Loans and money issues

Using Payday Loans to Rebuild Your Credit

admin — Sat, 05 Feb 2011 10:58:23 +0000

Once you’ve suffered a bankruptcy or foreclosure your credit can be ruined. Creative ways to start rebuilding a positive credit history are still out there in the form of payday loans. A payday loan can be a convenient tool to answer the question: “How can I establish a better credit history if people won’t lend to someone with a bad credit score?” Payday lending is an alternative way of lending that doesn’t require a credit check to get one. For that reason, the can be ideal for people who want to rebuild a very negative credit history in their past.

Lending Based on Employment

Unlike other loans that require a credit check to ascertain the ability and willingness to repay the loan, a payday loan only needs to verify employment. Even if you only work part-time you can be eligible for a loan dependent on your income. The cash advance is deposited directly into your bank account and repayment is set up to coincide with your next paycheck cycle. Some lenders will offer free loans to first-time borrowers with typical loans being anywhere from $300 to just over $1000.

Reports to Credit Bureaus

Even though a good credit history is not a prerequisite for a payday loan, the actual repayment is reported to the credit bureau. By taking out short-term loans and paying them back on time, you can get a number of good entries in your credit history that shows someone lent to you and you repaid the debt in full. It can be an extremely fast way to start generating a better history in your reports, even potentially raising your credit score. This is one of the few ways a borrower can rebuild their credit after a financial disaster like a bankruptcy or foreclosure since other lenders will refuse to extend them credit.

Bonds

admin — Thu, 18 Nov 2010 11:03:39 +0000

In its simplest form, a bond is a financial obligation of an entity that promises to pay a specified sum of money at specified future dates. The entity that promises to make the payment is called the bond issuer and is referred to as the borrower. Bond issuers include central governments, municipal/provincial governments, supranational (e.g., the World Bank), and corporations. The investor who purchases bond is said to be the lender or creditor. The promised payments that the bond issuer agrees to make at the specified dates consist of two components: interest payments and repayment of the amount borrowed.
Prior to the 1980s, bonds were simple investment vehicles. Holding aside default by the bond issuer, the investor knew how much interest would be received periodically and when the amount borrowed would be repaid. Moreover, most investors purchased bonds with the intent of holding them to their maturity date. Beginning in the 1980s, the bond world changed. First, bond structures became more complex. There are features in many bonds that make it difficult to determine when the amount borrowed will be repaid. For some bonds it is difficult to project the amount of interest that will be received periodically. Second, the hold-to-maturity investor has been replaced by the institutional investor who actively trades bonds. These new product design features in bonds and the shift in trading strategies have lead to the increased use of the mathematical techniques.

Poor Post-Acquisition Integration

admin — Wed, 17 Nov 2010 11:02:58 +0000

Assuming that the price paid would allow for an acquirer to create value from a deal, there is still another hurdle to clear: implementation. It goes almost without saying that poor implementation can ruin even the best strategy. In M&A situations, the execution of a sound business strategy is made especially difficult by the complex task of integrating two different organizations. Relationships with customers, employers, and suppliers are often disrupted during the process; this disruption may cause damage to the value of the business. Aggressive acquirers often believe they can improve the target’s performance by injecting better management talent, but end up chasing much of the talent out. Yet it is this very integration that should yield the returns to make the acquisition pay off. Failure to integrate can be as costly as integrating poorly.

SWAPS

admin — Wed, 17 Nov 2010 11:01:02 +0000

A swap is an agreement whereby two parties (called counterparties) agree to exchange periodic payments. The dollar amount of the payments exchanged is based on some predetermined dollar principal, which is called the notional principal amount or notional amount. The dollar amount each counterparty pays to the other is the agreed-upon periodic rate times the notional principal amount. The only dollars that are exchanged between the parties are the agreed-upon payments, not the notional principal amount. In a swap, there is the risk that one of the parties will fail to meet its obligation to make payments (default). This is referred to as counterparty risk.
Swaps are classified based on the characteristics of the swap payments. There are four types of swaps: interest rate swaps, interest rate-equity swaps, equity swaps, and currency swaps. In an interest rate swap, the counterparties swap payments in the same currency based on an interest rate. For example, one of the counterparties can pay a fixed-interest rate and the other party a floating interest rate. The floating-interest rate is commonly referred to as the reference rate. In an interest rate-equity swap, one party is exchanging a payment based on an interest rate and the other party based on the return of some equity index. The payments are made in the same currency. In an equity swap, both parties exchange payments in the same currency based on some equity index. Finally, in a currency swap, two parties agree to swap payments based on different currencies.
A swap is not a new derivative instrument. Rather, it can be decomposed into a package of forward contracts. While a swap may be nothing more than a package of forward contracts, it is not a redundant contract for several reasons. First, in many markets where there are forward and futures contracts, the longest maturity does not extend out as far as that of a typical swap. Second, a swap is a more transactionally efficient instrument. By this we mean that in one transaction an entity can effectively establish a payoff equivalent to a package of forward contracts. The forward contracts would each have to be negotiated separately. Third, the liquidity of some swap markets is now better than many forward contracts, particularly long-dated (i.e., long-term) forward contracts.

Factors that Influence the Option Price

admin — Wed, 17 Nov 2010 11:00:07 +0000

There are six factors that influence the option price:
1. Current price of the underlying asset.
2. Strike price.
3. Time to expiration of the option.
4. Expected return volatility of the underlying asset over the life of the option.
5. Short-term risk-free interest rate over the life of the option.
6. Anticipated cash payments on the underlying asset over the life of the option.
The impact of each of these factors may depend on whether the option is a call or a put, and whether the option is an American option or a European option.

Non-Interest-Bearing Current Liabilities

admin — Tue, 16 Nov 2010 10:58:18 +0000

Non-interest-bearing current liabilities such as accounts payable and accrued expenses are subtracted to calculate net operating working capital. The reason for subtracting these liabilities is to achieve consistency with the definition of NOPLAT. The implicit financing costs associated with these liabilities are included in the expenses that are deducted in calculating NOPLAT. For example, the implicit interest that companies incur when they pay their bills for goods or services in 30 days rather than paying on delivery is included in the cost of goods sold. By subtracting the non-interest- bearing liabilities in calculating capital, we achieve consistency with NOPLAT. Alternatively, we could add back the estimated financing cost associated with non-interest-bearing liabilities and not subtract the liabilities from capital. This approach adds considerable complexity without providing any additional insight into the economics of the business.
Any interest-bearing current liabilities, such as short-term debt and the current maturities of long-term debt, are not subtracted from operating invested capital since the financing cost associated with these liabilities is explicitly excluded from the NOPLAT calculation.

Overlooking Problems

admin — Mon, 15 Nov 2010 10:56:16 +0000

Due diligence is a difficult process from which to get good business results. It has an intensive legal and accounting aspect to it that involves large numbers of accountants and lawyers working long hours in unpleasant conditions. There is also a need for secrecy and speed, since leaks can prompt problems with securities regulators, customers, suppliers, and employees. Beyond this, many participants are either inexperienced or not sure what they are looking for. And many people do not want to be the bearer of bad news, especially as the process becomes more frenetic and the CEO and others get more excited about doing the deal. Put it all together and sometimes even major problems, including accounting and legal problems that should have been caught, slip through and blow up, usually in the year after closing.

Changing conditions

admin — Mon, 29 Mar 2010 13:50:20 +0000

Asset portfolio diversification theory depends on historic correlations being stable and reflecting some genuine underlying relationship. A high historic correlation on losses in two regions may have been because both regions depended to a large extent on a single, common industry. If that is no longer the case there is no reason to expect past correlations to be a good indicator of future correlations. This same argument can be put for equity holdings in VaR type analysis but a major difference is that the time frames involved in managing market risk are very different from those for credit risk.

First Order Price Risks

admin — Fri, 13 Nov 2009 14:33:40 +0000

Most basic valuation models assume that the change of the price of a financial instrument is directly proportional to the change in an underlying factor, in other words that a linear relationship exists. In many instances this is a first order approximation only and is equivalent to measuring the slope of the price graph against this factor. This ignores any effects due to curvature of the graph arising from higher order and secondary relationships:
Local currency interest rate instruments. Interest rate instruments include bonds, asset backed securities, short-term paper, forward rate agreements (FRAs) and interest rate swaps. The value of these instruments varies with the discount rate applied to their cashflows:
Risk-free rates and term spreads. The discount rates applied to risk-free government Treasury bonds and bills are based on yields-to-maturity taken from the yield curve. These yields are affected by the overall economic environment, inflationary expectations and monetary policy. Yields may change in equal amounts across all maturities or in a non-parallel way as shown by changes in term spreads. Term spreads are defined by the difference between yields on short- and long-duration risk-free instruments.
Credit and basis spreads. The discount rate applied to corporate and other non risk- free debt issues can be viewed as the yield on an equivalent risk-free instrument plus a credit spread. Credit spreads reflect the higher returns investors demand to compensate for the higher risks. In general, credit spreads tend to widen as an economy heads into recession and narrow during recovery. Individual issuer and issue credit spreads also vary depending on conditions at a single company.
Basis spreads are the spreads between benchmark rates such as those obtained from government securities and those from an interbank rate, such as LIBOR, against which floating rate debt instruments are priced.
The value of interest rate instruments is also affected by secondary factors such as the passage of time and the effects of embedded options such as those present in callable and putable bonds.
Foreign currency exposures. Exposures to foreign exchange risk may be direct, as in a US bank having an outright cash position in euros or being committed to deliver a quantity of foreign currency at some specified future date. They may also be indirect arising from positions held in other instruments priced in a foreign currency, such as bonds and equities. First order price changes are the result of changes in exchange rates. Other effects may arise because of changes in the discount rate used to value positions in foreign currency and convexity:
Spot rates. Spot rates are determined by supply and demand and by macroeconomic fundamentals. These are used to mark-to-market values of assets and liabilities concerned. Some currencies tend to move together when their economies are closely interlinked and affected by similar external factors.
Interest rate differentials. Forward rates are determined by spot rates and by the differential between foreign risk-free interest rates and those of the base currency.
Both spot and forward positions can be affected by central bank actions, by the use of managed exchange rate systems and from the imposition of capital controls.
Equity positions. Stock prices are determined by supply and demand which in turn are affected by changes in the macroeconomic and interest environment and perceptions of the intrinsic value of stocks:
Supply and demand. Stock prices in general are affected by overall demand for equities. This is, arguably, determined by changing expectations of future earnings prospects and by perceptions of the value of the discount rate, as “determined” by risk-free rates plus an equity risk premium to compensate investors for the higher risks taken. The discount rate may change as a result of changes in risk-free rates or from a widening or narrowing of the equity risk premium.
Intrinsic value. Individual stocks are affected by investor perceptions of intrinsic value. These are affected by changes in the equity market discount rate, by expectations of future earnings growth and by the perceived riskiness of returns at one company versus the equity market as a whole. This is captured by a stock-specific measure called beta. Beta affects the discount rate applied to individual stocks according to the capital asset pricing model (CAPM).
Corporate actions. Individual stock prices are also affected by corporate actions such as rights issues, special dividends, share buy-back programs, takeovers, mergers, dividend payouts and the exercise of rights and other dilutive issues.

MARKET OR TRADING RISK

admin — Fri, 02 Oct 2009 14:32:40 +0000

Every year a handful of banks make sufficiently large trading losses to make the non-business sections of the media take note. The surprising thing is not that some banks make large trading losses but how few very large losses are incurred, given the sheer volume of financial trading activities. Very few of the actual losses reported have been sufficiently large to threaten the solvency of the financial institutions concerned.
This state of affairs owes less to the skills of traders and more to the effectiveness and generally high standard of controls put in place to manage market risks. Most of the reported large losses have occurred as a result of fraud at banks where line management has not understood the nature of the risks being taken and failed to implement some of the most basic controls necessary. Single traders have been able to run up losses amounting to several hundred million dollars without anyone noticing. The traders concerned have, of course, taken the rap but the real finger of blame should be pointed in the direction of management.
Trading portfolio risks can be conveniently broken down into three parts: first order price risks, realization risks and model risks. These incorporate our more familiar definitions of interest rate risk, foreign exchange risk, counterparty risk and so on.