Author: Arabian Media staff
Two of the most attractive characteristics of options are that they afford an investor or trader the opportunity to achieve certain objectives and play the market in certain ways that they might not otherwise be able to. For example, if an investor is bearish on a particular stock or index, one of the choices is to sell short shares of the stock. While this is a perfectly viable investment alternative, it does have some negatives. First off, there are fairly sizable capital requirements. Second, there is technically unlimited risk, because there is no limit as to how far the stock could rise…
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The Basel III rules are a regulatory framework designed to strengthen financial institutions by placing guidelines pertaining to leverage ratios, capital requirements and liquidity. For investors in the banking sector, they create confidence that some of the mistakes made by banks that caused and contributed to the financial crisis in 2007-2008 will not be repeated. Key Takeaways Basel III is a regulatory framework aimed at strengthening financial institutions by setting guidelines on leverage ratios, capital requirements, and liquidity to prevent events like the 2007-2008 financial crisis.Under Basel III, banks must adhere to minimum leverage and capital requirements, such as maintaining…
Adaptation and survival often go hand in hand. True, some companies, such as Coca-Cola (KO), can figure out one thing, do it extremely well, and enjoy success decade after decade. For other major companies, though, continued prosperity has come from corporate governance and management teams willing to see a different future for the company and unafraid of making large-scale changes to the enterprise. Key Takeaways DuPont has historically evolved from a gunpowder supplier to a global leader in chemicals, pioneering numerous innovations like nylon, Teflon, and various plastics. This showcases the company’s commitment to research and development as a means…
Investors who buy stocks typically do so for one of two reasons: They believe that the price will rise and allow them to sell the stock at a profit, or they intend to collect the dividends paid on the stock as investment income. Of course, some stocks can satisfy both objectives, at least to some extent, but most stocks can be classified into one of three categories: growth, income, or value. Those who understand the characteristics of each type of stock can use this knowledge to grow their portfolios more efficiently. Key Takeaways Stocks generally fall into three main categories—growth, value,…
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Foreign currency exchanges (forex) run constantly across the globe through over-the-counter markets. The boundaryless space allows seamless access. For example, an Australian trader can trade in euros and Japanese yen (EURJPY) through a U.S.-based broker despite geographical boundaries. Speculative trading in the retail forex market continues to grow. As a result, there can be intermediaries (banks or brokers) who engage in financial irregularities, scams, exorbitant charges, hidden fees, and high-risk exposure offered through high-leverage levels or other bad practices. Internet and mobile app-based trading allow smooth trading processes, but they also add the risk of unrecognized sites that may close unexpectedly and abscond with investors’ money. Regulations ensure…
Benchmarking is an important tool in the financial world. Companies, hedge funds, mutual funds, investors, and other financial bodies pick a specific benchmark in the industry and seek to replicate its returns or to compare their own performance to that of the benchmark. Of course, the company’s business plan or investing strategy has to be the same or similar to that of the benchmark to make it a worthwhile comparison. Companies and banks typically use ratios as benchmarks, such as liquidity ratios and debt ratios, as opposed to investment firms that typically use market index benchmarks, such as the S&P…
In accounting, finance, and economics, all sunk costs are fixed costs. However, not all fixed costs are considered to be sunk. The defining characteristic of sunk costs is that they cannot be recovered. It’s easy to imagine a scenario where fixed costs are not sunk; for example, equipment might be resold or returned at the purchase price. Individuals and businesses both incur sunk costs. For example, someone might drive to the store to buy a television, only to decide upon arrival not to make the purchase. The gasoline used in the drive is a sunk cost—the customer cannot demand that the…
The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, which is usually a few days prior to the record date. The record date is the date upon which a company ascertains who its shareholders are to either provide a dividend payment or allow shareholders to take other types of corporate actions. The ex-dividend date is the deadline for the exchange to own the stock to receive the dividend. It is prior to the record date. This allows the exchange time to process the paperwork…