the stock markets. They ignored the fact that the markets could be volatile. This allowed them to justify investing all of their life savings in stocks. Those who did not have savings were able to get in on the action as well. They purchased stocks on margin or credit. This worked well until the markets dove on Black Thursday, Black Monday, and Black Tuesday on October 29 of 1929. At this point the country was grossly unprepared for the stock market crash of 1929. The ensuing economic devastation that the crashes caused proved to be a critical element in kick starting the Great Depression. The conclusion of World War I changed the national mood in the U.S. Americans were jubilant, confident, and optimistic about the future. They saw new inventions appear like radio and the airplane and everything seemed to be possible. The stock market already had earned its reputation for risk by this time. In the 1920s it no longer seemed risky. The country’s mood encouraged this as the stock market for once appeared to be an investment in a bright future that could not lose. With more and more individuals piling into the stock market, prices naturally started going higher. This first became noticeable in 1925. The rest of the year and in 1926 stocks trended higher and lower. In 1927 they put in a strong upward trend and showing. The powerful bull market fed on itself and lured still more individuals to invest in the markets. A full fledged boom had started by 1928. This resulting boom altered investors’ perceptions of the stock market. No one saw this as a place for long term investment at this time. Instead in 1928 the stock market represented a venue in which ordinary Americans felt that they could actually become wealthy quickly. At this point the enthusiasm for the stock market turned feverish. Everybody all over the country talked about stocks. These discussions over stocks occurred everywhere ranging from barber shops to parties. Newspapers told stories about regular Americans like teacher, maids, and chauffeurs who had made millions of dollars in the markets. This only increased the enthusiasm to invest more. Not every person could afford to purchase stocks. They solved this problem by allowing regular people to buy stocks on margin. When they could not front enough money to purchase them, their broker would take a 10% to 20% deposit of the price and loan them the additional 80% to 90% to purchase the stocks. This worked well while stocks were rising but in practice was very risky. When stock prices fell below the amount loaned, brokers would demand that borrowers find the cash to cover the loan immediately in a margin call. Speculators who hoped they could make huge amounts of money in the stock markets ignored this risk and purchased the stocks on margin whenever they could. They felt confident that the practically never ending increase in prices would only continue. They ignored the risks that they were taking. In early 1929, the race was on across the U.S. to invest in the stock market. Even companies were putting their corporate money into stocks as profits seemed to be a sure thing. Most dangerously, banks began

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investing customer monies into stocks and did not tell them about it. As long as stocks continue to roar ahead, everything appeared perfect. As the great crash approached in October, these businesses, banks, and speculators had a devastating lesson coming and were caught completely off guard.

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Robert Kiyosaki Robert Kiyosaki is the internationally acclaimed best selling author of the wildly successful book Rich Dad, Poor Dad. This book is considered to be the bestselling financial self help book of all time. It held a top place on the gold standard of publishing the New York Times bestseller list for more than six years. Fourth generation Japanese American and Hawaiian-born Rich Dad, Poor Dad author Robert Kiyosaki is not only a successful writer, he is an entrepreneur, investor, and educator. His unique take on investing and money often goes against the standards of conventionally accepted ideology. Almost by himself, he has managed to alter the ways in which literally tens of millions of individuals living in many countries throughout the globe think about investments and money. The recommendations of Robert Kiyosaki go against the old standards of financial advice. These were to obtain a high paying job, save up money, reduce and eliminate debts, buy a house as a primary asset, invest over the longer term horizon, and diversify all your assets. Kiyosaki has repeatedly called out these notions as both flawed and outdated. This has helped him to gain the reputation for no-nonsense direct talk, fearless courage, and even irreverent humor. Rich Dad, Poor Dad now holds the enviable record for being the longest lasting best selling book on each of the four lists which report in to Publisher’s Weekly. These include the New York Times, Business Week, USA Today, and The Wall Street Journal. National newspaper USA Today has honored the work with their “USA Today’s Number 1 Money Book” for two consecutive years. Besides this, the book has become the third longest lasting on the best seller’s list “how to” genre ever. Now the book has been translated into a staggering 51 different languages. It is available for sale in 109 countries of the world. Rich Dad’s series of books sold more than 27 million copies throughout the world. It continues to dominate the best selling lists around Europe, Asia, Australia, Mexico, and South America, where it did for years in the United States and Canada. Amazon honored Robert Kiyosaki back in 2005 by inducting him into their individual Hall of Fame. He gained the coveted spot of one of their Top 25 Bestselling Authors of all time. The Rich Dad series of books counts 26 different books within it. One of the more unique books in the series is the co-authored with President Donald Trump Why We Want You to Be Rich – Two Men – One Message. Naturally this debuted its first week as number one on the New York Times bestsellers list. Robert Kiyosaki also pens an every other week column for Yahoo! Finance entitled, “Why the Rich Are Getting Richer.” He writes a once per month column called “Rich Returns” on behalf of Entrepreneur magazine. Before he wrote his now legendary first book and the series, he had developed the educational board game called “CASHFLOW 101.” The goal with this endeavor was to instruct people on the investment and financial strategies which his own rich dad had invested years of his life in teaching Robert. These exact strategies in the board game helped Robert Kiyosaki to retire officially by age 47. Thanks to this track record and his enormous fame, today over 2,100 CASHFLOW Clubs exist. These are fully independent gaming groups that have no connection with Robert’s Rich Dad Company. These can be

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found around the globe. Besides all of these accomplishments, Robert Kiyosaki started an international educational firm back in 1985 to teach others investing and business. This company has now instructed literally tens of thousands of individual students around the globe. Kiyosaki sold the business, wisely invested the proceeds, and successfully retired then at 47. In the brief retirement, he wrote his life’s magnum opus Rich Dad, Poor Dad.

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Roth IRA A Roth IRA is a particular type of Individual Retirement Account. These Roth IRA’s prove to be special retirement plans that are given favorable tax treatment. The tax laws of the United States permit tax reductions on restricted amount savings for retirement accounts. Roth IRA’s are different from other IRA’s in several ways. Among the chief of these is that tax breaks are not given on monies that are put into the plan and account with a Roth IRA. Instead, these tax breaks are given out on the money and its investment gains when they are taken out of the account at retirement. This chief appeal of Roth IRA’s is that they provide completely tax free income at retirement. Other Roth IRA benefits over traditional forms of IRA’s exist as well. The restrictions placed on the kinds of investments that they are allowed to contain are fewer. You can turn them into gold IRA’s and annuity account IRA’s. Roth IRA’s can also contain all of the usual forms of investments that IRA’s contain, such as mutual funds, stocks, bonds, and certificates of deposit. More unusual investments such as real estate, mortgage notes, derivatives, and even franchises are allowed to be purchased with Roth IRA’s. These investment choices do depend on the capability and allowance of the Roth IRA trustee, or firm with which the plan is set up. Roth IRA’s also permit you to make un-penalized withdrawals of all direct contributions that you make, after the first five years of the account have and plan have passed, which is certainly not the case with traditional IRA’s. These distributions, or withdrawals, are not taxed because they are taxed before the contributions are made. The penalties are waived for principal, as well as interest and earnings in the account, if the distributions are for purchasing a house or for disability or retirement withdrawal uses. If there is not a justified reason for the distribution, then the account earnings and income made above contributions will be taxed. All IRA’s contain specific limits on the dollar amount of contributions that the government permits. This amount changes per year, and is set through the year 2011 now. Presently, you can put $5,000 per year into Roth IRA’s. There are income restrictions that govern whether you are allowed to make this full contribution as well. Individuals who make less than $106,000 are permitted to make full Roth IRA contributions, and those who make under $121,000 may make a partial contribution. Married couples who file together are allowed to earn less than $167,000 to make their full contribution to the Roth IRA, while those who make under $177,000 can do a partial contribution. Roth IRA conversions from traditional IRA’s have been allowed by the IRA in the past, although with certain income restrictions. Beginning in 2010, this policy changed. Now the IRS permits any persons, regardless of how much money that they make, to convert their traditional IRA’s into Roth IRA’s.

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Royalties Royalties are payments which owners receive in exchange for the use of their property. This most typically covers natural resources, franchises, patents, and copyrighted works. Royalty payments go to the property in question’s legal owner. Individuals who want to utilize the owners’ patents, property, franchise, natural resources, or copyrighted works will do so with the intention of creating a revenue stream or realizing a lump sum income. Royalties are typically intended to provide compensation for the licensing of the asset. As such, these arrangements become legally binding. Much of the time, these royalties are stated in percentage of revenue terms. They can also be arranged to fit a particular scenario or environment. They are often employed as the vehicle for realizing income in instances where the owner, inventor, or natural resource holder wishes to sell the product in question in exchange for payments against future revenues that this activity might create for the third party licensor. An example of this is Microsoft. The computer software giant earns a royalty from every installation of the internationally standard Windows operating system on almost any computer a manufacturer produces. Such an example relates to creative content, copyrights, and patents. A royalty could also apply to resources, trade marks, art works, books and published works, copyright materials, franchises, patents, and resource holdings. Even fashion designers are able to charge a royalty to other companies that wish to make use of their designs or names. Authors, production pros, and musical artists also receive this kind of compensation when a firm or individual uses their copyrighted and produced works. Cable and satellite firms pay a royalty to the owner of a television channel so they can offer the most stations in a country. The oil and gas business is one that is rife with royalties. Companies provide a royalty to a landowner in exchange for permission to gather the natural resources off of their private property. This might amount to so much money per barrel of oil or per cubic foot of natural gas which they extract. A license agreement is a key component of a royalty. It represents the terms by which the property owner will receive the payments. This clearly and legally explains the restrictions and limitations of the royalty in question. As an example, it would deal with the length of time the agreement will endure, the geographic territorial limitations, and the specific amounts they will pay for the various kinds of products utilized or extracted. These types of license agreements are differently and specifically regulated depending on whether the owner of the resource or property in question is a private individual or the government. A royalty rate represents the specific amount of payment that must be paid for a given service or product. This will naturally depend on the kind of fee the third party is providing. There are a number of different factors involved in a royalty rate. Among the most frequently cited examples are alternative option availability, rights’ exclusivity, the relevant risks involved, technological sustainability, structure of the market demand, and scope of the innovation which the service or product offers. These terms should not be confused with a royalty trust unit. Such units provide the holder of the unit with a share of the income which the properties a trust owns actually produce. These royalty trusts

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acquire ownership stakes in cash flows or general operating concerns. The royalty trust itself will own the cash flow or income which the company is generating. They will then pass through this money to the trust royalty unit holders. Such royalty units have often been viewed as positive and desirable investments since the income which the asset creates only becomes subject to individual tax levels. There is no socalled “double taxation” as common stocks dividends experience (on both the company earning the money and then the person receiving it again).

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Rudolf von Havenstein Rudolf von Havenstein was the Central Bank Governor of Germany before, during, and following World War I. Though he served his country in this capacity for fully 15 years, he is generally remembered as the architect of Germany’s disastrous hyperinflation during the years from 1921 to 1923. Havenstein’s name is often invoked today as a cautionary tale to central bankers who play with fire experimenting with quantitative easing and negative interest rates. Von Havenstein began his career working as a German lawyer. He was born before the country achieved unification in March 10, 1857 in Meseritz within the province of Posen. His family worked as government officials. Because of this, he studied law himself in Heidelberg and then Berlin. Havenstein followed in his family footsteps into public service when he began serving in the Prussian Justice Service as a judge through 1887. His career took a decisive turn in 1890 when he began serving at the Prussian Ministry of Finance. Von Havenstein attained the highest financial post in Prussia by 1900 when he was elevated to the top job of President of the Prussian State Bank. He served ably in this capacity from 1900 to 1908. Von Havenstein received his ultimate promotion in 1908 when the Kaiser Wilhelm II elevated him to President of the Reichsbank. He worked in this critical capacity from 1908 to 1923. Von Havenstein’s signature is featured on all German Reichsbank bank notes during these years. When the First World War erupted, Rudolf Von Havenstein went along with the Kaiser and advocated paying for the war by borrowing money instead of introducing an income tax on Germans. To this effect, he played an instrumental part in the introduction of German war bonds when the war broke out. Germany paid dearly for this decision to finance the war with debt instead of an income tax, in particular after they lost the war and became saddled with an enormous war indemnity to pay for the other nations’ costs as well. During the war, the gold standard had already been suspended in Germany, ending fiscal responsibility. With the war over and the nation’s finances in shambles, the national war debt still remained. Von Havenstein did not see any other way out of the financial disaster than to print up enough money to cover the debts and boost the economy with additional government spending. At the time, economic academics believed that the money supply had nothing to do with the level of inflation in a country. As Von Havenstein printed more money, the value of a gold Mark increased astronomically in value. One gold Mark bought slightly more than 100 paper German Marks in January of 1919. By November of 1923, the same amount of gold purchased an astonishing 100 trillion paper German Marks. At this low point in his otherwise illustrious career, Rudolf Von Havenstein died on November 20th of 1923. The end result of the fiscal policies pursued by Rudolf Von Havenstein was that the crippling hyperinflation completely destroyed the German economy. The Weimar Republic collapsed economically as well as politically. Government institutions dramatically weakened in the aftermath of the financial and political collapse. German politics dramatically destabilized. The negative shift in the political spectrum that resulted led to the rise of Adolph Hitler less than ten years later. It contributed to the outbreak of

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World War II. Critics of today’s experimental fiscal and monetary policies are once again drawing comparisons with the life and times of Von Havenstein. In June of 2016, the 30 year Swiss interest rate turned negative, and the 30 year Japanese yields followed suit shortly thereafter. Germany’s 10 year yields turned negative in June as well. The European Central Bank just began purchasing corporate bonds of non financial companies in an effort to turn their yields lower as well. The lessons of Von Havenstein appear to have been lost on modern day economic policy makers who are desperately searching for solutions to crippled economic growth in industrial nations.

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Run on the Bank A run on the bank is the vernacular expression for a bank run. Runs on the banks actually happen as a result of many bank customers deciding to take out their deposits at one time. They do this out of fear that the bank is either broke or on its way to becoming insolvent. When runs on the banks get started, they have a tendency to create their own terrible momentum that leads to a self fulfilling prophecy. The more customers who take out their money, the greater the odds of bank default become, which leads to still more customer deposit withdrawals. If this happens long enough, it will likely upset a bank’s finances to the point that the bank encounters bankruptcy as a result. Runs on the bank can often lead to bank panics. These financial crises result from a large number of banks experiencing bank runs all at once. If the bank panics are not dealt with swiftly and convincingly, then a systemic banking crisis can develop. In such a banking crisis that is system wide, it is not uncommon to witness practically all, or even all, of a country’s banking capital disappear. Once this occurs, numerous bankruptcies follow, many times ending up in a deep and painful economic recession or even depression. Bank runs created a great amount of the economic damage that you saw done in the Great Depression. Associated costs of fixing the mess related to a systemic banking crisis are enormous. Over the last forty years, these expenses around the world have averaged fully thirteen percent of the respective countries’ Gross Domestic Products in fiscal costs, leading to losses of economic output that averaged twenty percent of Gross Domestic Product. Runs on the bank are able to be prevented with a few different strategies. Withdrawals can be suspended. More effectively, deposit insurance systems can be put in place, like the one that the Federal Deposit Insurance Corporation operates in the United States. The Central Bank may also help out banks by performing the function of the lender of last resort in times of banking crises. Such strategies are commonly effective, but not always. Even when countries possess deposit insurance, the bank depositors could still be fearful that they will not have instant access to their bank held deposits while the bank is reorganized by the FDIC. The reason that runs on the bank are able to happen in the first place is because of the fractional reserve banking system. Modern day banks only keep a small percentage of their demand deposits in cash on hand, typically ten percent in developed nations. The rest of these deposits are tied up in loans that have longer terms than demand deposits. This leads to a mismatch of assets and liabilities. Though some banks keep better reserves than others do, no modern bank keeps sufficient reserves in its vaults to handle the majority of their deposits being withdrawn at a single time.

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Russell 2000 Index The Russell 2000 Index represents a British-based American stock market index which measures the actual price performance of around 2,000 small cap companies located in the United States. It is actually a portion of the far larger capitalized Russell 3000 Index, comprised of the 3,000 largest American stocks. The Russell 2000 still equates to the major benchmark for the United States’ based small cap stocks today. The way these two indices work is that the complete index is the Russell 3000. The lower capitalized 2,000 stocks in this 3000 Index are the ones comprising the Russell 2000 Index itself. FTSE Russell is the subsidiary company of the world renowned London Stock Exchange Group, based in the United Kingdom, which created and maintains the popular benchmarking index. Without a doubt or real rival, the Russell 2000 Index proves to be the most frequently relied upon benchmark for the various families of mutual funds that present themselves in their prospectuses as small cap funds. Conversely, with large cap stock-based mutual funds, they rely on the S&P 500 index. It means that this Russell 2000 is easily the most frequently and universally referenced measurement for the aggregate performance in the mid cap to small cap company space and their corporate stock prices. Though it is the bottom 2,000 issues in the Russell 3000 Index, the market capitalization weighting of the 2,000 bottom stocks only turns out to be a mere eight percent of the overall market cap within the all around Russell 3000 Index. The ticker symbol for the Russell 2000 is ^RUT on most platforms and trading systems. Per March 31st of 2017, the market capitalization weighted average for companies in the Russell 2000 remains about $2.3 billion, while the median market cap proves to be approximately $809 million. The biggest company in this popular market index has a market cap amounting to nearly $13.3 billion. The index first traded higher than the 1,000 point mark between May 21st and May 22nd in 2013. A similar but not serious rival to this small cap behemoth index is the S&P 600, produced by Standard & Poor’s. It is far less frequently sourced and cited, as are other competitors maintained by various rival financial providers. One unique breakdown of the Russell 3000 and Russell 2000 indices is for a special sub index called the Russell 3000 Growth Index. Included in this special index are companies which demonstrate greater than average levels of growth. This is why this growth index is utilized as a best measurement gauge of the American growth segment stocks. In order to be included in the Russell 3000 Growth Index, they must demonstrate higher forecast earnings and greater price to book values. The company Russell Investments has a precise procedure for determining these various indices component stocks. They screen the biggest 3,000 common stocks in the United States to form the Russell 3000 Index. The biggest 1,000 companies screened are named composite members of the Russell 1000 Index, while the subsequent 2,000 companies become members of the Russell 2000 Index. Russell Investments has strict rules on those issues which can not be included in their indices. They may not be either foreign stocks or ADR American Depository Receipts. They also can not be components of the BB bulletin board stocks or OTC pink sheet stocks.

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It is interesting to note that investors who like this Russell 2000 Index have a number of options in both exchange traded funds as well as mutual funds that do their best to replicate its real performance. None of them match it perfectly though. This is because there are trading costs and expenses involved in acquiring the various 2,000 component companies, stock selection market cap imbalances, and changes to the index’s constituent companies which are difficult to replicate with precision. Investors can not directly invest in the index itself, or any stock market index for that matter.

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S&P Global Market Intelligence S&P Global Market Intelligence is the new name for the once independent financial and news service provider SNL Financial. This outfit is now one of several divisions of S&P Global. The purpose of all of the work done at S&P Global Market Intelligence is to put its myriads of high quality data to best use. Customers are able to access massive amounts of financial data and market data which has been compiled from literally millions of sources. This is then delivered in milliseconds to clients upon demand via their computers, laptops, tablets, and other mobile devices. S&P Global Market Intelligence allows its clients to increase the power and knowledge of their investment processes. They can do this by utilizing a total insight through fixed income, equities, mutual funds, ETFs, currencies, credit ratings, and commodities. The long time standout SNL news has combined with the S&P Global Market Intelligence database of aftermarket, proprietary, and aggregated sell side research. The service particularly emphasizes a substantial variety of data which is focused on particular sectors. This includes information on markets, financials, demographics, and peers. News particular to each of the sectors offers a greatest possible level of insight to provide a full picture of the industry in question. The sectors covered include all of the following: banking and financial services, energy, metals and mining, insurance, real estate, and media and communications. The service also delivers analysis which is specific to given sectors. This is more than simply broker reports and basic level financials. It provides important metrics and in depth ratios which matter for the relevant industry in question. There are also competent analyses, sector specific projections, and research available. Commentary and research is a key feature of the information provided. There are info graphics, research papers, and webinars specific to the various sectors which are delivered by the company’s experts. Clients are able to examine company rankings for their sectors, to build their knowledge base, and to take advantage of in person and online training seminars which are offered. Finally, S&P Global Market Intelligence offers full service consulting and reporting capabilities. Users are able to construct models which are specifically tailored to their own workflows and needs. They can also rely on the consulting services provided by the company itself for help with custom studies, expert valuations, white papers, and other needs. The service is the winner of numerous awards and accolades. For 2016, it received the nod for the “Best Contemporary Data Provider” of 2016. Its Alpha Factor Library won the “Best Specialist Product” award. In 2015 it garnered the accolade for “Best Performance Measurement and Attribution System Provider” for the year. SNL was also named one of the “Fastest Growing 2015 Private Companies.” Ironically this was also the last year of the company’s existence as a private, stand-alone outfit. It was first acquired by McGraw Hill Financial in 2015 before merging with S&P Global Markets. The resulting new entity bears the name of S&P Global Market Intelligence. This organization now brings its clients the most specific, comprehensive, and dependable sector-based financial information in the entire

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data industry.

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Sale And Leaseback A Sale And Leaseback is also known as a simply leaseback. This arrangement involves an asset seller who first sells the asset or property in question then immediately leases it back exactly as it is from the buyer. These types of deals are fleshed out and contracted immediately following the asset in question’s sale. The precise amount in payments and the specific time period to be covered are both set at this point. It amounts to the asset seller personally becoming the lessee while the buyer becomes the actual lessor under such an arrangement. Many owners of small to medium sized enterprises (SMEs) find that they require a great deal of fresh capital in order to expand their operations. There are a number of different ways in which they can come up with such capital. Two of the more popular and better known ones are surrendering equity in order to obtain funds or taking on debt either as bonds or secured loans. With equity, it does not have to be repaid to the provider. The cost for this is that a portion or even all of the ownership of the enterprise is surrendered. The tradeoffs for debt are that it has to be repaid one day (or in regular periodic payments). It also appears as debt on the balance sheet of the company, which may impact future opportunities for financing, debt purchases, or obtaining fresh capital via an equity offering. Hybrid arrangements which are not either equity or debt are these Sale And Leasebacks. Instead they function more as a hybrid form of debt arrangement and product. The firm entering into the deal will not grow its debt load, yet it still manages to achieve the goal of accessing capital by selling assets. Some have referred to this as a company variation on the consumer-entered pawn shop arrangement. Extrapolating on this example, the company in question goes down to the pawn shop and provides them with a valuable piece of property or asset. In tradeoff for this asset, the company receives an agreed upon amount of cash. The only point where this comparison breaks down concerns repurchasing the asset in question. In a sale and leaseback, no one expects that the company will attempt to repurchase the property or asset, only that they will make periodic payments in order to utilize the asset. Consider the following example. The fictitious company Johnny Appleseed Orchards requires more funding to pay its increasing numbers of contractors and employees. It is unable to obtain funding from banks thanks to a downturn in the lending market brought on by the Great Recession and Financial Crash of 2007. The company decides it will sell half of its orchard acreage to an investment company which wishes to become involved in realizing an income stream from the sale of produce. The acreage is instantly leased back to the owner-operators of Johnny Appleseed. This benefits them if the cost to lease back the acreage is less than the interest rate and total interest payments on higher interest loans they would otherwise be forced to seek. The most typical type of a sale and leaseback occurs with builders and those firms that have many expensive and fixed assets. This is useful when they require cash which is tied up in their costly assets to utilize for other capital needs or investments, yet they still require use of the equipment or assets so that they can continue to run their business. Such sale and leasebacks and their arrangements also give the seller of the asset some beneficial tax

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deductions. The lessor gains the advantages of a stable payment and guaranteed lease arrangement which continues for a predetermined and contractually pre-set amount of time. Such sale and leaseback deals do come with a whole different set of regulations for accounting purposes than do debt arrangements. Despite this, they are not called financing in most of the cases. This keeps them as off-balance sheet arrangements. Some analysts will therefore add on capitalized leases such as these to the category of longer term debt. They do this especially as they are attempting to gain the bigger picture view of the firm in question’s aggregate debt obligations.

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Sales Tax Sales Tax refers to a government imposed tax on consumption of both services and goods. Traditional sales taxes are collected at the appropriate points of sale. The retailers gather the money which they then pass on to the appropriate governmental agency. Businesses are also liable to pay such sales taxes to the relevant jurisdiction (state or local government) if they have what is known as a nexus in that jurisdiction. This could be an employee, physical office location, presence of some other type, or an affiliate. The laws of the jurisdiction in question determine which of these criteria apply in determining business residence. Conventional forms of sales taxes only become charged to or are payable by the final seller of a service or a good. Since the overwhelming numbers of goods in today’s economies go through a range of manufacturing points and stages, they become a part and parcel of many different entities’ operations. This means that great quantities of paper work must be kept and filed in order to determine the end seller who will be finally liable for the sales taxes owed. As an example to better understand the dilemma this poses, consider a sheep farmer. The farmer sells his wool to a firm which makes yarn. The yarn maker would be responsible for the sales tax unless it is able to gain a resale certificate from the responsible governmental agency. This certificate must declare that the yarn maker is not the final user. Next, the yarn maker will sell its yarn products to a clothing manufacturer. This manufacturer also has to get such a resale certificate. The clothing maker then sells its wooly sweater to an outlet store. It is this outlet store that must charge sales tax to its customers besides the price of the sweater. The various jurisdictions all charge their own sales tax rates. This can be confusing as they are also overlapping on one another. In some localities, the state, the county, and even the municipality (city or town) will all levy their individual sales tax amounts. The nexus point raises an often-confusing set of issues for many businesses. They are only resident to a particular jurisdiction (state or locality) if the government there defines the nexus in a way that will call them resident for business purposes. Such a nexus is defined usually by the criteria of physical presence. Such a presence may not only be limited to maintaining a warehouse, factory, or office though. It could mean that a company which has an employee who lives in the state will be considered to have a nexus. Partner websites (which direct traffic over to a business’ websites in exchange for cash payments), or affiliates, can also be considered to be part of a nexus. This illustrates the difficulties encountered between sales tax collection and the sprawling and growing arena of e-commerce. Bigger states like New York have enacted what they call “Amazon laws.” These make all internet retailers selling goods to customers in their states pay the sales tax, regardless of whether or not they maintain a physical presence in the state. The laws were named for the giant Internet retailers like Amazon.com. Sales taxes usually work on a percentage basis of the goods’ prices. As an example, states could collect a five percent sales tax, while the county gets two percent, and the city one percent. This would mean the residents in that given city of the county would have to pay a total sales tax of eight percent. Many necessary items can be exempt from these taxes to help the lower income earners. This includes

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food as well as sometimes clothing items which cost under $200 in total. Other taxes specially levied on only certain products are called excise taxes. Many of these the states refer to as “sin taxes.” In essence, this kind of excise tax would cover cigarettes and alcohol, which have been historically labeled by the churches as sins. New York State levies a $4.35 excise (and “sin”) tax on every pack of cigarettes, as of 2016.

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Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 is also properly called the Public Company Accounting Reform and Investor Protection Act of 2002. It is more typically referred to by its abbreviation SarbOx or even SOX. Congress passed this much needed reforming federal law of the United States because of a variety of significant accounting and corporate scandals that successively rocked the nation. Among these were Enron, WorldCom, and Tyco International. Such scandals eroded the already low public trust Americans held in both accounting and reporting procedures. The law became named after its two sponsors the democratic Senator Paul Sarbanes of Maryland and the republican Representative Michael Oxley of Ohio. The vote on the act proved to be nearly unanimous as the Senate passed it 99 – 0 while the House approved it 423 – 3. The legislation proved to be far reaching. As such it created improved or new standards for every publicly traded U.S. company management, board, and public accounting company. Congress was also hoping to safeguard investors from fraudulent accounting practices that corporations had been increasingly engaging in over the years. The SOX decreed strict major structural changes that were intended to step up corporate financial disclosures and stop accounting fraud. The numerous early 2000s years accounting scandals prompted Congress to act to improve the deteriorating situation. The failures at Enron, WorldCom, and Tyco had severely shattered investors’ confidence in public financial statements. These led to a massive overhaul of the standards that regulated reporting in the industry. The act itself is comprised of 11 sections or titles. These run the whole spectrum and range from criminal penalties to the responsibilities of Corporate Boards. The SEC Securities and Exchange Commission is charged with implementing the new rulings and requirements for compliance with the provisions in the new and improved corporate governance law. Some observers felt the new legislation turned out to be important and helpful. Others believed that it actually created more economic harm than it stopped. Still others claimed that the act itself was more modest in its scope and reach than the tough rhetoric that surrounded it proved to be. The initial and most crucial ruling of the act set up a new semi-public agency. This Public Company Accounting Oversight Board was tasked with regulating, overseeing, inspecting, reprimanding, and disciplining any accounting firms who failed in their critical jobs as public company auditors. The SOX Act also deals with important matters like corporate governing, auditor independence, and improved financial disclosure practices. Some analysts have called this among the most substantial changes to United States laws dealing with securities since President Franklin D. Roosevelt’s New Deal in the 1930s. These regulations and accompanying policies for enforcement, which the SarbOx laid out, changed and supplemented legislation that already existed and pertained to regulating securities. Two key provisions emerged from the SOX Act. In Section 302, a mandate was established requiring upper level management

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to personally certify and sign off on the accuracy of the financial statement as reported. Section 404 provided a new requirement regarding internal controls and methods for reporting that auditors and corporate management were required to establish. The controls had to be determined to be sufficient enough to ensure accuracy. Publicly traded companies were less than pleased by this section. It implied costly changes would be required from companies which would have to create and build the necessary internal controls from the ground up. This proved to be expensive to implement.

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SARSEP SARSEP is an acronym that means Salary Reduction Simplified Employee Pension Plan. The government offered this advantageous retirement vehicle to those small businesses which possessed fewer than 26 employees. With this SARSEP, employees receive their own SEP IRA account in their specific individual name. They and their employers can both make contributions to the accounts. These accounts are interesting primarily because they were stopped in January of 1997. In 1996, Congress passed the Small Business Protection Act which eliminated the SARSEP accounts. They became replaced by Simple IRA plans on a going forward basis. Those SARSEPs that already existed have been grandfathered in to the system. They continue to function unchanged as before. Employees may make contributions to their accounts by using pre tax reductions from their salaries. Employers also may contribute as they so desire. Their total is limited to the lesser amount of either $53,000 or 25% of the total salary of the employee. Employees are limited to an annual contribution amount of $18,000 (or $24,000 if they are 50 years or older). Besides this, net profits limit the total amount of all contributions that can be made to the account. These may not be greater than 18.6% of the company’s net profits for 2016 per the SEP IRA self employed rules. All of this means that SARSEPs are SEP IRA collections held by an employer. The individual accounts of employees are governed by the IRS rules for SEP IRAs. The IRS does allow transfers or rollovers to be made from SARSEPs. Employees can do these without incurring tax penalties by moving the money to another account that is also qualified. Both plans in question have to permit rollovers from other retirement savings vehicles. Individuals may also choose to move a part of the account value or the whole account balance in an SEP rollover. Anyone who receives distributions before reaching the minimum retirement age of 59 ½ will be penalized with the 10% early withdrawal penalty. To avoid these problems by accident, direct rollovers make more sense than indirect rollovers. With an indirect rollover, there are requirements for withholding. Accidental early distributions still incur penalties if the rollover is not completed within 60 days. SARSEP accounts are unusual retirement vehicles. They may hold precious metals and a variety of other non traditional investments within them. These include individual stocks and bonds, mutual funds, options, ETFs, CDs, real estate holdings, and physical precious metals bullion. This makes these SEPs more versatile than the traditional and other types of IRAs. They permit investment choices from regular IRAs as well as hard commodities and land. This makes SARSEPs one of the only ways to possess actual gold, silver, palladium, or platinum in a retirement account. Per the IRS, legally these types of accounts can hold all of these different kinds of assets. The only exception to this ability comes down to the particular contract of the individual accounts. The SEP IRA custodian may not make all of these types of investments available to their account holders. Also choices for such investments can be limited by the written employer account agreement. This is why it is critical to read these agreements and to talk with the account custodian before making investment

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choices. In the event that physical precious metals are not permitted by the custodian or employer, paper gold is still an option. This includes Gold ETFs or gold miner ETF shares, as well as gold mining company stocks.

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Savings and Loan Crisis The most significant collapse of banks since the Great Depression in 1929 became the Savings and Loan Crisis of 1989. In 1989, over a thousand of the Savings and Loans in the country had collapsed. This brought to a close a route that had long been a secure means for obtaining home mortgages. It turned out that half of the failed S&Ls in the country came from Texas. This pushed the Lone Star state into a recession. Poor investments in land and housing were auctioned off and crashed prices. The vacancy rate for offices increased to 30%. Crude oil prices plunged by 50%. Cases emerged of illegal practices. Empire Savings and Loan and other Texas banks were charged with criminal activities such as flipping land illegally. The government had established the FSLIC Federal Savings and Loan Insurance Corporation to insure the S&L deposits as the FDIC does with regular banks. The problem arose as the S&L failures cost $20 billion from the FSLIC. They could not cover all of the costs which bankrupted them. Over 500 of the bank failures had been insured by other insurance run by state funds. Their collapse created costs of more than $185 million. This ruined the ability of state run insurance funds to protect bank depositors. The crisis also took down five American senators called the Keating Five. They had taken campaign contributions of $1.5 million from the president of the Lincoln Savings and Loan Association Charles Keating. These senators pressured the government regulator Federal Home Loan Banking Board to not look into suspicious and potentially criminal involvement by Lincoln S&L. The S&L crisis erupted because of a relaxing of standards that governed them. S&Ls had been unique banks which were allowed to receive funds from low interest deposits from savings accounts to make mortgages. In the 1980s a challenger to these savings accounts became popular in the form of money market accounts. They offered higher interest rates to savers. The S&Ls could not compete and were losing their funding source. They went to Congress to request a lifting of restrictions on their low interest rates they paid. The Garn-St. Germain Depository Institutions Act resulted in 1982. S&Ls could then offer higher interest rates and were not limited to mortgage loans any longer. Now they could make consumer loans and commercial loans as well. Bigger problems came from the lifting of loan to value ratio restrictions. Also the Reagan Administration cut back on budget for the Federal Home Loan Bank Board which caused them to cut their regulatory staff. They no longer had the man power to look into potentially risky loans. The S&L banks engaged in risky activities to try to raise capital for lending. They became involved with speculative commercial and real estate loans. In only a few years to 1985 they built up their assets of these types of speculation by 56%. Forty different S&Ls in Texas tripled their size by expanding as much as 100% annually. In 1983 as many as 35% of the S&Ls in the nation were not making money and 9% had been bankrupted technically. Federal and state insurance money proved to be insufficient as the banks continued to fail. A number of unprofitable S&Ls kept operating and making poor loans as losses mounted.

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President George H.W. Bush and Congress bailed out the S&L industry with the FIRREA Financial Institutions Reform, Recovery, and Enforcement Act in 1989. This gave $50 billion of tax paper money to shut down the failed S&Ls. It also created an agency called the RTC Resolution Trust Corporation to sell off these bad assets. Proceeds went to pay off depositors who had lost money. In the end the crisis cost $160 billion, of which $132 billion came from tax paper money.

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SDR Denominated Bonds SDR denominated bonds are a fairly recent phenomenon. These are bonds issued in special drawing rights currency units. SDR units are a basket of the world’s most important currencies including the U.S. dollar, Euro zone euro, Japanese Yen, British pound sterling, and the Chinese Yuan. The International Monetary Fund’s executive board approved a framework to issue such bonds to member nations and central banks back on July 1, 2009. The principle of these SDR denominated bonds was intended to be allocated in SDRs. The market for such bonds was established initially as the official sector of IMF members. This meant it was to include primarily the member nations, relevant central banks, and another 15 holders of SDRs. Included in these 15 prescribed holders are four central banks which were regional, eight developmental organizations, and three monetary agencies which were intergovernmental. Others allowed to trade in them were the fiscal agencies of the members. This means that a number of sovereign wealth funds were allowed to participate as there are not always distinguishing lines between national monetary authorities and their sovereign wealth funds. This is the case with Hong Kong and Saudi Arabia. The IMF issued SDR denominated bonds were to start with three month maturities that could be extended to as long as five years. Interest payments on these instruments were quarterly. China signed an agreement to buy upwards of $50 billion of them, while Russia, India, and Brazil intended to buy as much as $10 billion each. SDR denominated bonds again gained the international spotlight in August of 2016 when the World Bank’s IBRD International Bank for Reconstruction and Development priced the first such bond in the Interbank Bond Market of China. This bond raised 500 million SDR units, which were equal to about $700 million US dollars. These bonds came with a three year maturity date. Their coupon interest payment rate was .49% per year. What made them most notable was that the payments are issued in Chinese Yuan. This group of bonds is only the first batch. The full size of the issue approved by the World Bank SDR Denominated Issuance Program in August 12, 2016 is for 2 billion SDR’s, making them equal to roughly $2.8 billion US dollars. Even in China, placing so many SDR denominated bonds is a challenge. This is why the joint lead managers for the Interbank Market were several important banks with great depth in China. These included HSBC Bank of China Company Limited, the Commercial Bank of China Limited, China Development Bank Corporation, and China Construction Bank Corporation. The issue was a great success. The significant interest in them led to a 2.5 times oversubscribing. Orders amounted to roughly 50. Fifty-three percent of them came from bank treasuries, 29 percent from central banks and official institutions, 12 percent from asset managers and securities firms, and six percent from insurance companies. These bonds will mature on September 2, 2019 with all payments coming from the World Bank’s IBDR to be made to bond holders in Chinese Yuan.

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Secondary Market The secondary market refers to that securities trading market in which investors are able to purchase and sell securities that they own. Most individuals would simply call this the stock market. It is also true that stocks are additionally sold on the primary market at their first time and point of issue. Secondary markets in the United States include the NASDAQ and NYSE New York Stock Exchange. In Europe they include London’s FTSE, the Euro Next, and Germany’s Deutsche Bourse. There are more than simply stocks traded on the secondary market. Stocks do prove to be the most heavily traded securities on these exchanges. Other types of securities available on such markets include bonds and mutual funds. Individual and corporate investors along with investment banks both sell and buy all three types of securities on the secondary markets. Besides this, Freddie Mac and Fannie Mae the GSE government sponsored enterprises buy mortgages on such a secondary market. These transactions that take place on this secondary market are simply a step away from the original transaction which created the relevant securities in the first place. Looking at an example of this process helps to clarify it. JP Morgan will underwrite mortgages for customers. This actually creates the mortgage which is a security. JP Morgan might then choose to sell the mortgage security on to Freddie Mac in a secondary transaction in this market. There are important differences between the primary and secondary markets. In the cases where corporations issue their bonds or stocks initially and then sell them directly to various types of investors, this is a primary market transaction. IPOs initial public offerings remain among the best-known and most heavily advertised transactions of the primary market. In such an IPO, the transaction occurs directly between the investment bank IPO underwriter and the buying investor. All resulting proceeds that come from the stock shares would then be delivered to the issuing company directly. The bank would subtract any agreed upon administration costs before handing over the funds. Later on in the life cycle of these new stock shares, the first investors might opt to sell their individual stakes in the corporation. They would do this on the secondary market. All such transactions occur between investor parties. This means that the resulting proceeds from sales accrue to the investor reselling the stock. They do not go back to the firm which originally issued the security nor its underwriter investment banks. In general, prices on the primary market will be pre-arranged in advance of the transaction. Those prices from the secondary market are arranged by the interaction of supply and demand forces. When most investors are convinced that a given stock will rise in value and decide to race out to purchase it, this causes the stock price to rise generally speaking. When investors decide a company is out of favor or it is unable to deliver strong enough earnings results, then the stock price drops as the demand for such a security evaporates. There are many more secondary markets than just one. The numbers are constantly going up because new financial securities always appear on the markets. Where mortgage assets are concerned, there are a few different secondary markets that exist. This is in part due to the fact that clever investment banks created bundles of mortgages. They then engineered these bundles into securities like MBS and GNMA pools.

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Finally they resell these to investors on the secondary markets. The secondary market can also be subdivided further down to two other types of markets. These are the auction market and the dealer market. The auction market is a physical place like a stock market exchange where they bid on and sell securities publicly. The dealer market on the other hand involves purchasing and selling securities via electronic networks which are run over phones, customized order routing machines, or fax machines.

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Secretary of the Treasury The Secretary of the Treasury is a cabinet level post in the Federal Government of the United States. This important individual bears many significant responsibilities for the country. Treasury secretaries must create and recommend both international and domestic economics, financial, and tax policies to the President of the United States. The Secretary is also expected to actively participate in creating broad and far reaching fiscal policies that significantly impact the U.S. economy. This leader must generally oversee all activities which the Treasury Department engages in as part of his responsibilities for law enforcement. He is the American government’s foremost financial agent. The Secretary of the Treasury also oversees the process of the department in creating currency and coins which are issued into the American economy. The Secretary of the Treasury is also responsible for managing and overseeing the national public debt. This has become a more difficult task with government deficits increasing the public debt to over $19 trillion dollars by the third quarter of 2016. Typically the government is forced to borrow nearly as much as it receives in tax receipts to cover the shortfall. Ultimately the Treasury secretary is responsible to ensure that these issues of government debt in the form of Treasury bonds and bills are successfully subscribed to so that the government will be able to continue to function and pay its bills. As Secretary of the Treasury, the person in this role is the Federal government’s chief financial officer. He serves on a variety of important boards. One of these is the President’s National Economic Council. Treasury secretaries are also chairmen of a number of critical boards. They serve as Managing Trustee and Chairman of the Boards for both the Social Security Trust Funds and Medicare Trust Funds. They are Chairman of the Thrift Depositor Protection Oversight Board as well. The Secretary of the Treasury is also the governor of a number of important international institutions. He is U.S. Governor of the International Bank for Reconstruction and Development, the International Monetary Fund, the Asian Development Bank, the Inter American Development Bank, the European Bank for Reconstruction and Development, and the African Development Bank. As of 2016, the present Secretary of the Treasury is Jacob J. Lew. President Barrack Obama appointed him in 2013. The United States Senate confirmed this appointment on February 27th of 2013. The new President who takes office in January of 2017 will have the discretion to choose Jacob Lew’s successor. The Treasury of the United States secretary office is the one office at Treasury that proves to be older than the actual department itself. The first Treasurer received the charge to handle receiving and keeping of government funds. Nowadays, most of these responsibilities have been assumed by one of the many Treasury Bureaus. The Treasury secretary gained responsibility to oversee both the U.S. Mint and the nation’s BEP Bureau of Engraving and Printing back in 1981. The Treasurer also gained the title National Honorary Director of the U.S. Savings Bonds Campaign in 1994. This is a job that requires them to wear many hats and

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oversee a number of bureaus within their department. They are assisted in this task by the Deputy Secretary of the Treasury.

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Securities Securities refer to financial instruments which stand for a position of ownership in a corporation which is publically traded. These would be stock shares. They could also be a creditor-like relationship to a corporation or a government entity or agency. This security would be called a bond. They might also be an option, which is the right but not obligation to acquire and own something. A security is ultimately a financial instrument that an investor or company can sell or transfer and which represents a kind of financial holding and value. The entity or corporation which provides the security to the investors is called the issuer. There are two principal types of securities, equities and debts. Equities refer to shareholder-held ownership of a corporation. A stock is the most common example of these equities. Equity holders may receive dividends and sell their position to another party for a capital gain when the price increases to higher than they that for which they purchased it originally. Debt securities are proof of creditor-borrower arrangements. These stand for money which a corporation or government agency borrows and which they must repay to the creditor. The debt security has terms which outline and specify the cash amount that they have borrowed, the maturity or renewal date, and the interest rate that applies. There are many forms of these debt instruments. The most common include CDs certificates of deposit, preferred stocks, corporate and government bonds, and CMOs or CDOs which are Collateralized Mortgage Obligations or Collateralized Debt Obligations. Besides the standard forms of debt and equity types, there are also hybrid securities. They merge features of an equity and debt security together. Equity warrants are classic examples of this type of security. These are options that a company issues which provide its holders with the ability to buy stock shares in a given time frame for a pre-determined price. Convertibles are bonds which may be transferred into stock shares of common stock in the company which issues them. Preferred shares are actual shares of stock that pay dividends or interest ahead of the common stock class of shares. Two main organizations regulate the issuance and sale of such a security within the United States. These are the SEC Securities and Exchange Commission and the FINRA Financial Industry Regulatory Authority. Issuers of a security like this could be one of several different types of organizations. Municipal governments can issue bonds in order to raise specific project funding. Buyers of a security might be retail investors who purchase and sell them for their own accounts. Wholesale investors are those which trade the security as a financial institution working at the instruction for their customers and clients. There are also institutional investors which are a major category of security buyers. These include insurance companies, managed funds, pension funds, and investment banks like Goldman Sachs. The purpose of a security is to float a debt or ownership instrument so that a commercial enterprise or government agency can raise fresh capital. By selling such a security, corporations are able to create money for business purposes and acquisitions. Sometimes the demand in the market place is strong enough and the pricing arrangements are favorable enough that it makes more sense for companies to issue securities to raise money rather than choose to borrow them in the form of loans or bonds.

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Government entities can not issue and float stock. Instead they may only issue debt in the form of general obligation or specific revenue bonds. Securities which companies issue in the primary market they do in the form of an IPO initial public offering. Once these shares are floated and sold, all issued shares of stock are called secondary offerings. This is the case even when they still sell them in the primary market. Companies can also privately place such securities. There are cases where both private placement and public primary market floating takes place. The secondary market is the place where such a security becomes transferred from one investor to a different investor.

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Securities and Exchange Commission (SEC) The SEC is the acronym for the Securities and Exchange Commission. This Federal government agency actually governs the buying and selling of stock securities and other types of related investments. The SEC also works to safe guard investors against impropriety and fraud. They encourage the development of the market with the end goal of keeping America in the first place as the world’s leading economic giant. The Securities and Exchange Commission came into existence in 1934. The stock market crash in 1929 prompted a tremendous regulatory response where the national government observed that it had to oversee and monitor investments within the U.S. The SEC is headquartered today in Washington D.C. Its staff is comprised of five commissioners who are appointed, as well as the personnel working in eleven different regional offices throughout the country. They work together to create, amend, and enforce the laws that regulate investments in the country. The SEC has various critical missions. Among the most significant one is their role in ensuring that the markets are transparent. To do this, they significantly regulate securities trading within the U.S. Companies are required to turn in a variety of legal financial documents during the year so that investors may obtain a true picture of the total financial health of the firm in question. The documents are kept on file in a database that is available to the public. Anyone who is interested is allowed to inspect them by logging on to the SEC’s website and working through their system of electronic documentation. The SEC has great powers that it exercises in enforcing the rules. It is able to mandate company audits if it has suspicions of illegal behavior. Those it finds in violation of its rules may be brought by the SEC to court. In keeping with the SEC’s mandate to help safe guard investors, they monitor the trading of stocks and the individuals responsible for selling them. This means that exchanges, their dealers, and all stock brokers are required to work through the Securities and Exchange Commission. They can be subjected to inspection from time to time to be certain that they are properly taking care of their customers. Consumers have the right to report practices that are unfair to the SEC directly. If you are an investor, you ought to avail yourself of the SEC’s wide range of documents on the various publicly traded corporations that they keep in their database on their website. The SEC additionally governs companies that are interested in undergoing Initial Public Offerings in order to become public companies. Such interested firms have to file a significant quantity of documents with them first. To help them accomplish this, the SEC engages a big staff. Their document database includes regulations and directions for filing such documents. Consultation help is available if companies run into difficulties. The SEC also promotes education. If you are an investor who wants to learn more about safe investing, then simply go to their website. They have workshops and publications on the site to help all investors. This is in addition to all of the companies’ documents kept on file there.

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Securities Exchange Act of 1933 The Securities Exchange Act of 1933 became sponsored and passed because of the devastating stock market crash which happened on and following Black Monday in 1929. The administration and Congress had two principle goals with this piece of legislation. These were to make certain a greater amount of transparency would exist with financial statements so that investors could engage in better informed choices on their investments. The other goal was to create laws which would crack down on fraud and misrepresentation of securities within the various securities markets. This Securities Exchange Act of 1933 turned out to be the original piece of significant legislation that dealt with securities and their sales. Before this law became enacted, it was state laws which governed securities’ sales principally. The laws dealt with the desperate need to have more effective and consistent disclosures from firms. It mandated that corporations must register their operations with the SEC Securities and Exchange Commission. This registration guaranteed that the corporations would deliver appropriate information to both possible investors and the SEC via both a registration statement and an official prospectus. It was the Securities Exchange Act of 1933 which mandated that all investors deserve appropriate, fair, and free information on any securities the corporations are providing for sale to the public. Thanks to this act, before companies could launch an Initial Public Offering, they were required to provide information on the deal which was being freely disseminated to investors. Such a prospectus became not only required. It had to be shared with investors by the Securities and Exchange Commission on their own website. This prospectus was required to deliver certain basic minimum information. Among this was a company business’ and properties’ description. They also had to offer a full description detailing the security which they were offering to investors. They had to divulge any and all relevant information concerning the management that operates the corporation. Finally, they had to provide certified financial statements which independent third party accountants signed off on before they could be released to the public domain. Besides this, the Securities Exchange Act of 1933 was intended to outlaw any misrepresenting or deceiving throughout the process of securities sales. The framers of the act wanted to ensure that securities sales fraud could be not only reduced but eliminated. This Securities Exchange Act of 1933 had an important legacy and set critical precedents for the financial world and American securities markets alike. As the first national laws which regulated and ruled on the stock markets, it seized this regulatory authority from the fifty states. The power of oversight for financial markets permanently evolved up to the federal government level. Most importantly, this act developed a universally acknowledged and clear body of regulations which helped to safeguard investors from fraudulent practices. Today this act is generally referenced by the nickname the “Truth in Securities” law. Sometimes financial advisors and regulators will refer to it as “The Securities Act” or the “1933 Act.” It was then-President Franklin D. Roosevelt who signed this important legislation into law. As such, it is often deemed to be

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part and parcel of the legendary New Deal package crafted personally by President Roosevelt. There have been a range of important amendments to the Securities Exchange Act of 1933 which Congress passed into law over the years since the legislation became effective. Among these amendments which updated the regulations were those passed in 1934, 1954, 1959, 1960, 1970, 1980, 1982, 1987, 1996, 1998, 2000, 2010, and in 2012.

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Securities Exchange Act of 1934 The Securities Exchange Act of 1934 is also known by its acronym of SEA. This piece of legislation was crafted in order to regulate transactions in securities which trade on the secondary market after they are already issued. The goal of this is to guarantee a higher level of financial transparency, better accuracy of trades, and a lower degree of manipulation and outright fraud. This The Securities Exchange Act of 1934 laid the grounds for the SEC Securities Exchange Commission creation. In this way, the SEC became the SEA’s regulatory body. Thanks to the act, the Securities Exchange Commission gained the authority to regulate securities like over the counter issues, stocks, and bonds. Thy also have regulatory oversight on the markets as a whole and the behavior of all financial professionals which includes dealers, brokers, and financial advisors. The SEC also reviews the financial reports of the various publically trading corporations, which they mandate be released. Every company which chooses to be exchange listed has to adhere to the rules and regulations which The Securities Exchange Act of 1934 spells out for everyone. The principle requirements are disclosure, registration of all stock exchange listed securities, audit and margin requirements, and proxy solicitations. The reason for such requirements as these are to make sure that the playing field is level and fair. They also want to instill confidence in investors who participate in the various stock exchange markets. It was then-President Franklin D. Roosevelt and his administration which arranged for The Securities Exchange Act of 1934 to come to Congress. They launched it as their official response to the generally accepted idea that poor financial market practices had been the primary perpetrator in the Black Monday stock market collapse of 1929.This act actually was not the first such legislation on the topic. The Securities Exchange Act of 1933 preceded it by a year. The 1933 piece of legislation mandated that all corporations had to publically disclose important and regulated financial information. This covered distribution and sales of stock shares. The 1934 act was more concerned with the behaviors of professionals in the financial advising and brokering industries. The Roosevelt administration was not content with these two acts where regulation was concerned. They sponsored the Trust Indenture Act of 1934, the Public Utility Holding Company Act of 1935, The Investment Advisers Act of 1940, and finally the Investment Company Act of 1940. The numerous acts of legislation were passed in the wake of a devastated financial environment where the securities sales had little effective regulation. At the time, corporations could become controlled by a handful of investors while the public had no knowledge of these facts at all. Thanks to this Securities Exchange Act of 1934, the SEC obtained broad and vast powers to oversee and police all corners of the securities business. To this effect, it is headed by five commissioners who lead the five divisions. The President of the United States appoints these commissioners. The divisions of the SEC are Division of Trading and Markets, Division of Corporation Finance, Division of Investment Management, Division of Economic and Risk Analysis, and Division of Enforcement. They have both the authority and are the mandate to head up investigations into possible violations of The Securities Exchange Act of 1934. This covers a wide range of illegal and unscrupulous activities. Included in these are stealing the funds of clients, insider trading, selling unregistered stocks,

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manipulating the prices of the markets, and releasing falsified information or breaking the broker customer trust. Besides this, the SEC is tasked with enforcing all corporate reporting they mandate for any company which possesses greater than $10 million of assets if their shares are owned by over 500 stake holders. The SEC has two tools for dealing with any and all matters which pertain to their areas of responsibility. They may settle any issue without it going to trial by dealing directly with the parties in question. They might also file a federal court case to resolve the problems.

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Securities Markets Securities Markets refer to either literal physical or virtual online places for traders and investors to buy and sell securities. These markets have been dramatically changing in the last several decades in order to best meet the requirements and wishes of investors and traders alike. Traders must have such markets which are easy to access, highly liquid, and that levy the most competitive transaction costs possible. These three core needs of traders have combined to create several different kinds of market structures around the globe. Among these are markets which are order driven, quote driven, hybrid, and brokered. Many Securities Markets are order driven. With these markets, the sellers and buyers on the exchanges match directly up, typically using a computer system. The middle man is eliminated in such a market structure. This makes them the opposite of markets which are quote driven. Price discovery is accomplished thanks to the traders’ limit orders on every security. The majority of such order-based markets utilize an auction system. Naturally sellers will be seeking the highest possible price while buyers are on the hunt for the best possible bargain. When they match, execution of trades happens. The two kinds of such markets are the continuous auction and the call auction markets. The greatest advantage to this style of market is the massive quantities of investors and traders who will offer to sell and buy a security. This means that prices are competitive and provides superior prices for all traders. It does have a downside. When a security has only a few members trading, then liquidity is often weak. The TSX Toronto Stock Exchange of Canada represents a market that is order driven. Securities Markets which are quote driven are also referred to as dealer markets. In such market structures, the sellers and buyers have a transacting middle man in between them in the form of a dealer or market maker. It is up to the market makers to provide the ask and bid quotes on stocks for which they are willing to sell and purchase shares. These market makers have exclusivity in their market functions (many times) and receive special privileges. Among these are low to no exchange fees, specific order book and order flow information, and the unique ability to post the stock quotes. Such markets are most common with OTC over the counter markets like the NASDAQ and London’s SEAQ, the FOREX market, and the bond markets. Nowadays NASDAQ has become more of a hybrid type with elements of order-driven structures in place. The greatest advantage to such quote-driven securities markets appears when stocks or markets are illiquid. Dealers are able to boost the traders’ liquidity with their intervention, as they often keep a security inventory on hand. They get to enjoy the spread between the bids and ask as a compensation for this accommodation. Hybrid markets are also popular structures with many Securities Markets. They are sometimes called mixed markets. The NYSE New York Stock Exchange is a well-known example of this category. Naturally this system will utilize characteristics from the two order-driven and quote-driven arrangements. When they have low liquidity periods, these markets are able to fall back on the dealerprovided liquidity to improve transactions. A final type of Securities Markets is the brokered markets. Brokers represent middle men who engage in discovering counterparties for any trade. As customers request of a broker to help them complete an

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order, the brokers will go through their extensive networks in an effort to locate an appropriately matching client. These types of markets are mainly for those securities which do not have a traditional public market. Illiquid and unique securities fall into this category. Where huge block trades of highly illiquid stocks or bonds are concerned, brokered markets are employed. Direct real estate is another classic example of such a brokered type of market. Real estate brokers are the ones who fill the service of matching up a unique seller and interested buyer in this case.

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Securitization Securitization is a financial engineering procedure. In this process, sponsors take an asset or group of assets that is illiquid and turn them into a saleable security. Mortgage backed securities are common instruments that result from securitization. These MBS products are backed by assets. The security that underlies them are a group of mortgages. The securitization process works in a series of steps. It begins with a bank or other financial institution originating a number of mortgages. The mortgages themselves are backed up by the specific properties the home buyers purchase. Next, these single mortgages become combined together into what is known as a mortgage pool. The pool of mortgages remains in trust for the MBS collateral. MBS are sometimes put together in the securitization process by an investment bank or other third party independent financial firm. They could also be issued by the original bank that underwrote the mortgages in the beginning. Large aggregators like the government sponsored entities Freddie Mac, Fannie Mae, and Ginnie Mae put together many of these mortgage backed securities themselves. Whichever group undertakes the effort, the end result is identical. Securitization creates a new financial security that is underpinned by the legal and financial claims on the assets of the mortgagors. Sponsors then take the new security and sell it investors or other interested parties in the secondary mortgage market. This proves to be a very large and liquid market. It offers substantial tradability to the securitized mortgages that would have little to no liquidity as stand alone investments. When these mortgage backed securities are being created through the securitization procedure, issuers have options. Many times they decide to break up their pool of mortgages into a group of different components. They call these tranches. With tranches the issuers are able to put together the security however they would like. This means they can craft one MBS into a range of tolerance for risk. Some buyers like pension funds are only interested in investing in mortgage backed securities with high credit ratings. Other investors like hedge funds have a higher tolerance for risk. They will be willing to take on tranches with lower credit ratings in exchange for higher returns. Individual investors who want to participate in these mortgages have several choices. They can take a participation certificate share in a pool of mortgages. This pass through participation provides a pro rated share of interest and principal payments that come back into the pool when the issuers obtain the borrowers’ monthly payments. There are also pools of such pass through mortgages called CMOs collateralized mortgage obligations. Many individuals would like to become involved in mortgage investing but are unsure of all the research involved with the various kinds of MBS. An ideal way to participate without having to understand the detailed mechanics is through mortgage mutual funds. These funds could invest in a single kind of MBS like a Ginnie Mae issued one. Still other funds are comprised of a range of mortgage backed securities as part of a group of holdings in

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government bonds. Mutual funds provide a better diversification in loan holdings than individuals might afford on their own. They also offer the ability to reinvest all payments of principal and interest into other MBS. This helps to reduce the risks of changing interest rates and prepayments. It also permits investors to receive yields that vary with current interest rates.

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Self Directed IRA Self directed IRAs prove to be special kinds of individual retirement accounts. They are different from traditional IRAs because they provide the account holder with a significantly greater variety of investment choices and control over decisions on the account. With these types of IRAs, the owner or an investment advisor makes a variety of investment decisions. They then deliver these instructions to an IRA custodian who executes them. Federal law allows these types of IRAs to invest in a tremendous range of investment vehicles. It is IRS section 408 that restricts the few categories that are not allowed. The IRS forbids investments of IRA funds in life insurance and collectibles such as rugs, art, gems, etc. It does allow a wide range of investment choices that cover most anything else. Self directed IRAs may purchase real estate, mortgages and trust deeds, energy investments, gold and other precious metals in bullion form, privately held stock, privately owned LLCs and Limited Partnerships, and corporate debt or promissory notes. When accounts such as these are opened primarily to purchase precious metals bullion, they are typically known by the name of their primary metal in which they invest. These Precious Metals IRAs can be called Gold IRAs, Silver IRAs, Platinum IRAs, and Palladium IRAs. Such self directed IRAs can even purchase franchises such as Subway or Timothy Horton. All of these different investment choices allow for superior and broad based asset diversification of investors’ retirement funds. These types of IRAs also provide all of the usual benefits which are commonly associated with Traditional IRAs. Money saved in these plans is contributed on a tax free or tax deferred basis. No taxes will be paid on either the money deposited, or the gains made on these investments within the account, until they are withdrawn at retirement or under early withdrawal rules and limitations. Self directed IRAs are still subject to the same yearly maximum contribution limits of $5,500 in 2016. They allow for larger contributions of $6,500 to be made as catch up once the account holders reach age 50. Early withdrawals from these IRAs as with traditional ones are penalized. It is often more advantageous to take a loan against the value of the IRA rather than suffer the financial consequences of early withdrawal. When loans are taken, there is no penalty. A repayment plan is established to put the borrowed funds back in the account in installments. Loans can be approved for a variety of expenses, such as home purchase, educational needs, or health care related expenses. When an actual early withdrawal is taken, two penalties are assessed. First the money in the account is taxed as ordinarily earned income. Next a 10% penalty is levied by the IRS on all monies which the owner early withdraws. These types of IRAs do have some limitations. The custodian must physically hold all assets in the account. This means that the account owners are not allowed to keep their real estate or mortgage deeds, stock certificates, or precious metals bullion at home in a safe. There have been offers made by some companies to help investors become their own IRA custodian by forming a special LLC company. This is

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a gray area which the IRS has not yet come down on with a hard ruling. In the future, they are likely to rule that investors absolutely can not be a custodian for their own gold, silver, platinum, or palladium bullion using either a safe deposit box or a home based safe. The IRS requires that owners of these accounts begin taking distributions no later than at age 70. They can start withdrawing them as retirement funds at 59 ½ if they wish to begin using the money earlier.

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Seller Financing Seller Financing turns out to be a loan that a business or property seller offers to the buyer. When seller financing is provided, the buyer generally gives a down payment amount to the seller. The balance of the purchase price is paid to them using installment payments that are typically monthly. This is accomplished at a certain time of the month and for an interest rate that the two parties agree to, until the loan itself has been completely paid back. Seller provided financing is not governed by any regulatory body or set of laws. Because this is the case, for a seller and a buyer both to protect their interests, a purchase agreement that is legally enforceable in a court of law needs to be drafted by an attorney. The two parties, buyer and seller, can then sign this agreement to make the transaction fully legal. There are many benefits offered in pursuing seller financing. Both the seller and the buyer of a real estate property can realize significant closing cost savings that typically amount to thousands of dollars. The interest rate, loan conditions, and repayment schedule may also be negotiated with seller financing. Borrowers are not forced to go through a loan qualification process via a loan officer or underwriter either. Private Mortgage Insurance is also not required to be paid. Buyers are able to make specific requests as part of the condition of buying the property too, like having the appliances included in the sale. Sellers also receive benefits when they provide seller financing. They might end up with a better return on the investment if they get their equity payments with interest. They similarly might be capable of obtaining a better selling price and interest rate. They could choose to sell the property in “as is” condition, meaning that they will not be required to cover the costs of any repairs that the property needs. Finally, the seller is capable of picking out the security documents that he or she believes best serve the interests of getting the loan paid off, such as deeds of trust, mortgages, or land sales documents. There are some downsides to seller financing that should be carefully considered as well. While the buyer might make the payments on time, the seller could choose to not pay off more senior financing on the property, which would cause the property to be foreclosed on. Besides this, the buyer might not be given the title to the property if there are problems tying up the property title, even when he or she paid off the loan as per the agreement. The buyer also does not benefit from the safeguards offered by mortgage insurance, home inspections, or appraisals that will ensure that he or she is not paying too high a price for the house. The seller also encounters risks with seller financing. If the seller does not get an accurate picture of the buyer’s ability to pay for the property, then he or she might suffer through a foreclosure. This foreclosure can require as long as a year to complete. Finally, the seller might accept a smaller down payment and then find that the buyer later abandons the property and payments since he or she puts a limited investment into the property.

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Selling Short Selling short, or short selling, is a strategy used in trading stocks. In the selling short process, you borrow the shares of the stock in question from your stock broker. You then turn around and sell the stock shares borrowed for a certain price that the market offers. Your hope is that the price of the stock will drop, so that you can buy back the stock shares for a lesser amount. This creates a profit for your transaction. The practice is buying low and selling high done in the reverse order. If the price of the stock drops, then this process of short selling makes you money. The down side to it is that when the price of the stock instead rises, then you lose money. Detractors of selling short claim that you can subject yourself to an unlimited amount of risk, since stock prices could rise without stopping. This means that you could potentially lose more than the amount of money that you invest if a given stock that you sold short took off and ran away without you closing out the transaction. Profits are limited by the distance of the stock price to zero, since a share’s price can never decline below zero. Such selling short trades are closed out by repurchasing the shares that you sold short earlier. When it is time to close out the transaction by buying back the shares, this is called covering. The other names for this process are buy to cover or simply cover. There are risks involved in selling short stocks. The biggest risk is that the stock could go up indefinitely. For example, you might sell short ten shares of IBM’s stock at $100 per share. This means that you have put a thousand dollars into the trade. If the stock later declined to ninety, then you would realize a gain of one hundred dollars. If instead it rose to $130 before you covered it, then you would lose three hundred dollars. While the lowest that the IBM shares might decline is to zero, potentially making you as much as one thousand dollars in profits, they could also rise to three hundred dollars, losing you two thousand dollars. Short sellers can also fall victim to a short squeeze. As the stock price that you have shorted rises, some investors who shorted it will choose to limit their losses by buying the stock back. Still other investors may have no choice but to buy back the shares in order to satisfy any margin calls on their declining valued position. All of this buying back to cover creates a bigger increase in the price of the stock. The final outcome is a large move up in the price of the stock that creates significant losses for those who continue to be short the stock.

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SEP IRA SEP IRAs are special simplified employee pensions that permit employers to contribute money to the retirement plans of their employees. If individuals are self employed, they may also set up and fund one of these accounts for their own benefit. These plans compare favorably to the more popular and utilized 401(k) plan. SEPs offer greater contribution amount limits. They are also much less complicated to establish and maintain than are the 401(k)s. Any type of employer is allowed to create an SEP IRA. This means that businesses which are not incorporated, partnerships, and sole proprietorships can all work with and utilize them. Even self employed individuals who are employed elsewhere as well (with retirement plans at their other workplace) can make their own SEP. SEP IRAs offer several advantages to owners and contributors. They provide significant tax benefits for employees and employers. Employer contributions give tax deductions to the employer during the tax year in which they make the contribution. Self employed individuals also can take this tax deduction for themselves. SEPs are also popular because they do not require any annual paperwork to be filed with the IRS. The paperwork that creates these accounts also offers the plus of being simple and minimal. Individuals can make contributions for SEP IRAs in the year after the contribution applies. Deadlines for these contributions may also be stretched to the tax return due date. As far as establishing these accounts goes, deadlines are for the tax return due date and any extension that the IRS grants on the taxes. In general, these accounts have to be opened and all contributions should be made by the April 15th that comes after the year in which the income was attained. Any taxpayers who take an extension on their tax returns to October 15th would receive a similar grace period for opening and funding the SEP IRA. The contribution amounts for SEPs are quite flexible. No set percentage has to be contributed as with some of the rival retirement accounts like Keoghs. One could contribute nothing or as much as 25% of his or her income for the year (on as high as a $265,000 income amount). The full contribution for a single individual is not allowed to be greater than $53,000 in the year 2016. This amount contrasts with the typical standard IRA contribution limits of $5,500 for the year 2016. The SEP limits are also substantially higher than the contribution limits on 401(k)s that come in at $18,000 for 2016 or at $24,000 for those who are at least 50 years old. SEPs do not have any provisions for catch up, as with other forms of IRAs or 401(k)s. Thanks to the higher contribution limits for every given year, this does not usually present a problem for those who are behind on their retirement accounts and want to put in more. Employers are required to treat all employee contributions equally. This means that they must give the same contribution percentage for each employee who has made at least $600 in the year, who is 21 years or older, and who has worked for the company minimally three out of five prior years. The only point where contributions to SEP IRAs get complicated centers on maximum contribution amounts. The 25% of income limit mentioned earlier is not figured out of gross revenue, but from net

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profits. Besides this, deductions on the half of self employment tax have to be first taken off of the net profit number before the limit for maximum contributions can be accurately determined off of the net profits.

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Sequestration Sequestration refers to the package of cuts to the Federal government’s budget which became effective on March 1st of 2013. More precisely, the phrase pertained to the method of budgeting in which the drastic cuts would be put into place. The sequester, or super committee sequestration as it was fully known, also extended beyond 2013 from 2014 to 2021. Congress set themselves up for the fiscal devastation of the Sequestration with their short-sighted Budget Control Act of 2011, also known by its acronym of BCA. Most people simply called it the debt ceiling compromise. The original idea behind such a wide ranging and long-term effects bill was to goad the Joint Select Committee on Deficit Reduction, better known as the Super committee, to arrive at a compromise on cutting out $1.5 trillion in spending over the period of ten years. Had the committee succeeded with this goal and Congress approved it by December 23rd of 2011, then no Sequestration would have taken effect. Instead, as many would expect, Congress could not pull itself together to approve the recommended cuts from the Super committee. This resulted in the Sequestration taking effect in 2013, much to the undying regret of both Republicans and Democrats in the House and Senate. What resulted was a series of severe cuts which became evenly split between defense and domestic programs. Half of them affected defensive discretionary spending such as base operations, weapons systems purchases, and military facility construction work, reducing the military’s fighting edge in many ways. The remainder impacted discretionary domestic spending along with mandatory programs which potentially included Medicaid, the unemployment trust fund, and Social Security payments. In practice, they agreed that Social Security and Medicaid along with low income programs such as the SNAP Supplemental Nutritional Assistance Program (food stamps) and TANF Temporary Assistance for Needy Families (welfare) would be exempt from the Sequestration. Other low income programs though were potentially targeted in the cuts. These included WIC the aid for Women, Infants, and Children along with Section 8 housing vouchers and LIHEAP the Low Income Home Energy Assistance Program. For 2013, the following programs were cut by these drastic dollar and percentage amounts. Defense suffered from a $42.7 billion cut for 7.7 percent. Domestic discretionary cuts amounted to $26.1 billion for 5.1 percent. Medicare took an $11.1 billion hit amounting to two percent that year. Other mandatory program cuts equaled $5.4 billion for a 5.2 percent cutback. This equaled the total required $85.3 billion of mandatory cuts which the Congressmen had set forth in their own Sequestration. The worst of the news did not even take effect in 2013 though. The caps for the budget years from 2014 to 2012 were set to cut out even more at $109.3 billion per year. Congress each year got to determine whether they would pinpoint the cuts by agreement or simply suffer the mandatory pre-programmed across the board drastic reductions to which they had unintentionally agreed back in 2011. On the positive side, no programs actually suffered from elimination because of the notorious Sequestration. The goal was instead to scale back the scope and price tag of the already existing programs, not to completely obliterate any of them. Despite this better news, the bad news came from the think tank Third Way. It estimated that around 1.8 million people lost or will lose their positions because

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of the non-defense category cuts. Here are some of the larger specific program cuts for 2013. Military operations across the four branches of the service plus the National Guard and the Reserves were slashed by $17.1 billion. Military research for the year saw its budget crushed by $6.1 billion. The National Institute of Health suffered from a $1.6 billion cut as well. Border security took a hit to the tune of around $595 million, while airport security suffered a loss of $276 million and immigration enforcement saw $295 million eliminated. The Centers for Disease Control and Prevention similarly lost $303 million in Federal funding for 2013. FEMA disaster relief lost $928 million, while public housing support suffered a drop of $1.74 billion. NASA lost $896 million, while the Energy Department’s Securing Nuclear Weapons programs lost $903 million. Special Education lost $827 million and the Head Start program suffered a drop of $400 million. The FBI lost $556 million while the diplomatic functions of the State Department lost $665 million. Even Global Health programs dropped by $411 million, while the National Science Foundation lost $361 million.

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Seven Sisters Oil Companies Seven Sisters Oil Companies is a phrase that was made famous by Italian state oil Company ENI Chief and Italian businessmen Enrico Mattei back in the 1950s. Mattei used this phrase disparagingly, which he coined in order to refer to the seven Anglo-American oil companies that had formed the “Consortium for Iran” cartel. They became so powerful that they soon dominated the universe of the worldwide petroleum industry in the years from the mid 1940s through the early 1970s. The group was made up of seven American and British firms Anglo Persian Oil Company (today’s British Petroleum), Gulf Oil (most of which became part of British Petroleum and the other parts which joined Chevron), Standard Oil of California or SoCal (today’s Chevron), Texaco (later a part of Chevron in a merger), London headquartered Royal Dutch Shell, Standard Oil Company of New Jersey (Esso which became Exxon), and Standard Oil Company of New York or Socony (Mobil, which merged with Exxon to become ExxonMobil). Before the 1973 oil crisis, the different companies from the Seven Sisters controlled approximately 85 percent of the global oil reserves. Since then, this has shifted dramatically away from the Seven Sisters Oil Companies over to a combination of the OPEC oil cartel nations as well as several state controlled gas and oil companies in the emerging world economies. These include notably Gazprom of Russia, Saudi Aramco of Saudi Arabia, China National Petroleum Corporation, PDVSA/Citgo of Venezuela, National Iranian Oil Company, Petrobras of Brazil, and Petronas of Malaysia. The Seven Sisters Oil Companies’ common history stretches back to the Iranian 1951 nationalization of its foreign dominated oil industry. The Anglo-Iranian Oil Company, which became BP, at this time controlled the Iranian oil industry. Because Iran opted to nationalize its assets and seize the petroleum reserves, the international community placed an embargo on Iran. Once Iran agreed to return to the international oil markets, the State Department of the United States suggested that the oil majors create a major oil companies consortium. Interestingly enough, a few of them were the scions of billionaire oil man John D. Rockefeller and his original American oil monopoly the Standard Oil Company. As a result of the State Department’s appeal, the “Consortium for Iran” arose and saw seven oil majors brought on board the lucrative and influential project. Anglo Persian Oil Company of the United Kingdom was the original player in Iran and a major player in the Seven Sisters Oil Companies consortium for Iran. The company changed names to the Anglo-Iranian Oil Company before finally becoming British Petroleum. After the company took over the Standard Oil Company of Indiana, which was better known as Amoco, and Gulf branded gas stations, British Petroleum shortened their name to BP back in 2000. American Gulf Oil was the second company. SoCal acquired much of Gulf in 1984, and this larger firm changed its name to Chevron. Though some of its Gulf service stations in the Northeastern part of the U.S. still bear the Gulf name, the majority of these were bought out in the East coast by either BP or Cumberland Farms. Royal Dutch Shell of Great Britain and the Netherlands was the third company. American Texaco was the fourth company. They were absorbed by Chevron in 2001. Chevron itself arose from the fifth company in

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the consortium Standard Oil of California, or the SoCal company of the United States. It changed its name to Chevron in 1984 after acquiring much of Gulf Oil. The sixth company was American Standard Oil of New Jersey, or Esso. It later changed its name to Exxon before renaming itself Exxon Mobil in 1999 after it acquired the seventh consortium member Mobil. The American company Mobil itself was earlier known as Standard Oil Co. of New York, or Socony. Interestingly enough, all of these oil companies were either American or British headquartered. ENI, the state oil company of Italy, wished to be a member of the Consortium for Iran, but was turned away by the other members of the Anglo-Saxon controlled Seven Sisters Oil Companies. These seven companies went on to dominate the oil production of the Middle East following the Second World War. The phrase Seven Sisters Oil Companies became more popular still when British author Anthony Sampson assumed the mantle of the term in his 1975 published book The Seven Sisters. In this work, he unveiled the shadowy world oil cartel that had attempted to crush its competition and to dominate control of the global oil and gas resources. Because they were well-funded and -organized and operated effectively as an economic cartel, these Seven Sisters managed to exercise great power over the resources, markets, and politics of the Third World oil producers. Yet the power of these seven original oil behemoths became challenged by the rise of OPEC, which was established in 1960. The rise of the all-powerful state owned and run oil companies in many emerging national economies also dealt the Seven Sisters a body blow. Finally, there was a deteriorating global share of both gas and oil reserves held by their home countries of the United States and Great Britain over the years that weakened their home markets in the world oil production arena. Today only four of the original seven sisters remain, thanks to merger and acquisition activities over the intervening decades. This became necessary for the oil majors to compete against OPEC and the state owned oil companies. The remaining entities are now BP, ExxonMobil, Chevron (Texaco), and Royal Dutch Shell. They are collectively a part of the seven or eight super-major oil companies of the globe also called Big Oil.

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Share Repurchase Share Repurchase refers to a company program where the corporation purchases back some of its own shares off of the stock markets or from its own individual investors. There are various reasons why a company would choose to spend its excess profits or cash reserves on such an activity. Generally management believes the price of the stock is unfairly undervalued. This repurchase activity allows them to decrease the total number of shares which are outstanding while making a vote of confidence in the company’s prospects. The company can go about this in one or more of several ways. They might purchase shares directly from the stock market. They could also provide their existing shareholders with the opportunity of selling their shares back to the firm at a set and agreed upon price. Companies would be interested in decreasing the quantity of shares which are outstanding on the markets as this directly boosts the earnings per share when they retire the shares which they have repurchased. Shares that they buy back they either cancel out or keep as treasury stock. In either case, they are no longer held by investors or traded publically. This kind of share repurchase does a number of beneficial things for the financial balance sheets of the firms which engage in them. Since it decreases the aggregate assets of the business in question, this means that the firm’s return on equity, return on assets, and various other measurements of corporate health all improve. The earnings per share (EPS), cash flow, and total revenues also increase faster with fewer outstanding shares. When the business decides to still pay out the identical sum of cash in dividends to its shareholders each year, and the full number of existing shares decreases, then each shareholder will receive a bigger yearly dividend amount. When the corporation in question increases both its earnings per share and accompanying all around dividends declaration, then reducing the outstanding numbers of shares will boost the dividend growth rate as well. Stock holders are demanding by nature and will expect their company to continue to pay out consistent and growing dividends year in and year out. These share repurchase actions reduce the amount of reserve capital which the business must keep on hand to match the par value of outstanding shares so that they could return a greater amount of capital back to shareholders when they decrease the outstanding amounts of shares. It is easier to visualize this with a tangible real world example. A company may wish to give out 75 percent of the total earnings to the stake holders and still maintain a consistent dividend payout ratio of 50 percent. The other 25 percent of earnings they could distribute by engaging in a share repurchase program via buying back shares as a complement to the dividend. Companies buy back their shares because they are convinced that their stock price is significantly undervalued. They believe that this is an efficient means of sinking company money into a vehicle which is also putting the money back into the pockets of shareholders. Each share gains a larger percentage ownership of the company as a result of this endeavor, increasing the value and percentage of each stakeholder’s position in the corporation. Such a share repurchase program will also convince potentially skeptical investors that the business maintains more than sufficient minimum capital reserves for difficult

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economic cycles and corporate emergencies. A possible downside to such share repurchase plans lies in the impression that they can convey to analysts and investors alike. It might give out the possibly erroneous idea that the firm has no better prospects in which to sink its excess funds. This could mean that they recognize no good potential opportunities to grow the business. For those investors seeking both revenue and turnover increases, this is the wrong message to send. It is also true that spending the company rainy day fund to buy back shares will prove to be a terrible idea if there is a dramatic downturn in the economy afterwards.

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Shareholders Shareholders are companies, people, or institutions which own minimally a single share of the stock in a given company. They can also be referred to as stockholders. These stockholders are not only investors, but also the owners of the corporation. As owners, they gain the advantageous results from the firm’s success. This can translate into higher stock prices, dividend payouts, or hopefully both. Should the corporation not perform well, the stock holders can similarly lose value in their investments as the stock price goes down. There is a difference between shareholders and owners of partnerships and sole proprietorships. The stakeholders in corporations do not experience personal liability for the financial and debt obligations of the corporation. Should the company in question fail, creditors can not attempt to secure payments or assets from the stockholders as they might be able to do from owners of entities which are privately held. Corporations with shareholders have another important difference from other structures of businesses. They depend on their executive management and board of directors to handle the day to day operations. This means that the stock holders do not have much control over the daily operations of the company. Shareholders may not have much involvement in the company’s decisions, but they still have important rights. These are specified by the corporation’s bylaws and charter. One of these is the right to go through the company records and financial books. Another is to sue the company for officer and director committed mistakes. Even common stock holders have the right to vote on important corporate decisions like whether to agree to a potential merger or on the makeup of the board of directors. Shareholders have what may be their most important right when a company goes into liquidation through dissolution or bankruptcy. They have the rights to regain a representative amount of the recovered proceeds. They are in line after the secured debt holders including bondholders, preferred stock holders, and creditors, all of whom have precedence over the common stockholders. Stock holders have several other rights which they enjoy. They receive a part of dividends which their company announces. They also gain the privilege to attend in person the annual meeting of the corporation. Here they are able to learn more regarding the performance of the firm. They can also choose to sit in on the meeting using a conference call. If these common stock holders are not able to or interested in going to the annual meeting, they can instead choose to vote through the mail or online using a vote by proxy. All of these rights which belong to preferred and common shareholders are detailed in the corporate governance policy. A great number of corporations elect to create two classes of stock. These are common and preferred shares. The majority of stock holders purchase and hold common stocks since they are more of them and they are less expensive than preferred shares. Unlike preferred stock holders who are due to receive dividends every quarter, common shareholders must wait on the board of directors to decide if and when they will be paid a dividend in a given quarter. The directors must decide if this is an appropriate way to utilize the corporation’s funds. Preferred stockholders lack the voting rights of common shareholders. They do receive higher dividends

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on a more frequent basis. Their payments have to be paid at least yearly and their dividends are also guaranteed. For investors more interested in creating a reliable annual income from investments, preferred shares can be a very helpful tool.

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Sherman Clayton Antitrust Acts The Sherman Act and Clayton Act are two pieces of legislation which Congress designed to combat abusive trusts and monopolies. Over the years they have been utilized to break up certain large monopolistic enterprises. Their passage also led to the creation of the anti-trust division in the Department of Justice. In 1890 Congress passed its Sherman Antitrust Act. Though it has been supplemented by other subsequent acts, analysts still consider it to be the most significant. The government felt that the act became necessary because of trusts and monopolies that were taking over major industries in the decades that followed the Civil War. Trusts proved to be understandings where stockholders of a few companies would transfer over their shares to a group of trustees. The trustees would then give these stockholders certificates that provided shares of earnings from the companies that would then be jointly managed. This is how trusts became monopolies in a variety of significant industries. Among these were steel, railroads, sugar, tobacco, and meatpacking. Trusts were bad for the economy and smaller competitors because of the means they utilized to eliminate their competition. They would undercut competitors’ prices temporarily, make clients purchase products they did not want to get the ones they did, force their customers to agree to long term contracts, and buy out competitors. When none of these methods worked they would send out intimidators and use violence as necessary. Farmers and other small businesses complaining about high costs of transport they had to pay for rail caused enough of a stir for Congress to take action. The public had become tired of the economic power that the big corporations had amassed and with the trusts. Sherman turned out to be a commerce regulation expert. As such he acted as main author for the Sherman Antitrust Act. This measure proved to be the first such effort by Congress to outlaw trusts and monopolies of all kinds. A few states had passed their own laws, but these only applied to commerce passing within their own borders. This act used Congress’ constitutionally held powers to regulate commerce between states. It found almost no opposition in Congress. Only 1 member voted against it in the Senate and none in the House. President Benjamin Harrison signed it to make it the first such national antitrust law. The act granted the Federal government the authority it needed to dissolve these trusts. Enforcing the law turned out to be another matter. The Supreme Court ruled against the government on the attempted enforcement of it against The American Sugar Refining Company in 1895. President William McKinley enacted an era of busting up trusts in 1898 by setting up the U.S. Industrial Commission. President Theodore Roosevelt at last managed to build on their report to break up the trusts. Subsequent action led to the breaking up of Standard Oil Company, among the most famous and powerful trusts of all time. The Sherman act still needed more strengthening, so Congress acted again in 1914. This time they passed the Clayton Antitrust Act. This act laid out specifically illegal actions that monopolies were doing. It

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made it illegal for competitors to buy each other out without approval. Companies could not arbitrarily charge different prices to their customers. Board members could not sit on multiple companies’ boards of directors. At the same time, Congress established the Federal Trade Commission to look into antitrust law violation and to stop practices that were not fair and competitive. The Sherman Act most successfully applied to breaking up AT&T in 1984. The government attempted to use it against Microsoft for abusive anticompetitive practices in the late 1990s. A number of observers believe they failed to utilize the victory and sufficiently correct Microsoft.

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Short Sale Short sales are real estate sales where the money received from the sale is not sufficient to cover the balance that is owed on the property loan. This commonly happens as a result of borrowers being unable to keep up with the mortgage payments for their home loan. In this case, the bank or other lending institution will likely determine that it is in their best interest to take a reasonable loss on the sale of the property instead of pressuring the borrower to make the payments that he or she can not afford. Both parties come together and agree on the short sale process, since it permits them both to stay out of foreclosure. Foreclosure is a negative outcome for the two parties, as it lowers credit scores of borrowers and costs banks in expensive fees. Borrowers must be careful, since a short sale agreement does not always absolve the borrower from having to cover the additional balance left on the loan. This remaining balance is called the deficiency. The process of a short sale starts with the two parties concurring on a short sale being the best option to resolve a mortgage that the borrower is unable to keep up with as a result of financial or economic difficulties. The home owner actually sells the house in question for an amount that he or she is able to realize, even though it is less than the remaining loan balance. They give the money to the bank or lender. This is really the most economical answer for the problem in this scenario, since short sales are less costly and quicker than foreclosures that damage both lender and borrower. Banks commonly employ loss mitigation departments. Their job is to contemplate the short sales that are possible or likely. Most of them work with criteria that they have set up in advance. In the difficult days following the financial crisis of 2007-2010, they have become more flexible and willing to entertain offers from borrowers. The banks will usually decide on how much equity is in the house by ascertaining the likely selling price that they will be able to receive either through a Broker Price Opinion, appraisal, or Broker Opinion of Value. Even when Notice of Defaults have been sent out to borrowers beginning a foreclosure process, many banks will still consent to short sale requests and offers. They have become more understanding and accepting of short sales in the wake of the financial crisis than they ever were before. This means that for the countless borrowers who own houses on which they owe more than they are worth and who can not sell them, there is a better option open to them than foreclosure.

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Short Squeeze A short squeeze relates to a scenario where a traded stock or commodity which has been heavily shorted suddenly moves aggressively higher without advance warning. This creates a self-fulfilling prophecy in which the short sellers feel so painful a loss that they are forced to close out their shorted positions. They actually increase the upward momentum and pressure on the stock by doing so. Such short squeezes give the impression that short sellers have no choice but to abandon their own short positions at a significant loss typically. These are often triggered by sudden positive news announcements or company developments which give the idea that a stock may be beginning a turnaround in its fortunes. It could be this is only a temporary effect, yet not many short sellers are able to afford to hold losses which are running away limitlessly on them. In these cases, they stop the proverbial bleeding by closing them out, even though this means booking the so- far only paper losses. When the stock begins to rise astronomically and quickly, the trend becomes self- reinforcing many times as the short sellers all trip over each other in their stampede towards the proverbial exit doors. When stocks go up 15 percent in only a single trading session, the short sale holders will often have not choice but to sell out and cover these loss-making positions via buying back the stock. When sufficient quantities of short sellers all do this at once, the stock price rises even more. There are two practical means of determining which stocks are at greatest risk of falling victim to a short squeeze. The tools are short interest and short interest ratio. With short interest, this refers to the aggregate shares which are short sold as a percentage of all outstanding shares. Short interest ratio proves to be the actual numbers of shares that are sold short divided using the average daily trading volume of the stock in question. Considering a hypothetical example helps to understand this concept better. A biotech company Britex possesses a drug which is a participant in advanced FDA clinical trials for treating skin cancer. Investors may be highly skeptical about whether or not such a drug will really work effectively and without dangerous and unacceptable side effects. Because of their doubts, 10 million shares of the Britex stock out of their total 50 million shares may have been short sold. This means that the short interest on Britex stock proves to be 20 percent. As the daily trading volume averages approximately a million shares, the SIR would be five. This SIR conveys that it would require five trading days for the short sellers to be capable of purchasing back all of their shares which they have sold short. It could be that the enormous short interest has caused the price of the stock to drop from $15 to around $5 per share in advance of the clinical trial results. If the results were successful as the announcement came out that it treated skin cancer effectively, Britex stock would gap massively up on the news results. It could rise to more than $8 because speculators will simply pour into the stock. Short sellers would then be desperate to cover their short positions as soon as possible. The short squeeze in Britex shares would then be on in full force. This could press the stock to significantly higher levels because of the rapid unwinding of the short positions. Those investors who are contrarians seek out stocks that are overly shorted exactly because a serious risk

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of short squeeze exists. They can build up massive long positions in such heavily shorted securities when they determine that the odds of success are much greater than what the short interest implies. They are taking on a calculated risk and hoping for a tremendous risk to reward potential payoff when the stock is only trading for a few dollars per share. They assume risk only limited to the price of the long positions, since the stock can not drop below zero. The potential for profit is in theory limitless.

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Simple IRA Among the stable of various types of IRAs American savers for retirement can take advantage of is a less common plan called the SIMPLE IRA. These kinds are a combination of traditional IRAs and employer offered plans like 401(k)s. The word SIMPLE in this case is actually an acronym that stands for Savings Incentive Match Plan for Employees. This is the most common name for the employer offered tax deferred retirement savings account. SIMPLE IRAs were created to help smaller employers who have 100 or less employees. The idea was for them to offer their workers retirement plans. The IRS knew that the bigger packages of benefits all too often involved long and difficult opening procedures with mountains of complicated paperwork. Smaller employers simply did not have the time or resource capacity to complete and maintain these types of plans. Among the advantages of SIMPLE IRAs is that they are not governed by ERISA, the Employee Retirement Income Security Act. This means that they are able to sidestep substantial expenses and significant amounts of paperwork in establishing them. The contributions to these kinds of IRA accounts are also fairly straightforward. Employers must make specific minimum amount contributions to the accounts of the employees. They can accomplish this by establishing a match program at a minimum of 3% of their employee contributions. Alternatively they might set a 2% of his or her salary flat rate and offer it to every employee who participates. When employees become part of a company SIMPLE plan, they are basically establishing a traditional IRA via their employing company. A significant disadvantage to these types of IRAs centers on their lower contribution limits. These are less than comparable 401(k) plans or other plans which employers sponsor. The limits amount to $12,500 for a single year in tax years 2015 and 2016. Rolling over from these types of IRAs is also more complicated. They can not be started without a waiting period first being observed. Once employees start their participation with the plans, they can not do a rollover for generally two years on from their participation dates. The only exception to this rule pertains to transfers between SIMPLE IRAs. These can be done at any time since they are considered to be a tax free transfer from one trustee to another. In the even of any other type of transfer within the two years waiting period, these are deemed as distributions by the IRS. While most penalties for tax deferred plans are set at 10% withdrawal penalties, these particular IRAs carry a more punishing 25% withdrawal tax penalty. After the conclusion of the two year time frame, individuals may then move their funds from the SIMPLE plan to a different kind of IRA. The only restriction is that they can not move them to a Roth IRA which is funded with pre-taxed dollars. The current SIMPLE plan as well as the new plan must also allow for the transfer to occur. As with any kind of retirement plan, early withdrawal penalties apply. If any withdrawals occur before

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the official retirement age of 59 ½ is attained, the early withdrawal penalties of up to 25% will be assessed against the account withdrawals. When rollovers are done, direct rollovers are much preferred to indirect rollovers. If account holders pursue indirect rollovers there are tax withholding requirements. It is also possible that the account owner will inadvertently fail to complete the transfer in time or at all and then suffer from the substantial early withdrawal tax penalties of up to 25%.

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Social Security Social Security in the United States refers to the federal government’s OASDI Old Age, Survivors, and Disability Insurance program. President Franklin Roosevelt created the first such program and signed the Social Security Act legislation in 1935. The present day law has been amended to include other social insurance and social welfare schemes. The Social Security program is mostly bankrolled using payroll taxes which are referred to as the FICA Federal Insurance Contributions Act tax. The other legislation on it pertains to self employed people. SECA Self Employed Contributions Act Tax collects their contributions. The Internal Revenue Service collects all of these tax deposits and delivers them to the two Social Security Trust Funds. These are the Federal Disability Insurance Trust Fund and the Federal Old Age and Survivors Insurance Trust Fund. All income paid by salaries to a maximum amount set by law contributes to the payroll tax for these programs. Income that people earn above this limit does not incur additional taxes for the programs. This maximum level of taxable earnings in 2016 amounted to $118,500. The program provides a basis for economic security for 59 million Americans who are retired, disabled, or the family members of those who are deceased or disabled workers. This number amounts to about one in six Americans who receive money from the program. Of this amount approximately 39 million beneficiaries are retired while the rest are survivors of deceased or disabled workers or disabled people themselves. Around 163 million individual Americans pay these taxes so that the others can receive their monthly benefits. This amounts to around a quarter of families collecting income from the programs. Social Security proves to be a program based on a pay as you go system. Today’s workers contribute taxes into the program so that money can go directly out in the form of monthly income to the recipients. This makes it different from prefunded company pension plans. Prefunded programs collect money in advance of retirement benefits being paid. This way it can be distributed to the workers of today when they retire. Both workers and employers make contributions to the program. Workers give 6.2 percent of income up to the cap. Employers similarly pay an amount that is matching to arrive at the joint contribution of 12.4 percent of all earnings. Those persons who are self employed must pay for both employer and employee share. Social Security’s finances have a bleak outlook. The Office of the Chief Actuary of Social Security comes up with a “best estimate” on when the fund will run out of money to pay benefits. If Congress makes no changes to the law, then in 2020 the benefits spending will actually surpass the revenues for payroll taxes along with the interest on the funds’ securities. At this point, the fund will start cashing in its Treasury securities it obtained as IOU’s for loaning money to other branches of the Federal government. In order for the government to pay these IOU’s, they will have to obtain money from one or more of a few different sources. Other spending will have to decrease, taxes will have to rise, or the Treasury will have to borrow additional money by selling more securities. This last choice would increase the already high Federal debt.

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By 2034, all the assets of the trust fund would have been completely exhausted. This means that all Treasuries the fund has would have been redeemed. By this point, the combined workers and employers taxes would be enough to cover 79 percent of currently promised benefits to recipients. The last year of the 75 years projection shows that by 2089, the payroll taxes would be sufficient to cover around 74 percent of currently promised benefits.

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Societe Generale Societe Generale is a French banking giant that proves to be among the largest financial services companies in Europe. As of 2015, it boasted 31 million customers living in 66 countries where they have branches. A staff of 146,000 employees works for the bank and comes from 122 different nations. The bank counts 31 million customers that include private individuals, companies, and financial institutions. The French Societe Generale subscribes to the universal bank model that attempts to offer all types of financial services to its clientele. They base their model on a combination of businesses that serve France and people around the globe. The bank relies on its expertise in its core businesses. These include retail banking, corporate and investment banking, financial services, private banking, insurance, and asset management. Combining all of these businesses, they are able to provide a full complement of financial products and services for the many different needs of their customers. The French retail banking group operates under three different brands. Societe Generale is their nationally leading bank. Credit du Nord is comprised of a number of different regional banks. Boursorama represents the largest online bank in France. These different bank brands provide for the financial needs of 11 million different individuals and around 810,000 corporate, professional and not for profit customers. This group has a goal to be the leading French bank for safety and customer satisfaction. Societe Generale also operates a major international retail bank as well as a consumer credit operation. This services more than 32 million customers living in 52 countries. This business adapts the universal bank concept to the needs of the local market. The group’s Societe Generale Corporate and Investment Banking is responsible for the investor and institutional client needs. They act as a go between for investors and issuing groups in four key activities. These are financing, investment banking, investor services, and market activities. Financial services provides offerings under three core businesses. These are the Insurance, Vendor and Equipment Finance, and Vehicle Leasing and Fleet Management businesses. They help the group to develop powerful synergies in the dozens of countries where the bank has a presence. The bank turns out to be among the biggest and most important private banks in the world. Their Private Banking division provides high net worth individuals with various strategies. These include portfolio management, markets and funds wealth management, and asset allocation solutions. Insurance is an activity the bank carries out through two agencies it owns in France. Sogecap is their life insurance company. It tailors a wide range of insurance offerings for corporate, professional, and individual clients. These include life insurance, personal protection, and retirement savings plans. Sogessur is their accident insurance and property insurance provider. This company delivers insurance packages for people in categories life insurance, personal accident, car and home insurance, school insurance, and others. The company insurance line operates as a leading provider in 13 different countries. For life insurance it holds a rank as number six in France, number two in the Czech Republic, number four in Morocco, number five in Luxembourg, and number seven in both Russia and Romania.

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Asset management includes a range of different securities services and offerings under the Societe Generale Securities Services division. Among these are custody and trustee services, clearing services, liquidity management, retail custody services, asset servicing and fund administration, global issuer services and fund distribution. They also have a subsidiary group Lyxor Asset Management. This company provides advising and asset management services for all types of asset classes. Lyxor is a leader for transparent, flexible, and creative asset management.

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Solo 401(k) Plan Solo 401(k) plans function much as their standard 401(k) plan cousins do, but display some important differences. These retirement savings plan vehicles for the self employed are also called One Participant 401(k)s, Self Employed 401(k)s, Individual 401(k)s, and Uni-Ks. These particular 401(k)s provide business owners and spouses who do not have any employees beyond themselves with the ability to be a part of a 401(k) type of tax deferred plan. The plans are fairly new. Congress unveiled them as part of their 2001 Economic Growth and Tax Relief Reconciliation Act. At the time, these became the first specially tailored employer sponsored retirement plans intended for the self employed. Before their introduction, these self employed persons could only rely on such plans as IRAs, Keogh Plans, or Profit Sharing Plans. These Solo 401(k)s possess practically identical requirements and rules as do the normal 401(k) plans. There are two important exceptions to this. The owner and the business do not find themselves governed by the expensive and complicated requirements of the ERISA Employee Retirement Income Security Act. Besides this, the company is not permitted to employ additional employees who are full time workers contributing 1,000 hours or more each year to the business. Contributions also have their own particular rules with these Solo plans. The account owner is also both the employee and employer. For the 2016 tax year, employee contributions are limited to $18,000 (or $24,000 per year in the case of those who are fifty years of age or older). Other contributions can be put in as employer contributions. Whichever type a business owning participant wants to call these contributions, the limit for both employee and employer contributions may not be more than $53,000 for a given year. One benefit that holders of these Solo 401(k) plans enjoy is that they do not have to employ a custodian as with IRAs. Instead they can work with practically any financial institution or bank as their account trustee. Assuming that the trustee will handle it, these plans are able to invest in a wide range of alternative asset types. This includes mutual funds, individual bonds and stocks, ETFs, CDs, real estate, life insurance, S corporations, and precious metals bullion such as gold or silver. Solo Plans are almost unique in their ability to invest in life insurance, which even the self directed IRA plans are not enabled to do. This all makes the Solo 401(k)s practically unrivalled in their capability to provide retirement plans with low costs, that are easy to make transactions in, with great flexibility, and with generous contribution limits all at once. The downsides to the Solo 401(k) are two. Most workers are not allowed to participate with them. They also need a great deal of paperwork and account maintenance when measured up against numerous other types of retirement plans. Rollovers are easy to do with these Solo plans. They are able to receive such transfers from other kinds of accounts and IRAs. Account holders may also transfer or roll them over to another kind of retirement account. It is important to check with the rules of an individual’s particular plan, as some plans do not accept rollovers from the Solo 401(k)s. Besides this, there are Solo 401(k)s that specifically do not permit rollovers.

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Business owners should take care when setting up these types of accounts. Rolling over these types of retirement vehicles will not incur any IRS tax penalties, so long as they are done according to the IRS rules and regulations. An individual has 60 days to finish the procedure and may only engage in it one time per year. Failing to abide by these rules will incur regular income taxes plus the 10% penalty for early withdrawals, unless the individual is older than the 59 ½ years retirement age.

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Sovereign Wealth Funds Sovereign Wealth Funds are investment pools made up of foreign capital and currency reserves which the government of the country in question owns. The biggest such pools of investment belong to the few countries with a large trade surplus in their economies. This means that Norway, Singapore, the oil producing and exporting nations, and China are the principle sovereign wealth fund nations of the world. They bring in such foreign currencies as U.S. dollars in token of their substantial and valuable exports. Their respective governments then invest these currency reserves in order to obtain the maximum return they possibly can for the benefit of their nations as a whole. The idea behind these Sovereign Wealth Funds is that the pools of money which the nation owns in foreign reserves can be invested wisely in yield-producing assets so that the economy of the country and its citizens as a group gain advantage. It is the excess central bank reserves in a net exporting nation which make these funds possible, as they accumulate from either trade surpluses or budgetary surpluses. Exports of valuable natural resources create such revenues which can be used for this kind of a fund. The total wealth which these Sovereign Wealth Funds contain has increased by more than double since September of 2007. It grew rapidly from $3.265 trillion to fully $7 trillion by 2015. This means that the assets held by such funds have grown to be twice as much as the value for all of the global hedge funds combined. It makes these wealth funds substantial enough to move markets dramatically without ever trying to do so. During the financial crisis, they bought major stakes in troubled lenders Morgan Stanley, Citigroup, and Merrill Lynch. They were guilty of causing an asset bubble in real estate in both London and New York City. Their influence only grows apace as they evolve into increasingly sophisticated investors. One sovereign wealth fund nation differs from the next in the kinds of permissible investments they are allowed to pursue and include. Some of the nations are worried about liquidity issues. This makes them restrict their investments to only those which are the most liquid types of public debt instruments, such as U.S. Treasuries, British Gilts, and German Bunds. It was the rising and higher than average oil prices from 2007 to 2014 which actively encouraged the expansion of these enormous sovereign wealth funds. In that same time frame, almost 60 percent of all such assets came from the revenues of oil and gas production, sales, and distribution. Even though the 2008 Financial Crisis destroyed trillions of dollars in global asset wealth, it hardly slowed down the inexorable growth of the national wealth funds. They managed to attain the levels of $4 trillion by December of 2009 and $5 trillion by March of 2012. There are a number of especially oil and natural gas producing nations which have developed and built up their SWF in order to provide diversification to their national income streams. The United Arab Emirates is one such model example. The overwhelming share of its national income and wealth is derived from oil exports. Because of this, the emirate dedicates part of its foreign currency reserves to a sovereign wealth fund which invests its resources in a range of diversified assets that can provide a hedge against oilrelated price shocks. This fund has grown to be massive by any measure. By June of 2015, the UAE Abu Dhabi-controlled fund had increased to around $773 billion. This represented ten percent of all SWF assets at the time. In fact, these Middle Eastern oil exporting-based sovereign wealth funds comprise

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nearly a third of all wealth found in such national funds. Despite the size of the UAE fund, it is not the largest on earth. The Norway Government Pension Fund proves to be the biggest in the world, with $873 billion by June of 2015. Its income is derived from the nationally owned North Sea Oil drilling operation. The plummet in oil prices and accompanying decline in the Norwegian Kroner may cause the fund to record a loss of $17 billion by the period which ended in first quarter of 2015. It is so very large that if the money from this national fund were equitably distributed to all Norwegian citizens, each of them would receive over a million Kroner in distributions. Singapore also possesses two of the largest Sovereign Wealth Funds. Their two funds together contain $458 billion in total. They have amassed this enormous fortune because of the impressive investment and savings rates of the businesses and people in this world leading financial and trading center and city state. The Government of Singapore Investment Corporation, presently known as the GIC Private Limited fund, holds $344 billion as of 2015. Both funds are owned and operated by the government of the city state of Singapore. China also possesses some of the largest such funds in the world. The China Investment Corporation is their largest at $747 billion. Hong Kong’s Monetary Authority owns a $442.4 billion fund as of 2015. This is utilized to support and ensure stability for the public finances of Hong Kong in general and the Hang Seng stock exchange in particular.

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Special Drawing Rights (SDR) Special Drawing Rights are currency units of the International Monetary Fund. These units were originally worth .888671 grams of gold and $1 when they were initially created under the gold standard in 1969. In 1973 the pegged currency system set up at the Bretton Woods conference collapsed. The IMF then re-defined these SDRs as a basket of the major world reserve currencies. Until October 1, 2016, SDR baskets are comprised of U.S. dollars, euros, British pounds, and Japanese yen. On October 1 this definition will be broadened to add in the Chinese renminibi. The IMF created these unique currency units in order to supplement the existing currency reserves of countries who are members. Every day the IMF figures up the SDR value and puts it up on their website. The value is a composition of its various parts. They figure the value as measured in U.S. dollars by adding up the value of each currency in the basket in dollars. To do this, they utilize the noon time exchange rates from the London market fixing. Every five years, the IMF has an Executive Board meeting to review the components of the Special Drawing Rights. They have the ability to hold this meeting earlier should financial circumstances call for it. The idea is to make certain that the basket continuously mirrors how important various currencies included are in the financial and trading systems of the world. The review that ended in November of 2015 decided that the Chinese renminbi currency had become freely usable enough to include as the basket’s fifth currency alongside the dollar, euro, British pound, and Japanese yen. They also adopted a new method for determining how much of each reserve currency will make up an SDR. Equal weighting is now being given to the exports of the currency issuing nation and a composite financial indicator. With the financial indicator, each of the components is being given an equal weighting. It is based on the reserves in the currency held by other countries, the amount of foreign exchange turnover for that currency, and the total of international debt securities and bank liabilities which are held in that currency. Until October of 2016, the Special Drawing Rights components are U.S. dollars at 41.9%, euros at 37.4%, British pounds at 11.3%, and Japanese yen at 9.4%. As of October 1, 2016 the new SDRs are instead comprised of U.S. dollars at 41.73%, euros at 30.93%, Chinese renminbi at 10.92%, Japanese yen at 8.33%, and British pounds at 8.09%. This represents the new SDR value in a change more significant than any made in decades. The next scheduled review for the SDR is set to occur on September 30 of 2021. Special Drawing Rights can be given out to member states of the IMF as a proportion of their IMF quotas. This gives every member an international reserve asset that will not cost them anything. Charges are made on allocations and then utilized to cover any interest owed on SDR holdings. Member countries that do not utilize their holdings which are allocated do not pay since any charges equate to the interest they receive. Members whose holdings become greater than what they are allocated receive interest on the extra ones. SDRs today are only used in limited capacity as reserve assets. Their main purpose is to function as the

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account unit of the IMF and a few international organizations. The SDR is not actually a claim against the IMF or a true currency. Instead it represents a possible claim against the IMF members and their currencies.

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Stagflation Stagflation refers to the simultaneous problems of high unemployment, stagnated economic growth, and persistently high inflation. It is an unlikely scenario, as slowing economies typically reduce demand sufficiently in order to keep higher prices in check. When workers lose their jobs, they purchase less. Businesses are then usually forced to reduce their prices in order to convince remaining customers to buy. It is this typically slower growth in market economies that prevents inflation from running away. Stagflation policies typically lead to hyperinflation. Central banks that expand the country’s money supply as the national supply is restricted do so by printing up additional currency. Monetary policies then create additional credit. This increases demand from consumers. It is the simultaneous supply restrictions that keep companies from producing enough to keep up with the rising demand. Such a scenario happened in Zimbabwe back in 2004. Their government printed up so much currency that it pushed well beyond stagflation and evolved into ruinous hyperinflation. A stagflation in the United States only transpired in the 1970s. At the time the U.S. government expanded its dollars significantly to try to create additional economic growth. While they did this, President Nixon’s wage price controls severely limited business-produced supplies. The name stagflation actually comes from the 1973 to 1975 era recession. In those six consecutive quarters, the U.S. GDP shrank in size. Inflation literally tripled in 1973 alone, jumping from a relatively tame 3.4% to 9.6%. In the time between February of 1974 and April of 1975, inflation stubbornly remained between 10% and 12%. Experts today look back at the 1973 Arab-led oil embargo as the crisis that triggered first oil price inflation. At this time, OPEC nations drastically cut their oil exports to the United States, forcing prices to quadruple. The inflation from oil spread to many other parts of the economy dependent on oil and gasoline, such as shipping, rail, and trucking. The mild recession of 1970 was the precursor to the problems. President Richard Nixon in his bid to be reelected introduced as series of four fiscal and monetary economic policies that helped to ensure he won. These unfortunately also created the conditions for stagflation a few years later. Nixon’s first mistake was the start of wage and price controls. U.S. businesses were unable to raise their final prices even as import costs were soaring. They could only respond by reducing costs via worker layoffs. That boosted unemployment and further slowed economic growth by lowering demand. Nixon secondly took the U.S. off the gold standard to stop an international run on American gold reserves. This only crushed the value of the dollar and created still higher import prices and yet more inflation. In order to fight off the inflation, the Federal Reserve had no choice but to continue raising interest rates. These reached their peak of 20% by 1979. Because the Fed did this in an up and down motion, businesses became confused and chose to keep up higher prices. Though stagflation has not yet reoccurred in the U.S., Americans became worried it might again in 2011. The Fed had begun employing aggressive expansive monetary policies to save the U.S. economy from the

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grips of the 2008 financial crisis and Great Recession. This caused many to fear that high inflation would return. The economy only grew at low levels form 1% to 2% at this time. Economists observed stagflation was a viable risk if inflation rose while the economy continued to struggle. Instead, deflation became the serious concern of the day. Massive increases in global liquidity were used to try to fight off this opposite kind of problem.

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Standard and Poor's (S&P) Standard and Poor’s is a global ratings agency that is also responsible for the S&P and Dow Jones indices in the stock market. Besides providing ratings on companies and products, they also rate governments’ sovereign credit ratings. This company is based in the United States but has 26 offices throughout the globe. The corporation has shortened its name from Standard and Poor’s Ratings Services to S&P Global Rating as of April 28, 2016. The history of Standard and Poor’s goes back over 150 years. Today they provide market intelligence that is high quality and well respected. They offer this in the form of their well known credit ratings, global research, and thought leadership. The company operates primarily as S&P Global Market Intelligence and S&P Dow Jones Indices. Their division S&P Global Market Intelligence proves to be among the world leaders in delivering research and information on a variety of asset classes. They provide this with thought provoking analysis via a number of advanced platforms. Every year the company gathers more than 135 billions individual points of data in the pursuit of this goal. They cover 99% of all the market capitalization in the world. Standard and Poor’s wants to be more than just the provider of financial data and intelligence. They are looking to be a creative force for transparency, growth, and the provision of value in the world’s capital markets. Each day this division of the company gathers, scrubs, analyzes, and interprets enormous amounts of data and content. They take this raw information and transform it to intelligence investors can act on covering industries and companies in the worldwide financial markets. Standard and Poor’s Global Market Intelligence offers not only data but also valuable insight that helps readers to make more educated and intelligent investment and business decisions that impact the future. This division boasts several core beliefs. These are relevance, accuracy, timeliness, and completeness. The group proves to be a foremost purveyor of analytics, news, research, and information to a variety of groups around the globe. Beneficiaries of this information include corporations, government agencies, universities, and professionals. The solutions and data which lead the industry come from their subsidiaries SNL Financial and S&P Capital IQ. These combine to put together data from individual sectors and the comprehensive market with news and analytics. The tools that result allow the group’s clients to perform a wide variety of functions. They can track their performance, identify ideas for investments, generate alpha, grasp dynamics of the competition in an industry, determine credit risks, and produce valuations. This division boasts over 10,000 employees operating in 20 countries around the globe. The other principal division of Standard and Poor’s is the S&P Dow Jones Indices. This group turns out to be the biggest international source for concepts, research, and data on indices. It counts among its legendary financial indicators the Dow Jones Industrial Average and the S&P 500 indices. It has been working with these indicators for more than 120 years to create forward thinking market solutions which help to meet needs of both retail and institutional investors.

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They began with launching the Dow Jones Industrial Average in 1896 and later produced the S&P 500 in 1957. This has made them an engine in many of the most critical financial creations of the 20th century. They now offer in excess of 1 million different indices that run the spectrum of many different asset classes throughout the world. The company claims that more assets have been invested in different products that are based on their indices than with any other company on earth.

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Statistical Arbitrage Statistical arbitrage turns out to be a scenario where a disparity in price exists between the natural price of an asset, or its inherent value, and the current market price. There are traders who specialize in arbitrage situations who will try to gain advantage from this fairly unusual situation of disparity hoping to profit from it as it naturally corrects. Some traders believe that statistical arbitrage will always yield a profit, at least on a paper trade basis. The reality is that in actual trading, unforeseen events and a limitation in investing resources could easily interfere with their capability of making money efficiently enough to be worth doing. Statistical arbitrage is used in contrast to the generic form of arbitrage to distinguish its differences. The statistical variety relates to the actual techniques utilized in gaining advantage from the disparity that exists in two markets. With generic arbitrage, it could be that a stock price is higher in the stock market of one country than another where it is listed. In theory, traders could guarantee themselves profits simply by purchasing the stock on the cheaper exchange and simultaneously selling it on the dearer listed one. The guarantee depends on how high the transaction costs and currency conversion costs will be. There is also a considerable risk that the two divergent prices may correct themselves naturally before the traders are able to both buy and sell the security on the different exchanges. This statistical arbitrage is a bit different from general arbitrage. In the statistical variant, such asset disparity is not simply between two or more markets. Instead it has to do with the price of an asset currently and the underlying value of the same asset. A company security proves to be a good example to contemplate. The market price will be decided by the interaction between traders in the form of supply and demand. The stock also possesses an intrinsic value which is derived from the dividends it declares to its investors and how this relates to competing investments. There may be variance in the market price because of temporary effects and external factors, as with relevant industry-specific bad or good news. Those traders who engage in statistical arbitrage operate under the assumption that eventually the price of the asset will go back to its correct underlying value. Because of the disparity, they anticipate that the price in the future will change, and then they position accordingly to profit. In normal circumstances, these traders might consider and employ literally hundreds of different stocks at once so that they are able to effectively reduce their overall risks of an unforeseen event stopping the stock from going back up to its normal price in a fast enough time frame so that the trader makes money on the deal. There is another meaning for statistical arbitrage. There might be a type of imbalance from the values that would typically be anticipated. Casino games like roulette are the classic example of this. Because half the spaces are red and the other half are black, players betting on red will win double their stakes should they be right. The wheel also contains a 0 that does not pay anything. This means that the chances of correctly ascertaining the color are actually just under one out of two. This house advantage is a disparity that could also be considered to be a statistical form of advantage. There is no way for the players to benefit from this, but casinos make a fortune off of it on a regular basis.

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Stock Broker Stock brokers are professionals who are both licensed and registered with the Financial Industry Regulatory Authority or FINRA. In general, stockbrokers work for a broker dealer or a stock brokerage firm. Stock brokers are not to be confused with financial advisors or financial planners, who perform many different services for their clients. Stock brokers have a primary responsibility. Their job is to purchase and sell stocks, bonds, mutual funds, and other related investments on behalf of their clients. These clients can be retail investor individuals or institutional clients. Institutions as clients refer to not for profit companies, universities and colleges, foundations, and other similar groups.

Stock brokers trade stocks for their clients over a stock exchange or sometimes an over the counter market. Among the larger and better known stock exchanges are the New York Stock Exchange and NASDAQ. They are compensated for these trades with commissions or fees that the trader pays. These fees range widely from one type of stock broker to another. Online stock brokers offer the lowest commissions to their clients. These types of brokers usually charge under $15 per trade. There are a variety of names for stock brokers in the industry. These various titles refer to different licenses the brokers may hold, the various services they deliver to their clients, and the kinds of securities which they trade. Stockbroker is an older designation for these individuals who are now more commonly referred to as brokers, reps, registered reps, or financial advisors. Not all of these titles refer to exactly the same type of professional. The scope of a financial advisor or financial planner is generally much broader than that of a stock broker. A stock broker would primarily handle the trades in and out of given securities. Financial advisors and planners look at the entire picture of a person’s investments and future goals to come up with a comprehensive investment and financial plan for the individual. The requirements to become a stock broker vary. In the U.S., these professionals usually need to hold a bachelor’s degree. The brokerage firms are preferably looking for applicants who have a business degree in a subject such as finance, economics, accounting, or a related field. Those applicants who possess master’s degrees in business or finance receive preferential hiring treatment. Because they are in greater demand, they are able to command higher salaries than applicants who only hold bachelor’s degrees. Once a stockbroker candidate is selected, they must be sponsored by the brokerage that hired them. They can only take the exams required by the stock market industry if they have the sponsorship of such a brokerage firm. There are a variety of exams that are available to stock broker candidates. American stock brokers have to take and successfully pass the Series 7 exam, as well as the Series 63 exam or the Series 66 exam. Once they have completed such exams, they can be registered with the Financial Industry Regulatory Authority. At this point, the candidate is officially a registered representative, or stockbroker. In the past, a stock broker was a professional that only wealthy investors and individuals could afford.

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They were able to access stocks and other investments through these brokers. Minimum account sizes kept out smaller investors generally. Thanks to the Internet, access to the markets broadened considerably. Discount brokerage firms and discount stock brokers proliferated. These allow for individual investors to trade stocks and other investments for low and reasonable fees with much smaller minimum account sizes. They do not offer personal advice to their clients. Thanks to these changes that technology empowered, most any individual is able to invest in the markets today.

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Stock Buybacks Stock buybacks occur when companies repurchase their own company shares from the markets. They are sometimes called share repurchases. A buyback is like a company choosing to invest in itself, since it is actually employing its own cash reserve to purchase its own stock. Companies may not be shareholders in themselves, which means that their shares are absorbed back into the company. This has a net effect of decreasing the quantities of stock share which are outstanding. This also increases the size of each owner’s stake in the company as there are not as many shares and claims on the company’s earnings. There are two means in which stock buybacks occur. They can be done via tender offers or open market purchases. In a tender offer, all shareholders receive such a tender offer from the company to submit some or all of their shares by a specific deadline. Such an offer divulges the quantities of shares which the company wishes to buy back as well as the price range they are agreeable to offer. These tenders are nearly always at premium prices versus the current market level. Investors who are interested in participating will let the company know how many shares they wish to sell them at the price they will take. The company involved in the share repurchase would then put together the right combinations so that it could purchase the shares it wants for the lowest price. Companies can also enter the open markets to engage in stock buybacks. They do this precisely as individual investors by buying shares at the going market price. The difference between the company and an individual investor doing this is that the market sees a company repurchasing its own shares as a significantly positive action. This generally leads to the stock prices rising quickly. A company management will state that the share repurchase is their best option for deploying the firm’s excess capital at that given point in time. The management of a firm is supposed to be interested in maximizing the returns for their stake holders. These stock buybacks do usually boost the value of shareholders. There are other motives for company managements buying back shares. They may believe that the stock market has overly discounted the prices of its stock shares. Stock prices can decline from many different causes. These might be that earnings were less than anticipated, the economy is poor, or there are negative rumors surrounding the company. Firms that pay out millions of dollars to invest in their own shares show that the company management feels the market has punished their share prices unfairly with the discount. This is always seen positively. Stock buybacks can also create better fundamentals for a company’s balance sheet. Since the repurchased shares become either cancelled or treasury stock, this lowers the number of outstanding shares as a result. This decreases the balance sheet assets as the cash is spent. With fewer assets on the balance sheet, the return on assets ROA goes up in the process. Return on equity ROE also grows as the outstanding equity is reduced. The markets generally prefer higher ROAs and ROEs. Managements that do share buybacks just to boost their balance sheet fundamentals are looked at negatively and as problematic.

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Stock Market Index A stock market index refers to a collection of stocks which are combined together to create a bellwether for a group of similar companies in the market. The idea is to present an index which tracks a certain sector, market, currency, commodity, bond, or other type of financial asset. Stocks which are collected in such an index are put into a so-called basket. An example of this is easy to understand. A person who wished to invest in the DJIA Dow Jones Industrial Average index would buy into the shares of the index basket that represented the 30 component companies. This means that the investor would then own 30 different companies’ stock shares. The idea behind indices is that they track the underlying assets or market. The XAU Gold and Precious Metals Index is comprised of those companies which mine precious metals including gold. Purchasing shares in this index means that an investor has the benefit of exposure to the entire gold mining sector. They achieve this without having to acquire shares in all of the gold mining firms of the globe. It is accomplished because shares in XAU represent all of the gold mining shares in the form of the entire industry. These indices were fashioned to imitate particular markets. This does not mean they will ever be accurate all of the time nor even 100 percent at any given point. This is because there are a wide range of factors that can change the market course which indices will not always capture with perfection immediately. Not every stock market index is liquid. This means that it could be hard to get in and out of some indexbased positions. It is also the case for some stock company securities too. Because of these problems, there are alternatives to a stock market index. These are called ETF Exchange Traded Funds. Such ETFs have the advantage of being constructed in order to imitate an index. This is done in the same way that indices imitate stock markets and various other assets. The ETF has the advantages of being immediately ready for trade and a pre-arranged package. This makes an ETF a true mini portfolio available for an affordable price with reasonable fees (especially as compared to mutual funds). There are many stock market indices that are well-known throughout the world. The most famous of these is surely the DJIA Dow Jones Industrial Average. This 30 stock company index trades every day on the NASDAQ and NYSE New York Stock Exchange. The component companies of this most famous of indices on the planet include such internationally respected giants as the Walt Disney Company, General Electric Company, Microsoft Corporation, McDonald’s, and Exxon Mobile Corporation. Another internationally followed index is the S&P 500. It measures the values of 500 of the large cap stocks of the United States. The NASDAQ Composite index follows the fortunes of fully 4,000 different company stocks as they trade daily. Yet another stock market index often called the total market index is the Wilshire 5000. While somewhat less famous than the other three, this index of indices follows the performance of every publicly traded corporation which is headquartered within the U.S. The four indices mentioned here address the daily progress of the large American companies. A competing index the Russell 2000 follows the performance of an impressive 2,000 smaller corporations of the U.S. markets. The market index values are called points. This means that if the London FTSE 100 rose 150 points in a

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single day that the value increased versus the prior day’s close to that point. It means that the total net gains of all the composite companies collectively increased by a net of 150 points. Indices such as these assist investors by helping them to keep tabs on the health of various industries in which they may have interests or capital invested. If the DJIA continues to drop repeatedly for a period of many weeks or a month, investors could reasonably conclude at least some of the companies within the underlying index have run into serious trouble. This would be a prescient warning to evaluate the portfolio and perhaps liquidate some of the holdings in favor of other ones which were performing better.

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Stock Split Stock splits occur when corporations decide to expand the number of underlying shares in the company. They do this by setting out a ratio for the stock split. They might say that for every one share of stock, there will now be two, which would double your existing shares. This would be called a two to one stock split. If you had one hundred shares of the stock before the split that were trading at twenty dollars per share, then you would possess fifty shares of the stock trading at ten dollars each share after the split occurred. The value of the total shares owned does not change as a result of a stock split, only the amounts of shares that you possess and the per share price of the stock in question. In either case, they would still be worth two thousand dollars. Companies mostly engage in stock splits because of a liquidity motivation. There are many companies that feel that more expensive stocks keep investors from buying them. By splitting the shares, the price of the shares declines proportionally. They hope that this will result in a scenario where greater quantities of shares of the stock are then purchased and sold. The downside to this argument is that the higher volume of the shares traded could cause larger drops and increases in the price of the stock, which leads to greater volatility in the share prices. While numerous investors believe that stock splits are beneficial, there is no real evidence to support this feeling. Stocks do not automatically rise back to the price that they maintained in advance of the split. The extra shares do not result in greater amounts of dividends being realized by the investors either, since each share then represents proportionally smaller earnings, assets, and dividends of the company involved in the split. While most companies go through stock splits as the price rises, a select few have steadfastly refused to do so. Berkshire Hathaway proves to be the most famous case of this. In the 1960’s, it traded at only $8 each share. In recent decades, you have seen its value jump up to $150,000 per share. The Washington Post has also seen its non splitting shares trade upwards of six hundred dollars each. The shareholder base of both companies has remained consistent and stable as a result of not splitting the stock shares.

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Stocks Stocks are financial instruments that are issued by publicly traded corporations. These shares of stocks prove to be the tiniest portion of ownership that you can acquire in a company. Even by owning a single share of a company’s stock you are a small part owner of the firm. Owning shares of stock gives you the privilege of voting for the underlying company’s board of directors, along with other critical issues that the company is considering. Should a company decide to distribute earnings to share holders as dividends, then you will get a portion of them. With the ownership of stock, your liability in the company is only limited to the value of your shares. This means that should a company lose a lawsuit and be forced to pay an enormous fine or judgment, then you can not be made to contribute to it. The company’s creditors also can not pursue you if the company runs into financial trouble and goes bankrupt. Two different types of stock shares exist. These are common shares and preferred shares. The vast majority of shares that are issued are common stock shares. These are the shares that members of the public hold most of the time. They come with full voting rights and also the possibility of receiving dividends that the company pays out. Preferred stocks come with fewer voting rights but give preferential treatment for dividend payment. Preferred stock issues are paid out before common share dividends. Companies that offer preferred stock typically pay dividends on both classes of shares anyway. Preferred stocks also have a higher claim on the assets of a company if it fails. Liquidity is a feature of stocks that should always be considered. Common stock shares are almost always more liquid than are preferred shares. Large companies offer the greatest amount of liquidity in the trading of their stocks. Because of the depth of the stock markets, you are able to purchase and sell the shares of practically all companies that are publicly traded at any time that the exchanges are working. When you purchase a stock, you are looking for two different kinds of gains. Cash flow or passive income with stocks comes from the dividends that they declare and pay out. Capital gains appreciation is realized when you buy a stock at a lower price than the price that you get when you later sell it. While cash flow dividends are smaller payments that are realized on a generally quarterly basis, capital gains turn out to be larger one time returns made when you sell the underlying stock shares investment. At this point, you would no longer own the stock and you would have to purchase another stock in order to work towards cash flow gains from dividends, as well as other possible capital gains.

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Straddle A straddle is a a type of option strategy which is designed to assist traders in succeeding in markets that are either neutral or aggressively breaking out to one side or the other. While there are other similar result strategies that are both sophisticated and extremely complex like iron butterflies and iron condors, straddles are among the least difficult to grasp such strategies that accomplish the same results without the difficulty and confusion. Executing such a strategy only needs the person to buy or sell a single call and put at the same time. In the universe of these straddle options, there are two types. These are long and short straddles. To put either one on, the option trader must obtain or sell an equivalent number of put and call contracts that both have the exact same expiration dates and identical strike prices. A long straddle involves buying a put and call at this identical expiration date and strike price. It increases in value by gaining from a change in market price that drives the contracts’ volatilities higher. So long as the market price moves solidly in one direction or another, this type of long straddle position will allow the holder to profit. Conversely a short straddle needs a trader selling both a call and a put simultaneously at the identical expiration date and strike price in order for it to be activated. When the individual sells these option contracts, he or she collects a premium for profit. Traders will thrive in a market that has very little market change or volatility. Profit opportunity is solely based upon the market not moving convincingly in either the upward or downward direction. When the market begins to thrust either up or down, then the received premium becomes in danger. When markets begin to move sideways, traders may be unclear which direction they will break out towards. This is where the long straddle comes in handy. It allows for traders to profit if the market moves convincingly in either direction. In purchasing both a call and a put, they are able to cash in on the moves of the market whichever direction it takes. The call captures the upside when the market goes up, while the put gains significantly when the market falls. There are some drawbacks to this long strategy of straddles. The strategy is expensive to put on, there is a risk of total loss of premiums paid, and there can be a lack of volatility. The cost can be reduced by purchasing out of the money options instead of at the money options. Risk of loss is a serious factor in this trade. All of the money paid out on the straddle is at risk if the market does not move convincingly in one direction or the other. The goal is to attempt to exit faster from the losing side of the straddle while taking as high a gain as possible from the winning side of it in order to maximize returns and turn a profit. Should the losses on the option grow faster than the gains on it, or if the market does not move sufficiently to one side or the other, then the trader will lose on the strategy potentially all of the money they paid for the it. Finally, if the market does not gain in volatility or move in one convincing direction, then both the call and put options contracts will decline in value each day until eventually the options expire worthless and all premiums paid become a total loss.

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Conversely the short straddle has a characteristic that is both its greatest strength and weakness at once. The traders sell the puts and calls equivalently instead of paying for them. It is the premiums received which generate any and all income and profits from the strategy. The downside to this upfront income and potential profit is that traders assume an unlimited risk to obtain this premium at the beginning of the trade. So long as the market remains basically level, the short straddle position is safe and the premiums they obtained the traders will eventually capture. Every day the market stays steady, the options contracts lose more of their time and volatility value, gradually accruing the received premiums to the benefit of the option seller. Should the market choose a single direction though, the traders must pay not only for the losses which build up, but they must return the received premium which they gained upfront. The only way to bail out of this strategy and cut the potentially limitless losses lies in repurchasing back the very options they sold for a loss. They can do this in a profitable point as well to lock in a portion of the profits. Eventually, the options will expire and whatever premium value they obtained is the maximum profit, if the market did not move against them in one direction or the other.

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Strangle A strangle is a strategy in which traders buy or sell calls and puts which are very slightly out of the money at the same time. They must have the same expiration dates but typically have different strike prices. The long version of this strategy provides a limited amount of risk and unlimited profit potential. It makes money if the traders are convinced that the stock or index which underlies the options contracts will move aggressively to one side or the other and experience substantial volatility in the short term. A long strangle is also known as a debit spread, since the traders pay out a net debit in order to establish the trade. It is possible to realize huge gains using this type of long strangle option strategy. For this to happen, the underlying security has to experience a powerful move either upward or downward by the date of expiration. The formula for determining profit on such a trade is as follows: Profit is gained when the underlying instrument’s price is greater than the strike price for the long call plus the net premium paid or the price of the underlying security is less than the strike price of the long put minus the net premium they paid. The profit amount actually equals the price of the underlying instrument minus the long call strike price (and minus the net premium paid), or the strike price for the long put minus the underlying price (and minus the net premium they paid). The risk is also limited in this strategy to the total premiums the traders pay. The highest possible loss on a long strangle option is realized if the underlying issue trades between the strike prices of the options which were purchased on final expiration day. On that date, the two options will be worthless and expire as such. The options traders at this point suffer total loss on all premiums paid to open the trade at the beginning. Another way to say this is that the maximum loss equals the total premiums paid plus commissions paid. The breakeven points are two. The upper side breakeven point equals the long call strike price plus the net premium paid. The lower side breakeven point equals the long put strike price minus the net premium they paid. The opposite strategy to this long strangle is known as a short strangle. Short strangles such as these are employed by traders when they do not believe there will be much movement associated with the given underlying security, stock, or index. The traders receive a premium, which represents the ultimately maximum potential profit, when they open this trade. They also receive a net credit when they enter into the sales of the two call and put option contracts. This is why these are referred to as net credit spreads. While maximum gains for a short strangle are limited to the total net premiums received, the potential losses are unlimited. This is because the traders are on the hook for a limitless amount of decline or increase in the underlying security price. In the end, the only such protection traders of short strangles have is the amount of premium which they receive in the form of a net credit upfront at the beginning of the trade. It is possible to cut potential losses ahead of the option contracts’ expiration date by buying back the call and put at the then going market rate. Similarly, they can realize their paper gains earlier than expiration date by simply closing out the trade through a purchase back of both calls and puts for the fair market prices.

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Strategy Where businesses are concerned, strategy proves to be both the scope and direction that a business pursues over a longer term time frame. Strategy gains a business or other organization advantages through optimally deploying and utilizing all types of resources in competitive environments. Strategy is utilized to fulfill the needs that markets experience and to live up to the expectations and anticipation of the share holders in the firm or stake holders in the organization. Strategy covers many components of a company. It pertains to the direction, or place that a firm is trying to arrive at over a longer time frame. Strategy explores the markets that are most effective for businesses to become involved with, as well as the types of activities that they should pursue in these markets, known as the scope of a business. Strategy seeks to determine what advantage a business can acquire, or how it might operate more efficiently and effectively than the various competitors in the markets. Businesses are also interested in a number of other elements with strategy. They are concerned with the resources that they will need to compete in these markets. Resources for a business can include facilities, technical abilities, contacts, finance, specific skills, and particular assets. Companies also look into strategy as it pertains to the external environment of the business and its abilities to compete effectively. Finally, a firm must consider the wishes and expectations of the share holders in the business with their strategy. Strategy can be found on three main levels of a business or organization. These run from the entity at the highest level on down to the individual employees who work within the company or group. Corporate strategy is the macro level. It deals with the entire scope and purpose of a business in achieving the expectations of share holders. Investors are commonly involved and consulted with in the development of corporate strategy. Corporate strategy is typically outlined specifically within the corporate mission statement. The different business units also have strategy, referred to as Business Unit Strategy. This level of strategy worries about the ways that the company is competitive in specific markets. Strategic decisions at this view involve choices and ranges of products, the ways of gaining an advantage over the competition, satisfying the business’ customers, and creating and discovering different opportunities on which the business or organization may capitalize. Finally, operational strategy works with the ways that all parts of the company in question are arranged to work together in order to provide both business units and corporate strategy direction. With operational strategy, processes, resources, and people are concentrated on in particular. Strategy of a business or organization is handled and created in the processes of strategic management. Strategic management simply goes through the thought process to make strategic decisions. There are three core parts of strategic management. These are strategic analysis, strategic choice, and strategy implementation.

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Structured Finance Structured Finance refers to the possibility of and procedures for issuing loans because of a reliable history of strong corporate cash flow. Instead of using assets for a loan’s collateral, the funds are given out based upon the past history that shows a consistent cash flow in the business of the borrower. This cash flow will provide for the orderly and on- time pay back of the loan principle and interest. This type of financing is usually opted for when the more traditional methods either fail or are simply not practically available to a business. It is also fair to say that structured finance proves to be an intricately involved and even complex financial instrument. This vehicle permits big companies and financial institutions such as banks to access complicated means for financing their needs. Such needs often will not be good matches for traditional financial products. This structured finance has grown dramatically from the middle of the 1980s decade. It has evolved and expanded since then to be a significant player in the financial universe. Classic examples of such finance are CDOs collateralized debt obligations, CBOs collateralized bond obligations, synthetic financial instruments, and syndicated loans. Alongside CBOs and CDOs, there are also fairly new instruments like CMOs collateralized mortgage obligations, CDSs credit default swaps, and even hybrid forms of securities which may involve elements of both equity and debt instruments. In fact it is most often corporations which find themselves in need of this structured finance funding. Many times they discover that a typical loan or even conventional instrument of finance (like corporate bonds) simply will not adequately meet their needs. Sometimes this is because the transaction needs to be discretionary and discreet. In order to accomplish this, creative solutions utilizing riskier instruments are employed. The reality is that traditional types of lenders do not commonly offer such structured finance solutions and products. It is often up to investors to come up with the major cash infusions for organizations or businesses when such financing is required. Another interesting feature of these products is that they usually can not be transferred. This simply means that they can not be altered from one form of debt to another as with a standard loan. On an increasing basis and frequency, governments, corporations, and financial intermediary organizations utilize such structured finance securitization programs. They are often deploying these to help manage risk, expand their reach of the business, develop one or more financial markets, or create new means of funding projects. In such scenarios, employing structured finance turns cash flows into lump sum payments. It also has the side effect and consequence of changing the liquidity of financial books and portfolios. It is the process of securitization that actually creates these complex financial instruments. The magic of this process is that it creatively combines various financial instruments and assets into a single package. These repackaged instruments are rated according to a few tiers. The tiers then get sold on to investors. The advantage to this is that it encourages and fosters liquidity in markets and for businesses.

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A typical example of the process of securitization is the MBS Mortgage backed security. When individual mortgages are grouped into a single pool, the issuer gains the ability to break up the large pool into various component pieces. They do this according to their risk of default. Smaller pieces can be sold off to investors, often for a better and more advantageous price by parts than the whole pool would fetch alone. Utilizing structured finance is often appealing to a company that may lack significant physical assets which they can pledge as collateral. Yet they may possess a substantial base of clients as well as a documented, consistent history of both billing to and payments from their customers. Many times investors will loan money to these kinds of corporations. This is often true even if the companies are small. Investors will generally loan the company money on this basis for a better interest rate than a traditional bank loan would cost the firm to obtain. It also is a faster process with less administrative paper work than a typical business loan from a bank.

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Sub-prime Borrower A sub-prime borrower is an individual who has credit that is considered to be less than perfect. This is the opposite of a prime borrower. Bankers call prime borrowers those who possess higher and better credit scores, low debt ratios, and significant incomes which are more than enough to cover their monthly bills and expenses. Sub-prime borrowers often are only able to obtain sub-prime loans. These types of loans received the blame for causing the 2008 mortgage crisis. Despite this fact, the loans continue to exist today. They are an important part of post crisis lending, though so far they have not caused another financial crisis or global meltdown. Those called sub-prime borrowers have many characteristics in common. These imply that the individuals are more likely to default on their mortgage loans than other individuals. Poor credit is the first element they share. This could be because they did not receive any opportunities to create a sufficient credit history. It might also be from problems they had with making payments in the past. The dilemma for these borrowers is that they do not have many choices other than sub-prime lenders. This often traps them in a cycle of debt from which is difficult to escape. An under 640 credit score is considered to be sub-prime, though some lenders set the defining limit lower to even 580. The sub-prime borrowers also have problems with their monthly payments. These payments are so large that they consume a significant part of the monthly income for the borrowers. This is determined in how high the debt to income ratio proves to be. A higher DTI ratio means that the borrowers do not have enough money to cover bills if they suffer a drop in income or have unanticipated expenses arise. Loans can still be approved in some scenarios when the borrowers’ present debt load is significant. The cost for a sub-prime loan is another thing these borrowers share together. These forms of mortgage loans usually cost more since lenders do not want to assume additional risk without higher compensation. Predatory lenders have used this limited ability to receive loan approvals in order to prey on borrowers with no other choices. These higher expenses manifest in a few different ways. It might be junk application and processing fees, greater interest rates, and penalties for early prepayment which prime borrowers seldom pay. Risk is the dominant theme for sub-prime borrowers, lenders, and loans. Because the loans have a lower chance of being paid back, the lenders exact more in fees and higher rates. These greater costs cause the loans to be riskier for the borrowers as well. Debt is difficult to retire when higher interest rates and costs come with it. Sub-prime borrowers should try to avoid these expensive and debt trapping loans whenever they can. Staying out of such costly credit is essential for individuals to not drown in debt. This is easier said than done when people are put into the sub-prime category. There are not as many options to comparison shop for the loans. There are also fewer options for alternative kinds of loans to use for the needed financing.

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If these borrowers are able to make themselves look less risky to the various lenders, it will improve their chances of escaping from these types of loans. This may mean some credit repair work needs to be done before individuals with credit challenges make applications for loans.

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Sub-prime Lender A sub-prime lender makes loans to customers who fall into the sub-prime borrower category. These products often include loans which are normally considered to be standard. They are structured for and marketed to borrowers who possess inadequate income, lower credit scores, and a higher debt to income ratio. These borrowers can not qualify with lenders regarded as traditional. Sub-prime lenders are often willing to issue loans to customers with special circumstances. These include those who possess less documentation of income, high LTV loan to value ratios, and sometimes a combination of the two. This type of lending is considered to be aggressive and overly risky for most traditional financial institutions. Where mortgages are concerned, sub-prime lenders are still providing basically the same product in the form of a 5/1 ARM adjustable rate mortgage or a 30 year fixed rate mortgage. The main difference is that the rate which accompanies such a product will be considerably higher. There are other types of mortgage loans that some observers include in this category as well. Among these are negative amortization loans, interest only loans, and non fixed interest rate mortgages. A great number of analysts consider FHA loans to be in the subprime category. This is because their highest allowable LTV is 96.5% while they accept a credit score minimum of 500. Sub-prime lenders will also make loans for other assets and in other categories besides housing and mortgages. In fact they issue them for practically all financing needs. This includes credit cards, car loans, unsecured personal loans, and student loans. After the financial crisis that started with sub-prime mortgages, the government enacted a number of laws protecting consumers from these predatory types of finance. It has made it more difficult to find subprime house loans since then. There are a great many of the original loans from before the crisis still in existence. Besides this, sub-prime lenders have found means of circumventing them and giving approval to loans that fall into this category. Borrowers can take many actions to avoid being a victim of a sub-prime lender. Managing credit carefully is among the most important. It is free to check all credit reports for accuracy. Borrowers can fix errors. Consumers should also deal with any defaults or missed payments if they can. Rebuilding credit requires some time, but going through the process will help borrowers to be considered more prime to lenders. There are many newer lenders these days that are considered to be legitimate. Online searches and online lenders have opened a whole new avenue to consumers trying to avoid sub-prime loans. Some of these online lenders appeal to those with poor credit and still provide acceptable rates. There are also peer to peer lending services. They can be more flexible with borrowers than the traditional credit unions and banks often are. It is always a good idea to research any lenders which consumers consider before providing them with important personal information or paying any fees. Borrowers who are struggling to avoid these sub-prime lenders can also look into a co-signer on a loan. It

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can help credit challenged borrowers to receive approval from a lender which is traditional and offers better rates. These co-signers put their own credit at stake and take a big risk in doing so.

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Sub-prime Mortgage A sub-prime mortgage is one where the home loan that the bank or lending institution makes is offered to the category of consumers who are considered to possess the riskiest credit. Sub prime mortgages are actually sold on a different market than are prime mortgage loans. Sub prime mortgage borrowers are determined through a combination of factors, such as the credit rating of the borrower, the documentation offered for the loans, and the borrower’s debt to assets ratio. Besides this, sub-prime mortgage are also deemed to be those that do not fulfill the prime mortgages’ standards and guide lines offered by Fannie Mae and Freddie Mac, the two biggest issuers of mortgages within the United States. A universally agreed upon definition for sub-prime mortgages does not exist today. In the U.S., sub-prime mortgages are commonly considered to be those where the associated borrower possesses a FICO credit rating score that is less than 640. This phrase became a part of pop culture in the credit crunch that occurred in 2007. The original sub-prime mortgage program began in 1993. At this time, some lenders started offering subprime mortgages to borrowers classified as high risk, who possessed credit that was less than ideal. Traditional lenders showed wariness towards sub-prime mortgages and borrowers. They tended to shy away from people who had impaired credit histories. Sub-prime mortgage borrowers commonly have information on their credit reports that argue for greater percentages of defaults. These include too much debt, a track record of not paying debts or missing payments, recorded bankruptcies, and low amounts of experience with debt. Around twenty-five percent of the American population is grouped into this category of sub-prime borrowers who qualify for the category of sub-prime mortgages. Because of this, proponents of sub-prime mortgages argued that they allowed a large number of people to gain access to credit who would not otherwise have experienced the opportunity to purchase and own a home. Borrowers with less than perfect credit who can demonstrate enough income are able to qualify for sub-prime mortgages. This proves to be the case even if their credit scores are lower than 640. The lenders who participate in sub-prime mortgages take significant risks in so doing. This is because people who have a credit score of less than 620 statistically possess a significantly greater rate of defaulting on their mortgages than do those people with much higher scores over 720. Lenders compensate for the risks associated with offering sub-prime mortgages through several different means. One of these is by charging higher rates of interest. They also collect late fees for any customers who do not keep up with their payments. These greater interest rates and fees help to reward lenders who take the risks of the higher default rates, and who also incur costs for collecting and keeping up with these -mortgage accounts. As an example of their potential danger, sub-prime mortgages proved to be among the main causes of the Financial Crisis of 2007-2010.

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Sub-prime Mortgage Crisis The sub-prime mortgage crisis proves to be a still going financial and real estate crisis. It continues to revolve around the steep decline that you saw in American housing prices, the resulting increase in numbers of mortgage delinquencies and finally foreclosures, and the ultimate fall of securities that are backed up by these sub-prime mortgages. The problems began with the fact that around eighty percent of all United States mortgages that banks gave out to sub-prime borrowers, or people with less than perfect credit, turned out to be adjustable rate types of mortgages. Housing prices actually reached their highest point in the middle of 2006 and then began sharply falling. This caused refinancing of interest rates on mortgages to be harder to obtain. The double edged sword of adjustable rate mortgages resetting at their higher rates started, causing an enormous number of delinquencies and finally foreclosures in mortgages. The greater problem came as these mortgages underlay a number of financial securities that many financial firms held in huge numbers. They saw most of their value disappear in the following months. Investors around the world then began to dramatically cut back on the quantities of collateralized debt obligations and other mortgage securities that they bought. Besides the damage that increasing sub-prime mortgage delinquencies and foreclosures created themselves and for the investments based on them, this sub-prime mortgage crisis led to a fall in the ability of the banking system to engage in lending. This caused significantly tighter credit and lower rates of growth throughout the developed world, in particular in Europe and the United States,that are still plaguing the industrial countries. Ultimately, the sub-prime mortgage crisis arose as a result of easy up front loan terms which banks made to borrowers. Both the borrowers and the banks felt confident that the loans could be easily refinanced into better terms as needed, since housing prices were steadily rising over a long term trend. Financial incentives were provided to sub-prime mortgage originators. This coupled, with fraud that borrowers and lenders engaged in, significantly boosted the quantities of sub-prime mortgages to customers who should have received standard conforming loans or who should not have received loans at all. When the easy interest rate terms expired, the majority of sub-prime loan holding consumers could not refinance at the better rates in which they had believed. The interest rates reset higher, dramatically increasing the monthly mortgage payments. Home prices started falling to the point that homes were no longer even worth as much as the original mortgage, meaning that they could not be sold to pay off the mortgage obligation. Instead, the borrowers’ best interest lay in going through foreclosure and walking away from the hopelessly underwater homes. This continuous epidemic of foreclosures that began with the sub-prime mortgage crisis is still a major continuous part of the world wide financial and economic crisis. The foreclosures are still taking away wealth from consumers and sapping away at the damaged banks’ balance sheets.

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Subordinate Financing Subordinate financing refers to that type of debt finance which ranks behind the primary finance. It is second in importance and position to debt that senior or secured lenders hold. This is important when a default occurs, as it determines who gets repaid first from any bankruptcy proceedings or foreclosure. The term signifies that senior lenders who are secured will be repaid before the debt holders that are subordinate. Lenders who participate in this subordinate financing take on greater risk than the lenders considered to be senior. This is because they have a lower claim on the business or property assets. Sometimes this type of corporate finance is comprised of both equity and debt financing. A lender would be interested in this because it would offer them potential stock options or warrants that would reward them with extra yield as a means of compensating for the greater risk they take. Where consumer borrowers and loans are concerned, subordinate financing would be a second mortgage. It takes second priority below the original first mortgage. First mortgages have the property to secure their loan and the debt. While nearly every mortgage is backed by the underlying property, first mortgages receive special seniority ahead of subordinated mortgages. This means the senior mortgage lender is repaid first in a foreclosure. With mortgages, subordinate financing could be a mortgage that is 80/20. In this case, the first mortgage would be 80 percent while the second mortgage that was subordinated represents 20 percent. This means that only the lenders which are first mortgage holders are likely to get at least a portion of their money back if a borrower defaults in general. Should a borrower only default on the subordinate mortgage, this lender is able to foreclose on the property to regain its principal. Subordinated lenders could work to make their mortgage the senior one and then foreclose. They could do this by buying out their borrower’s first mortgage. Afterwards, they could choose to subordinate the original first mortgage so that their once second mortgage became senior in the foreclosure. Consumers should think carefully before participating in subordinate financing to obtain their houses. There are several disadvantages involved. Home owners will usually have to write two different mortgage payments each month if they do. They will also typically pay a higher interest rate on the second mortgage since these rates are usually greater than the first mortgage rates. There are also often two different loan fees, costs, and even discount points when first and second mortgages are used. Finally, this type of finance will often lead to a greater monthly payment when the two are combined than only one mortgage payment would. The main reason that a home buyer would be interested in employing subordinated financing to purchase a home is because an 80/20 mortgage would not require them to come up with any down payment. It might also eliminate the need to pay for PMI private mortgage insurance which can be a substantial component of the monthly mortgage payment. This would depend on how the mortgage financing was originally structured. Consumers will generally require a high credit score of minimally 700 in order to qualify for this subordinated financing. When borrowers have two mortgages, it will likely be impossible to obtain a

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home equity loan or line of credit at a later time.

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Subsidies Subsidies are types of financial support or aid which a government or organization extends out to an economic industry, institution, individual, or business. These are done for the purpose of fostering particular economic or even social policies. The government is the most common provider of this type of assistance, but such support can also come from Non Governmental Organizations. Such grants can be derived from a number of different forms of aid. These include indirect help as with insurance, tax breaks, accelerated depreciation, lower interest loans, and rent rebates. They can also be direct assistance in the form of interest-free loans or outright grants of cash or other assets. The ultimate goal of such a subsidy is to alleviate a form of financial burden. They are often deemed to be to the overall advantage of the entire public and not a specific person, business, or interest group by the very nature of the group receiving the help. Such a subsidy grant is often regarded by governments as privileges. This is because they help with a relevant burden which was somehow unfairly levied on the receiver. They could also encourage a certain behavior or ultimate result through delivering financial support, as with farming subsidies to encourage domestic agriculture. In general, such a subsidy will typically benefit a segment of an industry within a national economy. These can be employed to help out markets which are suffering by reducing perceived burdens from which they struggle. They might also boost additional development within an industry or research line via offering financial support for the efforts and work. Many times, these areas of production or research do not receive the necessary assistance which they require from the workings of the mainstream economy. Sometimes they are even outright disadvantaged by the actions undertaken by rival economies and nations. There are two principal forms of subsidy aid as mentioned previously. These are direct and indirect subsidies. The direct form encompasses payments specifically directed to a certain industry or a given group. Cash is usually the medium of exchange offered to the receiving parties. With indirect forms of a subsidy, there is no preset monetary value at which the help is limited or specified when it is provided to the individual, businesses, or industry. This might involve special goods or services which are price reduced. It could also include another form of government support to the given industry. It helps the much needed items to be bought at under the present market cost. This level of savings can vary greatly depending on the amount of the given organizations’ participation in the program. Governments, in particular the American Federal and European Union governments, provide many different types of subsidies. These are not only limited to help for domestic industry or farmers. They can also involve welfare and social assistance as with payments, student loans, grants, housing loans, and a farm subsidy. When domestic farming struggles to endure within the intensely competitive international farming arena because of their lower prices of other countries’ farms, the U.S. or EU government bodies may provide actual cash subsidies to the farmers in order for them to afford to sell their products at the lower market rates. The intended goal is that they will still reap financial rewards sufficient to justify

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continuing to farm with this outright monetary assistance. More recently, the government has become involved with health care subsidy to private citizens on an individual and family level. The Affordable Care Act of the U.S. allows its citizens to receive subsidies dependent on their size and income of the relevant household. Such a subsidy is intended to reduce the enormous out of pocket expenses associated with high health care premiums and co-payments for households which earn under a minimum income threshold. The funds of the subsidies go directly to the insurance company in question. This reduces the amount of money which the insurance company requires from the individual or household.

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SWIFT SWIFT Network is the internationally relied upon system for transferring money. It underlies the overwhelming majority of security and international money transfers. This vast network for financial messaging is employed by financial institutions such as banks to rapidly, securely, and accurately receive and send information that includes instructions for money transfers. In any given day, almost 10,000 different member institutions of the SWIFT system deploy around 24 million unique financial messages throughout this truly impressive worldwide network. SWIFT is an acronym that actually means the Society for Worldwide Interbank Financial Telecommunications. This messaging network securely transmits both instructions and sensitive information for financial institutions using a standardized operating system of codes. In order for this amazing system to work, SWIFT itself gives a one of a kind identification code to every financial institution in the world which participates. These codes are comprised of either 11 or eight characters. Names for this code range from SWIFT Code and SWIFT ID to BIC bank identifier code and ISO 9362 code. It should not be confused with the similar yet still different IBAN International Bank Account Number. An example of one such SWIFT code for a member institution is helpful to look at in order to better understand how SWIFT puts these identifiers together. Consider UniCredit Banca based in Milan, Italy. The eight character SWFT code for UniCredit Banca proves to be UNCRITMM, which stands for UNI CREDIT ITALY Milan (Milan is identified with two Ms). SWIFT always takes the first four letters from the institution’s name, making up the institute code. The second two letters are the national code. The next two characters represent the city location code. Another optional three characters stand for the individual branch within a large bank, as in using ZZZ to represent a particular branch location. Thought SWIFT is undoubtedly a powerful institution and system in the world today, it does not ever hold or touch any securities or cash. It also never manages accounts for clients. Instead it is simply a financial transaction messaging system. Yet this service is critical in today’s fast moving world of finance, business, and banking. This is because the world before SWIFT was a ponderous place in which to do international wire and bank transfers. Before the advent of SWIFT, there was only the Telex system to send the international wire transfer message confirmations. Telex was fraught with problems. Among these were it had security issues, was terribly slow, and lacked a unifying system of standardized codes as SWIFT possesses for naming both the banks and the types of financial transactions being conducted. A sender with Telex was forced to detail out each and every transaction utilizing sentences that had to be first interpreted then executed by the receivers on the other end. As these people often spoke other languages besides the lingua franca English, it led to countless human errors and mistakes in ultimate transmission. In order to get around these many problems, seven of the biggest international financial institutions came together to create a cooperative society and system whose entire reason of being was to run a global financial network with would relay such critical financial messages utilizing both speedy and secure

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means. It only took SWIFT three years to grow rapidly from the original seven founding banks to 230 banks in five nations. Despite the fact that competing financial messaging services such as FedWire, CHIPS, and Ripple exist, SWIFT has continued to enjoy its now-dominant market share and position. Many observers have noted that this stems in large part from the way it constantly comes up with newer message codes for various financial transactions. Besides the simplified payment instructions SWIFT arose to deliver, the network additionally delivers messages for a significant and broad-based number of treasury and security transactions throughout the globe. Almost half of the SWIFT worldwide traffic still stems from the traditional heart of the network, the payment messages. An impressive 43 percent today pertain to security transactions. The other under ten percent deals with treasury transactions. SWIFT has continued to evolve and grow into other related businesses. Today it also deploys its lengthy data maintenance history to deliver reference data, business intelligence, and compliance information services. An area it is addressing now is the delivery and implementation of software automation for its financial transaction messaging system. The company has successfully created and tested such software, but its use and deployment will come at a higher cost to participating banks.

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Swing Trading Swing trading refers to a wide range of shorter time frame trading strategies used in the stock market. Once a purview of only wealthy or professional full time traders this form of trading has become far more broad-based and accessible to regular investors. This is thanks to the vast proliferation over the past few years of the Internet revolution, an explosion in information and charting capabilities, and a range of affordable, efficient and fast online trading platforms. Those who practice swing trading try to realize gains in a financial instrument such as stocks by holding them for from only overnight to even several weeks. The majority of swing traders will employ a technical analysis to consider various stocks that might offer shorter term momentum in price. It is possible that such traders will also use intrinsic fundamental analysis of the stocks alongside their analysis of patterns and trends in the price. Because swing trading requires speed and availability to execute these types of trades, the majority of those traders or investors who utilize it are day traders or those who work from home. The institutional traders work with enormous sizes which prohibit them from quietly entering and exiting stock trades. It is the individual lone-wolf trader who can take advantage of these shorter-term movements in the prices of stocks. They have the advantage of not having to go head to head against the large investors of the trading business. The ultimate hope for swing trading (which differentiates it from pure day trading) is that the trader will be able to realize a more substantial move in the price than the intraday trader can manage. This is because the swing trader takes for granted bigger ranges in the price and movement. With this in mind the traders who practice it must use careful cash management and stop loss orders in an effort to reduce their loss potential. Swing traders are utilizing charts with longer time frames ranging from 15 minutes through hourly to even daily and weekly charts. Many swing traders confine their efforts to an ETF exchange traded fund or a particular stock when they engage in these relatively shorter-timeframe trading periods. It is rare for them to hold on to their stocks for more than three to four weeks. It separates these traders from the buy and hold or longer-term timeframe investors. Such investors could conceivably maintain a given investment for several years and into decades when the company is performing well. Swing traders are not all using the identical trading strategies either. A great number of them will employ mean-reversion techniques. This is simply a complicated way of saying that they wish to purchase their stocks at lower prices and hope for a move in the direction to sell them later at higher prices. There are also traders who seek out momentum play stocks which are already moving ahead sharply. They ascribe to the concept that a winning stock will continue to act like a winning stock. This is the reason that they buy at high price points hoping to sell the stocks for even greater price levels. Other swing trading strategies revolve around earnings release plays. They might place a short term trading bet that they company will outperform Wall Street’s expectations. They could similarly sell the ones that they believe will under-perform the consensus view with their earnings.

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Some swing traders employ still more sophisticated and complex strategies using macroeconomic concepts as part of their formulating ideas. They may hold that a given economic data release will come out higher or lower than the general consensus forecast. They could make a market position in an effort to benefit from such a result. When they do this, traders must be correct not only regarding the economic data release, but also concerning the impacts such news will have on their chosen asset in question.

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Swiss Banking Swiss Banking is unusually concentrated into two main banks. These are UBS and Credit Suisse. Together they control an enormous amount of the accounts and assets in all of Switzerland. The Swiss Banking tradition used to be shrouded in secrecy. Under the administration of American President Obama, many Swiss banks were investigated and charged with helping Americans to illegally evade taxes. This is not a crime in Switzerland, and the country’s laws had long protected their banks for engaging in the activity. Starting with justice probes that investigated around a dozen of these Swiss banking outfits, the U.S. began handing out sentences and fines in 2013. Two banks at least were destroyed by the legal wrangling with the United States’ justice department. These included Wegelin & Company and Bank Frey. Wegelin & Company proved to be the oldest existing Swiss bank when the fines came out. It was the first foreign or Swiss bank to receive a criminal sentence and penalty for helping Americans to avoid taxes. The U.S. Justice Department levied $74 million in fines and forfeitures against the bank. The bank was already being wound down by the Swiss authorities because it had suffered so much financially from the struggle with the American government. Bank Frey & Co was a boutique lender in the Swiss banking tradition. Its principal office was on the most important banking street in Zurich. In October of 2013 it had to close its doors as well in large part because of the lengthy and costly tax dispute with the U.S. The main players in Swiss banking today UBS and Credit Suisse operate under similar models as universal Swiss banks with important overseas operations. UBS as the larger of the two has a greater number of banking assets. It is headquartered in Zurich and Basel and boasts operations in over fifty countries. It maintains more than 60,000 employees around the globe. It has offices in every major financial center of the world. About a third of the bank employees work in the Americas division. Slightly more than another third call Switzerland their base of operations. In just over 150 years of history, UBS has managed to expand and acquire more than 300 different banks. They have over 300 branches and more than 4,500 employees in Switzerland alone. Over a third of all Swiss homes and 120,000 Swiss companies call UBS their bank. Their reach extends to 80% of all the wealth of the Swiss. Credit Suisse is the second largest Swiss bank in the world after UBS. The bank dates back to 1856. Since then it has grown immensely to achieve a global presence. The bank counts operations in more than 50 different nations. It employs over 48,000 staff who hail from in excess of 150 different countries. In 2006, it started operating as a globally integrated universal bank. This broad footprint has enabled both banks to create a well balanced revenue stream and to capture many new assets geographically. It provides them with significant opportunities to grow throughout the globe today.

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The Credit Suisse and UBS strategies work off the banks’ three critical strong positions. They are both leaders in worldwide wealth management. The banks are also standouts for specific investment banking abilities and skills. Finally they have a powerful regional footprint in the home nation of Switzerland. The banks employ a well balanced strategy of gaining opportunities for wealth management in key emerging markets. This largest focus for them centers on the most important growth area of Asia Pacific. They also strive to serve critical already developed markets while focusing on the original country Switzerland.

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Swiss Interbank Clearing (SIC) Swiss Interbank Clearing is the interbank clearing system that Switzerland uses for payments within the country and between its banks. SIX Interbank Clearing Limited launched the system on June 10, 1987. They have been operating it since then for the Swiss National Bank. The primary eligible users of the SIC are all of the Swiss banks along with German Post Finance. Cash handling companies, insurance companies, and securities dealers which are based in either Switzerland or Liechtenstein are also able to participate. The system allows for foreign based banks to utilize it once they fulfill the added requirements and conditions which the Swiss National Bank sets. Swiss Interbank Clearing handles large transactions as well as retail transfers that connect service providers to the banks. This includes automatic debits, card payments, and bank transfers. The system has grown continuously in the amount volume it settles and quantities of transactions it processes since SIX first launched it. Ten years after SIX created and launched the Swiss Interbank Clearing, they developed a similar system to enable the Swiss financial center and Liechtenstein to have access to the European Union’s TARGET2 clearing system. This is called the euro Swiss Interbank Clearing, or simply euroSIC. It permits Swiss banks settle any payments in Euros between themselves quickly, simply, and cheaply. Thanks to this expansion of the system, they do not have to keep mutual euro accounts. It saves them the additional trouble, paperwork, and expense. EuroSIC also makes it possible for Swiss and Liechtenstein banks to send payments in real time to other Euro zone banks. The participating members can process Euro payments across borders with almost any Euro zone institution. The system works effectively both ways. Euro zone banks and institutions gain convenient access to more than 3,200 banks and branches throughout both Switzerland and Liechtenstein. Banks and financial institutions which the Swiss National Bank supervises may participate in euroSIC. This also applies to any of their branches, joint institutions, or clearing organizations that are located outside the country of Switzerland. These groups must be able to demonstrate that they have a comparable amount of operational and legal standards in the countries where they are based as do their partners or parent organizations in Switzerland. The Swiss Euro Clearing Bank manages the system. This joint venture between SIX, UBS, Credit Suisse, and Post Finance bears the responsibility for both monitoring and supervising the euroSIC system. SECB has the advantage of being a German licensed bank as well. This means it provides a link to the real time clearing system of the Deutsche Bundesbank. The system manager the SECB Swiss Euro Clearing Bank provides access to make rapid payments to Germany. The payments which euroSIC processes must be non urgent payments. Banks can send as much as much as 50,000 euros on behalf of their clients with reasonable transaction costs thanks to the system that the Deutsche Bundesbank provides. This is handled through the German EMZ bulk payment system. The SECB also provides its euroSIC members with a means for making inexpensive transfers and payments using the STEP2 system. This is the European Union wide bulk payments system.

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Euro Swiss Interbank Clearing operates using the settlement accounts of the member institutions. SIX actually runs the system in Zurich, the Swiss financial center. Every transaction processes through the settlement accounts. There must be enough funds in the bank’s account in the system at the Swiss Euro Clearing Bank for the transaction to go through in real time. Otherwise, the transaction is put aside until enough funds are present to cover the transaction.

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Swiss National Bank (SNB) The Swiss National Bank is one of the important central banks of the world. It carries out its monetary policies and other roles independently of the government of Switzerland. In 2007, the SNB celebrated its one hundred year anniversary from its founding in 1907. Switzerland’s central bank has a wider mandate than some other national central banks do. The mandate of the Swiss National Bank is to conduct itself per the best interests for the whole country. It does have a main goal to guarantee price stability for Switzerland by considering the impacts of economic developments. Beyond this it also performs numerous other functions. Switzerland has adopted a goal of price stability that is comparable with other internationally important central banks. The goal of the SNB is to see under 2% per year increases in the cost of consumer prices. They are concerned with inflation not getting out of hand as it misallocates capital and labor and also unfairly distributes wealth and income. The bank also has a special concern to avoid deflation, the continuous decline in the levels of prices. It is the middle ground of just below two percent which they work towards with their monetary policy decisions. The SNB actually implements monetary policy to control inflation by guiding the interest rates for on sight deposits and by directing the money market liquidity. This influences the country’s overall interest rate. The bank uses the three month Libor measured in Swiss francs for the interest rate it references. One thing the SNB is not shy about is participating in the foreign exchange markets. They do this whenever necessary to impact monetary levels as they deem appropriate. The Swiss National Bank also issues the Swiss franc notes and coins. The banknotes are created according to high standards for security as well as quality. They determine how many banknotes to issue based on payment purpose demands. As far as cashless payments go in Switzerland, the bank participates in the SIC Swiss Interbank Clearing System. They hold the accounts for the various institutions to clear the checks and other cashless payments. Asset management is an area in which the Swiss National Bank is proactive. They manage both the country’s currency reserves and their gold reserves. Switzerland is unusual in keeping a 25% gold to franc note gold reserve and standard. They keep enough of currencies on hand to have ample room to adjust their monetary policy. For several years, the bank instituted a 1.20 floor on Euro to Swiss franc exchange rates. Defending this level required massive purchases of Euros and sales of Swiss francs as conditions in the Euro zone deteriorated. Finally, Switzerland abandoned this three year old policy without warning in 2015. This caused massive chaos in world foreign exchange markets as speculators had built up enormous positions in Forex based on the SNB’s policy. Like many central banks, the SNB is tasked with maintaining stability for the national financial system. They analyze risks to the system and find areas where they need to respond. They are also responsible for assisting with both designing and implementing the regulatory framework that governs the financial sector. The bank regulates financial market institutions that are considered to be systemically important.

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Another interesting role that the Swiss National Bank carries out is as the banker to the Swiss Confederation. This means that it handles payments for the Confederation. The bank also issues any bonds and money market debt and is custodian for their securities. They carry out all transactions in foreign exchange on behalf of the Confederation as well. The SNB is renowned for cooperating on the international monetary stage. They offer technical assistance and advice as needed, participate actively in the IMF, and coordinate international monetary actions in crises. Finally, the Swiss National Bank compiles and releases statistics. These cover financial markets and banks in the country, direct investment, Swiss financial accounts, the balance of payments, and the country’s international investment position.

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Systemic Risk Systemic Risk refers to those dangers that threaten the entire financial sector, another segment of the market, or the entire market. Analysts and economists also call this volatility, “undiversifiable” risk, and market risk. Such risk is especially dangerous because it can not be entirely avoided nor accurately predicted or forecast. There is no practical way to mitigate such risks to the entire system by diversifying assets. Instead, it can only be managed (though never perfectly) via effective hedging strategies or through the optimal allocation of assets. Another way of considering such Systemic Risk is that it entails the very real possibility that a companylevel or bank-level failure could set off serious volatility and instability. It might begin a chain reaction that leads to collapse in a whole industry, market segment, or even entire national or multinational economy. This risk to the system caused much of the Global Financial Crisis of 2008. At this tumultuous time in American and Western economic and geopolitical history, there were a number of financial companies in particular that were labeled too big to fail simply because they posed a real risk to the entire system. This is the case because institutions like these are extremely large and systemically important in their own market industries. In extreme cases they might represent a dangerously large portion of the entire economy of a nation. Firms that are highly entangled with a number of other ones also prove to be systemically risky. The federal government of the United States engages in the study of systemic risk so that it can justify becoming involved in the national economy from time to time. They do this with the idealism that they can lessen the impacts of company-centered events that cause sometimes severe ripples. The Feds feel with surgically- and precisely-targeted actions or regulations that they can reduce the severity of the consequences of these failures on a macroeconomic level. One example of this was the Dodd-Frank Act of 2010. This massive package of additional rules, regulations, and laws was intended to stop another Global Financial Crisis and Great Recession from happening. The heavy-handed regulation of important banks and other financial companies is supposed to reduce risk to the system. It is instructive to look at the historical real-world examples of which companies posed such Systemic Risk in the middle of this greatest financial crisis since the Great Depression of the 1930s. It was the socalled “Lehman Brothers moment” that nearly brought down the entire Western-based financial and banking system in 2009. The size and scope of Lehman Brothers and its connectedness to the entire American economy caused it to be a massive source of risk to the system. As the company collapsed the effect of this spread far and wide through the entire national and even international financial system. In the United States first, the capital markets froze. This meant that companies and individuals were no longer able to access loans. In some cases, they still could obtain them, but only if they had the highest standard of creditworthiness so they would not entail any risk of default for the embattled banks and other lenders. At the same time, AIG the American International Group insurance company experienced intense and insurmountable financial problems. As the world’s largest insurance company, they were overly

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connected to the other banks and financial companies of the globe. This made them a serious Systemic Risk not only to the American financial system, but also to the British, European, and Asian financial systems. Their own portfolio of highly toxic assets connected with subprime mortgages and residential MBS mortgage backed securities meant it suffered from repeated calls for collateral, a downgrade of its credit rating, and an evaporation of liquidity. This only worsened and became a vicious downward spiral as the values of these poisonous assets declined further every month. For some unknown reason, the same U.S. government that would not prop up Lehman Brothers intervened dramatically to save the AIG by loaning them over $180 billion. It may have been because various regulators, analysts, and economists, were convinced that the failure of AIG would have led to many additional banks, insurance companies, and financial firms collapsing.

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Takeover A takeover is a corporate event where a company chooses to acquire another firm in an effort to gain full control over the target firm in question. They often do this by buying a majority percentage of the firm’s outstanding shares. If such a move is successful, the company which is acquiring the target obtains control over and responsibility for its target firm’s holdings, operations, and debts. If the target firm proves to be a publically traded stock company, then the company which is acquiring must place an offer to buy all of the outstanding shares of the target company. There are several different types of takeovers in the world of business. Welcome takeovers are those like mergers and acquisitions. They typically proceed calmly as the two companies involved in the situation consider it to be a positive end scenario for all. The opposite type of takeover is known as hostile or unwelcome takeover. These often turn out to be aggressive since the receiving party does not willingly or voluntarily participate or even give its consent. Hostile takeovers are exactly like they sound. The firm which is doing the acquiring may resort to underhanded tactics. Some of thee include a dawn raid. In this clever maneuver, a predatory firm purchases a large portion of the company’s stock at the immediate opening of the market. This leads to a target firm losing control over its company before it even is aware of what is occurring. The target company’s management and board of directors could choose to staunchly resist these unsolicited efforts via such defenses as taking a poison pill. Poison pills are where the shareholders of the target firm buy additional shares at a discounted price in order to dilute the holdings of the acquirer, causing the takeover to become potentially prohibitively expensive. There are various reasons that a company would pursue a takeover. This is practically the same end result as an acquisition. Companies can perform like a bidder by attempting to build up their market share or create larger economies of scale which will aid the company in lowering its overhead so that it can boost its profits. Firms which are the most attractive types of takeover targets are those which possess a unique advantage with a specific service or unique product. This includes smaller firms with profitable services or products but inadequate financing. Another similar company that is geographically near might decide that by combining their forces they could boost efficiency. Other examples are companies which are viable but that have to pay too high an interest on their debt which might be effectively refinanced for a better rate if a bigger and more powerful firm with superior credit ratings acquired it. A few years ago, ConAgra tried to engage in a friendly takeover to acquire competitor Ralcorp. As the first advances were spurned, ConAgra demonstrated it would instead go the route of a hostile takeover. Ralcorp retaliated by instituting a form of poison pill strategy. ConAgra was not to be so easily outmaneuvered. They upped the ante by proffering $94 a share. This amounted to significantly more than the going rate of $65 per share for Ralcorp at the time the initial acquisition talks began. Ralcorp declined and beat back the hostile attempts; though in the end the two companies came back to

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the negotiating table the next year. Eventually the deal succeeded via a friendly strategy as ConAgra paid $90 per share. At this point and time, Ralcorp had finished spinning off its division Post Cereal. This meant that the final price per share offering from ConAgra amounted to substantially more than the prior year’s original offer.

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Tariff Programs Tariff programs are tariff regimes that apply to imports. Tariffs prove to be taxes that governments put on goods that are imported. Every nation has its own tariff programs and amounts. There are five principle tariff types in any tariff program. These are revenue, specific, ad valorem, protective, and prohibitive. Revenue types of tariffs are those that boost government revenues. A revenue tariff would be one set up by a country that does not grow oranges but imposes tariffs on the import of oranges. This way, that government makes money when any business chooses to import and sell oranges. Ad valorem tariffs are those that a government places as a percent of the value of imports. An example of such a tariff is fifteen cents for each dollar value. This contrasts with specific tariffs that do not revolve around the imported goods’ estimated value. Instead, they are levied as a result of the specific quantity of the goods in question. Specific tariffs can be figured up based on the volume of the goods that are imported, on their weight, or on any other form of measurement applicable to goods. Tariffs that are prohibitive in nature turn out to be the ones that stop a business from importing a good at all. These tariffs might be used on goods that a government does not wish brought into the country. This might be for safety, health, or moral reasons. Protective tariffs are set by a government in order to ensure that the sale price of goods that are imported do not destroy a local industry. These are employed to protect domestic markets from foreign competition. Higher tariffs will permit local companies that may not be so efficient to compete effectively against the foreign competitors within the local domestic markets. While protective tariffs have their time and place in building up the local firms and economy, they can have unintended consequences. They might cause an item to be so costly that companies have to charge more for their related products. A good example of this pertains to the prices of gasoline. As they rise excessively through tariffs, companies involved in shipping, like trucking companies, have no choice but to charge retail businesses higher prices for getting their products to them. The retail businesses will then respond by increasing the prices of their goods to compensate for the greater costs of transportation. They have to do this to make the same level of profit that they did in the past. The final result will be that consumers bear the brunt of the tariff by having to pay higher prices for their products and goods. All countries employ tariff programs for one reason or another. They may not apply them evenly to every import or industry, but they will utilize them somewhere. Sometimes countries choose not to put tariffs on goods being imported. This is known as free trade in these cases. Free trade is believed by many economists to permit higher levels of economic growth. Critics say that without tariff programs, economies will be forced to rely on global markets instead of their own local markets.

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Tax Abatement Tax abatement represents a taxation level reduction. It can be for either individual consumers or companies. There are many examples of this type of tax break. They could be in the form of a rebate, reduction in tax penalties, or an actual tax decrease. Sometimes people or firms pay too many taxes or get a tax bill that is higher than it should be. In this case, they have the right to ask for an abatement from the IRS or state taxing agency. Among the different types of tax abatement is the property tax kind. Owners of property might feel that their property value is assessed too highly. They would be able to appeal to the area tax assessor to receive a tax abatement. Businesses that are not for profit can obtain them on their property because of their special tax exempt status. Tax abatement on property is a major savings. Most owners of houses will be required to pay property taxes that are commonly from 1% to 3% of the value of the house every year. This annual expense does not disappear when the mortgage is completely paid. It represents part of the ongoing cost of owning a home. There are cities that offer special programs of real estate tax abatement. Such a package assists consumers dramatically. It could help them to purchase a nicer house for the same payment. It might also allow them to be able to obtain a mortgage that they might not otherwise. This is the case if the monthly house payment drops to a level they can afford through such abatement. This type of abatement on property can also help to boost the resale value of the house if it is still in effect when the owner sells. Some cities in the U.S. offer tax abatement's to massively lower or even completely eliminate tax payments on houses for not only years but even decades. The idea behind such a program is to bring in buyers to neighborhoods that are in poor demand. This could be part of the inner city which the city is attempting to revitalize. Cities can offer these abatement's throughout the entire limits. Others provide them for specific areas. Authorities can choose to restrict such programs to middle or low income owners of property as well. A great number of these abatement programs do not carry such an income restriction. It is possible to purchase properties that are already under abatement. Individuals may also buy properties that are eligible and go through with the necessary improvements. They then apply for this program. It is far easier to buy a property with an abatement than to go through the hassle of bureaucracy and construction. For abatement's on improvements to a property, there are special rules. The improvement, rehabilitation, or construction property taxes can be reduced or eliminated. This does not mean that the entire property tax is gone. The pre-improved value of the property will still have taxes owed for it in this particular case. It is often necessary for a house to be occupied by the owner for the abatement to continue. Renting the house out would cause the special status to disappear. When an owner sells a home to another owner who will occupy it, the property tax abatement will stay with the house. Abatement periods never restart just because the property transfers ownership. If a 10 year program eliminates or reduces the taxes on a home and the seller has enjoyed seven of these years, then the new owner will have the three years left of the

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status.

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Tax Accountant Tax accountants are professionals who help clients with finances. One of their main tasks is to prepare tax returns for individuals and businesses. They complete taxes for local, state, and federal levels. These agents can do this because they have great knowledge of governmental regulations and business rules. The Internal Revenue Service established tax accounting with the section Title 26 of its Internal Revenue Code. Tax accountants also perform a variety of other functions. They help their customers minimize the amount of taxes owed. They assist them in meeting tax filings and requirements. Accountants also update their clients on any changes to the tax code that will impact their business. When there are government audits or disputes over taxes, companies turn to their tax accountants for representation to help resolve them. Tax accountants’ work schedules are different than those of many professionals. This is because much of their business is seasonal. From mid April thru end of December, they keep busy with typical work weeks. Starting in January through mid April, these professionals see their work hours go up dramatically. The first four months of the year they are doing individual and business tax returns for clients. Becoming a tax accountant requires significant amounts of education and licensing. These professionals generally need bachelor’s degrees either in accounting or a related field. Business administration is another major that individuals can take to become an accountant. It makes a good base for a master’s degree in accounting. Other master’s programs that help with this line of work involve taxation, auditing, business statistics and calculus, or financial planning. The professional qualification that sets accountants above many of their peers is the CPA. To obtain the official Certified Public Accountant status they must put in another 30 educational hours and obtain experience in accounting. Finally, accountants take an exam to gain this designation. Having a CPA credential with their state board allows them to file financial reports with the Securities and Exchange Commission. Each state has its own requirements for the CPA license. One hundred and fifty semester hours of college or university credit is usually necessary. Most states also require a candidate to demonstrate minimally two years work experience in the field. The American Institute of Certified Public Accounts is the governing body that administers the CPA exam. After candidates have met the other educational and experience criteria they may take this. Gaining the certification is not the end of the process. CPAs are usually required to stay caught up with various continuing education courses. Otherwise they will not be allowed to keep their designation. There are several questions that business owners should ask before hiring a tax accountant for their enterprise. It is good to know the types of clients these professionals count. Finding one that understands their business is important. Companies also need to make sure a potential accountant is available all year round.

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Finally, companies should determine that their potential financial planning company has real experience dealing with the IRS. Sometimes CPAs are a more impressive designation. This does not give them the experience that an Enrolled Agent has with the IRS. The Federal Government actually certifies EAs precisely to handle taxes. Another advantage that EAs have is that many of them have been IRS agents. As such they possess real and valuable experience in performing and handling business and personal tax audits.

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Tax Bracket A tax bracket refers to a certain income range against which the government levies a specific income tax rate. With the majority of income taxing systems in the world today, lower incomes fall under lower income rates tax brackets. At the same time, higher incomes are taxed at greater rates. The idea behind such brackets is to ensure that a progressive income tax system remains in place. In the tax year for 2016, the Internal Revenue Service decreed there would be seven different tax brackets. Each of these offers minute variations on the theme for married filers, single filers, and head of household filers. This led to the de facto establishment of 21 real tax brackets for the tax year. Importantly, the tax bracket thresholds did increase a little for tax year 2016. As an example, the lowest bracket proves to be under $9,325 for individual taxpayers, which was raised from $9,275 back in tax year 2015. The highest possible tax bracket for this tax year 2016 is now $418,041, itself raised from the 2015 tax bracket high of $415,051. This changes every year, so it is important to consult the IRS.gov website for current information annually. Those individuals whose incomes are under the minimum bracket of $9,275 have income which is taxed according to the minimum 10 percent tax rate. For everyone filing singly who earns over this amount, the first $9,275 becomes taxed at the rate of 10 percent. Earnings which exceed this on up to $37,650 are then taxed at 15 percent. From $37,650 to $91,150 the earnings become taxed at a steeper 25 percent rate. Income beyond the $91,150 is taxed at still higher rates. This means that many tax filers actually fall into several tax brackets and not only the first one. The tax bracket should never be confused with the tax rate. Tax rates represent the actual percentage at which the given income becomes taxed. All tax brackets possess their own unique tax rates. Many people simplify and call their tax rates the bracket at which they are taxed as if they were identical. The comparison is not valid since the majority of Americans have earnings which fall into more than one tax bracket. An example helps to make the tax bracket concept clearer. Consider an individual who earns a hefty $500,000 every year. At such a lofty level as this, the filer will have income that goes into each of the single filing tax brackets. This means the person will pay many different tax rates (seven in fact). This will depend on which part of his or her income is being considered. On all earnings which exceed $406,751 the tax rate will be a punishing 39.6 percent. On the initial $9,075, the rate will merely be the 10 percent rate of the first tax bracket. This means that the actual tax rate of such an individual will lie somewhere in the middle of the two tax rate extremes of 10 percent and 39.6 percent, making it closer to 25 to 35 percent effectively. The opposite of such a progressive income tax system as this one is a flat tax system. In these taxing arrangements, every individual becomes taxed on all income at the identical rate. It does not matter how much people make in this type of tax setup. Those analysts and economists in favor of the tax bracket system in particular and progressive tax systems in general argue that the people who make higher incomes can bear a heavier taxing burden and

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still enjoy a comfortable, high standard of living. Lower income earners will struggle to cover their basic human needs at any tax rate. The other argument is that such a system will cushion and stabilize against losses in after tax income. The reason is because a real salary decrease becomes counterbalanced out by a drop in the effective tax rate. In this way, people who suffered a pay cut would feel the blow to their post-tax income less severely since the tax rates would drop alongside the income decline. It is worth noting that such tax brackets do not only apply to individuals who file their income taxes. The IRS also sets the rates and brackets for trusts, companies, and corporations. They adjust both these and the personal tax brackets for the impacts of inflation from time to time.

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Tax Credits Tax credits refer to different sums of money which taxpayers may deduct from their total tax bill that they owe the federal, state, or local government. The amount of a given tax credit will naturally depend on the type of credit involved. Some kinds of credits accrue to businesses or individuals who operate (or live) in particular locales, industry segments, or specific classifications. These credits are different from exemptions and deductions that lower the amount of income the IRS considers to be taxable. Instead, a tax credit will actually decrease the amount of tax which the business or individual owes. Governments often provide such tax credits to foster certain patterns of behavior and actions. This could be to lower the aggregate cost for certain taxpayers’ housing, or for replacing appliances which are older with newer and more efficiently operating appliances. Generally speaking, such tax credits prove to be more beneficial than an exemption or deduction since they diminish the amount of taxes the entity or individual must pay on a dollar for dollar basis. These other types of expenses and exemptions do lower the ultimate tax liability. Their limitation is that they only reduce this based on the marginal tax rate of the individual or business. This means that those individuals who are considered to be a member of the 15 percent tax bracket only receive 15 cents in tax savings for each marginal tax dollar deduction. On the other hand, the credit decreases such tax liabilities by a whole dollar. These credits can be broken down into refundable, partially refundable, or nonrefundable tax credits. Refundable credits prove to be the most helpful form since they are refundable in their entirety. No matter how high (or low) the tax liability or income of particular taxpayers may be they will receive the full dollar credit amount. This is still the case even when such a refundable tax credit decreases the tax liability to under $0. In such a scenario, the taxpayers will receive a negative tax liability, which the IRS calls a refund. Per the year 2016, the most typical refundable tax credit remains the EITC Earned Income Tax Credit. There are similarly other types of refundable tax credits which taxpayers may claim for health care insurance and coverage, for educational expenses and costs, and for raising children. Other tax credits may be partially refundable. This means that they can reduce taxable income and also decrease the individuals’ (or businesses’) tax liability. In 2016, a partially refundable form of tax credit proved to be the American Opportunity Tax Credit. When taxpayers manage to lower their liabilities to below zero and still have part of the $2,500 (as of 2016) tax deduction remaining, they may apply 40 percent of what is left as a refundable credit. The final type of such a credit is the nonrefundable tax credit. These the taxpayers may deduct directly from the liability of taxes all the way to the point where the liability then equals zero. The remaining nonrefundable tax credit can not be deployed to take refunds. These types of credits have a negative effect on lower income taxpayers, since they can not gain the full benefit from the credit amount. Such credits which are nonrefundable will only be valid for the particular reporting year too. They also expire once the

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return has been filed and can not carry forward to future years. Specific examples of such nonrefundable tax credits for 2016 include raising children, adoptions benefits, realizing foreign income, and paying interest on mortgage.

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Tax Deductions Tax Deductions prove to be a legal method for reducing income which the taxing authorities consider to be taxable. They typically arise because of expenses, especially such costs as taxpayers or businesses experience in the course of producing income or earning profits. This differs from exemptions and credits as both exemptions and deductions actually reduce the amount of income which can be taxed, while the credits applied actually reduce the total tax individuals and business will have to pay. Two categories into which tax professionals often divide tax deductions are above the line and below the line. Above the line deductions benefit all taxpayers regardless of how much income they earn. Below the line ones only provide value if they surpass the individual taxpayers’ standard deductions. For 2016, this deduction turned out to be $6,400 for single taxpayers without families or dependents. Tax deductions also differ according to business and personal types. For the United States, (as well as most business taxing jurisdictions), businesses may take both trade and business expenses off of their taxable income. These allowances vary widely from one type to another and are often restricted. In order to be permissible, said expenses have to be realized in the operations of the business on an activity the owners undertake in an effort to make profits. Cost of goods sold is a nearly universally accepted tax deduction for most every system of income tax regardless of the jurisdiction. This reduces the gross income, and tax authorities typically consider it to be an expense. In the United States, the Internal Revenue Service permits “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business” as typical business tax deductions. These will be governed by any applicable limitations, enhancements, and qualifications. Limitations do exist with regards to these types of business deductions. This is the case even though the necessary expenses may pertain directly to the business in question. Some of these limitations apply to activities which include lobbying expenditures, key employees’ compensation packages, the use of vehicles, and entertainment related to the business. Besides this, deductions which exceed the income of one enterprise can not necessarily offset income earned in other ventures. The U.S. limits those deductions from one passive activity to being used against income from another such passive activity. Depreciation is another key tax deduction which the U.S. permits businesses and sole proprietors. This mechanism for cost recovery happens through deductions in the form of depreciation. It applies to most any tangible asset. The IRS permits such depreciation throughout the potential useful life of the asset, which they estimate. The government assigns most depreciation (useful life) time-frames using the nature and utilization of such assets and the type of business as their guidelines. For example, they may allow three years of depreciation for tax deductions on a laptop or desktop computer. This means that the cost of the purchase can be divided by three and each resulting third of the price may be used as a specific tax deduction for three consecutive years. Personal deductions are the other principal type of tax deductions. These pertain to individual taxpayers. Some intrinsically personal goods, costs, or services may be deducted from taxable income, per the IRS.

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The standard and set allowance for taxpayers and also some of their family members or dependents which they support is determined by the Internal Revenue Service and varies most every year. The IRS calls these personal exemptions. In the United Kingdom and other British English-speaking jurisdictions throughout the world, these are known as personal allowances. In both types of systems, such exemptions and allowances become reduced and finally eliminated for those married couples or individuals whose income surpasses preset maximum levels. Among the types of personal exemptions (which the U.S. and many other systems allow) are property taxes and local or state income taxes paid, medical costs, primary home loan interest charges, contributions to charitable organizations, contributions to either health savings or retirement savings plans, and some educational costs or interest paid on education-related student loans. The U.S. and Britain also allow payments to other individuals to become deducible in many cases, such as with child support or alimony.

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Tax Exempt Income Tax Exempt Status means that certain transactions or earnings in the form of income will not be taxed at either the local, state, or even federal, (or a happy combination of all three) level. As taxpayers earn their income or sell some of their assets to realize a gain before the end of a given tax year, then they create a tax liability for themselves with the government. Tax deductions should never be confused with tax exemptions, since these deductions only lower the residents’ tax liabilities. Tax exempt items are those which are entirely excluded from any forms of tax computations. Items which are tax exempt income might be reportable on the individuals’ (or otherwise business or not for profit organization entities’) tax returns only as information. It is important to note that these exempt items are not included in the tax calculations. A common example of tax exempt income is municipal bonds which pay interest. Such bonds are those which cities and states issue in order to generate money for particular projects or general operations. For those taxpayers who gain interest income off of such municipals which are sold from the state in which they reside, this income becomes exempted from both state and federal taxes for them. In these cases, taxpayers will be given a 1099-INT form to be utilized for all investment interest which they earned throughout the year. All tax-exempt interest will be reported on box eight of the tax form. Such interest earnings will only be reported for the purposes of providing information. It would not be covered in the calculations for personal income taxes. In other cases, interest earnings are fully taxable events. There are some kinds of capital gains which can be classified as tax exempt income as well. For instance, these capital gains could be offset against other cases of capital losses in the same taxable year. As an example, investors who make $10,000 in capital gains and who also realize $5,000 in capital losses at the same time on a different asset or investment will only pay their taxes on the $5,000 net capital gains which remain after subtracting the capital losses from the capital gains in the same taxable year. In many cases, when there are significant capital losses, these can be “carried forward” into the future to offset any capital gains for those coming years. American Federal tax codes also permit taxpayers to take a part of their capital gains from home sales and exclude them from federal taxes. This is permissible up to a specific and pre-set dollar amount. The rule became set up in order for those homeowners who sell their homes to be able to protect these gains from taxes so that they can help to fund their future retirements. Another factor which affects tax exempt income is a calculation known as AMT, or alternative minimum tax. This secondary tax calculation can be required on some individual tax returns. Alternative Minimum Tax considers some previously ruled out as tax exempt items and puts it back into the personal tax calculation. As an example, income from municipal bonds is put back into the mix when using the AMT calculations. Taxpayers are often required to use an AMT calculation on their original tax returns so that they can be made to pay the higher amount of tax from the larger tax liability.

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Tax Exemptions Tax exemptions are special monetary exemptions that decrease the amount of income which is taxable. This can take the form of full tax exempt status that delivers 100 percent relief from a certain form of taxes, partial tax on certain items, or reduced tax rates and bills. Tax exemption can refer to particular groups such as charitable outfits (who receive exemption from income taxes and property taxes), multijurisdictional businesses or individuals, and even military veterans. The phrase tax exemption is commonly utilized to refer to specific scenarios where the law lowers the amount of income that would fall under the taxable label otherwise. With the American Internal Revenue Service, there are two kinds of exemptions which are available to individuals. One example of a tax exemption concerns the decrease in taxes the IRS gives for any dependent children who are under age 18 (who actually live with the head of household income tax filer). For the year 2015, the Internal Revenue Service permitted individuals who were filing taxes to receive a $4,000 exemption on every one of their permitted tax exemptions. This simply means that any individuals paying taxes who count on three permissible exemptions are able to deduct fully $12,000 off of their taxable income level. In the cases where they make a higher amount than an IRS pre-determined threshold, the amount in tax exemptions which they are able to utilize becomes phased out slowly and finally eliminated completely. For the tax year 2015, those individuals filing taxes who earned in excess of $258,250, as well as those married filing jointly couples who earned more than $309,900, received a lower amount for their exemptions. This complicated sliding scale with seemingly random numbers in place is all part of the reason why observers claim the American tax system is outdated and overly complex. There is an important caveat for individuals filing taxes. They can not claim their own personal exemption when someone else claims them as a dependent on their tax return. This is one of the elements that separate exemptions from deductions in the world of tax terminology. Each individual filing is permitted to claim his or her personal deduction. Looking at a real world example helps to clarify the complicated rules. Young college students who have a job while they go to school will typically be claimed by their parents like a dependent on the parents’ income tax return. Since the parents are claiming them as a dependent, the students are not permitted to claim their own personal exemption. They can take the standard deduction however. This means that the students who earn $13,000 will be allowed to take the $6,300 standard deduction. This lowers their taxable income to $6,700. If their parents did not claim them, it would mean they were able to also claim the personal exemption, which would reduce their taxable earnings down to $2,700 (derived by subtracting the $4,000 exemption amount from $6,700). In the majority of cases, individuals who file are also able to obtain a personal deduction for their husbands or wives. This does not apply if the spouse turns out to be claimed by their parents as a dependent on the parents’ tax return. There are many scenarios where the dependents of an income tax filer prove to be minor aged children of

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the primary taxpayer. Regardless of this fact, individuals who pay their taxes may also have other kinds of dependents they can claim for exemption purposes against their income. These dependents are typically relatives of the payer in question, such as a child, parent, sister, brother, uncle, or aunt. They must be truly dependent on the person paying the taxes in order to live for the IRS to accept them as dependents for income tax filing purposes. It is possible for a person to have no tax liability whatsoever thanks to the combination of personal deductions, personal tax exemptions, and exemptions and deductions for his or her dependents. When this is the case, these individuals are allowed to request an official exemption from withholding tax from their employers. When they do so, their payroll department will only withhold Social Security and Medicare contributions (but not income tax contributions) from their paychecks.

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Tax Revenue Tax Revenue refers to money that a government collects. They do this by levying taxes on their own citizens living within their jurisdictions (and living overseas as well in the case of the U.S.). There are many different kinds of taxes collected in the present day and age. Among the most frequently levied taxes are income taxes, property taxes, and sales or VAT taxes. The revenues from taxes finance government spending. They also go towards maintaining and developing new public works projects. Taxes pay for a variety of other important programs. Some of these are for education, defense, and social welfare expenditures. Practically all governments have laws in effect that provide them with the authority to tax their citizens legally. Income taxes come from many sources of income which people earn. This might be comprised of commissions, wages, or royalties. There are governments around the world which also tax money earned on speculation, investments, and gambling proceeds (as with the U.S.). The United States and a number of other nations permit their citizens to legally reduce the amount of money they pay in taxes by providing sometimes detailed information on permissible deductions against income. In the majority of cases, tax revenue which comes from income earned becomes payable to both the national and state governments. Property taxes provide revenue derived from ownership of real property or real estate. These funds are commonly levied and utilized by local governments including provinces, states, counties, and parishes. Such taxes come from possession of land and houses. They typically become due every year. Interestingly, cars and other vehicles also become taxed on an annual basis in most jurisdictions. This tax is levied through the purchase of license plates and vehicle registration which has to be updated annually. These taxes which local governments collect they commonly spend on maintaining state, country, or provincial schools, roads, and other types of public facilities (such as parks). Sometimes these monies are deployed to build up members of the community, as with needy families’ support programs. Sales tax is another way that governments collect a tax revenue every single day of the year. They levy these sales or VAT taxes on practically all purchases. Sometimes exceptions will be made for medicines and some necessary foodstuffs. The rate of taxes which they collect occasionally depends on the kind of item which a person or business purchases. Luxury items often quality for steeper tax rates. There are always higher revenues generated by so-called sin taxes. These are activities which governments attempt to discourage participation in and consumption of for their citizens. On gasoline, this is called carbon tax, while on alcohol and tobacco it is excise taxes. In many countries of the world (the United States being a notable exception), governments collect a considerable national tax revenue from Value Added Tax. The difference between sales tax and VAT is simple. Sales tax is levied on the final point of sale only. VAT is collected on every stage of production where any value is added to the goods (or service). This is why VAT generates far more income for governments. For example, in a VAT collecting regime a sweater is a good item to consider. Farmers are VAT taxed on the sales of their wool to factories. Factories which produce a yarn from the wool are also taxed when

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they go to sell their yarn to producers. Other production facilities that knit the yarn into sweaters also pay VAT when they sell the sweater to the outlet store or shop. Finally, the store which sells the sweater itself will eventually collect a VAT tax from the customer who ultimately purchases the item. VAT taxes are generally included in the sticker price of the item, while sales taxes are not usually included in shelf pricing. Governments cannot function without tax revenues as the are the most critical types of income for modern age governing. Without such tax revenues, the overwhelming majority of governments would not be able to provide the necessary level of support which businesses and individuals require to live decently and to succeed. This is why in the majority of nations of the world today, when businesses or individuals do not pay their taxes, they are severely penalized. Such penalties start with fines and can occasionally lead to jail time, in extreme cases of tax avoidance.

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Tax Sheltered Annuities 403(b) Tax sheltered annuities are retirement savings programs and vehicles that the Internal Revenue Service allows for under the 403(b) section of their tax code. They were created for the benefit of employees who work for churches, educational institutions, and specific not for profit agencies. They offer the advantage of permitting employees who are eligible to participate to contribute nearly all of their annual income towards retirement savings and investments in the plan. As an example of the generous limits with these particular plans, employers who choose to contribute can put in as much as $53,000 as of 2016 for any single tax year. This supplemental program for retirement savings gives participating individuals a variety of ways in which they can choose to contribute funds. They may invest on an after tax basis, as with a Roth plan. They may also choose to contribute using funds that are pre-taxed. They can also opt to use a combination of the two methods. These plans and their participating contributions are entirely voluntary. Employees generally make the majority of these contributions as there is not always an employer match involved with them. A variety of employees of eligible organizations may participate in these tax sheltered annuity plans. Employees of public schools, universities, and state colleges are allowed to participate. Many employees of churches are also allowed to become involved. Those who work for the school systems run by Indian tribes and their governments may participate. Not for profit 501(c)(3) churches’ and organizations’ ministers are included in them, as are ministers who are self employed who serve as part of a tax exempt organization. Chaplains are also usually qualified to participate. There are several good reasons to become involved with these tax sheltered annuity plans. With automatic payroll deductions, it is a simple and relatively painless means of building up extra savings which individuals will require to increase their after retirement income. They can get involved in a low cost program that is flexible enough to offer a good selection of investment choices. People can make contributions on a Roth after tax basis, a pre tax basis, or a combination of the two. Finally these plans are portable, meaning the owners can take their retirement vehicles with them when they move to a different job or another not for profit organization. Thanks to these plans and vehicles, account holders are able to invest tax money that would otherwise go to the IRS. They can move money between the various funds in the plans without suffering from capital gains taxes or additional fees. This gives these TSA pre tax accounts a greater return than a taxable account would enjoy if it earned similar returns. For any individuals who use these account vehicles as Roth after tax accounts, all qualified distributions at retirement will be enjoyed completely tax free. Money from these accounts can not be taken out without penalties until the individual reaches the government mandated minimum retirement age of 59 ½. They must begin taking distributions by the time they turn 70. An exception to the minimum retirement age is for individuals who stop working for their not for profit company before they reach retirement age. In this case, they are allowed to go ahead and begin receiving distributions without having to pay the extra 10% early withdrawal penalty tax. Only any

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taxes that were due for monies which had been contributed as pre tax dollars would apply in this particular case.

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Tax-Deferred Tax deferred money and status pertains to earnings on investments. This includes dividends, interest, and capital gains which are allowed to accumulate without taxes paid until the owner withdraws the earnings and gains. The two most popular kinds of these deferred investments are found in IRAs and tax deferred annuities. Growth that is tax deferred permits gains to be compounded instead of having taxes paid on them. Investors gain in two different ways from having taxes deferred on their investment returns. The first method is through growth on investments which is tax free. Instead of having to pay taxes on the present returns of the investment, the taxes are not paid until a later time. This allows the investment to increase without setbacks. The second method from tax deferral pertains to investments which are entered in pre-retirement accumulation phases. At this point, the earnings and taxes on them are generally significantly higher than earnings will be when the owners retire. This means that withdrawals drawn out of deferred accounts typically happen after individuals are bringing in less taxable income. The end result is that their tax rate is at a lower level than the one the IRS applies with they are still working. There are a number of qualified and approved tax deferred vehicles available today. Probably the most common and popular is the 401(k). Employers provide these plans as a company benefit to help their employees to increase their retirement savings. Third party administrators act to deduct contributions from employee payrolls and help manage the plans. The employees then get to choose from several options in which to invest their tax deferred savings. These include company stock, mutual funds, or some fixed rate choices. All gains made in these accounts do no add to the taxable earnings of the employees participating. These contributions they make to the 401(k) and other qualified accounts like most IRAs come from pre-taxed dollars. This means that the employee’s taxable income amount becomes reduced. When the employees surpass the minimum 59.5 retirement age, they are able to take distributions from these plans. The taxes they pay are only those which apply on their earnings as they are received. So investors who may earn enough to pay 33% tax bracket while employed will likely pay as little as 10% to 15% taxes on distributions they take from their 401(k) plans at retirement that they have along with their any other income from interest, social security, or pensions. 401(k)s typically involved employer dollar matching programs that inspire employees to set aside a greater amount of their earnings in order to increase the size of their retirement nest egg. In putting the money off to the future, they will pay fewer taxes in the end. It is important to understand the difference between tax deferred and non tax deferred retirement vehicles. Some retirement investment accounts are not tax deferred. The owners pay the taxes on the earnings before they contribute them to the accounts. The advantage to this is that all interest, dividends, and capital gains grow without any other taxes being owed on them when they are taken out as distributions at retirement age. One beloved insurance product that works this way is an annuity.

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Retirement plans like traditional IRAs have annual contribution limits of $5,500 per year as of 2016. Annuities do not come with such annual restriction levels. Employees can contribute even millions of dollars per year to them if they wish. The earnings made in these insurance backed products grow without having taxes taken out of them even at retirement. This means that any and all earnings in these account compound fully from the second year of the annuity contract. So long as the gains earned are taken out after the employee reaches 59.5, there will not be any taxes or early withdrawal penalties of 10% levied against the earnings in these pre-taxed contribution accounts.

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Technical Analysis Technical analysis is a method for studying markets and stocks in an effort for individuals to make effective price predictions. Investors use it in their attempts to carry out better investment choices and decisions. The opposite idea of technical analysis is known as fundamental analysis. What sets technical analysis apart from other forms of competing analysis is the fact that it takes a totally unique approach in reviewing information. Technicians, also known as chartists, are not interested in the intrinsic value of the markets, a commodity, or a stock company. Instead they are concerned with just the market’s price movements higher and lower. In its simplest form, technical analysis only considers demand and supply. Followers of this form of analysis study this so that they can predict which way the markets or prices will move, or in which direction the trend of the underlying instrument is. They are not interested in the underlying parts of the market. Instead they wish to understand all that is happening by analyzing the actual market itself. Technical analysts do this by studying the market or instrument’s price history and volume. They take these data points and plot them out on computer-generated charts and various other tools to seek out any recurring patterns that might indicate what the stock or market will do in the future. Besides price up and down action, technical analysis heavily relies on volume to confirm ideas. Volume is the quantity of contracts or shares which changes hands in a certain amount of time, most commonly in a period of a day. Greater volume equates to more activity in an underlying security. Figuring the movement of the volume involves technicians studying the volume bars in a chart. These are usually located at a chart’s bottom. These volume bars demonstrate the number of shares or contracts which have changed hands in a period. This is how they display trends in the same manner as price action does. Volume is used to prove the strength of price movement. A higher volume means that there is more commitment to the associated movement. Lower volumes convey a lack of conviction in a price movement up or down. High volumes can be used to prove a change in a trend if the evidence of a change is overwhelming otherwise. Three basic ideas or assumptions underlie the study of technical analysis. First, the market already takes everything into account. Second, the prices move up or down in identifiable trends. Finally, the price action movement will be likely to repeat itself again. 1. The Market Already Takes Everything Into Account Technical analysts have been criticized for only looking at price movement and volume, but they believe that all known information is already fully and fairly priced into a market or stock price. This includes fundamentals of a company, overall economic factors, psychology of investors, and even unknown event risks. According to their point of view this eliminates the point of separately considering the company’s fundamentals and other factors since they believe all of this to be already fairly priced into the underlying stock. In their minds it is only price movement based on supply and demand that they need to consider.

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2. Prices Move Up or Down In Identifiable Trends Technicians also hold with the idea that prices moving up or down are following trends, or movements in one general direction. They believe that after the market has set out a direction, the price movements in the future will tend to follow in that direction rather than to move contrary to it. The majority of strategies for technical trading go along with this premise. 3. Price Action Movement Will Likely Repeat Technical analysis considers this idea of price action and movement repeating to be very important. Followers of this analysis believe that market psychology accounts for this repetition, as investors in the market will usually react in a similar fashion to market influences over time. Chartists utilize patters in the charts to study these movements and grasp the accompanying trends. Technicians have used a great number of these different charts for in excess of a hundred years precisely because they show price action patterns that continue to repeat themselves again and again. It is important to remember that technical analysts do not only use this form of price prediction for stocks. In fact they can employ it on any instrument that has a body of historical trading information. This means that technical analysis works on stocks, commodities, futures, Forex foreign exchange, fixed income investments, and other financial instruments. Though many technicians use and consider technical analysis to be effective for predicting the prices of stocks, it is most commonly applied to Forex and commodities trading. This is because most investors in these two markets are short term traders.

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Tenure Annuity A Tenure Annuity is a type of reverse mortgage monthly payment plan. This program delivers cash payments that are consistent to the home owning seniors for an unlimited amount of time until they pass away or move out of the house. The agreement remains in force up to the point that both spouses leave the house that backs the loan. Tenure payment amounts are usually fixed based on the primary borrower’s age. Such a tenure annuity can be crucial for those seniors who do not have much monthly income or savings. They likely still want to take advantage of activities which provide an active and enjoyable retirement. The monthly payments from these tenure annuities can be used at the discretion of the borrower. They might use them to supplement benefits from social security. Medical costs can be paid with them. Seniors can work to pay down debts using the funds or to improve, renovate, or repair their home. They can even put them to use for leisure activities and travel opportunities. Financial planners often advise seniors to increase their retirement income streams using a tenure annuity. This is because the income from private pensions and/or social security is often insufficient to meet their expenses and desires. There are many benefits to these plans. One of the most important is that they deliver a guaranteed and predictable monthly payment that boosts other income sources. A tenure annuity has numerous other advantages. The money will be provided for as long as the borrowers live in the house, whether this is for from a few months to several decades. The arrangement is fully covered and backed by the FHA Federal Housing Administration. The borrowers continue to enjoy complete and unrestricted use of their house that is tied to the reverse mortgage. There is no burden of monthly mortgage payments as with a traditional mortgage loan. Finally, there are no additional collateral requirements besides the house itself. One of the valuable characteristics of a tenure annuity is that the debt builds up against the home slowly. The equity for the future payments remains in the house until it is needed. This means that the estate of the borrowers will be significantly greater if they die early than for a senior who simply took out the maximum cash value in the reverse mortgage. A tenure annuity also provides flexibility for the senior borrower. These participants are able to modify the transaction by simply paying a minor $20 fee to the loan servicer. As an example, a borrower who determines he or she will not require the monthly tenure payment amount for some time can change the house’s unused equity over to a credit line. The credit line increases in size every month as the payment amounts of the annuity build up in the line. In a case where the opposite is true, seniors who require bigger payment amounts are able to switch over into the term annuity from the line of credit. Another useful feature of the tenure annuities is that they protect the value of the property from declining. Whether the borrower chooses the monthly payments, the credit line, or switches back and forth, the protection remains the same. Thanks to the FHA coverage of the reverse mortgage, the borrower is not liable for any declines in the value of the home.

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Term Auction Facility (TAF) In response to the bank lending freeze that followed the outbreak of the banking and financial crisis in 2007, Ben Bernanke created and launched his Term Auction Facility TAF in December of 2007. The Fed was able to utilize its long mostly dormant discount window from December 2007 through to March 2010 as a creative new means of helping out struggling banks to access extra funds. They were then able to loan out these additional funds to consumers and businesses at their discretion. A primary new way of lending out such money to the banks lay in this Term Auction Facility. Using the Term Auction Facility TAF, the Fed set up a system to auction out term funds to interested banking institutions. Any bank or credit union that already was able to borrow money via the primary credit program had eligibility to be a participant in these TAF Fed auctions. The Fed was willing to accept bad loans as collateral for these funds. At every TAF auction, the Fed loaned out a set amount of money. They utilized the auction process starting with minimum bid rates in order to set the interest rates on these loan facilities. Banks could participate in the bidding process via phone through their local area Reserve Banks. The last of these TAF auctions occurred back on March 8 of 2010. For the nearly three years that it ran, the Term Auction Facility worked according to a set out regular process. On a two weekly basis, the Federal Reserve would decide on the amount of money which it would then loan out on any given day. They would determine the minimum interest rate at which they would consent to loan out the funds. Banks which were interested in extra funds could then make bids for the dollar amount of money they wished to obtain at the interest rate they would agree to pay. Next the Federal Reserve sorted out the various competing bids by the level of interest rate that each participating bank offered them. The Fed started with the greatest interest rate and then went on down from there, adding up the totals of money requested until they reached the maximum dollar amount which they were willing to lend out. Interest rates on each loan equaled the lowest interest rate which had been offered by the banks that had bids accepted. The Fed was willing to do this so that there would not be funding shortfalls at a single institution which might cause the circular flow of credit and money in the whole American banking system to seize up and stop. In reality, most of the banks who borrowed from the Fed through the Term Auction Facility ended up leaving this money in their accounts with the Federal Reserve. The Term Auction Facility served a useful purpose as the Federal Reserve Bank was willing to offer loans to member banks at rates that were lower than the associated market rates in exchange for putting up collateral in the form of bad loans that no one else would accept. On March 11, 2009, the banks had drawn total credit in the amount of $493.145 billion. The balance sheet of the Fed swelled to nearly a trillion dollars worth of collateral at its maximum extent. In the end, the program proved to be successful for increasing confidence the banks had in each other, even though they did not loan out these borrowed funds generally. The TAF was originally intended to be

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more temporary than it turned out to be. Bernanke never envisioned it reaching the trillion dollar mark by June of 2008. All TAF funds have been repaid without taxpayers having to subsidize any of these loans which the Fed issued to the various banks.

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Term Life Insurance Term life insurance is a form of life insurance. It offers coverage for a preset and limited amount of time that is called the relevant term. The coverage provided is a fixed rate of payment coverage. Once the term expires, the individual’s coverage at the rate of the premiums that were charged before are not assured any more. The client will be forced to drop their term life insurance coverage or to get a different coverage with varying payments and terms. Should the person who is insured die within the term, the death benefit amounts are paid out to the insured person’s beneficiary. This term life insurance proves to be the most affordable means of buying a major dollar value of death benefit coverage based on the premium cost charged. Term life insurance turns out to be the first type of life insurance created, and it stands in contrast to permanent forms of life insurance like universal life, whole life, and variable universal life. These coverage types promise an individual pre set premiums that can not go up for the person’s entire life. People do not usually employ term insurance for strategies involving charitable giving or their needs for estate planning. Instead, they are thinking about a need to replace an income if a person passes away on his or her family unexpectedly. A great number of the permanent life insurance policies also offer the advantage of increasing in value during the person’s contract. This cash value can then be withdrawn when certain conditions are met by the policy holder. Generally, withdrawing these cash amounts closes out the policy. Beneficiaries of permanent life insurance products get the insurance policy face value but not the cash value upon the holder’s death. Because of this, financial advisers will suggest that people purchase term life insurance for their insurance needs and then invest the money saved over permanent products in retirement accounts that provide tax deferred contributions and investment gains, like 401k’s and IRA’s. Like with the majority of insurance policies, term life insurance pays out claims for the insured, assuming that the contract is current and the premiums are paid as due. Assuming that a claim is not filed, the premium is not given back to the policy holder. This makes term life insurance like home owners’ insurance policies that pay claims if a home becomes destroyed or damaged as a result of fire, or like car insurance policies that pay drivers if they have a car accident. Premiums are not refunded when the product is no longer required. Because of this, term life insurance like these other products only provides risk protection.

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Term Loans Term loans refer to those loans a bank makes to a business or corporation for a set amount of time. These loans come with either a floating or a fixed interest rate and a pre-arranged schedule for repayment. There are numerous banks that offer such term loan programs to businesses so that they can access the funds they need for monthly operating expenses. Many times such a small business will utilize the cash they receive from this kind of a loan in order to buy equipment or other forms of fixed assets that they need for their production or manufacturing process. Term loans are utilized for either working capital, purchases of real estate, or equipment purchases. These must be paid back in a time frame ranging from a single year on up to 25 years from issue. Payment schedules will either be quarterly or monthly. The maturity date will also be fixed on the loan. Actual interest rates could be pre-set or could vary with the floating interest rate benchmarks. Obtaining this kind of a loan will need appropriate collateral to be posted. The approval process is exacting and extensive in order to lower the chances of default on such a loan. Small businesses which are established and that possess solid financial statements will find such loans to be appropriate for their situation. Banks will be more likely to approve them if the business is able to make a good faith down payment on the loan. This helps to lower the aggregate loan cost by reducing interest amounts and to decrease the minimum quarterly or monthly payment dollar amounts. Funding amounts for these common commercial loans can range from $25,000 and higher. Bank loan officers usually subdivide such term loans according to one of two different categories. These are intermediate and long term loans. With intermediate loans, the loan maturity date is typically under three years. Such loans will commonly be paid back in monthly time-frame installments. There can be balloon payments due as well. Businesses expect to pay them out of their cash flow. The American Bankers Association states that repayment will typically be tied to the asset which is being financed and its useful life. Conversely, longer term loans will last for more than three years and extend on up to ten or even 25 years long. The assets of a business will often serve as collateral for these bigger commitment loans. Usually either quarterly or monthly payments will come due. Businesses repay these installments utilizing either their cash flow or company profits. Such longer-term commitment loans will generally come with clauses that restrict the number of other financial commitments the firm may assume in the form of debts, officers’ salaries, and dividend payouts. Sometimes they will mandate that a given percentage of company profits must be put off to the side in order to pay back the loan. While there are countless ways a business could deploy the resources from a term loan, some are more appropriate. The smartest ways to use them are through important capital improvements to the business, construction projects, large investment in capital, or buying other businesses. Working capital is another sensible use for such a loan. The rates for these types of loans are typically competitive and not expensive relative to other forms of

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borrowing. They commonly cost approximately 2.5 percentage points over the prime lending rate for those loans which will be shorter than seven years. For the ones that are longer-term than this, around 3 percentage points greater than prime rates is normal. There will also be fees for such loans that usually amount to around one percent. Construction loan fees are often higher.

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Thomson Reuters Thomson Reuters proves to be the biggest international global news agency. The multimedia company offers world news, investing news, technology news, business news, small business news, headline news, news alerts, stock market and mutual funds information and quotes, and personal finance news. All of this information is delivered on the company website Reuters.com, and via their mobile, video, and interactive television platforms. Reuters remains the media and news division of Thompson Reuters. Thomson Reuters offers information to working professionals in the fields of legal, finance and risk, accounting, taxes, science, intellectual property, and media. This helps them to make decisions with the appropriate technology, intelligence, and personal expertise which they require to obtain answers which they can trust. All of these answers come from the most believed and beloved news outfit in the world, Reuters. Thompson Reuters claims over 50,000 professional employees working in more than 100 different countries. The company brings more than 100 years of experience to the table in its role as the leading global multimedia news provider. The outfit refers to itself as the answer company. They are concerned with much more than just raw data. They package and shape the information using their innovative technology and perceptive employees so that it has meaning and direction. The employees who serve Thompson Reuters hail from the different sectors in which the company specializes. This means that their staff are comprised of lawyers, business professionals, analysts, programmers, accountants, publishers, and other professionals. These personnel all work together to help bring watchers and readers the insights on information of the most critical worldwide business and news topics. These range from increasingly complicated regulatory environments and rising risk and volatility to transforming technologies and changing business models. Thompson Reuters owns a wide range of news provider related subsidiaries. Eikon delivers news, data, and analysis on financial markets around the world to mobile and desktop platforms. World-Check looks for individuals and entities around the world who pose risk so that they can discern unknown risks lying hidden in networks and business relationships. Elektron provides everything users require to improve their proprietary data management and to control and manage their workflow. Westlaw allows users to access attorney expertise, content which is authoritative, and technology that defines industries in order to build up the most powerful argument possible. Checkpoint provides participants with industry leading information relevant to finance, accounting, and tax professionals. Finally, its Onesource offers the ability to manage all of a business’ or individual’s compliance and tax needs. In 2015, Thompson Reuters boasted over $12.2 billion in revenues and an 18.8% operating profit margin. The shares are included in both the New York Stock Exchange and Toronto exchanges and listings under the symbol of TRI.

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Thomson Reuters has won an impressive array of awards and accolades in recent years. They have been named among the World’s Most Admired Companies by Fortune Magazine for eight years in a row from 2009 to 2016. They rank first in people management, global competitiveness, and social responsibility. They earned second place for financial data services. The company has also earned seven consecutive annual awards from 2009 to 2015 from the Ethisphere Institute. Its most recent award in this category was to be named among the 2015 World’s Most Ethical Companies. This award recognizes corporations that do more than simply issue statements about conducting ethical business by carrying out their promised actions. CareerBliss has also named Thomson Reuters to among the top of the list the Happiest Companies in America. This job searching company and site unveils the corporations that have the best happiness ratings every year.

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Thrift Savings Plan The Thrift Savings Plan represents a government created retirement savings vehicle. In 1986, Congress passed the Federal Employee Retirement System Act. This plan was established for the benefit of retired or present employees in the civil service of the federal government. In 2001, Congress expanded the TSP so that it would include the members of the armed forces with the National Defense Authorization Act. This extended participation beyond the original civilian employees. Armed forces members were allowed to enroll beginning on October 9th of 2001. The Thrift Savings Plan was set up to be a defined contribution plan. The goal behind its creation was to provide the federal government employees with similar retirement savings types of benefits as private sector workers had. Employees in the private sector already enjoyed these retirement savings opportunities via the available 401(k) plans. With every payroll check, plan contributions to both the 401(k) and TSP are deducted automatically. These TSPs include a variety of different funds. Participants can choose from and invest in six different types. Among these are the government security fund, the common stock fund, the fixed income fund, the international stock fund, the small cap stock fund, and the life cycle fund. The government security TSP fund is specifically managed by the Federal Retirement Thrift Investment Board itself. This fund’s management purchases U.S. government guaranteed Treasury securities that are not marketable. Because of this conservative and safe strategy, the G Fund does not lose money. Its returns are also lower as a result of this low risk. The common stock fund is one of the index funds that track a particular benchmark. In the case of this C fund, it invests in a stock index fund which mirrors the composition of the Standard and Poor 500 Index (S&P 500). This means it buys an index based on the various stocks of the 500 medium to larger sized American corporations. Its goal is to replicate the S&P 500s annual performance. With the fixed income fund, it also tracks a benchmark index. This F fund’s goal is to match the Barclays Capital US Aggregate Bond Index’s performance. This broad based index was established to represent the bond market in the United States. As such it returns earnings commiserate with American corporate bond performances. As the name implies, the international stock fund buys prominent stocks of international companies. It also follows a benchmark index. This particular I fund tracks the MSCI Europe, Australasia, Far East Index also known as the EAFE. Its returns are made up of gains or losses from the stock prices, income from dividends, and fluctuations in the comparative currency valuations. Regardless of what is happening in international markets, this fund and the fixed income, common stock, and small cap stock funds are always fully invested. The small cap stock fund buys the index fund of stocks which follows the Dow Jones US Completion Total Stock Market Index. This S Fund earnings come from both dividend income received and any losses or gains in the prices of the underlying stock.

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An interesting combination is the life cycle fund. These are managed to invest in the five different TSP funds. They professionally determine the allocations and percentages in each based on the retirement time frame set by the owner. There are L2020, 2030, 2040, and 2050 versions which assume that within a few years of those dates the owner will be looking to retire and be more conservatively invested. TSP benefits are several. Government agencies are able to match employee contributions. They also have an agency automatic contribution option. Employees can make catch up contributions when they reach a certain age. These funds feature low, affordable expense ratios. All contributions made to these plans are not taxed until the point where the money is withdrawn at retirement.

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Title Deed Title deeds are a form of legal documents. They are utilized to demonstrate that a person owns a certain property. Title deeds are used most often to provide proof of home or vehicle ownership. Title deeds might also be given out on other kinds of property. Title deeds give owners privileges and legal rights. To transfer a property’s ownership to another individual, a title deed is required. Title deeds generally come with detailed descriptions of the property to which they are attached. They are made specific enough so that they can not be mixed up with other properties. They also include the individual’s name who owns the piece of property. More than one person can be named as an owner on a title deed. Proof that the title deed is recorded with the appropriate office is provided by the presence of an official seal. Title deeds are commonly signed by the property owner and a person who witnesses the signature, such as a clerk or area government official. Having a title deed does not mean that a person keeps the car in his or her possession. You can loan a car to a relative to use, even though they are not on the title. If you purchase a car using a loan, then the bank will have the title for its security, even though you would keep the car. You might purchase a house and rent it to a tenant. Although the tenant would not have the title deed, he or she would still possess and occupy the house. The title deed is useful for forcefully retaking possession in any of these scenarios. When you sell a property, the old title deed is invalidated and a new one is given out that has the new owner’s name on it. You might also add another person to a title deed by working with a title company for a property, or the Department of Motor Vehicles for vehicle titles. You have to fill in a request in writing before you receive a new title deed with the other names added to it. Once a person’s name has been added to a title deed, they legally control the property along with the original title deed owner. Title deeds have to be kept safe. As official legal documents, they are not easy to replace when stolen or lost. It is a smart idea to keep title deed copies separate from the original to have proof of ownership while an official replacement title deed is being issued. Physical possession of title deeds allows a person to start a transfer of ownership, so they must be kept where they will not be stolen and then subsequently utilized to transfer your property to another individual.

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Total Public Debt Total public debt refers to all of the national debt which the United States owes to its various creditors and other agencies within the government to whom it owes money. This amount grows in years where there are deficits as the government spends more funds than it receives in taxes. The aggregate national debt shrinks in surplus years as the federal government receives a greater amount of money that it spends. Every year of the Obama administration has been a deficit year that increased the debt. As of the end of Fiscal 2016, the government’s total public debt amounted to $19.7 trillion. The total public debt includes all money owed to Americans and foreigners as well as other agencies within the government. As such, the gross national debt for the country is made up of two components. The first of these is marketable debt which the public and foreign countries hold. This includes instruments such as Treasury bills, bonds, and notes. Investors regularly buy and sell this debt on the bond markets. Any investor who is not a part of the federal government is considered to be a part of this class of debt. This means T bills held by consumers, companies, banks and financial institutions, the Federal Reserve, and local, state, and foreign governments are all included in this category of debt. As of July 29, 2016 this portion of the debt amounted to $14 trillion. The other category of the total public debt is the debt which other government accounts hold. This is also called intra-governmental debt. These debts are also comprised of Treasuries, only these can not be bought and sold. This category of debt is like IOUs kept in federal government administered accounts. The country owes it to beneficiaries of programs, as with the Social Security Trust Fund or the Medicare Trust Fund. These government accounts once had surpluses and invested them over time in Treasury securities. The amount which they are owed includes principal plus interest earnings. On July 29, 2016, this category of the total public debt equaled $5.4 trillion. Together, the two categories which make up the total public debt equaled $19.4 trillion on the July 29, 2016 date. This represented fully 106% of the prior twelve month national GDP for the United States. Foreigners held $6.2 trillion worth of the debt at this point equivalent to about 45% of the debt which the public held or 32% of the aggregate public debt. The largest foreign holders proved to be China and Japan. As of May 2016, China owned about $1.25 trillion while Japan held $1.15 trillion worth of U.S. government debt. Usually, the government’s debt goes up as and when the government spends monies on entitlements, interest on the debt, and budgetary programs. It similarly decreases as taxes and other monetary receipts accrue. Both categories change throughout the months of the fiscal year. The government does not in practice issue Treasury debt itself on a day by day basis as it spends money. Instead, this is issued or redeemed according to the government’s money management operations. The total amount of money which Treasury is authorized to borrow is restricted by the debt ceiling of the United States. Congress conveniently lifts this every time the ceiling is hit.

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Toxic Assets Toxic Assets is a coined phrase for those financial assets which saw their actual value plummet. Toxic assets do not have well working markets anymore, making them difficult or impossible to sell for a price on which the owner will agree. The term arose as a popularly coined phrase during the financial crisis of 2007-2010. Toxic assets proved to have a major part in causing the financial crisis. As toxic assets’ markets seize up, they are called frozen markets. Many markets for these toxic assets froze up starting in 2007. The problem only continued to grow exponentially worse in the second half of the following year 2008. A number of elements combined to lock up the markets for toxic assets. These assets had values that proved to be extremely vulnerable to the worsening economic situation. As uncertainty only grew in this scenario, finding a value for toxic assets became more difficult. In the resulting frozen markets, banks and similar lending institutions chose not to unload these assets for greatly diminished prices. The reason for it lay in their fear that such drastically lower prices would force them to mark down all of their holdings, so that they became insolvent or bankrupt. Typically, toxic assets are able to clear when the supply and demand of them reach the point that buyers and sellers will come together. This did not occur in the financial crisis starting in 2007. As a number of the financial assets simply hung around on banks’ balance sheets, experts declared that the markets had broken down. Another way of putting this is that because banks would not write down the prices on the assets, the price of them proved to be overly high. Buyers knew that these assets were now worth far less than the selling banks hoped to realize for them. This kept the sellers’ price expectations far higher than buyers were willing to pay. Toxic assets mostly arose as a result of banks and other investment banks deciding to pour enormous sums of money into new and complex financial assets like credit default swaps and collateralized debt obligations. These highly leveraged assets had values that turned out to be extremely vulnerable to a variety of economic conditions like the rates of default, prices of houses, and liquidity of financial markets. These toxic assets threatened to destroy the entire financial system and did manage to take down a number of venerable institutions like Bear Stearns, Lehman Brothers, and Washington Mutual Bank, the country’s largest savings and loan institution. As a result of the carnage created by these highly leveraged, speculative investments in toxic assets, experts have named them financial weapons of mass destruction.

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Trade Agreement A Trade Agreement refers to a contract agreed upon and signed into force of law. These are made between two (or sometimes more) different countries regarding their trading relationship. It is entirely possible for such agreements to be either multilateral or merely bilateral. Multilateral trade agreements are those which exist with more than two nations. In the majority of cases, international trade itself becomes regulated by a variety of one sided barriers. Among these different sorts of barriers are non-tariff barriers, tariffs, and restrictions on trade. A Trade Agreement is a way to lower such discouraging to trade barriers and restrictions. The generally held belief is that they will provide advantages which include more trade for all parties concerned. It may come as a surprise to many that it is very complicated to successfully conclude a major Trade Agreement. The reasons for this are varied. There will always be coalitions of groups which do not want overseas competition to increase because of greater tariff-removed trade. Non-economic barriers to trade are also widespread in the world today. Some of them exist because of national security concerns. Still other government issues on trade concern the wish to protect a local culture and way of life from foreign “corruption,” as was the case with Communist Eastern Europe and the former Soviet Union empire. There are typically three principle elements which one Trade Agreement will often have in common with another. These are the reciprocity rules, treatment of non-tariff barriers, and a clause for most favored trading nation. Reciprocity rules must be a part of any kind of a trade agreement. All parties in the deal must each benefit from this type of arrangement or there will not be any incentive to enact it in the first place. For any such agreement to happen, all sides must assume that they receive minimally as much as they will lose from the deal. Simply put, if Britain drops tariffs on Australian beef, then they will rightly expect Australia to drop tariffs on British London high street fashions. The second idea, a common treatment of non-tariff barriers is a clause that becomes necessary in such a Trade Agreement. The reason for this is one nation may slyly decide to put up other barriers to trade in place of the tariffs they agreed to reduce or eliminate. As an example, they might institute sales or excise taxes on certain goods, quotas, so-called health requirements, specific license requirements, voluntary restrictions on imports, and also outright prohibitions on certain goods. Rather than attempt to spell out and make illegal any kind of non-tariff regulation, the treaty parties must sign off on a clause that they will provide the same kind of treatment to their trading nation’s businesses and goods as they would to those of their own country. Steel is one such industry example where this has occurred in the past. Finally, there is the most favored trading nation clause. It mandates that one or more nations in the treaty must consent to not lowering barriers additionally on a non-participating country. It means that if Britain and Australia sign a reduced tariff agreement on beef, and then Britain agrees to a still lower tariff on beef with New Zealand, then Australia will automatically receive the same lower tariff on beef as New Zealand now enjoys. Examples of several sweeping multilateral trade agreements do exist in the modern world. Two of the largest, best known, and most successful prove to be the European Free Trade Association from 1995 and the North American Free Trade Agreement (NAFTA) from 1993. Both of these deals became more

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possible because of the rules established by the World Trade Organization.

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Trade Associations Trade Associations refer to those groups which offer a means for businesses in a certain industry or segment to interact in a way that benefits all parties concerned. Such an organization will be funded by member company contributions. These associations typically work to promote the industry’s image to the public. It might also deliver a single voice in the form of a government legislative lobby. They interact with government officials on issues which will affect the industry itself. Besides such critical functions as these, associations have other roles. These could include a way for the organization to educate the consumers of the general public on the main products and concerns of its particular industry. Much of the time such industry trade associations will be established as not for profit organizations. This allows companies which associate in the same segment to cooperate together on those issues which affect them all in common. It is also true that these organizations are particularly useful for safeguarding an industry’s integrity. This is because they commonly establish behavior standards which all member companies have to honor in order to maintain a good standing record. Those companies or groups which refuse to live up to the standards the group develops and enforces in common suffer from the consequences. The leaders of the trade association might eventually choose to expel the business from the trade association for continued misbehavior. This would cost the offending company a serious amount of credibility before not only the industry, but also buying customers of the general public. It is these trade associations which typically maintain all necessary means to ensure the industry’s undivided voice will be heard by the law makers in a given nation or jurisdiction. This is why many participating member corporations choose to operate through the trade association in order to encourage industry-friendly legislation which will best help their industry segment to succeed. Similarly, this association could choose to lobby against any legislation that they feel will harm their collective best interests and those of their industry as a whole. It is true that a number of businesses will elect to back marketing plans and public relations campaigns on their own to increase the exposure of their products and name brand with the relevant consumers. The beauty of a trade association such as this is that it will similarly endeavor to create interest through making members of the public aware and educating them on the industry in general and also the various products it offers. They will not concentrate their efforts on the goods for sale by a given member company. Instead, they will back publicity and marketing or advertising campaigns which lead customers to buy and consume the given industry’s goods they produce in general. This starts with offering the public facts and figures which consumers can easily understand and appreciate. The idea behind such education efforts of the trade association is that it will make it easier for the marketing efforts of the individual companies within the industry to have maximum impact. Besides lobbying, educating, and marketing, these trade associations frequently act as conference sponsors for their member businesses to attend.

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Such a conference’s purpose and offerings typically center on boosting the industry’s overall practical performance. They do this through delivering useful information that every conference participant is able to grasp and remember. Members then take home this information to the other members of their firm and share it with those who could not attend the conference. Practically every business or trade association will sponsor at least one or more of these forms of gatherings or conferences once every year.

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Trade Balance Trade balances are used to describe the difference between the value of goods and services that are exported versus those that are imported into a country. Countries might have positive trade balances, where they export a greater value than they import. They might also have negative trade balances, or trade deficits, when they import a larger value of goods and services than they export. Positive trade balances create cash stockpiles and investment surpluses. Nations like Singapore, South Korea, Taiwan, and most of the Gulf Oil states like Saudi Arabia, Kuwait, and the United Arab Emirates continuously run positive trade balances. Negative trade balances create currency outflows or government debt that must be issued and sold domestically or exported as payment for the extra imports. Countries like the United States and Great Britain commonly run negative trade balances. Positive trade balances are beneficial and constructive to a nation. They can be run forever in theory, so long as other countries continue to purchase their goods and services at high levels. Negative trade balances, or trade deficits, are harmful to a country over long periods of time. They can not be carried on forever, since eventually the negative trade balance running countries will reach a point that they have spent all of their money covering the imports or issued an amount of debt that finally becomes unsustainable and undesirable to investors any longer. The United States’ trade balance specifically refers to the differences between the value of American goods and service exports versus goods and services imported into the United States. This trade balance proves to be among the largest Balance of Payment components. America’s Balance of Payments is constantly pressuring the U.S. dollar’s value. These deficits minimally bring down the value of the currency for a country that continuously runs them. Trade balances are reported in the United States and other advanced economies. The problem with such reports is they commonly come out some time after the data is current. This means that most of the information contained within such trade balance reports has already been anticipated and affected the markets. The Foreign Exchange markets do move based on these trade balance reports though, since trade balance data helps to form or support foreign currency trends. To this FOREX market, the Trade Balance report has proven historically to be among the most significant released from the United States.

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Trade Barriers Trade barriers are those restrictions to free international and bilateral trade which governments throw up in an effort to protect domestic industries and businesses. These government created restrictions often take a number of different forms. Among them are tariffs, import quotas, import licenses, subsidies, embargoes, voluntary export restraints, local product requirements, currency devaluations, and outright trade restrictions. Whatever forms the barriers to trade actually take, they generally work off of similar principles. The idea is that a heavy cost be imposed on trade which increases the cost of the traded (and especially imported) goods, services, and capital. When two or more countries continuously employ barriers to trade one against the other, a trade war often becomes the end result. The majority of economists mostly concur with the idea that such economic barriers are harmful to both countries which impose them and those which experience their direct consequences. They lower all around economic efficiency and harm or distort national comparative advantages. Free trade is the concept of removing all such trade barriers besides those which are considered mission critical to national security. The truth is that even the biggest champions of free trade in the modern world, such as the United States and Great Britain, engage in subsidies of favorite industries like steel and agriculture as they deem it to be expedient for these critical domestic industries’ long term survival. While there are many different types of trade barriers which countries can erect, the most typically utilized ones are tariffs, subsidies, duties, quotas, and trade embargoes. While the concept of free trade is a popular catch phrase in the post-modern world, the reality on the ground is that no country fully practices such free trade. In fact, all countries are guilty of employing some types of trade barriers for their own exclusive benefit and those of their industries and companies. Tariffs are probably the most common type of barrier to trade. This means that a company places taxes on certain goods which are imported into the nation via its ports, railroads, or airports. Though it is unusual, tariffs could also be placed on national exports. Tariffs throughout history have always been an important government revenue source. They were easy to enforce and collect since ships had to come in through the closely government monitored ports. Subsidies are yet another typical kind of barrier to trade. They are generally set up to safeguard and encourage important domestic industries and companies. They can also be utilized to ensure that important critical goods and services are available at a price which residents can afford. It often makes the imports uncompetitive as a byproduct. Food crops are often heavily subsidized so that the population can comfortably afford a consistent food supply at prices they can manage. Steel is another product that often benefits from heavy subsidies. This is because many nations deem domestic steel supplies to be vital to their national economic interests. Steel supplies which are domestically available are essential in wartime when shipping lanes may be interdicted. Probably the most extreme version of trade barriers is embargoes. These more or less outlaw the export or import of any goods or services with a particular nation. This is typically enacted to punish an offending country or to cause them to make radical internal political changes as a result of the pain of a weakening economy. Throughout much of human history, embargoes were war tactics and led to the outbreak of official war. Today these barriers to trade are not a cause of wars.

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There are several important trade bodies globally today which work to reduce and eliminate barriers to trade of different countries. The broadest and most effective of these is the WTO World Trade Organization which enacts and enforces stringent rules on member states regarding the legality of tariffs and other trade barriers. This has driven some countries and economic blocks to employ other trade barriers than tariffs. The EU simply bans the importation of most any generically modified product. This outlaw bans the overwhelming majority of American food products in practice. The WTO has gotten wise to this tactic and begun to investigate these types of barriers too.

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Trade Credit Trade credit refers to special financing terms which are many times given to a business by a supplier. This situation arises when a business buys supplies or goods and the financial officer or owner of the vendor agrees to provide either all or half of the purchased order on credit. In the case of half on credit, the balance half would become payable on delivery of the merchandise to the business. When businesses receive a half order trade credit, they have several possibilities for paying for the balance on delivery. If they have ample resources, they can simply pay with cash. Otherwise, they can borrow the money to pay for the other balance on the inventory. This is why such credit remains among the most critical means of lowering the amount of working capital smaller businesses especially require. It is even more common and necessary with retail operations. Suppliers normally extend such trade credit to a purchasing business once they have been a regular client for anywhere from 30 days, to 60 days, to 90 days. This trade credit has the advantage of being interest free. An example of this concept helps to make it clearer. Perhaps a supplier ships the Great Sweater Company knitted hats. The bill might normally be due within thirty days. Since Great Sweater Company enjoys these special credit terms, they would have an additional 30 days to cover the cost of the knitted hats which the vendor supplied. When companies first start a new business, it is difficult to obtain such credit from the suppliers and vendors. In fact they will initially require each order to be paid by either check or cash on delivery. This will be the case until the new business demonstrates that it can successfully pay its bill in a timely fashion. It is a common practice in the business world. For those startups that need to raise money to make the operations work in the early days, it is important for them to be able to negotiate some form of this credit with their suppliers. It becomes easier earlier if the business owner can provide a welldeveloped financial plan. It is important for businesses to properly utilize this trade terms credit. When they become trapped in the mentality of it being a necessary means of permanently financing the operations, then the business is in trouble. Instead it should be viewed as a useful source of funding for covering shorter term and smaller needs. This credit is not really a longer term solution to the funding problem. For businesses who do not avoid this trap, they often times become heavily committed to working with the supplier who generously extends such trade credit terms. The end result of this is that the business is not able to choose a more aggressively competitive supplier that provides better prices, more timely deliveries, and/or a higher quality product because they do not offer such generous credit terms for their buyers. There is a trade off for everything in business. It is important to realize that trade credit is rarely free. Every supplier may have its own terms. Yet most of them will provide a significant cash discount for those businesses that pay their invoices in 10 days or less. The same as cash price may be for 30 days. By waiting for the 30 days to pay the invoice, it is costing the business the two percent discount. If a business chose to do this for 12 months a year, it would mean the merchandise was costing an additional 24 percent versus the price of paying the 10 days same as cash terms.

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When a business pays after the 30 days credit expires, most vendors charge from one to two percent interest in penalties. By being late for a year, this could cost an additional from 12 to 24 percent. This is why effectively utilizing trade credit means that a business will need to plan intelligently ahead so it does not lose cash discounts consistently or pay late fee penalties needlessly. Little details like this separate successful businesses from ones which fail.

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Trade Deficit Trade deficits are unfavorable balances of trade. With a trade deficit, a greater valued amount of goods and services are being imported than are simultaneously being exported. This stands in contrast to trade surpluses that occur when a larger amount of goods and services are exported by a nation than are imported in return. Trade deficits are also called trade gaps. These trade deficits and trade surpluses are a part of the balance of trade, or net exports, which proves to be the total difference between imports’ and exports’ tangible value within a country’s economy during a particular time frame. The balance of trade results from the relationship of the country’s exports and imports. Economists have held varying opinions on how negative or non important that trade deficits might be. Some have said that issuing paper money not backed by anything other than faith and credit of a government in exchange for valuable produced goods is not a bad thing. Professor Milton Freedom, the founder of monetarism, is one of the main proponents of this particular point of view. He felt that what would likely happen is that high exports would raise the U.S. currency value, while high imports would lower the U.S. dollar value. Friedeman said that the worst case scenario for running trade imbalances would be that easily and inexpensively printed U.S. dollars would leave the country in order to pay for the excess imports versus exports. Friedman claimed that this produced the same result as if the country that earned the dollars through exports simply set them on fire and did not send them back to America. His policies became influential in the late 1970’s and early years of the 1980’s. Other influential investors and businessmen have made opposite arguments. Warren Buffet is perhaps the greatest investor in American history. He claims that the constant U.S. trade deficit proves to be the biggest financial threat facing the national economy. He says that it is worse than the enormous annual national budget deficit and consumer debt levels together. Buffet has said that other countries in the world own three trillion dollars more of America than we own of their countries. This investment imbalance has only increased since Buffet made these arguments nearly five years ago. Buffet and his followers are so worried about the imbalanced trade deficit that they have suggested instituting import certificates as an answer to the American problem and to bring balanced trade back to the country.

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Trade Misinvoicing Trade misinvoicing, or simply misinvoicing, refers to a means of illegally moving large amounts of money over national borders via misreporting or misrepresenting the total value of a given commercial transaction exchange. This sleight of hand form of money laundering which is trade based is actually done using an incorrectly filled out invoice which the perpetrators submit to customs. Of the various kinds of illegal financial outflows which world organizations monitor, this trade misinvoicing is among the biggest components. In general, there are four main reasons for why businesses and criminals deliberately misinvoice their trade. These are money laundering, claiming tax incentives, evading customs duties and taxes, and avoiding capital controls. Money laundering is a way in which either criminals or even government officials try to wash their funds which they obtain through either crime or graft and corruption. Where claiming tax incentives is concerned, there are many nations in the world today which provide generous taxation incentives to those domestic exporters who export and sell their services or goods overseas. Criminals are able to take advantage of such tax incentives through inflating their export amounts in the local currency. Evading customs duties and taxes are two separate issues that are still related. When an importer lies about its goods and services values, it is successfully able to straight away avoid significant import duties. There can be a range of other taxes, including corporate or personal income taxes and VAT taxes which the company or individual is able to avoid as well. Avoiding capital controls is a controversial issue which different cultures value independently of each other. There are numerous developing nations which restrict the value of capital which businesses or individuals are permitted to either withdraw from or bring into their national economies. Seeking to get money moved into or out of their native country is a strong reason behind trade misinvoicing. This is still considered to be an illegal means of moving money out of the country in question. It does not matter to enforcers of a country’s laws that it may seem unfair or unreasonable to restrict the rights of individuals and businesses to move their own funds across borders and currencies. Because great numbers of countries try to rapidly process their customs transactions so that they can increase their economic growth and encourage international trade, it is easy and with little risk for criminals to engage in trade misinvoicing. This is particularly the case for such enterprises that only choose to slightly misinvoice their trade transactions by amounts ranging from five percent to 10 percent. An example of how this trade misinvoicing works in practice helps to understand the illegal practice. An Indian importer purchases $1 million in cars from an American exporter. He utilizes an intermediary locate in Mauritius to re-invoice the cost of the cars as $1,500,000. The Indian importer then pays his American exporter the fair $1 million. The remaining half a million dollars which remains the Indian importer then quietly diverts to an offshore bank account, probably also located in Mauritius, which the importer owns. By engaging in this practice, the Indian importer has been able to illegally smuggle half a million U.S. dollars out of India to Mauritius. This firm will not pay taxes or import duties on the half million dollars either, since to Indian customs it does not exist.

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Tax avoidance and trade misinvoicing should not be confused, though they both utilize mispricing to accomplish their nefarious ends. International corporations often engage in aggressive schemes of tax avoidance. In and of itself, this is not misinvoicing, even though many multinationals do practice such illegal and incorrect invoicing.

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Trade War A trade war is a potential worst case result of protectionism. This serious sounding series of events unfolds when the first country erects tariffs on the second country as a response to the second country placing their own tariffs on the first country’s imports. Such trade wars can erupt if one nation believes the other nation’s trading policies to be unreasonable or unfair. It can also occur as trade unions within a country place intense pressure on the national politicians to discourage consumers from purchasing imported goods from other nations. Trade wars can also happen because the various groups of citizens, unions, and politicians in both countries do not properly understand the many proven and demonstrated advantages of free trade. It is relatively simple for a trade war that starts out in only a single sector to expand into other sectors as well. It is also all too easy for such trade wars that start out between one nation and another to explode into one with other countries that did not start out as a part of the economic conflict. Distinguishing the differences between trade wars and other economic actions which cause a negative impact on the trading relations between two states has to do with the goals. These economic conflicts are focused on free trade. Sanctions are another form of economic embargo that also have political, military, or humanitarian focused goals. Trade wars should not be confused with tariff wars. In a tariff war, two nations duel economically because the first country increases its taxation rates on the exports of the second country. The second country then chooses to retaliate by boosting their own tax rates on the first country’s exports. The higher tax rates are intended to harm the other nation financially and economically. This generally does happen as such tariffs lessen the chances of consumers purchasing products from external sources when they increase the aggregate final cost on those goods or services. There are various reasons why nations might decide to begin a tariff war. They might not like their trading counterpart’s political choices. A country could feel that through exerting sufficient economic pressures on their trade partner, they can create a sea-change in the behavior of that government. Such a tariff war as this is often called a customs war. There are a variety of economists who concur on the idea that some economic protectionist policies entail greater costs than do others. This is because certain actions have a higher likelihood of instigating a full blown trade war. Looking at a prescient example is helpful to understand the argument. If the United States raised its tariffs on China, then China would likely respond by increasing its own tariffs on the U.S. and American imports. Yet if China instead increased its subsidies to steel makers, then it would be difficult for the U.S. to proportionally respond against these economic actions. Political constraints would likely limit the U.S. politicians in their abilities to respond in kind. This is why such subsidies can be hard to effectively counteract, even for wealthy developed nations. Poor nations tend to be more susceptible to trade wars than do rich ones. They often lack the financial capability of offering meaningful subsidies to their own domestic producers. They also struggle to erect effective economic protections in the face of foreign trade partners dumping less expensive goods on their

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own domestic markets. By placing such tariffs on these foreign goods, they run the risk of increasing the prices of necessary products to levels which their own impoverished citizens simply can not afford at all.

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Trading Blocks Trading Blocks are pacts between various countries typically having a common geographical area. They form them for protections against non-member nations’ imports. These trading agreements are also a type of economic integration that has more and more impacted the global trade patterns and trends. A few different kinds of trading groups like these exist today. Preferential Trade Areas are the first and probably most common form. These PTA’s occur when countries of a common geographical area decide to eliminate or at least reduce the tariff barriers that exist on certain goods which they import from other nations in the PTA. This represents the first small but critical step in the development of full scale trading blocks. The next logical progression in the trading agreements development is to form a Free Trade Area. If two or still more nations within the region concur on eliminating or at least reducing the barriers to all trade on every good imported from the other members, they establish this second step in the chain. The third step forward is to establish a Customs Union. This means that all trade barriers and tariffs between the group members are canceled, and a unified external tariff policy against non members is placed. It allows the member states to negotiate trading deals with third parties as a single more powerful trading block. They can enter agreements this way with other trading blocks or even the World Trade Organization if they wish. Full economic integration begins to occur if the members of the trading block continue down the path towards its eventual logical conclusion. This leads them to a common market, the first major leap into economic integration. Member nations are now trading freely in every area of economics and resources, not only physical goods. It entails all services, labor, capital, and goods barriers being eliminated. They also work to reduce and finally eliminate any non-tariff barriers. The common markets are only truly successful when all micro economic policies and other rules are brought into harmony as well. These include anti-competition laws and anti-monopoly regulations. Some trading blocks at this stage also begin to implement key industry common policies, like the EU’s Common Fisheries Policy and Common Agricultural Policy. There are numerous advantages to members of a trading block once they are fully formulate and established in practice. Free trade within the block allows member states to specialize in areas of production in which they have the greatest comparative or absolute advantages. Trade increases between key members as they have improved access to one another’s national markets. Trade creation is the inevitable result. It refers to the phenomenon that free trade creates as more expensive domestic producers are outcompeted by more economically efficient and less expensive imports from other trading blocks members. Lower priced imports also mean a greater consumption effect and higher demand. Economies of scale allow the producers in these nations to benefit and apply the savings to lower pricing for their customers. More jobs are often created because of the higher and growing trade between the block members. Finally, companies within the block may have to be more efficient against their own block rivals, yet they do gain

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effective economic protection against less expensive imports out of non-block member based corporations. The EU shoe industry is a good example of this. They are economically protected by tariffs on cheaper shoe imports from Vietnam and China. There are some significant disadvantages of these trading blocks too. Trading blocks usually distort global trade by reducing the benefits of global specialization and comparative advantages of the world as a whole. Those producers which are less efficient than global competitors will be shielded from the outside of block more efficient ones. Trade is diverted away from the most efficient producing companies which are only guilty of being based outside of the trading block area.

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Traditional IRA The Traditional IRA is the most common type of the various individual retirement accounts available to savers for retirement. Besides this type of IRA, there are also SEP IRAs, Roth IRAs, and Self Directed IRAs. Each of these types of accounts has at least a few features in common with the original and still most popular plain IRA. These accounts are all particularly designed to help save, grow, and fund individuals’ retirements. They all permit investors to trade a variety of securities, such as stocks, mutual funds, ETFs, and bonds. Different from other kinds of brokerage and investment accounts, IRAs most importantly offer account holders tax benefits. The main difference between traditional IRAs and Roth IRAs centers on the way taxes are paid or deferred by the IRS rules. With a Roth IRA, owners pay taxes on contributions now. All gains that account holders make in the account then accrue tax free for the entire life of the retirement savings vehicle. The traditional forms of IRAs give holders the advantage of tax deferred contributions. This means that they will not have to pay any taxes on money contributed until they withdraw them later on at retirement time. All gains that they earn in the account over the life of the IRA will be taxable at the time they withdraw them. With all of these types of IRAs, the annual contribution limits remain the same. For tax year 2016, this amount is $5,500 for individual contributions or $11,000 for married individuals filing jointly. Catch up contributions are also the same in these various kinds of IRAs. When people reach age 50, they can make additional contributions amounting to $1,000 each year for an individual or $2,000 for married people filing jointly. This means that instead of adding $5,500 individually to the IRA for the year, an individual could contribute $6,500 per year once he or she turns 50. Similarly married individuals would be allowed to add $13,000 per year instead of $11,000 annually once they both reach age 50. Traditional IRAs do not feature any income limits while Roth IRAs do have these. People can be disqualified from making investments in their Roth IRAs if they earn too much money any given tax year. Single filers are only allowed to make less than $110,000 each year. Above this income, the contribution amount which the IRS allows tapers down until the income reaches $125,000. Once this income limit is reached, a Roth IRA contribution is disallowed for the tax year. With married filing jointly, the income maximum is higher. With under $173,000 earned for the year, the full $13,000 maximum contribution is permitted. This amount tapers off as the earnings rise to $183,000. Beyond these earnings, two individuals who are married are not allowed to utilize the Roth IRA in that particular tax year. IRAs are different from 401(k)s, the other popular retirement savings vehicle, in several critical ways. Traditional and the other forms of IRAs can only be set up and maintained by an individual acting on his or her own behalf. 401(k)s are retirement accounts that employers set up on behalf of their employees. Many employers make partially matching contributions to their employees’ 401(k) accounts.

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IRAs also commonly offer superior choices in different investment possibilities than do the more limited 401(k) plans. Self directed IRAs are allowed to invest in most any type of investment that is not considered to be a collectible item. This means that Self Directed IRAs are allowed to invest in franchises, real estate, precious metals, mortgages, energy, and other alternative investment ideas.

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Tranches Tranches refer to a French word that means a portion or a slice. In the world of investing, it relates to securities which may be subdivided into tinier parts and then sold off to various interested investors. These securities typically represent structured financing. Every part of the tranche is a portion of a few correlated securities that specific banks called investment banks offer all at once. Yet each of the tranches comes with its own set of rewards, risks, and maturities. MBS Mortgage backed securities are often represented in tranches. There are different types of these MBS. One of them is the CMO collateralized mortgage obligation. Such securities will be subdivided up according to their maturity dates. At this point, the offering firm will sell them to investors who buy them according to the maturity date they prefer. Looking at an example helps to clarify the concept as it pertains to CMOs. An investment bank might offer a tranche or several of them made up of mortgages. The maturity dates on these could vary according to twenty year, ten year, five year, two year, and single year maturities. Each of these would offer a range of returns versus risks. Every maturity would be its own tranche in this example. There are particular reasons why various investors would prefer different types. In one scenario, the investors might require shorter term cash flows yet not wish to have any in the longer term future. Still other investors might wish for longer term cash flow but not need it today. Because of these different needs from investors, investment banks might decide to split up their assets in the CMOs. They could assign them to different parts, or tranches. This way the former investor is able to obtain his initial cash flow from an underlying group of mortgages while the latter investor can obtain the later period cash flows. Thanks to the investment banks forming such tranches, the CMO securities which might not have attracted sufficient investor interest can acquire a new lease on life through a variety of investors with different needs. Tranches find a great deal of use in numerous mortgage pools which contain many different types of mortgages. There would usually be riskier loans in the pool that came with greater interest rates. At the same time, more conservative loans that come with lower interest rates will be in most pools. Every pool of mortgages will also possess its own maturity dates that bear on the reward to risk ratios. This is why the investment banks create these tranches into smaller pieces which each contain their own particular common set of financial characteristics that appeal to certain investor scenarios. For any investors who desire to put their capital to work in MBOs, they are able to select the specific tranche kind that will best suit their level of risk tolerance as well as their hoped- for return. Each of the tranches gets its ultimate value from the mortgage pools which underlie them. The investors who purchase these MBOs are allowed to hold them for longer term, smaller gains that come from the interest payments. They might also decide to attempt to sell them early on for a rapid profit. It is also possible to pursue a combination of strategies, trying to obtain slower steady income for a certain amount of time before selling them off at a profit. The monthly payments come from pieces of the total interest payments mortgage holders make each month (to their mortgage holder) within the given tranche. This is why those investors who purchase them will obtain a monthly cash flow from the specific MBO tranche in which they invest, so long as they

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hold on to the tranche.

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Trans Pacific Partnership (TPP) The Trans Pacific Partnership TPP represents a trade agreement that has been put together by twelve countries with borders on the Pacific Rim. Participants signed the final version of the deal in Auckland, New Zealand on February 4, 2016. This signing culminated the end of seven long years of negotiating the treaty. In order to enter into effect, the treaty must be ratified by the member states’ legislatures. This includes the U.S. Congress, where opposition to the treaty has been intense and bipartisan from many members of both parties. There are 30 different chapters to the Trans Pacific Partnership. Their goal is to encourage job creation and retention, economic growth, innovation, higher living standards, competitiveness and productivity, poverty reduction, better government and transparency, and better protection of the environment and labor. This TPP is made up of agreements that reduce tariff and non tariff barriers to trade. It also creates a means of resolving disputes through investor state settlement. Originally the Trans Pacific Partnership was born from the Trans Pacific Strategic Economic Partnership Agreement that Singapore, New Zealand, Chile, and Brunei signed back in 2005. Starting in 2008, other nations on the Pacific Rim began to discuss a wider arrangement. This included The United States, Vietnam, Peru, Mexico, Malaysia, Japan, Canada, and Australia. This increased the nations who were a part of the trade negotiations to 12 countries. Previously in force trade agreements of the countries participating will be amended to not conflict with the TPP. Deals that offer better free trade will still be in effect. The Obama administration looks at the TPP as a pair of treaties. Its twin is the still under discussion TTIP Transatlantic Trade and Investment Partnership between the European Union and the United States. The two deals are generally similar. The original goal of the talks was to conclude negotiations in the year 2012. The final deal stretched on for another three years because of conflicts over difficult issues like intellectual property, agriculture, investments, and services. The 12 nations at last came to an agreement on October 5, 2015. The U.S. Obama administration has made implementing this TPP one of its principle goals for trade. On November 5, 2015, President Obama announced to Congress he would sign the deal and released a public version of the treaty for any interested American individuals and organizations to review. The U.S. President along with the other 11 leaders all signed the TPP February 4, 2016. In order for the Trans Pacific Partnership to take effect, all of the signors have to ratify it within two years. In case it is not completely ratified by all parties in advance of the February 4, 2018 deadline, there is an alternative arrangement. It will become effective after minimally 6 signing countries with a combined GDP of greater than 85% of all the signing countries ratify it. This means that the U.S. must ratify if for it to ever take effect. Other countries may be able to join the trade block in the future. Countries that have shown an interest in joining include South Korea, India, Bangladesh, Cambodia, Indonesia, Laos, Thailand, Colombia, the Philippines, and Taiwan. South Korea did not get involved with the original 2006 agreement. The U.S. invited it to join after South Korea and America concluded their own free trade agreements. South Korea is likely to be the first country to join in a next wave expansion of the group. First it will have to work

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through TPP treaty issues in agriculture and vehicle manufacturing.

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Trans Union Trans Union turns out to be one of the three main credit reporting bureaus and information management services that are based in the United States. It delivers these services to around 500 million individual consumers and 45,000 distinct companies found throughout the globe in a significant 33 different countries. This makes it the third biggest credit bureau in the U.S. The firm’s larger and more powerful competitors are Experian and Equifax. This smallest of credit reporting bureaus also sells its credit report and related services directly to the people they are reporting on, the consumers. The firm is headquartered in Chicago, Illinois. It boasted 2014 revenues of $1.3 billion. The company Trans Union became established back in 1968 as a company with no relationship whatsoever to credit reporting or information gathering. It started out life as a holding company for an organization that leased railroads, the Union Tank Car Company. A year later, it bought out the Credit Bureau of Cook County. This firm owned and kept up files on 3.6 million credit cards. Chicago-based holding firm the Marmon Group later acquired Trans Union in 1981 in a purchase price valued at $688 million. The company continued operating unobtrusively until 2010 when Goldman Sachs Capital Partners working with Advent International bought it from Madison Dearborn Partners. The firm finally became a publicly traded corporation for the very first time on June 25, 2015 when it started trading on U.S. exchanges via the stock symbol TRU. As with its two principal rivals, Trans Union has transformed its business lines throughout the decades until it provided services and products pertaining to both consumers and businesses. In business, the company has morphed its fairly long standing credit score product into trending data which assists companies with forecasting the debt and repayment behavior and patterns of consumers. This cutting edged and technologically revolutionary service they call Credit Vision. They rolled it out in October of 2013. The company similarly has a proprietary service called SmartMove™ which assists consumers acting as landlords with background and credit checks. They also bought eScan Data Systems of Austin (Texas) back in September of 2013 in order to deliver to healthcare systems and hospitals after-service eligibility determinations. This impressive technology they integrated into their Clear IQ platform which tracks the insurance and demographically relevant information of patients in order to help with verifying the patients’ benefits. Trans Union became the first company back in 2014 to begin accepting monthly rent payment history data from landlords. The company investigated rent payment histories to determine that consumers’ credit scores would benefit from such a move. Resident Credit is their resulting system which makes it simple for property owners to offer up information on their tenants’ behalf to the credit reporting bureau every month. Consumers have access to the several Trans Union services which help to protect individuals from both identity and credit theft. These are credit monitoring and identity theft protection services. Credit Lock is their proprietary app which assists individuals in locking and unlocking their credit in order to better safeguard it from activity which turns out to be fraudulent.

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The company has been heavily criticized in recent years for hiding charges from consumers. A large number of customers who utilize their services have objected to not being made aware of a $17.95 per month fee for maintaining such a Trans Union account. The company was forced by a March 2015 settlement in conjunction with its two main rivals Equifax and Experian to agree to assisting consumers in finding red flags and mistakes on their credit reports.

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Transatlantic Trade Investment Partnership (TTIP) The Transatlantic Trade and Investment partnership represents a U.S. and European agreement for mutual trade and investment. In essence it is a free trade deal that the two economic superpowers are working to ratify. The two parties began the initiative in the June of 2013 G8 meeting. U.S. President Obama, European Commission President Barroso, and European Union Council President Van Rompuy introduced the idea and began working on the project. The goal of the TTIP is to encourage both trade and investment. Governments on both sides believe that this will result in more economic growth and jobs for citizens of both sides of the Atlantic Ocean. Negotiations have been complex and mostly held in secret. The U.S. side is headed by the USTR, or Office of the United States Trade Representative. The Europeans are led by the European Commission. This EC handles negotiations for all 28 EU member countries. TTIP turns out to be the largest and grandest vision for a trade agreement that has ever been attempted. This is because the United States and European Union economic blocks make up nearly fifty percent of the GDP of the entire world. The impacts on trade are expected to be substantial. Small to medium sized enterprises will gain several benefits in access to the new markets. They will have other countries to which they can export. They will also gain the ability to import input materials from other countries. It is anticipated they will have the ability to gain investments in their businesses at a cheaper, better price as well. Consumers are supposed to benefit also. Lower prices are expected in both economic blocks because of the reduced tariffs and increased competition. This will improve the purchasing power of residents on both sides of the Atlantic and also help to create more jobs. Twenty-four different chapters comprise the actual Transatlantic Trade and Investment Partnership. These have been divided into three principal topics. The topics are Market Access, Rules, and Regulatory Cooperation. Market Access pertains to opening up markets. The goal is to allow for improved competition. Besides this, the architects of the agreement are trying to make it easier for products to flow back and forth across the Atlantic. The rules section has to do with trade and investment. This area’s goal is to increase the fairness and ease of importing, exporting, and investing for American businesses in Europe and European businesses in America. Rules cover a number of different important concepts. These include Energy and Raw Materials, Sustainable Development, Small and Medium Sized Enterprises, Customs and Trade Facilitation, Competition, Investment Protection, Geographical Indications, Intellectual Property, and the Government to Government Dispute Settlements. The area of Regulatory Cooperation pertains to important regulation differences between the United States and the European Union. Both groups often have the same quality and safety levels that they insist on from specific goods. The problem is that each side employs its own procedures in considering the identical product. This imposes high costs on companies who produce the items. It can be prohibitively

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expensive for smaller to medium sized businesses. There have been a number of objections raised by protestors to this free trade agreement, particularly in Europe. Many individuals on both sides of the Atlantic oppose the secrecy that surrounds the negotiations. The protesters have concerns that interest groups are creating special rules for larger companies. The European labor markets are worried that their working conditions and benefits will suffer. Environmental groups are all concerned that environmental standards and safeties that are higher in Europe will be watered down as a result of the free trade initiative.

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Transfer of Interest A Transfer of Interest refers to an individual, business, or other organization choosing to transfer over its ownership in an asset or object. This could be a business entity, piece of Real Estate, or asset that the owner shifts to another party. Most commonly the term becomes utilized regarding the transferring of an entity’s ownership of an interest in a business. This could involve transfers between parties in a limited liability company, a partnership, a privately held sole proprietorship, or even a corporation. In the vast majority of cases, such a transfer occurs with a contract known as a transfer of interest agreement. In theory, any time individuals or businesses engage in a purchase, they are becoming party to a contract. Such contracts are actually making a Transfer of Interest in some form of real property in the vast majority of cases. As a concrete example, when an individual buys food off of a supermarket or produce stand, this literally represents an implied contract (evidenced by a receipt as proof of purchase). The end result is that the buyer becomes the transferring new owner of the food purchase. The same is true when people buy clothing from a department store. The ownership of the clothes becomes officially transferred by the contract which the store makes with the buyer when money changes hands in exchange for a receipt and the articles of clothing. Any type of Transfer of Interest is affected with whatever terms the two parties agree upon at the time of transfer. These could involve legal restrictions and stipulations on the kind of interest which they will transfer between them. The appropriate agreement only has to state clearly the interest which will be transferred, the parties who are involved, and the sum being delivered in consideration of the interest transfer. After the transaction intent is clearly stated by the actions and/or verbal promises of the two parties in question, the agreement will be officially concluded so that the transfer becomes finalized. Naturally the universe of Real Estate has its own highly evolved and carefully developed procedures for such an important Transfer of Interest. They commonly call this an assessable transfer of interest. It refers to the reality of taxation which goes along with tangible interest in and de facto ownership of Real Estate. These transfers mandate that the property will be appraised and fully re-evaluated in the tax year that follows the transfer. All transfers of Real Estate done either with a contract, trust, or deed will be treated as such by the taxing authorities in the relevant jurisdiction. Leases that last for more than 20 years also come under this requirement. The reason for such an evaluation of the property value is to be certain that the taxes are fairly and fully assessed on the Real Estate involved in the contractual transfer transaction. It is many times the same when there is a Transfer of Interest in a business accomplished through a sale. This event often produces an assessable event which will require a tax assessment to be done. When the business is at least 50 percent sold, this will commonly be required. When a business is instead forfeited or foreclosed on and the change of status does not lead to an income tax event, then this is an exception to the tax assessment rule. When a transfer occurs among an affiliated group’s members, this is also an applicable exception to the assessment case. There are often these substantial tax ramifications to such a transfer of a business that the government will usually require that the business value be reassessed following the execution of the business transfer transaction in question.

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Treasuries Treasuries refer to United States Treasury Securities. These Treasuries are United States government debt that is actually issued and sold by the Department of the Treasury via the Bureau of Public Debt. The U.S. government uses its Treasury securities to finance the enormous and rising debt of the Federal government. In common and investor vernacular, these treasury securities are commonly simply called Treasuries. Four different kinds of treasury securities exist. These are Treasury notes, Treasury bills, Treasury bonds, and TIPS, or Treasury Inflation Protected Securities. Other types of treasury securities are not marketed. These are comprised of savings bonds, Government Account Series debt given to trust funds that the government manages, and SLGS, or State and Local Government Series. The former marketable Treasury securities prove to be extremely liquid and also are traded significantly on the secondary market. The latter mentioned non marketable Treasury securities are only sold to subscribers. They may not be transferred back and forth via market sales. The vast majority of U.S. Treasuries are actually held by other countries. As of January 2010, the top five largest holders of American Treasuries turn out to be China with $889 billion, Japan with $765.4 billion, the combined oil exporting nations with $218.4 billion, the United Kingdom with $206 billion, and Brazil with $169.1 billion. China and Japan combined hold an enormous $1.6 trillion worth of U.S. Treasuries. These and other foreign countries have become such a large component of U.S. Treasuries debt purchases that many economists have grown afraid. They fear that since foreign nations now account for such a great percentage of U.S. Treasuries that should they decide to stop purchasing them, the U.S. debt and economy might simply collapse. The possibility that this is true has caused many observers to believe that the two economies of the United States and China are inextricably linked. Both countries are afraid of what would happen if the Chinese slowed their purchases of U.S. Treasuries. When Hillary Clinton, the U.S. Secretary of State, visited China earlier in 2010, she insisted that Beijing monetary authorities keep buying United States Treasuries. Her argument centered on the hope that this will pump the American economy back up, which would stimulate Chinese goods’ imports back home. China has demonstrated its frustration over the possible decline in value of its U.S. Treasuries holdings too. The Chinese Premier Wen Jia Bao has expressed concern and a warning that the Chinese holdings of U.S. Treasuries could be downgraded and devalued if Washington can not get its runaway debt under controlled.

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Treasury Bills Treasury Bills prove to be among the largest category of United States issued Treasuries. They are also called T-Bills for short. Treasury Bills have maturities of a year or less. They never pay investors interest before they mature, making them somewhat like zero coupon bonds. The government instead sells Treasury Bills at a face value discount, which causes there to be a positive yield to maturity. Numerous economists and ratings agency consider Treasury bills to be the lowest risk investments that American and foreign investors can purchase. T-bills come issued with varying maturity dates. These typical forms of weekly Treasuries can have four week maturity dates, thirteen week maturity dates, twenty-six week maturity dates, and fifty-two week maturity dates. Every week, the government runs single price auctions for its Treasury bills. The quantity of thirteen week and twenty-six week Treasury bills available for purchase at auction are actually announced every Thursday. They are then offered on Monday and issued on the next Thursday. Four week T-bill quantities get announced Mondays for next day auctions. The bills become issued on Thursday. Fifty-two week bills become announced only on the fourth Thursday, to be auctioned the following Tuesday and issued that Thursday. Associated purchase orders have to be received before 11 AM on Monday auctions at Treasury Direct. Minimum purchases for these T-bills are a reasonable $100, marked down from the former $1,000 minimum. The Treasury redeems T-bills that mature every Thursday. The biggest buyers of T-bills prove to be financial institutions such as banks, and primary dealers in particular. These Treasuries in their individual issue all get one of a kind CUSIP numbers. Sometimes the Treasury cash balances are lower than usual. At these times, the Treasury often opts to sell CMB’s, or cash management bills. They sell these in much the same way as T-bills, at auction with a discount. Their main difference lies in their irregular amounts and shorter terms of fewer than twenty-one days. They also possess different week days for auction, issue, and maturity. As these CMB’s mature on the identical week day as typical T-bills, commonly Thursdays, they are termed on cycle. When they instead reach maturity on another day, they are known as off cycle. Treasury bills are regularly sold on the secondary market too. Here, they are both quoted and sold via annual discount percentages, known as a basis. The secondary market trades these T-bills heavily. The Treasury has modernized its means of offering T-bills to investors recently. Treasury Direct is their means of selling T-bills over the Internet, so that funds can be taken out and then deposited straight to the individuals’ bank accounts. This permits investors to make better rates of interest on their savings than with simple bank account interest.

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Treasury Inflation Protected Securities (TIPS) Treasury Inflation Protected Securities (TIPS) are a unique and useful form of Treasury issued securities. What makes them special is their expressed and close linkage to inflation levels in their coupon payments. They are set up this way to safeguard investors from the interest destroying impacts of inflation. TIPS prove to be lower risk investments because they enjoy the expressed and unlimited backing of the U.S. government. Besides this, their par value increases at the same pace as the official rate of inflation as depicted by the CPI Consumer Price Index. The interest rate itself stays fixed with these investments. The interest earned by these Treasury Inflation Protected Securities pays out twice a year on the same fixed dates. TIPS may be bought directly off of the U.S. government by utilizing the Treasury Direct system. This allows for simple $100 increment purchases of the TIPS in a minimum of only $100 order size. They can be obtained from the site with 30 year, 10 year, and 5 year maturity date options. Unfortunately for the Treasury Inflation Protected Securities holders, the inflation adjustments of the TIPS bonds fall under the IRS definition of taxable income. This is the case despite the fact that investors do not realize any of those inflation adjusted gains until the point where the bonds mature or they sell out their holdings. Because of this, some investors opt to obtain their TIPS exposure by utilizing a TIPS mutual fund or ETF. Otherwise, they could simply buy and hold them within tax deferred retirement accounts like IRAs. This would save them the tax headaches of having to pay the IRS now on money they will not obtain for possibly years or even decades. On the other hand, buying TIPS directly means that investors sidestep the costs and fees applied by mutual funds and even ETFs. TIPS bought directly also feature complete exemption from the double or even triple taxation of local income and state income taxes which some investors must pay, depending on where they reside. Residents of Puerto Rico do not have to pay any federal income taxes on these inflation adjusted gains or interest payments because of the Commonwealth’s completely unique status which it enjoys within the U.S. If investors purchased $1,000 worth of TIPS and held them through year end and received one percent coupon rates while there was no CPI measured inflation within the United States, the investors could count on obtaining $10 payments for the entire year in interest payments. Assuming inflation increases by two percent, the principal of the bond would increase by two percent or in this specific instance by $20, to reach a total value of $1,020. The coupon rate would remain locked at one percent, yet it would apply to the entire new principal amount of $1,020 to help the holder receive interest payments of $10.20. In the extremely unlikely event that deflation reared itself, the bonds would similarly decline in total face value. Should the CPI decline by three percent, the principle would drop by three percent, or $30, resulting in a new par face value of $970 on the formerly $1,000 Treasury bond. This would reduce that next year’s interest coupon payments total to $9.70. When the bonds mature, investors would then get the principal equity which equated either to the $1,000 original par face value, or an applicably higher adjusted principal based on the CPI adjustments higher.

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Interest payments throughout the life of the bond will be calculated from the principal amount as it rises or falls. This does not apply to the downside if the investors hold their TIPS until they reach maturity. Investors who do not wish to hold their TIPS until this interval can choose to receive a lower amount of principal than the par face value by selling their investment via the secondary bonds market if they so desire.

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Troubled Asset Relief Program (TARP) The Troubled Asset Relief Program is also known by its clever acronym the TARP. This represented a series of national relief programs which the United States Treasury Department developed and administered. They did this to attempt to restore stability to the American financial system, to rebuild economic stability and growth, and to forestall housing foreclosures after the 2008 Global Financial Crisis and Great Recession wrecked the national and Western portion of the global economy. The idea was to buy up threatened firms’ equity and toxic assets so that they could continue to operate and make loans. In the first round, the Troubled Asset Relief Program provided Treasury with an mind boggling $700 billion of purchasing ability with which to purchase the dubious and at that point entirely illiquid MBS mortgage-backed securities as well as additional assets. They were to buy these from systemically important banks and financial institutions with an eye on rebuilding the shattered liquidity of the stricken money markets. It was the congressionally approved Emergency Economic Stabilization Act they passed on October 3rd in 2008 which allowed them to develop the program. With the Dodd-Frank Act for banking reforms, the Congress reduced their $700 billion amount of authorization down to a stillimpressive $475 billion. The series of events that led to this de facto bank bailout originated from the freeze up of the worldwide credit markets that ground to a screeching halt in September of 2008. This became worse as a few of the systemically important financial institutions like American International Group, and the GSE government sponsored enterprises Freddie Mac and Fannie Mae became victims of intense financial trouble. Lehman Brothers’ went bankrupt which nearly overthrew the global financial system. At the same time Goldman Sachs and Morgan Stanley altered their charters to evolve into commercial banks which provided them with the backing of the FDIC Federal Deposit Insurance Corporation. This did stabilize the attacks on their two market capitalizations and shore up their capital positions, though it required some time to have effect. It was with the Troubled Asset Relief Program that the government through the U.S. Treasury was finally able to buy up the root of the crisis, the Mortgage-backed securities. In decreasing the possible unknown toxic asset losses from the financial institutions which held them, they saved the banking system in not only the United States but likely the entire Western world. Critics of the Troubled Asset Relief Program called it the largest bank bailout scheme in the history of the world. Without these cash infusions into the important national banks throughout the U.S. though, they would have been unable to continue operating at all. When the program had successfully stabilized the banking system and the too big too fail, systemically all-important banks, and the market had sufficiently calmed down, TARP was allowed to expire on October 3rd of 2010. Treasury utilized the TARP funds wisely and well. They deployed some of them to make loans, others to invest in companies in need of cash infusions, and still more to guarantee toxic assets like the MBS. They received bonds or shares off of the collapsing financial companies and banks in consideration for this accommodation. The first program was known as the Capital Repurchase Program. In this initiative, Treasury purchased preferred shares of stock in eight major banks. These included Citigroup, Bank of

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America/Merrill Lynch, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, Wells Fargo, J.P. Morgan Chase, and State Street Bank. The banks had to provide the government with a full five percent dividend return which had to increase to nine percent in 2013. This gave the banks huge incentive to purchase back their own stock from Treasury before the conclusion of the five year windows. Then-Treasury Secretary Hank Paulson understood the government would make money off of the program in the end as he believed the stock prices of the banks would rebound at least somewhat by or before 2013. Four other groups and entities would have collapsed without additional help from the Troubled Asset Relief Program and Treasury. Each of these received either direct cash infusions via preferred stock purchases or loans. AIG (the largest insurance company in the world) received $40 billion. Various community banks obtained a collective $92 billion. A number of these did fail in spite of this help. The American Big Three car makers got $80.7 billion collectively. Bank of America and Citigroup also received an additional $45 billion between them. TARP also loaned out $20 billion to the sister TALF program which the Federal Reserve managed. Though critics heavily maligned the government for saving the banking system and national banks, the bailout did not cost the government anything by the time it had been concluded. In fact, by May of 2016, the banks had paid the government back all of their principal (collectively, despite some failing anyway) plus $25 billion in profits for a total repayment of $275.04 billion.

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Trust Fund A trust fund proves to be a specific kind of legal entity. It contains property or cash which it holds to benefit another group, individual, or organization. Numerous different kinds of trusts exist. They are governed by almost as many provisions that determine how they work. Every trust fund involves three critical parties. These are the grantor, the beneficiary, and the trustee. A grantor is the individual responsible for creating the trust fund. Grantors can do this with a variety of assets. They might give stocks, bonds, cash, mutual funds, real estate, private businesses, art, or other items of value to the fund. They also determine the terms by which the trustee will manage the fund. Beneficiaries are the individuals who receive the benefit of the fund. The grantor sets it up on their behalf. The assets the grantor places inside of the trust fund are not the property of the beneficiary. The trustee oversees them so that the financial gain benefits this individual according to the rules laid out by the grantor at the time he or she establishes it. Trustees are the managers of these funds. They could be an institution like a the trust department of a bank, an individual, or a number of trusted advisors. Their job is to make sure that the fund fulfills its duties spelled out by the governing law in the trust documents. Trustees typically receive small management fees. The trustee could manage the assets directly if the trust specifies this. In other cases, trustees have to pick out investment advisors who are qualified to manage money. Trust funds come to life under the rules of the state legislature where the trust originates. Different states offer advantages to certain types of trusts. This depends on what the grantor wants to do by establishing the fund. This is why attorneys help to draft the trust documents to make sure they are correct and most advantageous. As an example, there are states which allow perpetual trusts that can continue forever. Other states make these illegal because they do now want to enfranchise a class of future generations who receive substantial wealth for which they did not work. Special clauses may be inserted into these trusts. Among the most heavily used is the spendthrift provision. This keeps the beneficiary from accessing the fund assets to pay debts. It also allows parents to ensure that any irresponsible children they have do not find themselves destitute or homeless despite poor decisions they may make. Trust funds provide a large number of benefits. They receive special protection from creditors. They ensure that family members follow wills after the grantor passes away. These trusts also help estates to avoid as many estate taxes as possible so that wealth can reach a greater number of generations. Trusts can be an ideal way to ensure the continuity of a business. Sometimes business owners wish to protect a company and their employees after they die. They might still wish for the profits to benefit their heirs. In this case, the trustee would oversee the management of the business while the heirs reaped the financial rewards but could not break up or ruin the company through mismanagement. Trusts can also be used with life insurance to transfer significant amounts of money which will benefit the heirs. A small trust could purchase a grantor life insurance. When the grantor dies, the insurance money

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funds the trust. The trustee will then buy investments and give the rents, interest, and dividends to the beneficiaries.

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Trustee Savings Bank (TSB) Trustee Savings Bank refers to a now defunct type of British financial institution. It is also known by its acronym TSB. These banks began as savings deposit institutions for those who had only meager financial means. The shares of these banks were not stock market exchange traded. Rather they were something like the mutually owned building societies of Great Britain. A key difference between the two types of financial institutions was that the depositors of the TSB’s did not have any voting rights or ability to direct the organization’s managerial or financial goals and direction. In consequence for a lack of owner-voting rights, the boards of directors for the Trustee Savings Banks were appointed as volunteer basis trustees. This explains where the name for the TSB’s came from in the first place. Reverend Henry Duncan from Ruthwell in Dumfriesshire established Britain’s very first TSB in Scotland. He set this up to help out his poorest members of the congregation in 1810. The only reason for the organization lay in serving the local community members. During the inter-war years a hundred years later, the Trustee Savings Bank model demonstrated that it could effectively compete throughout the retail banking model market with the major commercial banks and building societies throughout the nation. At one point by 1919, these types of financial institutions counted an impressive 100 million British pounds in combined deposits and assets. This amount reached 162 million pounds by 1929 and an incredible 292 million pounds at the outbreak of the Second World War in 1939. Despite enjoying two centuries of success and growth as independent institutions, the Trustee Savings Banks became combined into one financial institution called the TSB Group plc from the years 1970 to 1985. Their stock traded on the famed London Stock Exchange until 1995 when the group merged with the Lloyds Bank to become the enormous conglomeration Lloyds TSB. At that moment, the new Lloyds TSB combined unit represented the largest bank in the United Kingdom by market share. It was second only to HSBC by market capitalization, as HSBC has absorbed Midland Bank in 1992. The group which now represented the legacy of the Trustee Savings Banks expanded again in 2009 with the acquisition of the HBOS Halifax Bank of Scotland group. Its name changed again to the Lloyds Banking Group at this point. The TSB name was not lost, as the primary retail banking subsidiaries were Lloyds TSB Bank and Lloyds TSB Scotland. Lloyds again resurrected the TSB name and brand when it divested the 632 branches from Scotland, Gloucester, Cheltenham, and some of the Welsh and English Lloyds TSB bank branches into the TSB Bank plc. The new operation came into being on September of 2013 and underwent an IPO initial public offering during 2014. The rest of the Lloyds Banking Group changed its name back to Lloyds Bank. This spin off happened because the Lloyd’s Banking Group had to be bank rescued by Her Majesty’s Government. Thanks to the 43.4% government stake in the group as a result of the Global Financial Crisis, European Union state aid rules required that it spin off a portion of the business. Trustee Savings Bank plc did not continue for long as an independent entity. It began life in 2013 with a national network of 631 bank branches throughout especially Scotland, and also England and Wales. They counted over 4.6 million customers as well as more than 20 billion British pounds worth of

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customer deposits and loans. The group had its headquarters in Edinburgh, Scotland. As the reestablished TSB, the group had a listing on the London Stock Exchange and remained a member of the FTSE 250 index of British based companies until it received and accepted a takeover bid from Spanish-based bank Sabadell. Sabadell made its offer for TSB Bank in March of 2015 and completed the acquisition of the last remaining Trustee Savings Bank on July 8, 2015. TSB Bank still operates as a wholly owned subsidiary of Sabadell, so the TSB brand name remains.

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Tulip Mania Tulip Mania refers to the very first recorded massive financial bubble in the world. In what today sounds like a crazy fascination, the Dutch people became obsessed with the unusual flowers in the 1600s. Over a period of several years, practically everyone got in on the craze of purchasing these flowers’ bulbs for every increasingly higher prices. They reached a price level not seen before or since in world history as a result. At one point during the mania, the average cost for one tulip flower was greater than the yearly wages of a skilled laborer at 4,000 florins (Netherlands currency in that day and age). Dutch Tulip Mania is a classic, textbook example of the various stages in the bubble cycle. In these bubbles, investors get so caught up in the experience that they become irrational with their expectations as the bubble inflates. These psychological and mental biases towards the asset in question cause a stratospheric rise in the price of the sector or asset. Continuously positive feedback allows for the prices to keep rising. One day, investors wake up to realize that all they are holding is a tulip, for which they sold their houses to purchase. Prices then start falling and plunge (in only a week in this specific case) as the sell off gets crazy. Investors are proverbially trampling over each other in a mad and desperate dash for the exits. Many buyers who participated in the mania bubble then go bankrupt, losing everything. In some cases, like with this first bubble, families are ruined for literally generations. As ridiculous as this at first may sound, the dot com bubble was practically the same type of crazed fascination as the Tulip Mania. Tulip Mania was also called the Tulip Craze and the Dutch Tulpenwindhandel. This seventeenth century speculative craze gripped all of Holland at the time. It centered around the buying and selling of tulip bulbs. These unusual flowers became introduced from Ottoman Imperial Turkey to Europe as the Sultan gave a gift of Tulip bulbs to Vienna just after 1550. The intensely beautiful colored flowers soon evolved into a highly desirable and very expensive item. It took no time for the demand on a wide variety of these delicately colored flowers to massively outpace the available supply. As a result of this early interaction of supply and demand principles, the price levels for single tulip bulbs of rarer variants started to soar to ridiculous heights throughout Northern Europe. In the year 1610, only one bulb of a newer variety of Tulips would be cheerfully accepted in token as a bridal dowry. As an example of the value individuals and business people were attaching to them, a flourishing French beer brewery was traded for a single Tulipe Brasserie bulb. Yet this was still only the early stages of the Tulip Mania. The Tulip Mania soared to its biggest heights in Holland from the years 1633 to 1637. Up to the year 1633, the tulip trade had been generally limited to only professional experts and agriculturalists. Yet the continuously increasing prices led a major number of regular poor and middle class working families to engage in speculation on the tulip market. People of all income levels mortgaged their industries, businesses, estates, and houses against Tulip bulbs which they purchased with the intent of selling them again at even loftier prices. In many cases during those five years, there would be sales and re-sales of the bulbs countless times before the bulbs ever even came out of the ground. Because tulip bulbs only appear from June through

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September, the enterprising Dutch invented an early version of the derivatives market to continue the trade year round. This was much like the current day futures and options on futures contracts. The Dutch traders would sign their contracts for future Tulip bulbs in front of a notary. The tulip contract market finally grew into a critical component of the booming bubble into which the Dutch Tulip trade evolved. In early 1637, a trader failed to appear to complete his tulip bulb transaction at the price of a house. Doubts immediately arose regarding the sustainability of the then-current prices and ongoing future increases. Literally within a week and nearly overnight, the entire pricing model of Tulips crashed. Entire fortunes were burned to ashes in days. Many regular Dutch families lived the rest of their lives in financial ruin and even poverty as a result of this most serious Tulip Mania and first major market bubble.

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Turtle Trading System The Turtle Trading System proved to be a classic system that followed trends. It works by trading on breakouts much like those used in the Donchian Dual Channel System. In this particular method of trading, two breakout figures are important. The first is a longer 55 day channel breakout point to enter the trade.The second one is a shorter 20 day channel breakout point to exit the position. If the prior trade turned out to be a losing one, then the system employs a dual length method of entering the trade using the shorter 20 day chancel breakout entry point. Stop losses in the Turtle system are set based upon the ATR Average True Range. This system at first proved to be a secret. In the late 1970s and early 1980s, bits and pieces of classical successful trading systems pioneered by legendary traders Richard Donchian, Jesse Livermore, and Darvas were taken and cleverly combined into what became known as the Secret Turtles Trading System and Rules. It was Richard Dennis who actually took the new system and created a challenge and test. He wanted to prove that regular individual people could become successful traders if only they had a successful system to follow in trading stocks. He created a class of 14 individuals in 1983 to put this to the test. Richard Dennis gathered together these 14 regular people who had no stocks or commodities trading experience before joining his mentorship program. He taught them and trained them in the rules of the highly secretive system and program. The class of new traders was then given individual actual dollar accounts so they could trade. For the next year they traded according to the Turtles Trading Breakout System to prove the point that any people could make money trading if they had the right instructions and a proven system to devotedly follow. At the end of that first year, the experiment demonstrated that the 14 traders had returns which averaged 80%. Years later after the experiment and program had ended, one of the first Turtles revealed the secrets of the system. Curtis Faith proved to be an original 1983 class Turtle Trader and he unveiled the now not so secret Turtle Trading Rules to Wall Street and general investors on his site www.OriginalTurtles.org. This is how it came out that the system utilized trend following in its proven approach. It was this website that at last shared the rules of the Turtles Trading System with the world. The rules fell under four main sections of theories for highly profitable trading. The first one was position sizing. This taught would be traders how to know the right amount to buy and sell in a particular trade. The second set of rules pertained to entry points. They showed traders the best way to know how to time trades. They taught the method for knowing when and at what price level to get into the trade in the first place. The third group of instructions gave details on how to set stop loss levels. No mater how many successful trades the system provides, it must manage its losses. No system is right all of the time. This is why it is

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critical to have price levels at which to takes losses and exit out of a losing position. Finally the system had a section of rules on profitable exit points. Winning positions could not be left to run forever. A point came when it was the optimal time for traders to take their profits. These rules set out the right price levels to cash out of winning positions. Both stop loss and profitable exit points were based on formulas that worked off of the Average True Range.

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Tyco International Scandal The Tyco International scandal refers to the 2002 theft by former company CEO and Chairman Dennis Kozlowski and former corporate Chief Financial Officer Mark Swartz of as much as $600 million from the firm. The scandal turned into a long, drawn out trial as the two accused men vigorously denied any wrongdoing and fought the charges vehemently. In their march 2004 trial, they argued strenuously that the then-board of directors of Tyco had authorized the principle questionable $150 million they had received as compensation for services rendered. The trial ended in mistrial and a retrial occurred in 2005. At this second trial, they were both declared guilty of more than 30 individual corporate violations. The first trial ended in mistrial because of a suspicious incident that happened during the final jury deliberations. Ruth Jordan a juror made an “okay” sign on the defense table as she passed through the courtroom. While she insisted that had not been the gesture she made, the publicity of incident by the Wall Street Journal led many people to believe it had been a set up for the defendants. The presiding Judge Michael Obus declared a mistrial over the incident on April 4th of 2004. In the June 17th jury verdict of the second trial on the Tyco International scandal in 2005, the pair Kozlowski and Swartz received convictions on every one but a single one of the over 30 counts leveled against them. The verdicts brought possible jail times of as many as 25 years in state level incarceration. Kozlowski received a minimum of eight years and four months of jail time with a maximum sentence of 25 years possible. Swartz experienced the exact same sentence for his role in the Tyco International scandal. A class action lawsuit followed the Tyco International scandal criminal trial with a verdict handed down by Federal District Court Judge Paul Barbadoro in May of 2007. Tyco consented to pay out $2.92 billion to a class of the cheated shareholders. Their corporate auditors Pricewaterhouse Coopers also agreed to pay $225 million in damages to the injured investors. January 17, 2014 saw Kozlowski received his parole from the Lincoln Correctional Jail in New York City. This did not change the fact that the two men had to pay an enormous amount of money back in restitution and fines for the benefit of the thousands of injured share holders who suffered from the Tyco International scandal. State Supreme Court Judge Michael Obus had mandated that Kozlowski and Swartz repay $134 million as restitution and forfeit another $70 million in fines from Kozlowski and an additional $35 million in fines from Swartz. The executives had only made their guilt seem more obvious by the ridiculously extravagant lifestyle which they had lived during the years when they supposedly absconded with the up to $600 million from the international giant’s corporate treasury. Kozlowski had thrown an unbelievably lavish international toga birthday party for his wife on a rented Mediterranean island for an eye watering $2 million. They had also maintained an $18 million apartment together in Manhattan that came complete with a $6,000 shower curtain. Their counts on which they were convicted included the full gamut of corporate theft and deception. These were such well known corporate crimes as grand larceny, securities fraud, falsifying business records, and conspiracy. The two corporate officers were only the latest executives and examples caught

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up in a wave of company scandals that rocked corporate United States’ companies and sullied their reputations with the enraged public. Thousands of individual middle class Americans and their families had either lost their means of employment or their entire retirement life savings in the corporate thefts, scandals, and frauds. Among these were WorldCom, Adelphia Communications Corp, and Enron. Former Chairman Bernard Ebbers of WorldCom received as much as a 25 year prison term for his $11 billion worth of accounting fraud which caused the MCI Inc. telecommunications firm to fall apart. Founder of Adelphia Communications Corp John Rigas received a 15 year jail sentence for his part in fraud and looting of the treasury at the mega cable TV corporation. Former finance chief and son Timothy Rigas similarly received 20 years jail time for his complicity in the affair. Enron Corporation one-time CEO Jeffrey Skilling, founder Kenneth Lay, and lead accountant Richard Causey also went to trial and received lengthy prison terms. Kenneth Lay died of a heart attack before he could begin to serve out his sentence. The Tyco defendants and their attorneys were quick to mention that unlike the fraud and theft at Enron and WorldCom, Tyco managed to thrive and prosper following their clients’ scandal and alleged theft of the up to $600 million.

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U.S. Treasury Bonds U.S. Treasury bonds are bonds that the United States government issues so that it is capable of paying for Federal government projects. When a person or business purchases a Treasury bond, they are actually loaning the Federal government money. Like with all loans, the principal is paid back along with a set rate of interest. Treasury bonds carry the full faith and credit guarantee of the United States government. This translates to them having very low risk, as the government is always able to print extra money to repay the loan. Another benefit to U.S. Treasury bonds lies in their being tax exempt from local and state taxes. You would still have to pay Federal taxes on all money that you make in interest. The primary market is where the government markets its Treasury bonds through auctions. You might also buy them on the secondary market using a broker. While the government does not charge fees for partaking in their auctions, brokers likely will expect to receive fees for selling you a U.S. Treasury bond. The Treasury bonds are marketable securities since you are able to sell or buy them once you have obtained them initially. They are considered to be extremely liquid too, since the secondary market for them is very active. The prices for Treasury bonds both at auction and via the secondary market are set by their interest rates. Today’s Treasury bonds can not be called back by the government before maturity, which means that you continue to receive interest until they mature. Treasury bonds are not without their downsides. Should interest rates rise while you have a Treasury bond, then your money will be making lower interest than it might in another investment. If the interest rates were to increase, then the bond’s resale price would also go down. Inflation that goes up also cuts into the Treasury bonds’ interest that they pay. With practically no risk of the U.S. government defaulting on these bonds, Treasury bonds pay a low return on investment, so higher inflation rates will wipe out all or most of the interest profits as they lower the real worth of the principal and interest repayments. If you are interested in becoming involved in government auctions to buy the Treasury bonds straight from the Federal Reserve Bank, then you can do so. Simply open a Treasury Direct Account. The government does not charge fees for such an account until it has in excess of $100,000. For these larger accounts, they collect tiny maintenance fees. Besides Treasury bonds, the government also sells two other kinds of securities. These are Treasury bills and Treasury notes. Treasury bonds are distinguished from these other two types by their length of time till maturity. Treasury bonds do not mature until from twenty years to thirty years elapse. They do make coupon payments of principal and interest in every six month period, like with Treasury notes. Thirty years maturities prove to be more common than do the twenty year maturities with these Treasury bonds.

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UBS UBS is one of the major Swiss and international banking giants. The group is a global firm that has its headquarters in both Zurich and Basel. The bank offers a variety of financial services to corporate, private, and institutional customers. The bank recently celebrated its 150 year anniversary in 2012. The UBS Group has a presence in every major financial center of the world. They maintain offices in more than fifty different nations. The bank employs around 60,000 individuals in these global locations. Around a third of the bank staff work in the Americas. Switzerland is home to 35% of its employees. Eighteen percent of them work in the Europe, Middle East, and Africa region, while 13% of the group’s staff are located in Asia Pacific. In 150 years time, UBS has merged with and acquired in excess of 300 different banks. The long history of the bank helps to explain why it has evolved into a gold standard in the international banking sector and remains a cornerstone of the legendary tradition of Swiss banking. In Switzerland today, the country operates approximately 300 branches and maintains 4,500 employees. They serve one out of three households and reach 80% of all Swiss wealth. The bank also provides accounts and services to 120,000 companies and 80% of the banks that call Switzerland their home market. The bank prides itself on the financial products and services it delivers to its corporate, wealthy, and institutional clients around the globe and to Switzerland. Besides its Corporate Center, the bank operates in five principle divisions. These are Wealth Management, Wealth Management Americas, Asset Management, Personal and Corporate Banking, and the Investment Bank. They focus all of their endeavors in the business areas in which they excel. Because of this, they have significant and competitive positions in each of their markets. The UBS Wealth Management business offers advice to the bank’s global wealthy clients besides those in its Americas’ group. The group offers its clients many solutions. These include investment management, wealth planning, lending and banking services, advice for corporate finance, and special offerings. Among the foremost wealth managers in the Americas is the group’s Wealth Management Americas. They measure this based on the invested assets and productivity of their financial advisors. The subdivisions include Canadian Wealth Management and U.S. Wealth Management businesses along with any international business that books within the United States. This business serves high net worth and ultra high net worth clients. The UBS Asset Management operates in 22 different nations. It provides a range of investment styles and capabilities in both traditional and alternative classes of assets. These provide these offerings to global wealth management customers, wholesale intermediaries, and institutions. This group is the biggest mutual fund manager in Switzerland, a foremost European fund house, Asia’s biggest international asset manager, and among the biggest managers of real estate on earth.

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The UBS Personal and Corporate Banking business delivers a wide host of financial services and products to the institutional, corporate, and private customers who reside in Switzerland. It is a leader in this market. This business is key to their universal bank model in the country. It refers its clients to the Wealth Management business after it helps them to reach a certain level of assets. The group’s investment bank delivers services to its institutional, corporate, and wealth management customers. It offers them creative solutions, expert and professional advice, competitive execution, and all inclusive access to the world’s global capital markets. In 2015, the group boasted revenues of 30.6 billion Swiss francs and operating profit of 5.5 billion Swiss francs.

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Ultra High Net Worth Individuals Contrary to what many people may think, it does not require the enormous cash or assets equivalent of a billion U.S. dollars to be counted on the list of Ultra High Net Worth Individuals. Instead, the designation covers those people who claim a net worth of minimally $50 million. There are approximately 123,838 Ultra High Net Worth Individuals living in the world as of 2015. Billionaires are a more exclusive club within the UHNW category. As of 2014, the UBS world billionaire survey counted 2,325 billionaires throughout the globe. These individuals possessed a combined total net worth of approximately $7.3 trillion. The billionaires comprised slightly more than 1% of the world’s population, yet controlled 24% of all the UHNWI wealth in total. The problem with correctly determining an exact number of Ultra High Net Worth Individuals is that data is not equally reliable in all countries and regions of the globe. Some billionaire and even millionaire families are unhelpful and unwilling to divulge their personal financial information to researchers who are investigating the subject. Tax returns do not completely divulge the picture of who controls what assets because of the labyrinth in various arrangements for wealth ownership. Because of this, the researchers generally focus on net assets like Forbes magazine reports in its global wealth lists. Data on such assets as private collections, real estate, and luxury items like costly yachts and private jets can not always be obtained or often is not accurately assessed. This is true for personal debt as well. Other measurements of global wealth involve smaller amounts of dollars than the Ultra High Net Worth Individuals composition. To hold a spot on the list of top 10% of international wealth holders, individuals require net assets totaling around $71,000 as of 2012. Around $710,000 proved to be enough dollars to hold a place on the list of the world’s top 1% of wealth owners that same year. This upper 1% group by itself controls approximately 46% of all wealth in the world. This means that around 70 million individuals own nearly half of all the net wealth on earth. Though the numbers are shifting significantly with the rise of Asia and in particular China, North America still dominates the regions for number of Ultra High Net Worth Individuals. Of the 123,838 UHNW in the world, around half of them, or 61,306, reside in North America. Unsurprisingly, the majority of these live in the United States. The U.S. is home to the largest numbers of UHNWI in the world. Thanks to its long term rapidly expanding economy, China has secured the coveted second spot for countries with around 9,555 such UHNWI living there. As far as the rest of the Ultra High Net Worth Individuals go, 29,921 of them live in Europe, 15,293 call Asia Pacific their home; 3,999 reside in Latin America; 2,082 live in India; and only 1,051 of them are from Africa. This last statistic is unsurprising as Africa remains by far the poorest region of the world, with most of its countries today still mired in poverty and trapped in sub-standard living conditions. People who do not make the list for Ultra High Net Worth Individuals may still qualify for another impressive designation referred to by global banks and financial institutions as High Net Worth Individuals. Banks and investment firms typically classify individuals whose net assets exceed $1 million

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as High Net Worth Individuals.

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Underlying Assets Underlying assets refer to any asset or valuable commodity which determines the value of a derivative based upon the asset. This term is frequently and importantly utilized to discuss derivatives trading. Options are a good example of this. Derivatives themselves prove to be financial instruments that investors trade. Their price is derived from the asset that underlies them. This underlying asset will be the investible instrument like an individual stock, a stock market index, a currency or currency pair, a commodity, or futures. The price of the derivatives will be based upon these. Options for a given stock provides the holder of the option with the right (but not the obligation) to purchase or sell the stock at a certain strike price (a given price point) on a particular date at some expiration point (a future date that is predetermined). In the case of an option, the underlying assets will always amount to the stock of the company in question. This underlying asset helps to identify the financial instrument in the agreement that gives the contract its value. Investors in such a contract will always have the right, or option, to purchase the underlying assets for a pre-arranged price on the expiration date. The asset that underlies the contract provides the security of the agreement itself. The two trading parties consent to exchange the underlying asset if necessary as a contract clause in the derivative agreement. Famed and legendary investor Warren Buffet has notoriously and correctly declared such derivatives to be “financial weapons of mass destruction.” This proved to be the case in the Global Financial Crisis of 2008-2009. A wide range of derivatives based on shaky underlying assets literally blew up the world economy and banking system in financial carnage that is still reverberating throughout the economies of the world nearly ten years later. Take some real world examples that will help to clarify the complex ideas. Berkshire Hathaway sells stock market index put options on worldwide stock market indices that range from the FTSE 100 in London to the American-based S&P 500. These options are unusual because the do not have an expiration date until the years ranging from January of 2018 to January of 2026. On those particular dates of the varying contracts, it will be the underlying assets of the relevant stock market indices which will decide the amount of money that Berkshire pays out to the option holders. In theory, the indices could approach zero, though this is highly unlikely. Yet Berkshire Hathaway would be forced to come out of pocket to the amount of up to $27.6 billion to these put holders if they did. When Berkshire sold these puts, they received $4.2 billion as premiums for their risk when they sold these during the years from 2004 to 2008. Guarantor of the options and Berkshire Hathaway founder Warren Buffet has cheerfully invested these billions in premiums and made considerable returns on them since those years in which they sold them. Another classic example surrounds PepsiCo. The California-based company always reports its earnings in U.S. dollars. Yet it has operations all over the world because of its diversified soft drinks, bottled water, chips and snacks, alternative energy drinks like PowerAde, and juices divisions. This means that it must borrow, invest, and earn money in a range of currencies on every continent. The company has utilized currency swap agreements to help reduce the volatility of changing currency exchange rates on its costs to

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borrow and earn money in other currencies. The underlying assets would be Euros, British pounds sterling, Canadian dollars, Australian dollars, Japanese yen, Swiss francs, and other major world currencies. In the end, there are literally trillions worth of derivatives which derive their actual value from an underlying asset of one type or another. This might be interest rates determined in London (the nowinfamous LIBOR), stock market index values, or oil and gold hard commodities. Such derivatives make it possible for investors to engage with another party in a zero sum game where the stakes depend on the rises and fails of most any asset or market in the world. Neither party has to be directly involved in the underlying market or asset, thanks to these financial weapons of mass destruction called derivatives.

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Underwriting Underwriting refers to a means of determining if a consumer is eligible or not for a particular kind of financial product. These products vary depending on the person’s or business’ requirements. They might include home mortgages, insurance coverage needs, business mortgages, lines of credit, or financing for venture start up projects. The bank or other financial institution undergoing the underwriting evaluation procedure will look into the odds of the business transaction successfully providing them with a profit in exchange for their offer of financial help. As banks and insurance firms go through the underwriting process, two different things will occur. The first of these is showing an interest in the project that the borrower is proposing for finance. They demonstrate this by offering the financial aid that the customer is requesting. Next, with a bank or institution underwriting an insurance policy, residential or commercial mortgage, or venture, they are looking to make money on their investment one day in the future. They might either gather these profits at one time in the form of a lump sum at a future date or little by little in monthly payments. In these underwriting activities, compensation is expected, which is commonly paid via finance charges or other fees. Underwriters contemplate more than simply the amount of risk that an applicant demonstrates. They also consider the potential risk that working with the new customer might bring to other customers of their company. In order to ensure that the bank or firm does not suffer too much harm to keep up with commitments made to already existing clients, they have developed underwriting standards. Insurance companies heavily rely on underwriting in performing their business. Health insurance is one example of this. Health insurance providers seriously look into the past and present health of a person applying. Sometimes their underwriting will show that they need to exclude various pre-existing conditions for a certain amount of time when they insure the person. Other times, underwriting will reveal a medical history that demonstrates too much risk for the company. In this case, a health insurance company will refuse to provide the requested health insurance coverage. Their goal is to not insure individuals who they believe will need significant medical treatment over time, so that they can provide a solid financial backing for their existing clientele. In business, underwriting is commonly employed to determine if new ventures should be given financing. An example of this might be a company that has created a new technology that it wishes to sell. These underwriters will consider how marketable the product appears, the applicant’s marketing plan, the expense of creating and selling the new items, and also the odds of the company realizing profits on every piece that they sell. Sometimes, underwriters of these business ventures will express an interest in having shares of stock in the start up company as a portion of their payment for services. Other times, they will only require a set interest rate for the dollar amount invested.

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UniCredit UniCredit turns out to be the largest Italian based bank and one of the biggest banks in the continent. This banking group is a major player throughout Western, Central, and Eastern Europe. As a leading commercial European bank, it operates in 17 different nations and maintains over 143,000 employees. The bank counts on its retail network of more than 7,500 branches as well as an international network that covers 50 different markets. This group’s commanding position in Western, Eastern, and Central Europe helps them to have what is among the highest market shares in the region. UniCredit is also unique in its commitment to keeping the local brands of the banks that they combined with when they formed their banking group. This is evident in such names for its banks in other countries as UniCredit Bulbank. Here the group merged the Bulgarian market leader Bulbank brand with its own name. They believe that their local brands are extremely valuable and worth preserving when they acquire them. The banking group is headquarter registered in Rome while its general management offices are in the Italian commercial center of Milan. UniCredit’s principle markets are Italy, Bulgaria, Austria, southern Germany, Russia, and Poland. They have divisions for investment banking internationally in such markets as London, New York, Hong Kong, Munich, Milan, Budapest, Vienna, and Warsaw. This banking group concept is a fairly recent construct. It originated from the merger of a number of Italian banks back in 1998. The biggest of these were Unicredito from Verona, Turin, and Treviso and Credito Italiano that included Banca Popolare di Rieti and Rolo Banca. The new group initially went by the name Unicredito Italiano before this was changed to its present form. From 1998 to 2000, the group acquired four other significant Italian banks. In 1999, the bank created a new subsidiary named for the original component Credito Italiano. This international bank is run as several different divisions. These include the CIB, CEE, and national divisions for Italy, Germany, Austria, and Poland. CIB has the responsibility of Global Division for the group. It handles multinational clients and large corporate clients. These have the potential needs for products in investment banking. CIB also carries the responsibility for the Financial and Institutional Groups clients, for the Global Transaction Banking, for the International Activities, and for the Global Financing and Advisory businesses. The CEE division helps to coordinate the various activities of UniCredit in the markets of Central and Eastern Europe. Its main goal is to bring them into a unified and comprehensive vision for the region. Under this division, the various national businesses besides Germany, Austria, and Poland operate. This includes the bank subsidiaries in the Czech Republic, Slovakia, Romania, Bulgaria, Serbia, Slovenia, Croatia, and Russia. The Italian division handles many different business located in Italy under its leadership responsibilities. These client segments include First, Business First, Family, Corporate Banking, Private Banking, Asset Gathering, and Public Sector. The Italian division breaks down into seven geographical regions, a Real Estate Network, and a Private Bank Network.

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Each of the main national divisions has its own head that reports directly to the Deputy General Manager. These include the core markets of Austria, Germany, Poland, and the CEE. The banking group is a complicated organizational structure that somehow works together to form one of the largest banks in Europe and internationally.

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UniCredit Bulbank UniCredit Bulbank proves to be the biggest bank in the Republic of Bulgaria. Until 1994, this statecontrolled and -operated bank bore the name of the Bulgarian Foreign Trade Bank or BFTB. It was in 2007 that the UniCredit Bulbank became formed when Bulbank, Hebros Bank, and Biochim merged together as individual subsidiaries of UniCredit Group from Italy. Bulgarian Foreign Trade Bank first arose in 1964 in its headquarters of Sofia, Bulgaria. The at the time completely state-owned and -founded bank held an initial paid in capital of 40 million Bulgarian leva when it opened. This proved to be a large sum of capital in this day and age. At the time under the heyday of the communists in Bulgaria it specialized in foreign finance and foreign trade payments. The bank realized that to effectively pursue foreign trade and finance, it needed several well placed good international branches. The bank then began to open important representative offices in London, Vienna, and Frankfurt throughout the subsequent decades. In 2015, the operation boasted substantially greater assets amounting to nearly 9 billion Euros and 2015 era equity of nearly 13 billion Euros. Once Communism collapsed in Bulgaria during the successful national coup in 1989, the country established the Bank Consolidation Company in 1991 to operate the state- controlled banking sector and to help with the eventual privatizing of the various national Bulgarian banks. BCC owned 98 percent of the share capital of Bulbank at the time. It became the first Bulgarian bank operation to change over to international SWIFT codes. This helped it to massively improve its transaction reliability and operational performance as a direct result. The bank’s eventual privatization from 1998 to 2000 saw UniCredito Italiano gain control of 93 percent of the capital shares while German based re-insurance giant Allianz obtained another five percent of the remaining shares. Bulbank then sold its majority stakes in Corporate Commercial Bank and minor stakes in United Bulgarian Bank and HypoVereinsbank Bulgaria. Bulbank has continuously worked on the merger of operations and branches between the old Bulbank offices and Hebros Bank and HVB Bank Biochim since UniCredit made the decision to merge the HVB Group back in 2005. The group was renamed UniCredit Bulbank officially at this point. The same Chief Executive Officer has overseen the company’s massive successes since the year 2001. This towering figure in Bulgarian banking and finance is Mr. Levon Hampartzoumian. He heads UniCredit Bulbank still as of end of 2016 in its second decade of existence in the present foreign ownedform of the financial institution. Part of the leading in Bulgaria success that UniCredit Bulbank has consistently enjoyed in recent decades stems from the wide range of clientele they effectively serve. They offer bank checking, current, and savings accounts, insurance and investment products, land and home mortgages, and financing and credit for individual clients, private banking customers, small businesses, large corporate clients, other financial institutions, and even Bulgarian government and other public institutions as well. UniCredit Bulbank is not only by far and away the largest bank in Bulgaria by branches, deposits, and

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assets; it is also a heavily award-winning financial institution. In 2016, it received the honors of “Bank of the Year” from the Association Bank of the Year and “Best Bank for 2016” from Global Finance Magazine. It is known as the “Best Digital Bank in Bulgaria for 2016” per Global Finance Magazine. Focus Economics ranks it as the “Most Precise Overall Economic Forecast for Bulgaria.” Forbes Magazine labeled it the “Most Innovative Bank in Bulgaria”. It received the “Best Bank in Bulgaria” designations from EMEA Finance Magazine and K10’s Kapital Newspaper annual ranking. Global Finance Magazine called UniCredit Bulbank the “Best Trade Finance Bank in Bulgaria” in 2016, as did Euromoney Magazine as well.

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Unique Selling Proposition (USP) A Unique Selling Proposition, or USP, refers to the slogan or idea that sets apart the particular company’s products, goods, and services from their main business competition. It is typically expressed by a single, often short, sentence which succinctly sums up the point and purpose of the company’s primary line of business. Another way of putting this is that the USP acts as the overriding theme of a firm’s marketing plan and endeavors. Ultimately, this proposition strives to answer the customers’ query of why they should purchase a given company’s products instead of their competitors’ goods. It is critical that the Unique Selling Proposition offers customers and possible customers alike a precise and well-defined benefit which appeals to them directly. This means that the USP can not simply describe better service or that which offers more value. Instead, the proposition should answer two questions directly. The first is what will set apart a service or product from those the competition offers? The second is what can the product offer that consumers determine to be worthwhile or worthy of spending their money on it? Small businesses in particular find the Unique Selling Proposition critical for their ongoing operations. This is because they must compete against both larger retail corporations as well as other smaller businesses like themselves. It does not matter how superior a given product or service may be if consumers are not aware of its value and do not see a viable reason to purchase it over those which the competition offers them. The history of the Unique Selling Proposition dates back to the middle years of the twentieth century. It was then that Rosser Reeves developed the concept. He was an American advertising executive who operated in the depression, Second World War, and post world war eras of the United States. Reeves held a personal conviction about the point of advertising. He felt that its only reason for being lay in conveying the specific slogan of a firm which got across their service or product message effectively. He fiercely believed that such a slogan should never be changed. Among his best known USPs Reeves developed was one for candy maker Mars/M&M’s. This M&M’s candy slogan so memorably claimed, “The milk chocolate melts in your mouth, not in your hands.” There have been countless effective other Unique Selling Propositions throughout modern marketing history. Some of the most effective are the ones consumers never forget. Hallmark Corporation’s USP is “When you care enough to send the very best.” Subway sandwiches are memorably referred to as “Subs with under six grams of fat.” The Men’s Warehouse has its, “You’re going to like the way you look – I guarantee it.” FedEx Corporation claims effectively, “When it absolutely, positively has to get there overnight.” Some Unique Selling Propositions became so well remembered that they are even remembered years after a company chooses to abandon them for some reason. Wendy’s Hamburger chain, Taco Bell, and Dr. Pepper represent three classic examples of companies which had a USP that embodied this multigenerational slogan appeal. Wendy’s famously asked Americans, “Where’s the beef?” for years before finally moving on with other far less memorable selling propositions. Taco Bell’s little Chihuahua Dinky emphatically claimed, “Yo quiero taco bell!” and “Bless you, Taco Bell” for literally years. Dr. Pepper /7

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Up Corporation famously reminded Americans for many decades that their flagship American iconic soft drink Dr. Pepper really is “Just what the Dr. ordered.” According to the strict insistence of USP creator Rosser Reeves, all of these companies broke his cardinal rule of changing slogans which were wildly successful. Many of them paid the price in their subsequent decline in business brand appeal and resulting falling sales and profits.

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Unit Trust Fund A Unit Trust Fund is effectively a vehicle in which individuals can invest their money. Investors can sink their funds into these investments using a range of financial service providers. These include an investment management company, a stock broker, and even sometimes a local or larger bank. These Unit Trust Funds are essentially a large pooled reserve of capital. They permit assortments of investors to combine their liquid assets to invest them. All of the investments together amount to the aggregate assets of a fund. It is generally the case that such a Unit Trust Fund will have the legal structure like a mutual fund but which is unincorporated. They permit the funds to contain these shared assets and ensure that all profits become dispersed directly back to the individual unit share owners rather than reinvesting them. Such an investment fund becomes established under the auspices of a trust deed. Each investor is literally a member of the trust fund beneficiaries. A Unit Trust Fund’s success comes down to how experienced and professional a management company which runs it actually proves to be. The managers are allowed to invest in a wide range of investments. Some of the most typical of these include mortgages, securities such as stocks and bonds, real estate property, and cash equivalents such as CDs and money market funds. The Unit Trust concept is widely utilized in Great Britain and a number of former British colonies and current day British territories. Among these are Jersey and Guernsey of the British Channel Islands, the Isle of Man, Ireland, Fiji, Australia, New Zealand, Singapore, Malaysia, South Africa, Kenya, and Namibia. Within the United Kingdom at least, unit trusts are interchangeable with the phrase mutual fund, though they are quite different from the American versions of mutual funds. With regards to the assets of a Unit Trust Fund and their value, this can be expressed by taking the price per unit and multiplying it times the amount of units. Naturally there will be expenses taken off of this figure before it is considered final. Some of these expenses include management fees, trading transaction fees, and other relevant costs. It is the unit trust fund managers who manage the trust in order to realize the greatest potential returns and profits. Trustees will be assigned in order to make certain the manager of the fund is properly pursuing the various objectives and goals of the Unit Trust Fund. Ultimately these managers work for the unit holders who have all rights to the assets of the trust in question. In between the stakeholders in the trust and the manager of the fund in question are the registrars. These middlemen are merely a type of liaison standing in between the two parties. They carry out a number of administrative duties. These unit trust funds turn out to be open-ended in nature. This means that as new or existing investors add additional money to the trust, then more units will be created at the unit buying price that is current. Similarly, as holders sell their units for cash, an equivalent amount of the fund assets will be sold off at the present selling price per unit. The income of the fund managers is realized by the bid and offer spread. This represents the difference between the price of buying the units and the price of selling them. This spread will vary from one

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moment to another and be based on the types of assets the fund manages. It might be merely a couple of basis points for those assets which can be liquidated expeditiously and simply, as with government sovereign bonds. The spread could be even five percent or still higher for assets which are more difficult to buy or sell. Real estate properties are examples of less liquid assets that take longer to transact.

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Universal Basic Income (UBI) Universal basic income (UBI) is known by a variety of names in different countries and continents. Among the more popular are basic income, citizen’s income, unconditional basic income, basic income guarantee, universal demo grant, and UBI. This represents a type of social security welfare program and safety net. In it, all residents or citizens of a nation periodically receive an amount of money which the government or another public institution gives them unconditionally. They receive this on top of and regardless of any other income they earn from work or investment returns. When the money is given out to any persons who live with less than the government-mandated poverty line, it is also known as partial basic income. This universal basic income and its distribution systems could be financed by the revenues and turnover of publically owned enterprises. These are many times referred to as a citizen’s dividend or a social dividend. Such a strategy is a component of a market socialism model, as opposed to market capitalism in which participants’ incomes are based on their abilities, hard work, and opportunities. Taxation is another means of paying for such basic income schemes. It was Thomas Paine’s Agrarian Justice published in 1795 where he wrote about capital grants to be provided at the age of majority that began the debates concerning universal basic income within the United States. Up through the year 1986, the phrase which referred to this basic income concept most commonly was “social dividend.” After that year, the universal basic income wording gained universal appeal. There are many well-known proponents of the social and economic philosophy. Among them are Ailsa McKay, Philippe Van Parijs, Hillel Steiner, Andre Gorz, Guy Standing, and Peter Vallentyne. In the United States, this Universal Basic Income has been discussed on a number of different occasions as a serious idea for public policy. The numbers which have been bandied about for Americans amount to approximately $1,000 per month, which would be sent via check to every American. Among the conservatives who espoused the concept and argued for it to be implemented were legendary Nobel prizewinning economist Milton Friedman and former Republican President Richard Nixon. The base case for this Universal Basic Income has been most effectively argued and written extensively about by Andy Stern, who was once the Service Employees International Union president and who serves as a Columbia University professor since then. He published a book called Raising the Floor in which he argued dramatically and effectively for the UBI. Stern argues that the concept of a basic guaranteed income has become more necessary for two reasons. On the one hand, the wars on poverty programs have not been so effective nationally. On the other, the rapid advance of technology has led to unparalleled job dislocation and disruption for millions of American workers. This program would deliver an effective floor, or social safety net, to every American. Critics of the plan in the U.S. have asked how the Federal Government would possibly afford to pay for this proposed program. Stern referenced the 126 existing separate government programs which each already distribute money to American citizens. Some of these might be rolled into the Universal Basic Income program. Besides this, additional taxes would have to be introduced in order to make the proposal a reality. Economists have predicted that implementing such a UBI would require around $3 trillion each

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year in funding. Despite the fact that this concept has many critics, it is also possibly the only significant ideology in the early twenty-first century which has supporters on both the right and the left sides of the political, economic, and social spectrum. The Swiss were given a vote on the UBI issue for their own country in the late spring of 2016, and they soundly rejected it. Interestingly though, the same voters answered an exit poll claiming they expected to see this policy implemented in Switzerland within the next 25 years.

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Unsecured Debt Unsecured debt refers to a kind of loan that does not have any underlying asset which is backing it. This means that if the borrower defaults, the lender has no valuable property to seize against the loan’s repayment. Such debt has a wide range of examples. These include credit card bills, utility bills, medical bills, and other forms of credit or loans which a financial institution offered without requiring any backing collateral. These debts are extremely risky for lending institutions. The creditors will be forced to sue in an effort to collect their principal should the borrowers choose to not pay back the full amount of their obligations. It is not only personal bills which can be unsecured. Unsecured debt also includes business debts. Because the risk of default is considerable for the lenders, they usually charge higher rates of interest. This is a proverbial double edged sword. Since the higher rates make the financial burden heavier for the borrower, it can literally push them into default in an ironic self-fulfilling prophecy. Borrowers have the ability to eliminate their unsecured debt. They can do this in the bankruptcy courts of the United States. The results will be that their debts are either discharged or restructured (in the case of businesses especially). Such an action will have consequences for the borrowers. They will find it harder to get unsecured loans in the future. There are some important differences between unsecured debt and secured debt. Debt which is secured is backed up using a valuable asset. This could include the vehicle for which the loan is made, or the real estate for which it is provided. The official name for this is collateral. The legal terms in secured loans permit the lender to simply seize its underlying collateral which guarantees the loan if and when the borrower defaults on the payments. Secured debts cover a range of loans. These include title loans that vehicles secure and real estate or home loans that the property secures. Naturally borrowers have far more to lose personally when they default on such secured loans than on any unsecured debts. This is because the loss of the borrower proves to be the gain of the lender in the respect of the collateral. Since this kind of debt turns out to be significantly less risky on the part of these lenders, they are happy to provide a more competitive interest rate, especially as measured against the rates on unsecured debt. When a person does not make good on their pledge to repay on an unsecured debt, creditors will go through a number of steps. They first contact the borrower in an effort to recover payment. In the event that the creditor and borrower are unable to come to agreement on a revised repayment schedule, then the creditor moves on to the next steps in the process. They will do one of several things. They might report the delinquent borrower to one of the big three credit reporting bureaus. They could also sell the delinquent debt on to a debt collection agency which will aggressively pursue debt collection. Finally, depending on the state in which the borrower resides, the creditor could choose to file a lawsuit in an effort to force repayment of the debt. There are states such as Florida which do not allow legally forced collections of debt. These places protect the consumers from aggressive debt collection methods such as court ordered debt restitution. In

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other states, when creditors file debt collection law suits in the federal or state courts, the courts can decide to force the borrowers to pay back their unsecured debts utilizing certain available resources or assets. Corporations also receive loans which are unsecured debt. When such debt issues are being rated by the bond ratings agencies, they will typically provide that issue with a lower rating. One example surrounds the Meta Financial Group which issued unsecured debt in 2016. The KBRA Kroll Bond Rating Agency determined that this senior unsecured debt deserved an only BBB+ bond rating because it was unsecured. This is relatively low, since junk bond ratings are BB. Highest ratings from this company were AAA ratings. Meta Financial was fortunate to receive the BBB rating though there was no underlying asset backing the debt. This was due to the company’s strong quality of assets, healthy liquidity profile, and positive capital ratios on a risk-weighted basis. Had the issue been instead secured debt, then the bond rating agency likely would have delivered an A or better rating.

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US Trust U.S. Trust today is the Bank of America Private Wealth Management division. It existed as an independent U.S. Trust Corporation from 1853 through 2000. At this time Charles Schwab and Co. acquired the bank and trust. They later sold it to Bank of America back in 2007. U.S. Trust today provides (as it has for two centuries) its clients with wealth structuring, investment management, and lending and credit facilities. U.S. Trust has its headquarters in New York City on 114 West 47th Street in the United States. The firm counts more than 100 branch offices throughout the country across 31 different states plus Washington, D.C. They work to provide their ultra high net worth clients with specially tailored solutions and resources that help meet their needs for credit and banking, investment management, and wealth structuring. Teams of advisors serve the clientele through a wide variety of financial services. Chief among these offerings are financial and succession planning, investment management, specialty asset management, philanthropic asset management, customized credit products, family office services, family trust stewardship, and financial administration. U.S. Trust arose in 1853 as a State of New York chartered bank. This makes it the original and also oldest such trust company within the United States. The new venture had the backing of a combination of wealthy investors who poured a million dollars into the firm which was called United States Trust Company of New York at that point. Among the first board of trustees were thirty different influential and important New Yorkers. This included founding investor New York City Mayor Joseph Lawrence from the Bank of the State of New York who became bank trust president. Secretary of the trust went to United States Life Insurance Company of New York’s John Aikman. Among the other important founders were industrialist, inventor, and philanthropist Peter Cooper; Marshall Field the department store founder; President Shepherd Knapp of Mechanics National Bank of the City of New York; and steel and iron manufacturer and railroad developer Erastus Coming. The company became founded to serve clients of individuals and institutions as a trustee and executor of their money. This proved to be an innovative concept as trusts had not been fully conceived of at this point. It only took till 1886 for the firm to be well-established as a stable and highly regarded financial institution. Thanks to this growing reputation, by the middle of the 1800’s, the company had acquired a roster of super rich clients. It served a significant role in a number of nationally and internationally important construction projects like the Panama Canal and national American railroads. A great number of the firm’s corporate clients floated securities to help finance such building project initiatives. The trust got to play the part of corporate trustee in the projects. Such a boom in enterprising and industrial projects aided the business in expanding into the management of personal trusts for the super rich as well. By the 1880’s and 1890’s, the firm counted such prestigious and ultra high net worth individual as William Waldorf Astor, Oliver Harriman, and Jay Gould. The company successfully managed to survive and thrive despite a range of damaging financial crises in

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the last half of the 1800s and the early 1900s. In 1928, it counted over a billion dollars in trust assets. It stood well above its vastly smaller rivals. Thanks to the company’s emphasis on stability, it managed to ride out the 1929 stock market crash and resulting decade long depression. The company thrived by introducing additional specially tailored personal services in the next few decades. Among these were advising its ultra wealthy clients and families on careers, private schools, and universities for their kids. By 1958, U.S. Trust had begun its earliest ads in the newspaper society pages of The New Yorker. It was also advertising in the Metropolitan Opera and New York Philharmonic Society programs at this time. Despite restructuring in the 1970s, 1980s, and 1990s, the company still became a takeover target by Charles Schwab and Co. in the year 2000. It ceased to be an independent prestigious outfit of nearly 150 years long at this point.

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Use Tax A use tax refers to a kind of revenue levy which the United States has in place in a wide range of states. The state governments collect and spend these taxes as opposed to the federal government. Use taxes are much like another country’s Value Added Tax or other states’ sales taxes. The difference is that use taxes do not get applied at the ultimate point of sale. Use taxes become applied in a number of scenarios. Among these is the storage, utilization, consumption, or enjoyment of physical personal property. The point of a use tax is often to capture revenues from items or services individuals or businesses purchase outside of their state of residence. If these items will be stored, utilized, or consumed within the state of residence but escaped the sales tax by being purchased across the state line, then the use tax comes into play. A simple rule of thumb is that if the sale of an item would have been subjected to sales tax had it been sold in a purchaser’s given state of residence, it will have a use tax levied on it. This assumes that the state of residence in question actually enforces and maintains such a use tax in the first place. The rate of use taxes is easy to understand. These rates are identical to the local sales tax of the resident to whom they apply. This means that both local sales and state sales tax rates are converted over into the effective use taxes rate. For those residents and businesses which do not pay their use taxes, they can expect to receive penalties and interest from their state of residence in recompense. This assumes they are caught. Looking at an example makes it easier to grasp the use tax concept. California is a state that enforces both a sales tax and use taxes. They require all of their state residents to pay their sales taxes for any merchandise purchase that qualify. Qualifying items include gifts, furniture, clothing, toys, vehicles, aircraft, and mobile homes. When a California resident makes a purchase of clothing or furniture from a retailer in California, the retailer will naturally collect the sales tax at the point of sale and that same time of purchase. It is then the responsibility of the merchant to turn in the sales tax dollars amount to the appropriate taxing jurisdictions. There would not be any other tax amounts due on the sales price of the goods the resident purchased. In another scenario, the residents of California in question might purchase their furniture or clothing items from an Arizona-based retailer online. The merchant will likely not be collecting California sales tax off of the buyer. The law of the state of California requires that the buyer has to remit a use tax on the furniture or clothing purchased to the California Board of Equalization. This tax authority will collect the appropriate local and state tax from the residents based upon where in California they live. If instead the resident of California bought groceries over in Oregon but did not pay out any California state sales tax, there would typically not be any use taxes owed. This is because California does not levy taxes on most groceries. The retailers escape from the moral obligation to collect the state sales tax of the purchaser’s residence thanks to the nexus rule. If the retailer does not maintain any physical presence, or nexus, then they are released from the responsibility of tax collecting. A nexus can include a warehouse, sales office, or in-

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state based sales representatives. In some states, the definition is expanded to include online affiliates as well. This means that in all of these cases where no nexus is present, the resident consumer must both calculate up and turn in the appropriate amount of tax to the resident state fiscal authorities. State governments give out the excuse that these use taxes help to protect their own retailers in the state against the out of state competition (which is not fair because items are priced lower for not levying sales taxes). This may be true. It is equally true that the state governments are most interested in collecting all of the revenues they are due from any state resident who is making purchases across state lines. No matter where they shop, the residents are required to help pay for the local and state government services, projects, and programs which they enjoy within the state they live.

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Usury Usury has several meanings. The modern day connotation of the word equates to charging high rates of interest on loans which enrich the lender unreasonably. This is considered to be immoral, unethical, and in many countries illegal. The original meaning of the word revolved around interest charges of any type for a loan. In historical Christendom, as well as in modern day and historic Islamic society and nations, the practice of charging any amount of interest was called usury. Today an individual who engages in collection of usury is either called a usurer or in English speaking societies a loan shark. The term usury is often times utilized to decry an immoral abuse of gaining at the expense of other human beings’ misfortunes and suffering. It is also utilized in legal contexts to describe the legal governing of interest rates. In moral contexts, the word has equated charging interest on any type of loans with wrong doing and sin. Usury has been addressed in religious texts dating back to the Vedic Texts from India and the Old Testament of the Bible from Israel. Buddhism, Christianity, and Islam also condemn the practice. At various points in history, great empires and states ranging from the ancient Chinese and Greeks to the ancient Roman Republic and early Roman Empire have made it against the law for people to make loans with interest attached. Eventually the later Roman Empire permitted these types of loans that included closely regulated interests rates. Medieval Christendom followed the leading of the Catholic Church by banning the practice of charging interest at any interest rate, or even for charging fees for using or changing money. Philosophers and public speakers like Charles Eisenstein have made the case that the economic turning point within the British and later American led empires and world came with the legal rights to exact interest on loaned money. This began officially under the 1545 dated act, “An Act Against Usurie” passed by England’s infamous King Henry VIII. Banking in the era of the Roman Republic and Empire proved to be quite different than modern day banking of the Anglo-American world. In the era of the Principate, the majority of banking endeavors occurred at the instigation of private citizens as opposed to enormous banking houses and firms of the early modern age and today. The typical interest rates annually on these loans ranged from four to twelve percent. A higher interest rate documented from these times came in at either 24 percent or 48 percent. Interest was charged on a monthly basis with the most typical rates being multiples of 12. Banking at the time was the purvey of the side street smaller shopkeepers which were lower middle urban classes. The severe currency shortages of the third century and beyond caused these lending shops to decline. In time, the wealthy took over the practice by becoming moneylenders to the ever increasingly poor peasants who suffered from higher and higher taxes in the failing days of the Roman Empire. They eventually had to sell themselves as serfs to cover their debts. This is why the Medieval Catholic Church decided that usury was in fact unfair exploitation of human misery and the poor of society. This prohibition against charging interest began in 325 at the First Council of Nicaea that made it illegal

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for the clergy to practice usury by charging interest of any kind. Subsequent ecumenical church councils extended this ruling to the rest of the Christian population. It culminated with the Lateran III council that made it a cardinal sin to accept interest payments on loans. Such individuals who defied the church teaching and ruling on this matter were not allowed to receive Church sacraments like communion or marriage or to have a Christian Last Rights and burial. By 1311, Pope Clement V decreed that charging usury was heresy, abolishing any secular laws that permitted it still. Pope Sixtus V articulated this moral repugnance against the practice of charging interest best with his statement that charging such interest was “detestable to God and man, damned the by the sacred canons, and contrary to Christian charity.”

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Vacancy Rate Vacancy rates turn out to be statistics that are gathered and maintained on availability of homes for sale, rental properties, and hotels. When you see high rates of vacancy, this is evidence that a market is struggling. Lower vacancy rates are hoped for as they demonstrate that properties are in demand and vacancies do not stay open for much time. Government agencies and other companies that focus on economic analysis maintain the records on vacancy rates. If you are contemplating moving into a new community, then you will find that vacancy rates are worth contemplating. Where housing is concerned, vacancy rates add up all housing units that can be lived in but are not presently occupied. The agencies compiling the vacancy rates then express this as the percent of available to be lived in housing that is presently vacant. Vacancy rates cover houses, townhouses, apartments, and other forms of housing. As vacancy rates prove to be lower, it becomes more difficult for individuals to obtain housing. This is because the types of housing that they want may not be available either for sale or rent on a regular basis. The vacancy rate statistics can be found on various kinds of housing arrangements. This differentiates on vacancy rates between townhouses, apartments, and single family homes. Landlords read these vacancy rates to be appraised of the rental situation, since changes in this number impact how much rent they can charge tenants. If landlords’ tenants are constantly leaving, causing high rates of turnover, then they may wrestle with high vacancy rates personally. When you see high vacancy rates in housing, it indicates that economic recession or depression is evident. High rates of vacancy can also happen if a great number of individuals leave a particular community, causing significant quantities of homes to lie vacant. Developers incorrectly estimating how strong a market is for housing in a local community might also cause them. Another factor that leads to higher vacancy rates proves to be rents that are high. When individuals can not pay an area’s rent, then they will look for other places to live. Hotel vacancy rates demonstrate the strength or weakness of an area economy more profoundly, since high hotel vacancies mean tourism in the area is down. Businesses are concerned with commercial vacancy rates. These are commonly figured up separate from residential vacancies. In the business vacancy rates figure are commercial buildings like factories and warehouses, and also empty retail storefronts and offices. Lower rates mean that people are supporting the businesses by spending their dollars in those areas. When consumers see a large number of empty storefronts, even when the economy is doing well, it will discourage them from frequenting that plaza or area. Any individual who wants to see the vacancy rates for a given community can get them. A good place to start looking is at a local government office and in census data. Besides this, Realtors commonly maintain statistics on area vacancy rates, as do Internet sites that keep demographic information on different communities.

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Value Investing Value investing is the strategy that Benjamin Graham developed for investing in stocks. Warren Buffet later made it famous after he left Graham’s company and went on to found Berkshire Hathaway. Buying stocks this way involved a level of discipline practiced by insurance underwriters. The method focuses on several key ideas. Investors have to consider risks involved carefully, avoid stocks which show a high amount of uncertainty, and allow a margin of safety. Graham developed his different investing techniques while managing money as President of his GrahamNewman Corporation. He focused on net working capital investments, arbitrage, diversification, and tangible assets. Investors continue to use all of these but the first one over seventy years later. Net working capital originally functioned as a cornerstone of value investing until changes in transparency rules and market technology made it obsolete. Net working capital investments were those where the stock’s shares traded at a large 30% or higher discount to their amount of working capital. The idea was that a value investor could buy dollar investments for effectively 70 cents or less. Some of these companies failed. This was mitigated by diversifying into many different stocks. On a combined basis, these companies brought Graham and his investors good returns. Warren Buffet utilized this category of investments heavily in his early years running the Buffet Partnership that eventually became Berkshire Hathaway. Arbitrage proved to be the value investors’ secret weapon. Graham passionately believed arbitrage would routinely provide 20% annual returns. This boosted the total return on the overall value investing portfolio. Arbitrage seeks to make money on discrepancies in price with little or even no risk. If a company makes an offer for a rival at $60 per share, but the shares trade at $57, there is a $3 price discrepancy between that point and when the deal closes. This amounts to possibly 5% that investors can acquire in a matter of a few months. Assuming the deal closes, there is no risk in this trade. Value investors simply use arbitrage as a way to profit from a security and the money time value that is literally undervalued. Diversification remains a critical component of Graham’s investing strategy. He believed in diversifying into as many individual investments as made sense. He also practiced diversification into different kinds of asset classes. Value investing puts a certain percentage into common stocks, preferred stocks, mutual funds (which did not yet exist when Graham created the strategy), and bonds. This went along with the main premise that first investors must avoid losing their money. Receiving a good return on investment money is secondary to this idea. Tangible assets is another value investing principle that still holds today. Graham was interested in the actual physical assets that lay behind his common or preferred stocks and bonds. This might include factories, office buildings, equipment, real estate, or rail cars. He would only buy into companies whose assets were great enough to fully back up the principle and dividend or interest payments. They would have to liquidate these assets to get back their investment money. Graham told those who valued invested to constantly look at the bonds they held and be prepared to change to other bonds if they had stronger

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assets. Benjamin Graham and value investing also proved to be among the earliest groups to practice tactical asset allocation. If investors studied and determined stocks were overvalued, they should sell stocks and move money into bonds. When stocks were undervalued, he counseled investors to sell bonds and go heavier into stocks. This is still a cornerstone idea of investing today.

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Value-Added Tax (VAT) Value-Added Tax (VAT) turns out to be a kind of tax on consumption which governments place on all products. What makes this different from a sales tax is that whenever any value becomes added along the stages of production as well as at the final register, the VAT tax is applied. These Value-Added Tax fees are commonly utilized within the European Union which is also the heaviest user of them in the world. The total VAT which end-users pay proves to be the difference between the product’s cost minus the materials’ cost which were utilized in making the product (which have already been taxed). A good example to look at is a television set constructed by a manufacturer in Germany. The maker pays VAT on each of the various components it buys in order to produce the TV. After the set arrives in stores, the individuals who buy it must also pay the appropriate amount of Value-Added Tax. Value-Added Tax is not based on income as with other forms of taxes. Rather it relies on the amount of goods which consumers purchase and consume. Over 160 different nations rely on VAT for at least partial funding of government budgets. The United States is strangely absent from this list of well over 75 percent of the countries on earth. Advocates for implementing a VAT in the U.S. argue that by replacing the present inefficient income tax system in America with such a national VAT, this would offer numerous advantages. Among these are that it would lower the national deficit and debt, pay for critical social services, and boost government revenues. Critics of the Value-Added Tax for the U.S. claim that such a tax is inherently regressive. This means that it would require the poor and low income workers to shoulder a greater economic burden and responsibility for funding the government outlays. Both sides of the debate are in fact correct. In the advantages column, such a Value-Added Tax would bring in massive revenues on every product which traditional American stores, businesses, and Internetbased businesses sell. This would be a boon for government coffers that typically miss out on sales taxes which can not be levied on businesses that avoid sales taxes with customers (in those states where the businesses do not have any physical offices). It would collect presently unpaid billions in taxes from online sales that could be deployed then to pay for law enforcement, schools, and many other social services. Besides this, a VAT would ensure it is far harder to avoid paying taxes. It would further simplify the complicated and bureaucratic federal tax regulations so that the Internal Revenue Service could be massively downsized and made more efficient at the same time. There are also a number of possible downsides to the VAT, per opponents of the concept. Business owners would suffer from higher costs all along the chain of goods production. A national VAT would also cause potential disputes between the Federal government and those many local and state governments which already charge sales tax rates set on local and statewide levels. Critics also correctly point out that the consumers bear the ultimate brunt of the tax in the form of higher

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consumer goods prices, thanks to a VAT. The theory is that the burden of the tax spreads out through each phase of making goods from inputs to the ultimate product. The reality is that higher costs are nearly always passed off on the poor consumers. As VAT applies equally to all purchases and for all types of salary and wage earners throughout the jurisdiction in which it applies, this would harm lower wage workers than higher ones. Higher wage earners are able to save massive percentages of their income, which would then not be taxed. Lower wage earners live from paycheck to paycheck. As they spend all of their earnings each month, their share of the VAT tax would be proportionally far higher than the wealthy Americans’ share.

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Velocity of Money The velocity of money proves to be the speed at which money is changing hands. When the velocity of money is higher, then money is rapidly going from one hand to the next. This allows for a comparatively smaller amount of the money supply to cover a significant number of purchases. Conversely, if the velocity of money turns out to be lower, then the money is going from one hand to the next at a slower rate. This requires a greater supply of money to cover the same quantity of purchases. The velocity of money is never the same. Such velocity will change along with the preferences of consumers. Besides this, it goes up and down as prices or money’s real value fall or rise. Should the real value of money prove to be lower, then the levels of prices are higher. A greater quantity of bills would have to be utilized to pay for purchases. Assuming that money supply is constant, velocity of money has to go up to be able to pay for all purchases. The velocity of money also shifts as the Fed changes the money supply. These changes might cause price levels and money’s value to stay the same. The velocity of money turns out to be the single most critical factor in determining the impacts of any changes to the money supply. As an example, pretend that you buy a piece of pizza. The waiter takes the money that he is paid from this transaction and employs it to pay for dry cleaning. The dry cleaner owner next uses the money to wash his car. This goes on again and again until finally the bill is removed from circulation. Since bills can stay in circulation for literally decades, one bill will generally allow for a vast number of multiples of its face value to be transacted along the way. The equation that demonstrates how velocity of money relates to the money supply, output, and the price level is expressed as M times V equals P times Y. In this equation, M represents the money supply and V stands for velocity, while P represents the price level and Y is the amount of output. Since P times Y yields the country’s Gross Domestic Product, you could also say that V equals GDP over M, or velocity is Gross Domestic Product over money supply. In practice, the equation tells you that a certain Gross Domestic Product level that contains a tinier money supply will require a higher velocity of money so that all purchases can be funded. This means that velocity will go up in this scenario. Velocity of money equations can also be altered to give percent changes in velocity of money equations. With velocity of money equations, you might employ them to measure the impact that any changes in the velocity, money supply, and price level have on one another. Only the output, represented by Y, would be fixed in such changes, since quantity of output does not change in short time frames.

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Venture Capital Venture capital refers to the process of investors purchasing a portion of a start up company. Firms or individuals that engage in this are called venture capitalists. They pour money into a firm that offers a high rate of growth but that also contains high risk. The typical venture capital investment time frame generally proves to be from five years up to seven years. Such investors anticipate getting a profit back on their investment through one of two ways. Either they hope to sell their stake in an Initial Public Offering to the public, or they hope to sell the company outright. Investors who involve themselves in venture capital investments often wish to obtain a certain percentage of the company’s ownership. They might also request being given one of the director’s seats. This makes it easier for the investors to ask to be given their funds back either through insisting that the company be sold or reworking the deal that they made in the first place. Venture capitalist investments are comprised of three different kinds. One of them is early stage financing that might be broken down into seed financing, first stage financing, or start up financing. Seed financing means that a tiny dollar amount of venture capital is paid to an inventor or other entrepreneur who wants to open a business. This might be employed to come up with a business plan, do market research, or bring on a good management team. First stage financing is the type needed as companies look to boost their capital so that they can begin full scale operations. Start up financing instead is venture capital distributed to a business that exists for under a year. In this stage, a product will not be on the market already, or will only just have been put on the market for sale. A second type of venture capital investments is known as expansion financing. Expansion financing is comprised of both bridge financing as well as second and third stage financing. Bridge financing refers to investments that only receive interest and are short term. They are mostly employed for company restructurings. They might also be utilized to cash out early investors. Second stage financing proves to be investment money for the purpose of growing a company already up and running. While such a company may not yet demonstrate actual profits, it is producing and selling merchandise. It also possesses inventories and accounts that are expanding. Third stage financing is investments that venture capitalists make in companies that have at least broken even on costs or are even starting to demonstrate profits. In this case, venture capital is employed to grow the business further. For example, third stage financing could be utilized to develop more or better products, or to purchase needed real estate. Still a different popular version of venture capital investing is known as acquisition financing. In this type of venture capital, the investment goes into gaining a stake in or the entire ownership of a different company. Management could also choose to use this venture capital to buy out yet another business or product line, whatever its development stage proves to be. They might acquire either a public or a private company in this way.

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Virtual Digital Currency A Virtual Digital Currency is a form of money which is completely separate from physical cash, like coins or banknotes. What makes it a currency is that it does bear certain similar characteristics to the physical currencies. Its advantage is in the fact that borderless transfer and instant transactions become possible through it. Crypto currencies and virtual currencies are both considered to be forms of digital currencies. Such forms of money can be utilized to purchase literal goods and services, though the purely virtual ones are often limited to specific economic systems such as social networks or online gaming communities. Another definition for Virtual Digital Currency is an Internet-based medium of exchange which permits instant and borderless transfers of ownership of real world goods and services. As a going concern, these Virtual Digital Currency units are relatively new. Their origins lie in the heady dot come bubble heyday of the 1990s. Among the very first of these digital currencies proved to be Egold. This currency was actually a technologically revolutionized version of a gold standard that arose in 1996. It had the backing of tangible real gold underlying it. Liberty Reserve was another relatively early comer to the world of virtual currencies in 2006. It allowed participants to convert dollars and Euros into Liberty Reserve Dollar and Euros. Both could be exchanged back and forth without restrictions, hassles, or government regulation for a reasonable one percent charge. The two services had centralization and were heavily utilized by money laundering operations. It was inevitable that the United States Federal government would shut them down in time. Another form of Virtual Digital Currency known as Q coins or QQ coins was so effective in China after it arose in 2005 that it created a destabilizing impact on the official Chinese exchange of the Yuan currency, thanks to speculators. These digital coins came from the Tencent QQ messaging platform. Attention given to crypto currencies renewed the global interest in such Virtual Digital Currencies. Bitcoin the gold standard and best-loved and most traded of them came about in 2009. It has since evolved into the most heavily accepted and best-respected of the various crypto currencies. Several of the respected international central banks and settlement bodies of the world have waded into the murky waters of these digital virtual currencies in recent years. The European Central Bank issued a report in February of 2015 entitled “Virtual currency schemes – a further analysis.” This claimed that such virtual currencies were actually digital representations of value which are not issued or guaranteed by any central bank, institution of credit, or e-money authority. The report claimed that in some instances, these virtual currencies may be employed as an alternative choice to traditional money. The prior ECB report from October of 2012 stated that such virtual currencies were unregulated digital monies that developers issued and oversaw. At the time, the ECB said these were accepted and traded among the various members of specific virtual communities. The Swiss-based Bank for International Settlements (BIS) also issued its own “Digital Currencies” type of report in November of 2015. They defined digital currencies as assets which are represented in a digital form and which possess at least some characteristics of money. They said that these can be expressed in

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the denomination of a sovereign currency and overseen by an issuer who is responsible for both issuing and converting the digital money into traditionally accepted cash currencies. This means that digital currency is a representation of electronic money, or e-money, per the BIS report. They determined that any currency which is decentralized or automatically issued and which has its own units of value is a virtual currency.

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Visa Visa Inc. proves to be an enormous American-based multinational financial services operation which is headquartered in Foster City, California. The corporation is a successor company to a pioneer organization in the world of all-acceptance credit cards. Its electronic fund processing and transference occurs all over the inhabited world, typically through the unmatched Visa-branded debit cards and credit cards. Interestingly enough, unlike many of its smaller competitors, Visa does not issue any of its own cards, establish fees or interest rates for consumers or businesses, or even offer credit to anyone. Instead they simply deliver payment products which are Visa branded to financial institutions that then brand their own credit cards. This allows the third party financial institutions and banks to provide debit cards, credit cards, pre-paid credit cards, and cash accessing programs to their own various clients. Nielson Report issued a 2015 report that followed the credit card industry. They determined that Visa Inc.’s worldwide network, called Visa Net, handled an incredible 100 billion transactions that year. These had a volume for the year of $6.8 trillion. Visa maintains operations on every inhabited continent. It is accepted on all 6 continents and most inhabited islands of the world. Their impressive volumes of transactions process through Visa Net. They have two separate fortress-like secure facilities that process these global operations and transactions. These are the Operations Center East, found near Ashburn, Virginia; and the Operations Center Central, found in the area of Highlands Ranch, Colorado. Each of these two key data centers for world finance is massively fortified to protect against any combination of terrorism, crime, cyber-crime, and natural disasters. They are able to function independently of one another. The Visa Inc. company is even able to run them from externally placed utilities in an emergency. Both of the centers are capable of running as many as 30,000 different transactions at the same time. They can process a staggering 100 billion computations per second. Naturally cyber-security and fraud are major issues to these two financial data center of the world. To this effect, each processed transaction is run against 500 independent variables. Among these are 100 different fraud-detection protocols. Examples of these are the individual spending patterns of the customer involved, the location of the merchant running the transaction, and the geographical location of the customer in question. Only after the 500 variables and 100 fraud protocols pass muster will any single transaction be accepted. This is an unparalleled level of financial security in the realm of credit and debit cards. The name Visa came from the mind of corporate founder Dee Hock. Hock felt that the word Visa could be recognized around the globe instantly in a number of different languages throughout numerous countries. He believed it gave a connotation of universal acceptance as well. Back on October 11th of 2006, the company Visa declared that it would merge businesses and transform into a publically held company via an initial public offering. For the restructuring to work as an IPO, Visa decided to merge several of its sister outfits Visa USA, Visa International, and Visa Canada into a single company. Meanwhile, they spun off Visa of Western Europe into an individual standalone company. Its member banks own this European operation and also gained a minority stake in the newly-issued shares

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of Visa Inc. The IPO deal was so massive that over 35 different investment banks worked on the offering, many of them as underwriters of this huge Initial Public Offering. This IPO became the single biggest Initial Public Offering in the history of the United States when it initially raised $17.9 billion at once. When the underwriters of the IPO decided to exercise overallotment options, they bought another 40.6 million shares in total. This increased the aggregate number of IPO shares to an astonishing 447 million. The final proceeds amount from the IPO then amounted to $19.1 billion. Today Visa trades on the prestigious New York Stock Exchange NYSE with the stock symbol of V.

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Volatility Volatility in investments has to do with the possibility of stocks or other investments undergoing a dramatic gain or loss in price and value in a certain amount of time. Investors consider the volatility of stocks and other investments when they decide to buy more shares of the asset, sell their current holdings, or to buy shares of a new offering. Whatever an investment’s volatility proves to be, investors’ goal should always be to make the highest return that they possibly can for the lowest chances of experiencing losses. With stocks, a great concern is how stable the assets of a company are that underlie the stock itself. A sudden loss of confidence in a public company would also likely cause a sharp decline in the price. The stock price drop and accompanying volatility is actually created by the public’s perception of something within the company, like changing leadership or a coming acquisition. In fact the stock might come back in a relatively short time frame as the public decides that the company is stable after all. But such factors might be more troubling and enduring, causing the volatility of the stock to become too high. When such volatility persists, many investors will decide not to buy additional shares or even to sell off the ones that they hold. The overall conditions of a market can also influence investment volatility. As the stock market all around shows higher signs of volatility, individual investments will likely suffer the same fate. This occurs as consumers become worried about the whole economy, or if political situations force investors to take more conservative trading positions. Should such impacts grow sufficiently significant, then even stable stocks can become lightly traded while investors sit on the sidelines to watch for the troubling issues to get resolved. In the meanwhile, the stocks and their underlying options might make dramatic rises and drops in price from higher volatility. Volatility is a fact of life that investors have to be capable of handling. Still, some stocks and investments demonstrate higher degrees of volatility than do others. Investors can gain an insight into this amount of individual volatility that an investment might have thorough looking into its historical levels of price and accompanying volatility. Using this data with projected trends in the economy and markets, investors can get a good picture of the amount of an individual investment’s volatility to determine if they are comfortable with it before they invest in the offering.

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Volcker Rule The Volcker Rule is a controversial much loved or intensely hated part of the Frank-Dodd Wall Street Reform and Consumer Protection Act. This federal regulation made it illegal for banks to pursue specific investment activities using their own money and accounts. It also restricted their relationship to and ownership of private equity funds and hedge funds. These so called covered funds engaged in a variety of speculative leveraged and high risk investments. Such investments and their ultimate massive failures played a major part in the American and ultimately global financial collapse of the 2008 financial crisis and Great Recession. The Volcker Rule was originally named for Paul Volcker, the one time legendary Federal Reserve Chairman. This rule eliminates short term bank trading of derivatives, securities, commodity futures, and options on such futures. They may no longer use their own accounts for such trading that does not provide any benefit to the customers of the banks. The end result is that banks may not engage their own proprietary funds in order to participate in investments that may boost their own corporate profits. This Volcker Rule is spelled out under section 619 of the massive Dodd-Frank Wall Street Reform and Consumer Protection Act. It amended the Bank Holding Company Act of 1956, also known as the BHC Act, by adding in a brand new section 13 that has become universally known as the Volcker Rule. All institutions which accept deposits, as well as any corporate entity that is affiliated with these insured depository groups, are prohibited from pursing this secretive proprietary trading. They also may no longer have an interest in, acquire, or sponsor any private equity or hedge funds. There are some exemptions, definitions, and restrictions in the legal statute. It provided banking groups with some time until they had to prove they had conformed to the provisions of the rule. Originally this was July of 2014, but it was later extended to July 21, 2015 in order to provide banks with sufficient time to extricate themselves from these trades and practices. The end form of the regulations had to be approved by five different federal agencies. These included the Federal Deposit Insurance Corporation, the Federal Reserve System Board of Governors, The Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the SEC Securities and Exchange Commission. They approved these rules in December of 2013. The rules became effective on April 1, 2014 and required banks’ complete compliance by July 21, 2015. The Volcker Rule did not completely tie banks’ hands. They are still allowed to keep making markets, hedging, and underwriting government securities. They may also engage in the activities of insurance companies and perform the roles of custodians, brokers, and agents. They may offer customers private equity funds or hedge funds for their own accounts and benefit. All such services which they provide to their customers they may do in an effort to turn profits. The caveat is that banks may not pursue these activities when it leads to a dangerous conflict of interest, creates instability in the individual bank or the entire United States’ financial system, or opens up the banking institution to dangerous trading strategies or involvement with risky assets.

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Banks of certain sizes must report and disclose all of their covered trading activities to the appropriate government regulators. The bigger banks had to create programs that guaranteed they were abiding by the new rules. Besides this, their new compliance programs were subject to further independent analysis and tests. Institutions which were smaller were subjected to fewer reporting and compliance rules and regulations.

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Voodoo Economics (Reaganomics) Voodoo Economics is also known as Reaganomics. The term was originally used by President George H.W. Bush (Bush the Elder) to refer disparagingly to the economic policies of his predecessor President Ronald Regan. Ironically President Bush served for eight years as the vice president under Ronald Regan after he made those remarks. Before eventual President George H.W. Bush served as the VP of President Reagan, he considered his one-day running mate’s economic policies the Voodoo Economics as unorthodox and ineffectual. This was because Ronald Reagan loved supply-side economics, wanted to cut back taxes on corporate and personal income, and planned to restrict taxes on capital gains. The more popular term for the so-called Voodoo Economics changed into Reaganomics over time as these economic policies became wildly successful. The policies of the United States’ fortieth president who served from 1981 to 1989 were considered experimental at the time. President Reagan suggested that the economy (which was under a terrible recession since the time of President Jimmy Carter) could be massively stimulated by unconventional methods. These would eventually include massive and across the board tax cuts, significantly lowered social spending, greatly increased spending on the military, and the financial deregulation of American markets. President Reagan introduced these measures to combat the lengthy era of economic and financial stagflation which had started back under President Gerald Ford in the year 1976. While pre-Vice President George Bush the Elder intended for the term Voodoo Economics to be negative and harmful, the later adopted phrase Reaganomics served both critics and proponents of the policies of President Reagan. This set of policies came from the ideas of trickle down economics theory. Such an idea believed that by decreasing taxes, particularly those on companies, the government could stimulate the economy and increase economic growth. The concept held that as corporations found their expenses were reduced by federal policies, these savings would eventually find their way on down into the remainder of the national economy. This would then cause a boost in the growth rate. As part of his plan, President Reagan unleashed a four part strategy to lower inflation and to increase the job and economic growth. He started by cutting back the federal government’s spending on programs which were domestically based. Next he cut taxes for especially businesses, but also on individual investments and personal tax rates. Third, he decreased the burdensome regulations that handcuffed corporations and companies. Finally, he fostered a lower growth rate of money within the U.S. economy. While President Reagan did manage to lower the domestic program spending, he over compensated for it with his boost to military spending. This caused a financial net deficit and grew the U.S. debt burden during both of his four year terms. He did effectively slash the highest individual income tax rate down from an eye watering 70 percent to 28 percent. Corporate tax top rates declined from 48 percent down to 34 percent. Reagan moved on by cutting through all of the restrictive economic regulations which President Jimmy Carter had enacted. He also finally put an end to the dreaded and stifling price controls which still remained on natural gas and oil, cable television, and long distance phone service. During his second

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term, President Reagan encouraged a Federal monetary policy which helped to finally stabilize the American dollar versus major foreign currencies. Towards the close of the second term of President Reagan, he had increased the Federal government’s tax revenue base from $517 billion of his incoming year 1980 to $909 billion by his final year of 1988, effectively almost doubling it. He had cut inflation back to four percent, and he had pushed down the unemployment rate to under six percent. Economists and politicians may continue to spar regarding the ultimate impacts of the Reaganomics/ Voodoo Economics, yet no one argues that it did bring on what has become among the strongest and longest lasting eras of continuous prosperity in the history of the United States. From the years 1982 to 2000, the DJIA Down Jones Industrial Average increased in level by almost 14 times. The economy increased the job base by 40 million new ones during those heady years.

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Wages Wages are financial considerations given out to employees as payment for their time and effort of labor. Wages also refers to the compensation given to workers paid by the hour, whereas salary is the word used to describe compensation given out to employees. Compensation, like wages, proves to be monetary payments that employers give out to employees in exchange for their services that they provide the employer or company. Wages can be determined by supply and demand market forces in capitalist economies. In other countries, wages can be impacted by different elements like the social structure, tradition, and seniority, as they are heavily in Japan. A number of nations have chosen to set up a minimum wage that ensures that a floor on the value of particular types of labor is maintained. The word wage is a derivation of words that meant to make a promise in the form of money. The medieval French word Wagier stood for pledging or promising, specifically in the situation of a bet. The word Wadium from the Latin of the late period refers to a pledge being given. Within the U.S., the majority of employees and hourly workers’ wages are determined by either the interaction of market forces or collective bargaining. Labor unions actually negotiate the wages of their members in such collective bargaining. The U.S. also has its Fair Labor Standards Act that creates a minimum wage in Federal law that all states have to observe. Besides this national minimum, many cities and fourteen different states have established their own minimum wages which are greater than the national minimum. With some state government and federal government contracts, a prevailing wage exists that employers have to observe. This is mandated by the Davis Bacon Act or similar legislation within a given state. Some activists are not satisfied with these wage levels. They have pursued the concept of getting a living wage rate passed. These types of wages would be based on the costs of living and other needed items, causing a living wage rate to be significantly greater than the presently established minimum wages actually are. Wages are reported to the IRS and employees with W-2 forms sent out by employers. Employees must also state their wages accurately on their tax returns each year. Wages are the starting point for figuring out the amount of taxes that you owe the Internal Revenue Service every year. Wages are reduced by the allowable deductions before an adjusted income is derived for taxing purposes.

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Wall Street Wall Street is a physical street that is seven blocks long and runs from Broadway to the New York East River. It lies to the south of the Manhattan borough of New York City. The street is incredibly significant because it has played host to a number of the most important financial entities in the United States. The city originally got its name because of an earthen built wall that Dutch Settlers of the city erected in 1653 to ward off an anticipated invasion of the English. The street’s importance grew so rapidly that before the Civil War in America this was already known as the nation’s sole financial capital. In the district of Wall Street there are many important buildings and headquarters. The street contains the Federal Reserve Bank, the New York Stock Exchange, the International Commodity, Cocoa, Sugar, Coffee, and Cotton Exchanges, and the NYSE Amex Equities. There are also numerous municipal and government bond dealers, investment banks, trust companies, and insurance and utilities’ headquarters located here. A great number of the major American brokerage firms have their headquarters in this financial district. Because of Wall Street, New York City is sometimes called the most important financial center in the world as well as the greatest and most powerful city economically. Investors find the two biggest stock exchanges in the world as measured by market capitalization here in the NASDAQ and the New York Stock Exchange. A few other significant exchanges also make or made their headquarters here. These are the New York Board of Trade, The New York Mercantile Exchange, and the one time American Stock Exchange. In the 2000’s there were seven major Wall Street firms here. These included Lehman Brothers, Merrill Lunch, Morgan Stanley, Goldman Sachs, Citigroup Inc, JP Morgan Chase, and Bear Stearns. Several of these companies failed outright or had to be sold at urgently distressed prices to rival financial companies in the Great Recession that ran from 2008-2010. Lehman Brothers had to file for bankruptcy in 2008. The U.S. government made JP Morgan Chase buy Bear Stearns. The Treasury and the Federal Reserve then forced Bank of America to purchase Merrill Lynch. The catastrophic collapse of this many major financial firms dramatically downsized Wall Street with massive re-structuring. It proved to be especially severe for the economies of New York City and the surrounding states. This was because the financial industry in New York produced nearly a quarter of all income in the city. It also amounted to about 10% of all tax revenue for the city and 20% of taxes for the state of New York. City and state government revenues and budgets suffered dramatically from this loss of revenue for years. The Boston Consulting Group estimated in 2009 that as many as 65,000 jobs were permanently gone as a result of the financial crisis. This city and financial center has grown to become a global symbol for investment and high finance. Movies have been made about it including two with the same title Wall Street and its sequel Wall Street: Money Never Sleeps. The financial district has become a part of modern mythology in many ways starting back in the 1800s. The street emerged as a hated symbol of the greedy robber barons who took advantage of workers and

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farmers to the populists of the 19th century. When times were good it represented the way to get rich quick. Following such terrible stock market crashes as 1929 and 2008 the street looked like the home of financial manipulators who could crush major international companies and even derail the economies of entire nations.

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War Production Board (WPB) The War Production Board, or WPB, proved to be a one time agency of the United States Federal Government which was established to order and oversee World War II production and materials procurement from January of 1942 by an executive order of the then-President Franklin D. Roosevelt. The chairman of the board obtained broad and wide ranging powers over the economic output and production of the entire United States economy, factories, and facilities. Two different men served as chair of this important war effort board. Donald M. Nelson served from 1942 to 1944. He was succeeded by final Chair Julius A. Krug from 1944 to 1945. The War Production Board expanded the national peace time economy and converted it to serve in the ultimate production of weapons of war to assist the young men who fought in Europe and the Pacific theaters. Controls were established that gave priority of production to such scarce materials delivery and which prohibited industrial activities that were then deemed to be less significant or unimportant to the war efforts. The board may only have existed and operated effectively for three years, but in this span of time, it directed or oversaw the production of an astonishing $185 billion in supplies and weapons. This represented fully 40 percent of all munitions and ammunition production in the world during the years of the Second World War. By way of comparison, Great Britain, Russia, and all the other allies combined produced 30 percent of all war materials while all of the Axis powers including the Nazis and Japanese only managed to produce 30 percent of war time materials. It was on January 16, 1942 that President Franklin D. Roosevelt created the War Production Board by implementing an Executive Order numbered 9024. This new WPB then replaced the Supply Priorities and Allocation Board as well as the Office of Production Management. It started by rationing important and limited commodities such as heating oil, gasoline, rubber, metals like copper and aluminum, steel, plastics, and paper. As such the WPB was converting industries from peacetime production to wartime output, creating important national priorities in distributing services and goods, and stopping all non important production nationwide. The board became dissolved at the conclusion of the war with the final defeat of the Japanese in 1945. The Civilian Production Administration then replaced it in an effort to reconvert production back to a normal market forces controlled peace time economy in late 1945. Thanks to the efficiency of this board, the war effort in both Europe and the Pacific proved to be ultimately successful. The chairman and his council decided to channel production into a set military hardware production and distribution. This led to a quarter of all national output going into the production of warplanes, while another quarter became allocated to naval warships. Other munitions and civilian needs comprised the balance 50 percent of national production and output. The War Production Board proved to be so effective on a national and local scale because it operated through 12 regional offices as well as over 120 field offices scattered throughout the country. There were also statewide war production boards that worked hand in glove with the federal board. The state boards

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kept critical records on state levels of war production facilities and factories. They assisted state based businesses in obtaining loans and war production contracts. This board also engaged in patriotic propaganda efforts to rally American citizens around the war effort. They had slogans such as “Give us your scrap metal to help the Oklahoma boys save our way of life.” It created important national efforts like nationwide scrap metal drives that happened on local levels all throughout the United States with impressive results. As an example, the national scrap metal drive from October of 1942 produced so much metal that it amounted to almost 82 pounds of scrap metal on average per American.

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Warren Buffett The man affectionately referred to as the “Oracle of Omaha” is Warren Buffett. Buffet has distinguished himself for decades as among the greatest of investment gurus in modern history. He has an earned reputation as one of the most respected businessmen and is consistently ranked as one of the richest people. Besides turning everything he touches into gold, Buffett is an incredibly generous philanthropist intent on giving away his vast fortune before he dies. Warren Buffett was born in 1930 in Omaha, Nebraska. His father Howard served as a successful stockbroker and eventually as a U.S. congressman. The boy began to prove his abilities for business and finance in his early years. His friends have revealed that as a boy the math prodigy could figure the sums of large columns of numbers in his head. He demonstrated this uncanny ability for others as he grew older. By only 16 years old, Buffett had entered the University of Pennsylvania business school. He graduated from the University of Nebraska at 20 having amassed a small fortune of around $10,000 earned from childhood businesses. The budding youth read a life changing work The Intelligent Investor, Benjamin Graham’s 1949 book. This led him to work on his master’s degree under the guidance of this author and investor at Columbia Business School. In 1951 once he earned this degree, he worked as a securities salesman at Buffett-Falk & Company for three years before serving as an analyst for his mentor Graham at the Graham-Newman Corp for another two years. In 1956 Warren Buffett established his own company the Buffett Partnership Limited back in hometown Omaha. He employed Benjamin Graham’s investing techniques to identify companies which were undervalued and earned millions of dollars. By 1965 he had gained control of textile company Berkshire Hathaway. He dissolved his partnership operation in order to focus exclusively on Berkshire Hathaway in 1969. Within a few years Buffet had phased out the company’s main textile making division and turned this outfit into an investment holding company. He began to acquire shares and assets in companies involved in media like The Washington Post, in energy such as Exxon, and in insurance like GEICO. The Oracle of Omaha could even take failing companies and turn them into thriving successes, as he did in 1987 with Salomon Brothers, a scandal ridden investment firm. His holdings later included Coca-Cola, Citigroup Global Markets Holdings, the Gillette Company, and Graham Holdings Company. He served as a director of these companies at various points, including from 1989 to 2006 at Coca-Cola. In more recent years, Warren Buffett’s Berkshire Hathaway has bought H. J. Heinz, merged it with third biggest food and beverage business in North America Kraft Foods Group, and acquired battery giant Duracell. Warren Buffett has also been among the most generous and celebrated of philanthropists in history. Since June of 2006, he has been working towards giving all of his fortune to charity. His donation to the Bill and Melinda Gates Foundation represented 85 percent of all of his wealth. This proved to be the single biggest charitable donation in all of American history. He and Bill gates have been working on the Giving Pledge campaign from 2010 to encourage other wealthy donors to contribute to these philanthropic

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endeavors. Despite this generosity with his massive wealth, Buffett still ranks near the head of the world Forbes billionaire list each year.

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Washington Mutual Bank Washington Mutual Bank, affectionately referred to as WaMu for decades, used to be the largest savings and loan financial institution in the United States until its spectacular collapse that occurred at the height of the financial crisis in 2008. Ironically, the bank was no longer a mutual company from 1983 onward because of its decision to demutualize and evolve into a publically traded company. Before Washington Mutual Bank suddenly failed without warning, at the end of June 2008 it commanded a substantial asset balance of $307 billion and numbered 2,239 retail bank branches covering 15 different states. The bank had 43,198 employees and 4,932 automated teller machines. Deposit liabilities totaled $188.3 billion plus $82.9 billion in loans to the Federal Home Loan Bank. Its subordinated debt amounted to $7.8 billion. The bank’s loan book included $118.9 billion in assets of single family home loans, comprised of $52.9 billion of the toxic Option ARM adjustable rate mortgages, $16 billion of subprime mortgage loans, and $53.4 billion in HELOC Home Equity Lines of Credit. It commanded $10.6 billion in credit card receivables from its ninth largest credit card business operation in the nation, obtained when it purchased credit card provider Providian. The bank was servicing on behalf of other banks and its own loan book a total bank loan portfolio amounting to $689.7 billion, $442.7 billion of which belonged to other smaller banks. At the time right before its sudden collapse, WaMu counted $11.6 billion in non-performing loan assets, of which $3.23 billion were ARMs and another $3 billion were subprime mortgage loans. To all appearances, this was a strong balance sheet by most measures. Yet on the fateful day of Thursday, September 25 of that same year 2008, the Office of Thrift Supervision OTS of the United States suddenly seized Washington Mutual Bank without prior warning. It immediately put the massive financial institution into receivership of the FDIC Federal Deposit Insurance Corporation. The OTS felt compelled to take such a drastic measure because of the ongoing nine day bank run on WaMu that amounted to a staggering series of withdrawals totaling $16.7 billion of its deposits, or nine percent of total deposits which the bank had as of June 30, 2008. After some consultation, the FDIC elected to sell off the bank assets and subsidiaries, less its equity claims and unsecured debts, to rival commercial bank JP Morgan Chase for only $1.9 billion in cash. As it turned out later, JP Morgan Chase had been secretly plotting an acquisition of WaMu under a covert operation they internally nicknamed Project West. In no time at all, the thousands of Washington Mutual Bank branches became rebranded as Chase branches, and all by the conclusion of 2009. Considering the assets under management, WaMu’s receivership and shuttering proved to be the absolute biggest bank failure in the history of American finances. Just before being seized, the bank represented the sixth biggest financial institution within the U.S. The SEC filing of 2007 showed that the holding company of WaMu possessed assets totaling a staggering $327.9 billion. The history of Washington Mutual Bank was relatively quiet from its founding in Seattle, Washington in 1889 through 1983. That year 1983, the bank began an unprecedented and aggressive expansion all around the U.S. in multiple areas of financial company acquisitions on an incredible scale. This began with the purchase of brokerage firm Murphey Favre and the bank’s decision to demutualize. By 1989, the

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bank had doubled its assets in around five plus years. WaMu went on to acquire such nationally recognized brands as PNC Mortgage, Fleet Mortgage, Homeside Lending, American Savings Bank, Great Western Bank, and Providian. By August of 2006, the bank had adopted the loving moniker of WaMu in everything but legal situations, a nick name it carried all the way to its sudden and tragic demise.

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Wealth Wealth proves to be the abundant possession of material things or other resources that are considered to be valuable. People, areas, communities, or nations who control these assets are said to be wealthy. The word for wealth comes from the old English word ‘Weal’ and ‘th’, which means ‘the conditions of wellbeing’. The ideas of wealth have great importance for every part of the study of economics. This is particularly the case with development economics. Since the definition of wealth often depends on the situation in which you use it, no universally accepted definition for wealth exists. Different individuals have expressed a number of varying ideas of wealth in differing scenarios. Stating the concept of wealth often involves ethics and moral issues, because the accumulation of wealth is viewed by many people as the highest goal. Wealth is not evenly distributed throughout the world. In the year 2000, world wealth estimates ranged around $125 trillion. The citizens of Europe, North America, and a few high income Asian countries have ninety percent of all of this wealth. Besides this shocking statistic, only one percent of all adults on earth possess forty percent of the planet’s wealth. This number declines to thirty-two percent when wealth is calculated according to purchasing power parity, or equivalency of what it buys from one country to the next. Wealth and richness are two separate words that are used interchangeably. They mean slightly different things. Wealth describes gathering up resources, whether they are common or abundant. Richness relates to having such resources in abundance. Wealthy countries and people possess many more resources than do poor ones. The word richness is similarly employed to describe peoples’ basic needs being fulfilled through sharing the collective abundance. Wealth’s opposite proves to be destitution, while richness’ opposite is known as poverty. It is a concept that requires a social contract of ownership to be set up and enforced. Ideas of wealth are actually relative. They range from not only one society and people to another, but even between varying regions or areas of the same society or nation. As an example, having ten thousand dollars throughout all of the United States does not make a person among the richest in any area of the country. But this amount in desperately poor developing nations would represent a huge quantity of wealth. The idea of wealth changes in different times too. Thanks to the progress of science and machines that save labor, even the poorest in America today benefit from a higher standard of living than the wealthy used to enjoy not so long ago. Assuming this trend continues, then the wealthiest people’s standard of living today will be considered poor in the future.

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Welfare Welfare is a social program that the government uses to attempt to provide for its citizens’ well being. This could happen with social security, social welfare programs, or even government sponsored financial aid. Corporate welfare is generally described as the government directly supporting companies instead of permitting the free market to close down inefficient businesses. Governments that grow their welfare programs excessively find that they are called welfare states. Any type of program that has the government giving services or money directly to citizens in need of help can be called welfare. This means that lots of government programs are forms of welfare, even when the citizens and critics do not realize it. Still others say that still more welfare programs are needed to adequately take care of people’s needs. Social welfare provisions are what the majority of people are describing when they talk about it. These programs offer minimum income standards to those who have lost their jobs, are old, or are disabled. The government feels an ethical obligation to help these individuals who could not live without help. By allowing them a chance to find work again, the government ultimately helps out the economy and nation as a whole. As an example, those who have lost their jobs can get welfare assistance in the form of unemployment as they are seeking replacement work. This is offered as cash assistance and sometimes as food stamps. If you become disabled and can no longer work, then you are able to obtain the same type of help, even though you do not have to look for work to be eligible. A great number of countries today feature national health care programs. These prove to be enormous welfare systems. In these systems, every group in the country is able to access medical care when they need help. The U.S. does not yet have a functioning universal health care system set up, though one has been passed by congress and President Obama for the future. A free universal welfare system that runs throughout the U.S. is free schooling until the end of high school. The government pays for all associated costs, even food and transportation when it is required. Because most critics do not consider free public education to be welfare, there is little controversy surrounding it.

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Welfare Economics Welfare economics concentrates its studies on the best possible allocation for goods and resources in an economy. It looks at the ways that allocating such resources will impact the welfare of overall society. This pertains to the school of thought on the distribution of income and the ways that this will influence the overall good of society. As such this becomes a subjective form of study. It assigns quantities to usefulness and welfare so that it can develop models to measure the improvements of individuals. This science came into its own as a clearly articulated economics theory branch in the years of the twentieth century. Writers before the development of welfare economics thought of general welfare as only the sum total of satisfaction of all people living inside an economy. After this, later thinkers decided that it might not be realistic to measure even a single individual’s level of satisfaction. They made the case that it was not possible to compare two different people’s individual levels of well being. They skeptically considered the long held belief that poor people gain greater satisfaction than the rich do when they realize an income increase. Today the branch of welfare economics considers both how resources are distributed and the way that this determines the aggregate level of contentedness within the society and economy. It does it on both an individual level and a total societal level. The theory seeks to determine an ideal distribution of resources for the maximum happiness of all its members to be achieved. Welfare economics makes use of the techniques and point of view in microeconomics. It can also be combined to produce a macroeconomic conclusion. There are those economists who follow this branch of economics who argue that higher levels of all- around social good can be attained if the government will redistribute incomes fairly in the economy. It also models theories of economic efficiency in predicting an ideal place where social happiness reaches the maximum level it can hit. Once this point is achieved, it means the economy functions so that additional changes will raise the happiness of one segment of society at the expense of another one. There are a range of issues from welfare economics that help governments to develop their public policies. Among its chief goals is to create bare minimum standards for quality of living. This means the proponents of this economic school of thought are striving to see the governments make available basic and necessary services to the populace. They also want to have affordable housing options and enough jobs that pay livable wages for all members of society. Capitalist concepts are in opposition to welfare economics. Straight capitalism rejects the notion of intensive intervention from the government in economic issues. Capitalism concentrates on individual ability, development, and choices in the pursuit of happiness through personal gain. Capitalism argues that the “invisible hand” will cause individuals who are pursuing their own personal enrichment to pursue actions that benefit the overall good. Utility is an interesting concept from this branch of economics. It explains the value of a given good or

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service from the point of view of an individual. This value describes whether or not purchasers believe the value they receive for the particular service or good is equal to or higher than the cost to buy it. It also argues that individual units of currencies, like dollars or Euros, have the same values to individual people as they do to companies. It does not matter how vastly their relative incomes vary.

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Wells Fargo Wells Fargo has been one of the big four U.S. banks since its acquisition of Wachovia in 2008. This ranks it with JPMorgan Chase, Citigroup, and Bank of America. The bank grew to be the third biggest U.S. bank counted by assets as of the conclusion of 2015. Ranked by home mortgage servicing, deposits, and debit cards, it is the second biggest American bank. Globally it figures as high as second largest bank in the world by market capitalization. The mostly U.S. focused bank is so large that in 2015, Forbes Magazine Global 2000 ranked it as the seventh biggest public company in the globe. At the end of 2015, Wells Fargo Bank counted 8,700 retail branches with 13,000 ATM machines, over 100,000 employees, and 70 million customers. Though it is primarily a U.S. centered financial institution, it does maintain operations through 35 countries. These international centers mostly cater to large business corporations and other banks, and are not consumer or small business operations. The present day shape of Wells Fargo Bank resulted from a merger and acquisition. In 1998, the Wells Fargo & Company merged with Norwest Corporation of Minneapolis. The bank’s Financial Crisis era 2008 acquisition of Wachovia, based in Charlotte, North Carolina, allowed the company to become one of the dominant U.S. based financial institutions. It transferred the headquarters of the absorbed banks to its historic headquarters city of San Francisco where its original bank has been based since 1852. The bank originally arose as a single subsidiary of the Wells, Fargo & Co. that Henry Wells and William Fargo founded in San Francisco to serve the West of the United States. Their new company in 1852 began offering both banking services via buying gold and selling bank drafts guaranteed by gold and express services. The express division offered quick delivery of gold and any other items of value around the West and eventually the entire country. The present day company’s corporate symbol hails from its days of operating the overland stagecoach line in the 1860s, of which the Pony Express became a part. This service provided mail and business delivery via the fastest transportation available, including stagecoach, railroad, steamship, telegraph, and pony rides. By 1888 the company’s stage lines connected the country as the United States’ first nationwide express operation. This service peaked at 10,000 locations throughout the U.S. before the Federal Government assumed control of the national express network as part of the World War I endeavors. The seizure left the company with only its single Wells Fargo & Co’s Bank in San Francisco that had separated from the Wells Fargo & Co Express in 1905. The bank spent the rest of the 20th century rebuilding and expanding. It went from a banker’s bank in 1923 serving the whole West to a California statewide consumer bank in the 1980s. At this point it was the seventh biggest bank in the United States until the merger and acquisition catapulted it into the big four American banks. Today Wells Fargo Bank offers its U.S. customers a wide range of products and services including

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checking and savings accounts, mortgages, credit cards, student loans, financial planning, insurance, business banking, and business and personal loans. Outside of the U.S. it does not have branches which provide consumer or small business customer services. It does offer large businesses, corporations, and other banks services in 35 countries which include foreign banking, foreign exchange hedging strategies, exporting and importing, global supply chain finance, international payments, currency risk management, and help expanding into foreign markets.

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Wells Fargo Scandal The Wells Fargo scandal began because of a high pressure corporate environment where its employees were expected to meet ambitious sales quotas or face demotions or job loss. Over the course of five years, the bank employees opened upwards of two million unauthorized accounts without consulting with their customers. These fraudulent new accounts ran the gamut from checking, to savings, to lines of credit and credit cards. This Wells Fargo scandal caused the bank to receive a $185 million fine in September of 2016 for these actions. For a bank of its size with a trillion dollar plus balance sheet, this amounted to a mere slap on the wrist. More threatening to the bank are class action lawsuits. One of these filed in California seeks at least two billion dollars in damages for employees who were fired or demoted for not meeting their sales quotas. This award would be dispersed to those former and current employees who refused to participate in these shady activities. Until this Wells Fargo scandal erupted, the branch and phone center staff at the bank worked under the constant pressure and threat of highly ambitious sales quotas. The bank’s executives used to brag to Wall Street analysts about how they were able to successfully cross sell all of their customers on multiple products or accounts. This ingrained culture and system collapsed when the bank ended the quotas on October 1 of 2015. Wells Fargo claimed it had fired 5,000 employees who were guilty of the unauthorized accounts opening. The bank’s problems from the Wells Fargo scandal are more than just the penalties from regulators, lawsuits, and investigations. The executives have faced a grilling before the Senate Banking Committee. They will now have to tear down and build back from the ground up their performance management and sales incentive systems which extend back over two decades. This will require massive efforts and enormous capital expenditures on recruiting, training, and developing safeguards to protect customers from abuses by the bank and its employees. Consultants for the bank estimate it will require from three to five years from 2016 to rebuild appropriate sales and management infrastructure. Because of this Wells Fargo scandal, the bank CEO John Stumpf hosted a conference call with 500 of the bank’s executives to explain their vision for a corrective response. The bank is seeking to add an incredible 2,000 more risk management employees. They have already installed a new head of retail banking, as Carrie Tolstedt retired in July because of the investigations into the bank’s high stakes sales culture. Incidentally she and then Executive VP of Community Banking Stumpf were responsible for the aggressive shift in sales culture at the bank back in the early 2000s. The retraining of Wells Fargo staff is going to be extensive and difficult to orchestrate as well. Up to 100,000 employees working at over 6,000 branches will be involved once the new sales systems are implemented. The bank has already lost a portion of its retail banking business and admits it may lose more because of its severely tarnished reputation. Wells Fargo took on the cross selling concept around two decades ago. They embraced the idea of supermarket banking for their primary banking model. By the turn of the century, the company’s annual report called its branches “stores.” The CEO Stumpf has admitted he still loves the concept of cross

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selling. He stated before the Senate Banking Committee that this was his “shorthand for deepening relationships.”

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Wen Jinbao Wen Jinbao proved to be the sixth Premier of the People’s Republic of China state council. He served in the position as head of government of China during the important decade from 2003 to 2013. While premier, Wen gained the much-deserved reputation as the main figure behind the successful expansionary economic policy of the People’s Republic. During the years 2002 to 2012, he also held memberships in the Communist Party of China and the Politburo Standing Committee. These are the literally highest halls of power in Beijing and China. He held the rank of importance at number three out of the total nine members at this time. From 1986 to 1993, Wen Jinbao labored as the Party General Office chief. He proved his early importance in the scheme of things when he was an accompanying official to then Party General Secretary Zhao Ziyang at the Tiananmen Square protests that later became the infamous massacre site of the same name in 1989. By 1998, Wen had gained an important promotion to the job of Vice Premier serving under Premier Zhu Rongii, his personal mentor. He personally oversaw the crucially important portfolios of both finance and agriculture in this capacity. It later emerged (because of an in depth New York Times newspaper investigation) that Wen astutely used this firsthand personal knowledge in both sectors to help his family advance from their long-term life of poverty to becoming among the richest families in all of China. Wen Jinbao’s family may have in fact lived in extreme poverty as he grew up like he has publicly claimed, but thanks to his critically important connections in government and the advance knowledge this provided him with, his mother, brother, and sister all began to make astonishingly astute business deals that catapulted them into several billions of dollars of wealth in China’s fast-moving economy. As a prime example, at 90 years old his mother Yang Zhiyun holds a single investment in her name (within an important Chinese financial services firm) that possesses a market value of in excess of $120 million as of five years ago, per the regulatory records in China. This was not an accident by any means. While serving as premier of the world’s fastest growing and second largest economy on earth, Mr. Wen enjoyed vast authority over and deal making knowledge of the important state-backed and overseen industries where his various relatives have earned massive fortunes. He possessed significant influence over all investments in important state sectors including telecommunications and energy as well. Neither is the success of Wen’s mother an isolated incident. His daughter, son, brother-in-law, and younger brother have all attained legendary wealth in the time when he was the head of government in China and even several years before this. Combining the fortunes and holdings of his close relatives reveals that their combined controlled assets have a paper value of minimally $2.7 billion U.S. dollars. His family ventures even enjoyed special advantages of state financial assistance, financing, or guarantees from the government or companies which were directly state-owned and -operated. China Mobile is a prime example of this trend in his family. They were among the largest phone operators in China and backed their investments. His family ventures also enjoyed significant support from some of the richest men in Asia. His relatives have successfully accumulated a substantial number of both shares and stakes in jewelers, banks, tourist resorts, infrastructure projects, and telecommunication firms. Many of these

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projects and endeavors are disguised by utilizing offshore entities. Chief among such lucrative holdings are a tire factory operating in northern china, a villa development project located in the capital Beijing, a construction firm that put up various Olympic stadiums for the Beijing games, and Ping An Insurance, now among the largest financial services companies on earth. The younger brother of the former premier owns a company which received important $30 million government contracts and state subsidies to treat wastewater and to perform medical company waste disposal for several of the largest cities in China. The combined family businesses as of 2007 possessed various partnerships that owned $2.2 billion US dollars in Ping An stock alone.

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Western Union Western Union proves to be a world-leading provider of global payment options and services. They help customers who range from individuals and families, to small businesses and not for profit NGOs, to international corporations. The company does more than simply help businesses and individuals to move money; they help national and international economies to expand and communities to experience a more prosperous and better life. For the full reporting year 2015, Western Union transferred more than $150 billion dollars between customers and businesses around the globe. The firm boasts an impressive 500,000 different agents’ locations, with more than 100,000 of their own ATM’s and kiosks found around over 200 different countries and territories of the globe. They are constantly seeking to find smarter and better, more innovative and cutting edged means of sending money utilizing mobile, digital, and retail channels by providing a vast range of options for convenient pickup or payout to help their consumers and businesses with their cash needs. Western Union is a major player in the world of currency translation as well. Their transactions happen throughout over 130 different currencies between more than a billion individual bank accounts around the world. They average an impressive 31 different transactions for every second (per the year 2015). By simply going down to a retail outlet or utilizing the Western Union website or mobile app, customers are able to move money from almost any location to almost any other domestic or international location, from one currency to almost any other, and all in a matter of minutes. This helps their customers to be able to send money out to their family members or friends in almost every corner of the globe. They can offer financial support and encouragement, empower an education or entrepreneurial opportunity, or simply honor someone for a special accomplishment or occasion. Their flagship service for individuals who wish to send money across the globe is called WU Connect. This international cross border system allows for peer to peer sending of funds to over 200 different nations and territories around the world. Pickup can be arranged via a wide variety of approved bank accounts, Western Union physical agent locations, and select mobile wallets. Business customers also have access to a toolbox full of helpful services. The main category for this is the Western Union Business Solutions platform. This enables businesses to navigate their way through the challenging global economy. They can avail themselves of risk management, international payments, and cash management tools. More than 100,000 medium to smaller business clients, financial institutions, NGOs, and educational institutions are able to effectively transact in and make payment across national borders and through widespread geographical time zones. Larger businesses and multinational corporations which require help in hedging international currency movements for the future are able to take advantage of their Leverage Forward Contracts. These help them to lock in an attractive current day exchange rate for specific time frames that extend up to 12 months out from the present date. This assists multinational corporations and big businesses in safeguarding their profit margins against currency movements over the short to medium term time frames. The WU system allows clients to place market orders in any time of the day or night. They can

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even set up a monitoring order to wait for a targeted advantageous exchange rate, whether or not they are sitting at their desk in the physical office or not. The businesses can also avail themselves to the services Western Union offers to manage a company’s exposure to foreign currency. Risk can be first identified and then addressed using a four step risk management protocol. The company maintains a staff of well-trained and knowledgeable specialists who are able to help set goals and develop a simple yet effective currency hedging plan to reduce and control currency exposures while protecting the important margins of profit.

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Wholesale Banking The concept of wholesale banking pertains to those banking services which are done between merchant banks or commercial banks and various other financial institutions. This form of banking services has to do with bigger bank clients like enormous corporations or other financial institutions. In contrast, retail banking concentrates on individual clients and small businesses. Such particular banking services cover financing of working capital needs, currency conversions, large trade transactions, and a range of alternative and specialized banking services. There are so many different avenues which wholesale banking covers. This specialized department within the mega banks handles capital markets products, integrated credit, and a range of different advice and guiding for risk management, funding needs, and investment products and services for international and domestic major corporate clients. Such products and services run the gamut of structured transactions, specialized finance, credit structuring, loan syndications, project finance and securitization, merchant banking, wholesale equities, and public sector financing of infrastructure projects. Among the many different types of wholesale banking clients are corporations which are medium sized to large, institutional investors and clients, pension funds, governmental departments and agencies, and other global banks and financial institutions both domestic and abroad. The services which they often need in day to day operations include equipment financing, cash flow management, large loans, trust services, and international merchant banking. The concept also relates to lending and borrowing between larger institutional banks and other financial organizations. Such lending mostly goes on in the interbank market and revolves around huge sums of money in practice. The majority of commercial banks function as such merchant bank operations, providing wholesale banking services besides the more usual retail customer banking services. It makes it more convenient for those customers who require wholesale banking services, as they will not be required to track down and go visit a specialized financial institution. Rather they are able to deal with the same bank which handles the customer’s individual retail banking needs. The most understandable means of comprehending this wholesale banking phenomenon is to draw parallels with a discount superstore chain such as Sam’s Club or Costco. These outfits trade in such enormous quantities that they are able to feature special deals and lower fees per dollar of sales. For bigger institutions or organizations, this makes it advantageous for them who possess high dollars of assets and business banking transactions to participate in this banking wholesale instead of going the more traditional retail banking customer services route. As an example, many businesses possess numerous locations throughout the country. They often times require a solution for their cash management, which wholesale banking can easily provide. Technology companies are an especially relevant business line for this type of banking. Perhaps an SaaS firm owns 10 sales offices throughout the U.S. It might be that every one of its 50 sales department members needs their own access to the company’s corporate credit card. The company owners also insist on every one of the regional sales operations maintaining at least $1 million in cash reserves on hand. This amounts to

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$10 million worth throughout the various offices combined. Companies with these type of needs will be too big for the traditional format of ordinary retail banking. The owners of this company might instead contact a significant sized bank and ask for a corporate account which will handle each of the company’s financial accounts. These services function as a facility which will provide discounts to the company in exchange for meeting a minimum dollar level cash reserve requirements as well as a minimum level of monthly bank transaction requirements. It is in fact easy for the SaaS company to hit such targets each and every month. This is why the company will seek out such a corporate facility in order to properly consolidate together each of its financial bank accounts so that it may effectively reduce its total fees. This makes so much more sense for a larger company than instead having 10 different regional bank checking account and 50 separate retail bank corporate credit card accounts.

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Wilshire 5000 Index The Wilshire 5000 Index is also called the Total Stock Market Index. The reason for this impressive sounding name is that its ultimate goal is to track the aggregate returns of most ever publicly traded stock that is based in the United States and trades over one of the major American stock market exchanges. This index is not necessarily the most famous one in the investing universe though. The truth is that despite this fact, it remains the biggest market index on earth, when it is measured by actual market value. The Wilshire 5000 Index is actually a misnomer. There are not only 5,000 firms within the index as many incorrectly suppose. Instead, there are over 6,700 individual companies’ stocks within it. The number of firms actually changes all the time. When the Index was first created, it actually had only 5,000 composite companies. As more business have been created and traded publically on the major three U.S. exchanges since the Wilshire’s inception, this has necessarily required that they add more net numbers of companies in order to keep up with their objective of representing all major American corporations. In order to be a candidate for inclusion in the Wilshire 5000 Index, there are three criteria which the firms must meet. They have to be headquartered domestically within the United States. They must also trade actively over one of the significant stocks exchanges in America. Finally, their pricing data has to be easily accessible to both members of the general public and the American investing community. The Wilshire index actually does not evenly weight all of its constituent members, as is typical with other market cap weighted indices as well. In fact, they provide a greater weighting to firms that are more highly valued and an underweighting to those companies which possess a lesser firm value. The ticker symbol for The Wilshire 5000 Index proves to be TMWX. The index is famous for its efforts to track the all around American stock markets’ performance. Some publically traded United States’ based corporations are routinely excluded from any inclusion in The Wilshire 5000 Index. Among these are the stocks which trade over the OTC BB Over the Counter Bulletin Board platform and system. This includes the stocks from micro cap companies and those which are valued as penny stocks. All companies which trade on the NASDAQ, American Stock Exchanges, and NYSE New York Stock Exchanges are typically included. It is what makes the Wilshire index the most truly diverse of all American indices anywhere. Those larger companies which are a part of the Wilshire index have a greater weighting and will thus have greater impact on the movements of the underlying index. With the Wilshire 5000 Index, the 500 biggest firms command over 70 percent of the total value of the index. This actually means that it is an economic performance measurement of only American companies, the largest 500 of which dominate the up and down movement of the index. It is important for investors to realize that the ETFs, index funds, and other mutual funds based on the Wilshire 5000 have a unique expense characteristic. The costs of maintaining a passive portfolio of over 6,700 different stocks which are constantly changing naturally will be higher than for a index fund that has only 30 or even 500 composite constituent corporations within it, as in the Dow Jones 30 companies’ index or the S&P 500 composite index. Despite this fact, the fees do not amount to a much higher

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percentage wise difference for investments in the Wilshire 5000 Index.

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Wire Transfer A wire transfer is the quickest, safest, most reliable means of sending money within the United States, in other countries, or around the world. They are often essential in the more critical financial activities of life such as purchasing a house. The reason larger transactions occur in this form of payment is because the recipient can receive and verify the funds transfer the same day it is done, or as near to immediately as possible (besides Western Union and Money Gram, which cost substantially more to utilize). A wire transfer actually represents a means to electronically transfer money from one party to another via a bank as intermediary. A traditional and typical wire transfer starts at a credit union or bank and electronically processes through either Fedwire or SWIFT networks. Another common name for such a wire transfer is a bank wire, which also encompasses the standard bank to bank transfers. Ultimately the wire transfers have become so successful and utilized throughout the United States and rest of world simply because they are capable of moving even enormous sums of money to any destination bank in the world in only a day or two. If they are affected within the same country such as the United States then same day wires can be done. For an international transfer via wire transfer, it often requires another day or even two to complete. Since the funds move rapidly through the financial system, recipients are not required to wait a material amount of time for the funds to become cleared. This means they can access and utilize the money without significant delays. No holds are typically placed on wire transfer monies. The safety issue means that merchants prefer the wire mechanism. This is because checks can bounce because of insufficient funds, while wires never do so. In other words, these are guaranteed funds. There are some particular requirements that wire transfers need in order to be possible to transact. At least in the United States, both parties would require a functioning bank account in order for a bank to act as intermediary. Since thieves can not open a bank account too easily, nor bank anonymously in the United States, it is difficult for them to carry out scams using bank wires. This is because it leaves a paper trail which is easy for law enforcement officials to follow. This does not mean that wire transfer scams are unknown entirely. It is possible for a person to be tricked into wiring money to a fraudster for a purchase or service they never receive. Examples of this are fake insurance policies or false retirement or investment products. Once the wire has cleared the recipients account, they can either withdraw the funds in person or wire it to an offshore overseas account. By the time the victims realize that they have been scammed, the funds sent by wire will be long gone. They would no longer be recoverable by traditional U.S. law enforcement or even court order methods once they have been transferred offshore. Pulling money back after it has been dispatched via bank wire is extremely difficult in any case. This is true even if the funds remain in the recipient’s bank account. Wire transfer fees can be significant. In many parts of the United States, they run as high as $40 to dispatch a bank wire. Many banks charge upwards of $10 in order for a bank wire to be received into an account. The costs to send one are higher if the wire is funded by utilizing a credit card cash advance. Cash advance fees would then apply, as well as typically large interest rates, plus the wire transfer fee.

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This is why it is typically most financially sound to effect a bank wire directly from the sender’s bank account.

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World Bank The World Bank proves to be an institution in international finance. It offers developing countries of the planet leveraged loans to help out with funding capital programs. The major goal is to cut down on poverty. Every decision that the organization enacts is required to be carried out with the objectives of encouraging international trade, foreign investment, and facilitate capital investment. The World Bank should not be confused with the World Bank Group. The World Bank is two of the five organizations within the World Bank Group. These two groups that make up the World Bank are the IDA, or the International Development Association, and the IBRD, or International Bank for Reconstruction and Development. The World Bank Group is also made up of MIGA, or the Multilateral Investment Guarantee Agency; the IFC, or International Finance Corporation; and the ICSID, or International Center for Settlement of Investment Disputes. The World Bank’s two organizations are widely supported by the nations of the world. The International Development Association contains one hundred and sixty-eight members, while the International Bank for Reconstruction and Development is comprised of one hundred and eighty-seven countries. Exclusively members of the IBRD may belong to the various other organizations in the World Bank. All IBRD members are supposed to belong to the IMF, or International Monetary Fund, as well. The year 2010 saw significant revisions to the allocated votes of members of the World Bank. Developing countries, especially China, gained a larger voice. The nations that possess the biggest voting power currently are the United States at 15.85%, Japan at 6.84%, China at 4.42%, Germany at 4%, Great Britain at 3.75%, and France at 3.75%. These changes are called the Phase Two of the Voice Reform. They also gave major votes percentages to countries such as India, Brazil, Mexico, and South Korea. To come up with the extra votes, the voting percentages of the majority of developed nations declined. Russia, the United States, and Saudi Arabia’s votes did not change. The World Bank focuses on reducing the poverty found in the poorest developing countries in the world. They do this analyzing a nation’s economic and financial condition and comparing it against a snap shot of many local groups in the country. Then it comes up with unique strategies for addressing the problems of the given country. After this, the country’s government lays out their biggest priorities for reducing poverty, so that the World Bank can line up its help to work together with this government. Besides giving out money to the poorest countries on the earth, the World Banks heads several other initiatives. They are managers of the Clean Technology Fund. They also run the Clean Air Initiative.

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World Currency A world currency refers to the idea of there being a single monetary unit that is accepted the world over by all nations, businesses, and peoples. As of 2017 (and probably for the foreseeable future), there is no true world currency. There have been many ideas put forward for a single currency over the last few decades. Among these are the International Monetary Fund’s SDR Special Drawing Rights and the world’s most popular crypto-currency Bitcoin. Yet despite these creative ideas which do show promise for the medium to longer term future, the only contender for title holder of world currency today is the United States dollar. The U.S. dollar became the dominant reserve currency of the world, the closest thing to a world currency, following the Second World War. This transpired for two reasons. At the end of World War II, most of the economies of the European continental nations, including Great Britain’s, were largely devastated. The U.S. economy was the only one left standing intact and as such was the largest in the world at that point. The second reason was that the U.S. had by then amassed the largest gold stocks in the world. This was an era where gold still backed global currencies and proved which currencies were the strongest. For several decades, the U.S. remained the largest unchallenged economy, and so dollars naturally backed by gold were treated as good as gold. This was still the case even after the U.S. abandoned the gold standard in favor of printing limitless quantities of dollars to finance the growth of the world economy ostensibly. The break with the gold standard did substantially weaken the dollar’s position. As a result of this, President Richard Nixon-orchestrated event from 1972, several other world currency challengers gradually arose to threaten the dollar’s global dominance. These were the euro and the Japanese yen. Thanks to their steady development, they have become regional settlement currencies used in European spheres and increasingly in Asian trade, respectively. It is true the American dollar is still the biggest reserve currency in the globe. Yet it has significantly depreciated (versus gold especially) in the last forty-five years since the country chose to abandon the Breton Woods Agreement at the same time as the euro and yen have grown. In fact it is no accident that the three largest economies or economic blocks also boast the three most powerful currencies which dominate the three spheres of the world economy (Americas, Europe, and Asia). The world currency situation has further shifted away from exclusive settlement in U.S. dollars because of the growth and multiplication of Forex cross currency pairs. New currency pairs such as AUD/JPY (Australian dollars versus Japanese yen) make it possible for direct currency trade and settlement without American dollars having to be involved. With 185 currencies in the world today, there is no doubt that the dollar remains the most heavily utilized across the globe. As for the other 184 national currencies, the majority of these are only employed within their own national boundaries. While it is true that any of these could in theory take over the role of world currency from the dollar, it is also unlikely that any of them will for some time. There are several reasons why this is the case. The main one is that the U.S. dollar remains the most powerful world currency. It is not just the domineering size of the U.S. economy as compared to its rivals.

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Fully more than a third of all the world’s economic output derives from nations which either use the dollar or have pegged their own national currencies to the value of the dollar. This results from not only the seven countries which have adopted the U.S. dollar, but another 89 nations that maintain their own national currencies within a tight trading range against the value of the dollar. Another statistic that underpins the dollar is the fact that over 85 percent of all Forex trading and transactions are connected with the American dollar. Add to this the fact that 39 percent of all debt in the world is dollar currency-issued, and it becomes clear why so many foreign banks require huge amounts of dollars to conduct business operations. This is true even in their own home markets overseas.

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World Trade Organization (WTO) The World Trade Organization, or WTO, proves to be an organization that is intergovernmental in scope and signatories. Its ultimate purpose is to regulate international trade. This WTO began in 1995 on January 1 under the auspices of the Marrakesh Agreement that 123 different nations signed on April 15th of 1994. It then replaced the preexisting General Agreement on Tariffs and Trade, or GATT that had begun functioning from 1948. The World Trade Organization handles the legal regulating of trade between those nations that participate. It does this via a framework that helps to negotiate trade agreements and resolve disputes, all the while enforcing the obedience of participating members to the agreements of the WTO (which member nation governmental representatives have previously signed). Their parliaments or congresses had to ratify the signatories as well. The majority of the issues which the WTO itself concentrates on come from prior trading negotiations, particularly from the lengthy Uruguay Round which went on from the years of 1986 through 1994. The World Trade Organization has long struggled to finalize negotiations on what is now referred to as the Doha Development Round. They launched this latest endeavor back in 2001 to concentrate on the developing nations of the world. Its future remained uncertain as the 21 subjects whose deadline expired in 2005 continued to stymie participants of the trade regulating organization. Among the major obstacles were the arguments between free trading of industrial goods and associated services while still keeping farm subsidies for the agricultural sector (which developed nations insisted on), as well as the fleshing out of fair trade rules on agricultural products (insisted on by developing nations). These obstacles ensured that no further negotiations or initiatives could be launched to go beyond the Doha Development Round. The present day Director General of the World Trade Organization turns out to be Roberto Azevedo. He heads a staff of more than 600 individuals based in Geneva, Switzerland. The first comprehensive arrangement which the member states agreed upon was the Bali Package, a facilitation of trade agreement. They finally signed off on this on December 7th of 2013. The immediate predecessor to the World Trade Organization was the GATT General Agreement on Tariffs and Trade. The member states of the world established this group following the conclusion of the Second World War. This occurred as part of the marathon cooperation efforts of the victors of the world war. They were dedicated to expanding the cooperation in spheres of international economics to help rebuild the devastated world. Among these organizations which have stood the test of time are both the International Monetary Fund, or IMF, and the World Bank. The negotiators attempted to set up a similar international group to focus on trade and trading rules called the ITO International Trade Organization at that time. It never got off the ground effectively since the United States and several other signatories never approved it. This left the GATT to gradually evolve into the eventual de facto world trade organization. By the 1980s, the GATT was struggling to adapt to the increasingly globalizing and expanding world

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economy. The member states came to the conclusion that the existing system would not suffice to deal with problems of this brave new world order. This was the reason they launched the eighth GATT round of talks which eventually became famous under the name of the Uruguay Round. These were held in Punta del Este, Uruguay. It represented the largest mandate to negotiate trade in the history of the world (which actually was mutually agreed upon and signed). It covered an expansion of trade system ideals into intellectual property and services trade. The Marrakesh Agreement finally emerged from the last ministerial meeting held in Marrakesh, Morocco. Fully 60 different agreements, decisions, annexes, and understanding became adopted as a result. This led to the eventual creation of the WTO.

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XAU Precious Metals Index The XAU precious metals index proves to be a stock shares index which trades on the United States’ based Philadelphia Stock Exchange. This index is comprised of 29 different precious metals mining firms. Though there are 29 participants in the index, the index is heavily dominated by only the three largest of them. These three overwhelming players are mega-gold mining companies Barrack-Placer, Newmont Mining, and Anglo Gold Ashanti. Between the three of them, they represent over half of the entire index. As of May 5, 2017, the 29 companies comprising the XAU precious metals index were as follows: Agnico Eagle Mines Limited, Anglo Gold Ashanti Limited, Barrick Gold Corporation, Coeur Mining Incorporated, Compania de Minas Buenaventura, El Dorado Gold Corporation, First Majestic Silver Corporation, Freeport-McMoran Incorporated, Gold Fields Limited, Gold Resource Corporation, Goldcorp Incorporated, Harmony Gold Mining Company Limited, Hecla Mining Company, Iamgold Corporation, Kinross Gold Corporation, McEwen Mining, New Gold Incorporated, Newmont Mining Corporation, Nova Gold Resources Incorporated, Pan American Silver Corporation, Primero Mining Corporation, Rand Gold Resources Limited, Royal Gold Incorporated, Sandstorm Gold Limited, Sea Bridge Gold, Silver Standard Resources Incorporated, Silver Wheaton Corporation, Still Water Mining, and Yamana Gold Incorporated. Back in 2006, the Philadelphia Stock Exchange expanded its XAU precious metals index and grew the exposure beyond the traditional North American, British, South African, and Australian based miners to include significant exposure to Eastern Europe, South America, and Russia. They did this by adding in another four mid cap and small cap companies that had gold mining properties in those three parts of the world. At the same time, Placer Dome was acquired by Barrick Gold and became removed from the index. The four new companies which they added to this important precious metals index were Royal Gold Incorporated, Rand Gold Resources Limited, Couer D’ Alene Mines Corporation, and Bema Gold Corporation. Bema Gold Corporation was later acquired by Kinross Gold Corporation and subsequently became delisted from the XAU precious metals index. It is not terribly surprising that Canadian Bema Gold Corporation was taken over, as even in the heyday of rising gold prices back in 2005, Bema proved to be an anomaly in the gold mining world as it represented one of the only gold companies on earth to lose money in the booming gold price days of the mid 2000’s. The development of adding additional gold mining company exposure to Russia, Eastern Europe, South America, and Australia came about because of geographical leadership changes in both the gold and silver mining industries. The XAU precious metals index has long been the most closely studied and heavily watched bell weather of gold mining company shares. It outperformed the overall stock markets in the first five years of the new millennium, and managed to triple in market cap and overall share pricing from 2001 to 2005. The Philadelphia Stock Exchange allows trading of the XAU precious metals index every Monday through Friday from 9:30am until 4pm local Philadelphia time. This index has only one serious rival in the world of gold mining companies’ indices. This is the HUI Index listed as the AMEX Gold BUGS

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Index. The two indices represent the world’s most closely followed precious metals composites. There has occasionally been some confusion with the name XAU precious metals index. This is because XAU also denotes a single ounce of gold. Thanks to the ISO 4217 currency standard, the symbol became representative of the yellow metal itself.

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Xetra The Xetra is a Frankfurt, Germany based trading system. What makes it so significant is that it is a completely electronic platform for trading German stocks. The Deutsche Borse first launched this platform for handling the stock trades back in 1997. This system provides broad order depth and greater flexibility for viewing the German markets. Traders can watch and access trading in German stocks, bonds, funds, commodities contracts, and warrants on the Xetra system. The system has proven itself well enough to be adapted by other stock exchanges throughout Europe and the world since it began operating. The creators of Xetra originated it for the Frankfurt stock exchange. Since then, it has spread to other national stock exchanges in Vienna, Austria; Dublin, Ireland; and Shanghai, China. Part of the success of Xetra lay in its relatively early launch. As such, it became among the first of the great electronic and global trading systems. Making German capital markets more accessible for foreigners and their investment proved to be one of its key benefits. Xetra has expanded to handle over 90% of all of the stock trades for the Frankfurt Stock Exchange. The Frankfurt Stock Exchange represents Germany’s largest trading exchange. Also known as the FRA, it is based in Frankfurt. Deutsche Borse owns and operates Xetra and the Frankfort Stock Exchange along with all of Germany’s other trading exchanges. Thanks in part to the success of the Xetra, this exchange represents one of the most efficient and biggest facilities for trading markets on earth. It is also among the oldest stock exchanges around the globe. The Frankfurt Exchange handles practically all of Germany’s trading. It also manages a significant portion of all trading in the whole of Europe. The FRA makes a large portion of its profits from the Xetra trading system. The many foreign investors flowing in because of Xetra are responsible for a significant share of the profits. FRA is open each day of the week from 9:30am till 5:30pm. There are a number of important stock indices based on the Frankfurt Stock Exchange and run by Xetra. Among these are the DAX, the Eurostoxx 50 and the VDAX. Xetra DAX is Germany’s equivalent of the Dow Jones Industrial Average in America and the Financial Times Stock Exchange 100 in London. This blue chip index of their stock market exchange contains the 30 most important German companies that are traded on the FRA. Deutsche Borse states that the performance of these companies is measured according to market capitalization and order book volume. All of the prices from the DAX are taken off of the Xetra trading system. While the DAX is an important index with its 30 Prime Standard companies represented, this does not equate to the strength of the whole German economy. Prime Standard companies listed on the Xetra DAX and other important Frankfurt exchanges such as SDAX, MDAX, and TecDAX have to attain international transparency standards. This means they have to use international accounting standards as with US-GAAP or IAS. Their quarterly reports and ad hoc disclosure must be in German as well as in English. They must hold minimally one analyst conference every year. Finally, these companies must publish a financial calendar.

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Xetra computes the DAX index values once every second. It has done this since the technology began managing all electronic functions for the DAX on January 1, 2006. After the Xetra closes each weekday, the DAX index keeps trading under the name L-DAX. These prices are based on the FRA trading venue floor trades and continue until 5:45pm. At this point, the L/E-DAX Index picks up trading until 8pm.

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Yield In business and finance, yield is the word that states the quantity of cash that comes back to a security’s owners. It is measured independently of variations in price. It proves to be a percentage of total return. It is used for measuring the return rates of fixed income investments, such as bonds, bills, strips, notes, and zero coupons; stocks, including common, convertible, and preferred; and various other insurance and investment hybrid products like annuities. Yield can mean different things in varying situations. It is sometimes figured up as an IRR, or Internal Rate of Return, or alternatively as a ratio. Yield describes an investment owner’s entire return or a part of the income. The end result of the many differences in yield is that they can not be compared one against the other. This is because they are not all the same from one branch of finance and investments to another. You could see numerous different formulas for figuring up yield used by different investments and groups. Bonds are a classic example of this. Nominal yield is also known as coupon yield. This proves to be the face value of a bond divided into the annual interest total. Current yield instead is those interest payments over the bond’s price on the spot market. A yield to maturity is the internal rate of return on the bond cash flow, including the bond principal when maturity arrives plus the interest received, and the purchase price. Finally, a bond’s yield to call is the bond’s cash flow internal rate of return if it is called in by the company at their earliest opportunity. Bonds yields are unusual in that they vary inversely to the price of the bond. Should a bond price decline, then the yield will rise. If instead the rates of interest drop, then the bond’s price will go up in general. Some securities come with real yields. TIPS are a primary example of this. A real yield means that the face value of the instrument will be adjusted upwards compared to the CPI inflation index. It would then be set against this principal that is adjusted to make certain that an investor makes a better return than the rate of inflation. This ensures that his or her purchasing power is protected. TIPS are one rare investment that will not allow investors to lose money if they purchased them in the auction and keep them until they mature, either as a result of deflation, meaning falling prices, or inflation, signifying rising prices over time.

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Yield to Maturity (YTM) Yield to Maturity is also widely known in investment and analyst circles by its acronym YTM, as well as by the phrases book yield and redemption yield. This represents the aggregate return which investors can expect to receive for a bond if they keep the security until the end of its actual life. This is why YTM is generally called a longer term bond yield even though it is still expressed as a rate per year. Another way of saying this is that this proves to be the investment’s internal rate of return for the bond if the owner keeps it all the way through maturity. This assumes of course that the bond issuer makes all of its payments both on time and in the full amounts contracted. In order to understand the Yield to Maturity calculations, it is critical to realize that the formula assumes all coupon payments the issuer makes will be exactly reinvested for the rate of the current yield of the bond. The formula similarly considers the bond’s par value, current price on the market, term to maturity, and coupon interest rate. All of this makes the YTM a complicated yet good formula for determining the return of a bond. It allows investors to effectively compare and contrast those bonds which possess varying coupon rates and maturity dates. There are several different ways to figure out the Yield to Maturity. It is a complicated formula so many investors simply fall back on pre-printed and -figured bond yield tables. Determining the exact YTM requires either a software program or the use of a financial or business calculator. This is because the value for a basis point drops as the price for a bond increases in an inverse manner. Many firms actually calculate YTM for six month time frames as well as on an annual basis. They do this because most coupon payments take place twice per year. A significant difference between Yield to Maturity and the current yield lies in the fact that the YTM takes into account money’s time value, while the simplified current yield computations will not. This is why investors often prefer to utilize the YTM instead of the current yield when they are crunching number on bond returns to compare and contrast with other bond issues and different types of investments. There are a number of similar yet still variations on the classical Yield to Maturity figure. These should never be confused with the true YTM. Among these are the Yield to call (YTC), Yield to put (YTP), and the Yield to worst (YTW). Yields to call go with the assumption that the bond issuer will recall the bond by repurchasing it in advance of it reaching maturity. This assumes that the resulting cash flow period will be shortened. Yield to put is much like the YTC, only the seller is allowed to and may sell the bond back to its issuer on a specific date for a pre-determined price. Finally, Yield to worst means that the bonds in question can be put, called, or even exchanged. This is why YTW bonds usually have the smallest yields from the three variations on YTM and the YTM rate itself. There are some important limitations to the utility of Yield to Maturity as a measurement for comparing and contrasting various bonds against other bonds and other forms of investment classes as well. With YTM, these calculations never take into account the actual taxes which investors will have to pay on the bonds. This is why YTM is sometimes called the gross redemption yield. These calculations for yield also do not factor in either selling or buying costs for the bonds themselves.

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It is also important to keep in mind that YTM is limited by the fact that both it and current yields are estimate calculations. They can not ever be 100 percent accurate or reliable. The true returns will vary with the realized price of a bond when a holder sells it. The prices of such bonds can vary significantly as the market actually determines them (and not the issuer). Such variations in the value of a bond and the price for which it is sold may impact the YTM substantially. They more drastically impact the current yield calculations and measurement in the end.

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Zero Balance Account (ZBA) The zero balance account, also known by its acronym ZBA, refers to the type of checking account which maintains a permanent balance of zero. The account does this through an automatic transfer of funds out of a master account. The amount which transfers over only proves to be sufficient enough to cover any and all checks which other financial institutions present to the bank where the holder’s account resides. Corporations utilize these zero balance accounts in order to draw down excessive balances from separate accounts. It also helps them to keep better and stricter control over amounts they disburse in the ordinary everyday course of business operations. These accounts will therefore only have a zero balance within them. The only exception to this zero balance account status is when checks are written against them and presented to the bank in question. In this way, companies are able to keep the balances as close to zero for accounts that do not have any reason to hold excessive reserves. The activity in these ZBA’s is restricted to only processing payments. This is why they do not maintain any ongoing balances. Because of this, a larger sum of funds will remain available for the company to deploy. They can instead put them to work in investments and company cash flow purposes rather than keeping low dollar amounts lying idly by in a number of sub-accounts. It does not present a problem when checks must be paid off from these special zero balance accounts, since the electronic clearing system recognizes that these accounts are in fact ZBA’s and they will move the necessary funds over from the master account at the financial institution in the precise dollar amount needed to clear the check. Companies and other organizations can also rely on a zero balance account to fund purchases which employees make with their debit cards. This allows them to carefully monitor all of the financial transactions and any activities which take place on the cards, since the debits must be pre-authorized. This works well for companies and charitable not for profit organizations which are protected by not maintaining any idle funds within the ZBA’s. The debit card transaction will not be approved by the bank which backs them until and unless the requisite funds become available to the account by a transfer from the authorized account representative at the firm or NGO. This means that debit card transactions simply can not be run without prior authorization by the appropriate superior in the organization. Businesses are able to reduce their risks of activities which are not approved of occurring. This is critically important to especially larger organizations with many employees and numerous sub accounts and associated corporate debit cards. There is no better spending control oversight for these types of situations than the zero balance account. Incidental charges can be monitored throughout the sizeable operations. Since incidental expenditures are variable in nature, it is harder to fund and control them without such an account. Large companies and not for profits effectively reduce rapid access to the company or charitable funds with these debit cards. In this way, they have put into place the best practices for approval procedures. It ensures that such procedures will be adhered to in advance of a purchase being made by an

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employee. As budget monitoring tools, these ZBA’s are also ideal. They may be established as one account per department or business operation. This allows the accountants at the company an easy and fast means of monitoring annual, monthly, and even weekly to daily purchases. The company book keepers are also able to effectively track particular shorter term projects and their financial expenditures by utilizing such a ZBA. Projects which are in jeopardy of running significantly and rapidly over budget also benefit from such accounts. The overseers can maintain control of all purchases by requiring proper approval and notification before the charges take place. The master account of such zero balance accounts is the critical component of this entire concept. As the central operational center for all fund management in the organization, the account will be employed to disperse funds to all ZBA subaccounts as needed. These master accounts typically include other benefits like better interest rates for balances which they hold.

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Zombie Banks Zombie banks prove to be financial institutions that in reality have literal economic net worths of less than zero. They still keep running because they are able to continue paying their debts using government’s real or implied support for their credit and balance sheet. Although this term has come to be heavily used in the financial crises of 2007 to 2010, it did not originate there. Instead, Edward Kane coined the phrase Zombie Banks back in 1987. He used it to refer to and relate the perils of allowing a great number of banks that were actually insolvent to continue operating. The phrase came to be utilized for the Japanese banking crisis that began in 1993. It once again arose in popularity during the financial crisis of the last few years where hundreds of banks have failed in single years. Zombie banks have many problems. Among these are bank runs from frightened depositors who are uninsured for their full account values. They also suffer from margin calls from their counter parties in derivatives contracts. Zombie banks can be deceptive, as on the surface they may look like they are actually healthy and have the necessary level of capital to run. As investors learn the fair value of their assets, then they are suddenly looked at as insolvent institutions. This is to say that Zombie Banks keep operating in a regular manner as if nothing is wrong with their balance sheets. Yet the truth is that they will likely be seized by the Feds when the word becomes wide spread that they do not have the assets and money that everyone believed. Healthy banks are able to make loans to new borrowers at the same time that they honor their obligations to lenders and share holders. Insolvent banks, or Zombie Banks, are incapable of generating new loans, since they lack the money and capital to make such loans while still performing on their obligations to lenders and share holders. Comprehending what constitutes a Zombie bank requires that you know the basics of a bank balance sheet. One side of a balance sheet actually contains a bank’s assets. The other side is comprised of the bank’s liabilities as well as the bank’s equity. The two sides are supposed to equal out, which is expressed in the equation assets equal liabilities plus the bank equity. Zombie banks manage to hide their problems since no one is able to determine how much their assets are really worth. Asset backed securities and collateralized debt obligations are examples of assets whose values can not clearly be determined at any given moment. They might be worth as much as seventy-five cents for every dollar, or they could be valued as low as twenty-five cents per dollar. The problem comes when Zombie banks have over valued their assets. If they later are forced to revalue them to correct and more appropriate levels, they quickly discover that they no longer have the assets to cover their future liabilities. Admitting to this causes them to become Zombie banks. At this point, the bank share holders are typically wiped out, while the depositors are given their money back by the Federal Deposit Insurance Corporation.

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Zoning Laws Zoning laws are statutes that mandate the ways that you are able to utilize your property holdings. Townships, counties, cities, and alternative local governments affect zoning laws so that they are able to create standards for development that benefit all residents in common. It does not matter how big or how small a property is; it will be impacted by zoning laws. If you contemplate improving your property or purchasing another piece of property, you should be certain that you are fully aware of zoning restrictions that will affect you in advance of making any kind of commitment. As an example, properties can be zoned according to residential or commercial restrictions. Commercial buildings will never be permitted to be constructed in a residential area, while residential dwellings can not be put up in commercial zones, unless the zoning laws of the area are changed. Getting the zoning laws for a property altered proves to be extremely difficult. You would first have to give out public notice before getting an approved variance from the responsible government agencies in charge of zoning plans. Many times, neighbors will stalwartly resist your proposed zoning changes. Zoning laws allow for a variety of different zoning designations and uses. Among these are commercial zoning, residential zoning, industrial zoning, recreational zoning, and agricultural zoning. These categories are generally further subdivided into other categories. Residential zoning might have sub zoning categories under it including multiple family use, for condominiums or apartments, or single family houses. Zoning laws include a number of limitations to the property and potential improvements. The total size and height of buildings on the property is commonly restricted. The buildings can only be placed so close to each other. There will be limits to the total area percentage that is allowed to have buildings on it. Perhaps most importantly, the types of buildings that can be built on a given land’s zone will be mandated. You can learn about the zoning laws and ordinances simply by getting in touch with the area planning agency. Alternatively, you might go on the Internet to the local and state search engine to learn about your county and city zoning rules. Local planning organizations will tell you what must be done to get a variance to the area zoning.

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