Financial matters

Faxlessloans24.com review

admin — Mon, 21 Nov 2011 22:31:30 +0000

FaxlesLoans24.com is a company based in Kansas in the United Sates. The company is affiliated with financial services sector, offering payday loans, personal loans, home improvement loans and car loans. It cooperates with D & D Marketing/T3Leads, which is one of the largest network of direct lenders in North America and the UK.

Faxlessloans24.com offers a fast and easy application form, which upon completion is submitted to the D&D Marketing for processing. The application process is paperless. Applicants don’t have to submit any documents to the network. Personal data is processed on a secure server, which prevents the data to be viewed or stolen by third parties.

The company renders quick and reliable services worth recommending – two thumbs up!

Reverse mortgage

admin — Wed, 29 Jun 2011 16:31:12 +0000

A reverse mortgage is a loan available to people over 62 of age. The homeowner receives a a loan in the amount of the value of a house in a single payment or installments, which is to be repaid after his/her death or after his/her leaving the home permanently or selling the home. In any case, the home is sold and the loan repaid. The permanent leaving must be at least 364 consecutive days.

In a reverse mortgage, the homeowner makes no payments to the lender in connection with the loan. Upon each payment received by the homeowner from the lender the lender receives a larger percentage of the home equity. This is much different than in a conventional mortgage, where the homeowner makes monthly payments thus having a larger percentage of equity in the house every month.

If the value of a property has a greater value after a reverse mortgage is taken out, the homeowner can acquire a second reverse mortgage over the increased equity. A reverse mortgage may be refinanced if enough equity is present in the home.

If you’re considering a reverse mortgage, you must know that lenders generally charge an origination fee, a mortgage insurance premium, and other closing costs. The amount you owe on a reverse mortgage grows over time. Interest is charged and added to the amount you owe each month. Your total debt increases every month.

If you’re serious about getting a reverse mortgage, you might consider calculating the amount of reverse mortgage you can get by using an online reverse mortgage loan calculator.
In most case, you have at least 3 business days after closing to cancel the reverse mortgages for any reason, without penalty.

Savings accounts

admin — Wed, 30 Mar 2011 17:05:25 +0000

Savings accounts are accounts maintained by financial institutions that pay interest to the account holder. They let customers deposit a part of their assets and earn a monetary return.

There are many different types of savings accounts, such as:
Instant access savings accounts pay interest on savings while giving instant access to the funds deposited.
Notice savings accounts give the holder access to their money after a specified time period of time.
Child trust funds (CTFs) are savings and investment accounts for children.
You can check the current interest rates by using an online savings account calculator.

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Taking Advantage of available Research on Mortgages

admin — Fri, 03 Dec 2010 15:21:42 +0000

There is a great deal of information to be had about mortgage products. You can go to the library, bookstore, and find various online sites that will tell you what a mortgage is (long-term loan as opposed to payday loan), the different varieties of mortgages, and even which product would be best for you. The trouble is the underwriter and banks are going to make the ultimate decision in what type of product they offer you. You can request a certain type of mortgage, but what it comes down to is your risk and what products the bank currently has to offer.

In the last three years mortgage availability has changed. Banks were creating products for consumers that they could ill afford, so that the consumer could buy the house they wanted. When the credit crunch hit it was as a direct result of these unaffordable mortgage products and consumer default when they could no longer afford the products. It has meant a reduction of certain types of mortgages on the market.

One product to go has been the bad credit mortgage. If someone has very low credit scores it can be troublesome for them to get a mortgage right now. Banks are not approving the applications due to risk. In fact, banks are refusing more applications in the last few years than they have in several decades. The other product that has left the market is the 100 percent mortgage. Housing values in many cities and towns are still decreasing as people try to make a quick sale. As a result of housing values decreasing banks are unwilling to offer a full 100 percent mortgage. This type of mortgage does not require a down payment and is to cover the entire purchase price of the home. If the purchase price is $250,000, the loan would also be for that amount.

Instead the most popular product on the market is an 80/20 in which consumers have to find 20 percent in a down payment in order to get awarded the loan. It is unlike quick loans no credit checks. Mortgage companies are going to do a thorough credit check, require at least 20 percent down, and it can take up to six months for financing to be completed. Banks have to take their time with mortgages and the paperwork or risk having issues with current regulations and heaping more trouble on the pot.

FORWARD CONTRACTS ON individual STOCKS

admin — Sat, 17 Jul 2010 13:28:48 +0000

Consider an asset manager responsible for the portfolio of a high-net-worth individual. As is sometimes the case, such portfolios may be concentrated in a small number of stocks, sometimes stocks that have been in the family for years. In many cases, the individual may be part of the founding family of a particular company. Let us say that the stock is called Gregorian Industries, Inc., or GII, and the client is so heavily invested in this stock that her portfolio is not diversified. The client notifies the portfolio manager of her need for $2 million in cash in six months. This cash can be raised by selling 16,000 shares at the current price of $125 per share. Thus, the risk exposure concerns the market value of $2 million of stock. For whatever reason, it is considered best not to sell the stock any earlier than necessary. The portfolio manager realizes that a forward contract to sell GI1 in six months will accomplish the client’s desired objective. The manager contacts a forward contract dealer and obtains a quote of $128.13 as the price at which a forward contract to sell the stock in six months could be constructed.
In other words, the portfolio manager could enter into a contract to sell the stock to the dealer in six months at $128.13. We assume that this contract is deliverable, meaning that when the sale is actually made, the shares will be delivered to the dealer. Assuming that the client has some flexibility in the amount of money needed, let us say that the contract is signed for the sale of 15,600 shares at $128.13, which will raise $1,998,828. Of course when the contract expires, the stock could be selling for any price. The client can gain or lose on the transaction. If the stock rises to a price above $128.13 during the six-month period, the client will still have to deliver the stock for $128.13. But if the price falls, the client will still get $128.13 per share for the stock.

What are the characteristics of price-taker markets?

admin — Sun, 28 Mar 2010 15:40:04 +0000

Consider the situation of Les Parrot, a Texas cattle rancher. In the financial pages of the local newspaper, he finds that the current market price of quality steers is 88 cents per pound. Even if his ranch is quite large, there is little that Parrot can do to change the market price of beef cattle. After all, there are tens of thousands of farmers who raise cattle. Thus, Parrot supplies only a small portion of the total cattle market. The amount that he sells will exert little or no effect on the market price of cattle. Parrot is a price taker.
The firms in a market will be price takers when the following four conditions are met:

All the firms in the market are producing an identical product (for example, beef, or cattle, of a given grade).

A large number of firms exist in the market.

Each firm supplies only a very small portion of the total amount supplied to the market.

No barriers limit the entry or exit of firms in the market.

When these conditions are met, firms selling in the market must accept the market price. This is why they are called price takers. If the firm sets a price above the market level, consumers will simply buy from other sellers. Why pay the higher price when the identical good is available elsewhere at a lower price? For example, if the price of wheat were $5.00 per bushel, a farmer would be unable to find buyers for wheat at $5.50per bushel. A firm would gain nothing by setting its price below the market level, because any small firm in the market can already sell as much as it wants at the market price. A price reduction would only reduce revenues. A firm that is a price taker thus faces a perfectly elastic demand for its product.

THE STRUCTURE OF GLOBAL FORWARD MARKETS

admin — Tue, 04 Aug 2009 13:27:54 +0000

The global market for forward contracts is part of a vast network of financial institutions that make markets in these instruments as well as in other related derivatives, such as swaps and options. Some dealers specialize in certain markets and contracts, such as forward contracts on the euro or forward contracts on Japanese equity products. These dealers are mainly large global banking institutions, but many large non-banking institutions, such as Goldman Sachs and Merrill Lynch, are also big players in this market. Dealers engage in transactions with two types of parties: end users and other dealers. An end user is typically a corporation, nonprofit organization, or An end user is generally a party with a risk management problem that is searching for a dealer to provide it with a financial transaction to solve that problem. Although the problem could simply be that the party wants to take a position in anticipation of a market move, more commonly the end user has a risk it wants to reduce or eliminate.
As an example, Hoffman-LaRoche, the large Swiss pharmaceutical company, sells its products globally. Anticipating the receipt of a large amount of cash in U.S. dollars and worried about a decrease in the value of the dollar relative to the Swiss franc, it could buy a forward contract to sell the dollar and buy Swiss francs. It might seek out a dealer such as UBS Warburg, the investment firm affiliated with the large Swiss bank UBS, or it might approach any of the other large multinational banks with which it does business. Or it might end up dealing with a non-bank entity, like Memll Lynch. Assume that Hoffman-LaRoche enters into this contract with UBS Warburg. Hoffman-LaRoche is the end user; UBS Warburg is the dealer. Transactions in forward contracts typically are conducted over the phone. Each dealer has a quote desk, whose phone number is well known to the major participants in the market. If a party wishes to conduct a transaction, it simply phones the dealer for a quote. The dealer stands ready to take either side of the transaction, quoting a bid and an ask price or rate. The bid is the price at which the dealer is willing to pay for the future purchase of the asset, and the ask is the price at which the dealer is willing to sell. When a dealer engages in a forward transaction, it has then taken on risk from the other party. For example, in the aforementioned transaction of Hoffman-LaRoche and UBS Warburg, by entering into the contract, UBS Warburg takes on a risk that Hoffman-LaRoche has eliminated. Specifically, UBS Warburg has now committed to buying dollars and selling Swiss francs at a future date. Thus, UBS Warburg is effectively long the dollar and stands to gain from a strengthening dollarlweakening Swiss franc. Typically dealers do not want to hold this exposure. Rather, they find another party to offset the exposure with another derivative or spot transaction. Thus, UBS Warburg is a wholesaler of risk-buying it, selling it, and trying to earn a profit off the spread between its buying price and selling price. One might reasonably wonder why Hoffman-LaRoche could not avoid the cost of dealing with UBS Warburg. In some cases, it might be able to. It might be aware of another party with the exact opposite needs, but such a situation is rare. The market for financial products such as forward contracts is made up of wholesalers of risk management products who use their technical expertise, their vast network of contacts, and their access to critical financial market information to provide a more efficient means for end users to engage in such risk management transactions.
Dealers such as UBS Warburg lay off the risk they do not wish to assume by transacting with other dealers and potentially other end users. If they do this carefully, quickly, and at accurate prices, they can earn a profit from this market-making activity. One should not get the impression, however, that market making is a highly profitable activity. The competition is fierce, which keeps bid-ask spreads very low and makes it difficult to earn much money on a given transaction. Indeed, many market makers do not make much money on individual transactions-they typically make a small amount of money on each transaction and do a large number of transactions. They may even lose money on some standard transactions, hoping to make up losses on more-complicated, nonstandard transactions, which occur less frequently but have higher bid-ask spreads.
Risk magazine conducts annual surveys to identify the top dealers in various derivative products. Interest rate forwards are called forward rate agreements (FRAs). In the next series of posts, we shall study the different types of forward contracts and note that there are some others not covered in the Risk surveys. One of these surveys was sent to banks and investment banks that are active dealers in over-the-counter derivatives. The other survey was sent to end users. The tabulations are based on respondents’ simple rankings of who they think are the best dealers. Although the identities of the specific dealer firms are not critical, it is interesting and helpful to be aware of the major players in these types of contracts. Most of the world’s leading global financial institutions are listed, but many other big names are not. It is also interesting to observe that the perceptions of the users of these dealer b s ‘services differ somewhat from the dealers’ self-perceptions. Be aware, however, that the rankings change, sometimes drastically, each year

TERMINATION OF A FORWARD CONTRACT

admin — Tue, 21 Jul 2009 13:27:14 +0000

Let us note that a forward contract is nearly always constructed with the idea that the participants will hold on to their positions until the contract expires and either engage in delivery of the asset or settle the cash equivalent, as required in the specific contract. The possibility exists, however, that at least one of the participants might wish to terminate the position prior to expiration. For example, suppose a party goes long, meaning that she agrees to buy the asset at the expiration date at the price agreed on at the start, but she subsequently decides to terminate the contract before expiration. We shall assume that the contract calls for delivery rather than cash settlement at expiration.
To see the details of the contract termination, suppose it is part of the way through the life of the contract, and the long decides that she no longer wishes to buy the asset at expiration. She can then re-enter the market and create a new forward contract expiring at the same time as the original forward contract, taking the position of the seller instead. Because of price changes in the market during the period since the original contract was created, this new contract would likely have a different price at which she would have to commit to sell. She would then be long a contract to buy the asset at expiration at one price and short a contract to sell the asset at expiration at a different price. It should be apparent that she has no further exposure to the price of the asset.
For example, suppose she is long to buy at $40 and short to deliver at $42. Depending on the characteristics of the contract, one of several possibilities could occur at expiration. Everything could go as planned-the party holding the short position of the contract on which she is long at $40 delivers the asset to her, and she pays him $40. She then delivers the asset to the party who is long the contract on which she is short at $42. That party pays her $42. She nets $2. The transaction is over.
t There is always a possibility that her counterparty on the long contract could default. She is still obligated to deliver the asset on the short contract, for which she will receive I $42. But if her counterparty on the long contract defaults, she has to buy the asset in the market and could suffer a significant loss. There is also a possibility that the counterparty on her short contract could fail to pay her the $42. Of course, she would then not deliver the asset but would be exposed to the risk of changes in the asset’s price. This type of problem illustrates the credit risk in a forward contract.
To avoid the credit risk, when she re-enters the market to go short the forward contract, she could contact the same counterparty with whom she engaged in the long forward contract. They could agree to cancel both contracts. Because she would be owed $2 at expiration, cancellation of the contract would result in the counterparty paying her the present value of $2. This termination or offset of the original forward position is clearly desirable for both counterparties because it eliminates the credit risk. It is always possible, however, that she might receive a better price from another counterparty. If that price is sufficiently attractive and she does not perceive the credit risk to be too high, she may choose to deal with the other counterparty and leave the credit risk in the picture.

ELEMENTARY PRINCIPLES OF DERIVATIVE PRICING

admin — Tue, 07 Jul 2009 13:26:22 +0000

In this post, we take a preliminary glance at how derivative contracts are priced. First, we introduce the concept of arbitrage. Arbitrage occurs when equivalent assets or combinations of assets sell for two different prices. This situation creates an opportunity to profit at no risk with no commitment of money. Let us start with the simplest (and least likely) opportunity for arbitrage: the case of a stock selling for more than one price at a given time. Assume that a stock is trading in two markets simultaneously. Suppose the stock is trading at $100 in one market and $98 in the other market. We simply buy a share for $98 in one market and immediately sell it for $100 in the other. We have no net position in the stock, so it does not matter what price the stock moves to. We make an easy $2 at no risk and we did not have to put up any funds of our own. The sale of the stock at $100 was more ! than adequate to finance the purchase of the stock at $98. Naturally, many market participants would do this, which would create downward pressure on the price of the stock in the market where it trades for $100 and upward pressure on the price of the stock in the market where it trades for $98. Eventually the two prices must come together so that there is but a single price for the stock. Accordingly, the principle that no arbitrage opportunities should be available is often referred to as the law of one price. Recall that we mentioned in earlier posts that an asset can potentially trade in different geographic markets and, therefore, have several spot prices. This potential would appear to violate the law of one price, but in reality, the law is still upheld. A given asset selling in two different locations is not necessarily the same asset. If a buyer in one location dis- covered that it is possible to buy the asset more cheaply in another location, the buyer would still have to incur the cost of moving the asset to the buyer’s location. Transportation costs could offset any such price differences.
We have just had a taste of not only the powerful forces of arbitrage but also a pricing model for one derivative, the forward contract. In this simple example, according to the pricing model, the forward price should be the spot price increased by the interest rate. Although there is a lot more to derivative pricing than shown here, the basic principle remains the same regardless of the type of instrument or the complexity of the setting: Prices are set to eliminate the opportunity to profit at no risk with no commitment of one’s own funds.
There are no opportunities for arbitrage profits.
Lest we be too naive, however, we must acknowledge that there is a large industry of arbitrageurs. So how can such an industry exist if there are no opportunities for riskless profit? One explanation is that most of the arbitrage transactions are more complex than this simple example and involve estimating information, which can result in differing opinions. Arbitrage involving options, for example, usually requires estimates of a stock’s volatility. Different participants have different opinions about this volatility. It is quite possible that two counterparties trading with each other can believe that each is arbitraging against the other.
But more importantly, the absence of arbitrage opportunities is upheld, ironically, only if participants believe that arbitrage opportunities do exist. If market traders believe that no opportunities exist to earn arbitrage profits, then they will not follow market prices and compare these prices with what they ought to be, as in the forward contract example given above. Without participants watching closely, prices would surely get out of line and offer arbitrage opportunities. Thus, eliminating arbitrage opportunities requires that participants be vigilant to arbitrage opportunities. In other words, strange as it may sound, disbelief and skepticism concerning the absence of arbitrage opportunities are required in order that it hold as a legitimate principle.
Markets in which arbitrage opportunities are either nonexistent or are quickly eliminated are relatively efficient markets. Recall from your study of portfolio theory and investment analysis that efficient markets are those in which it is not possible, except by chance, to earn returns in excess of those that would be fair compensation for the risk assumed. Although abnormal returns can be earned in a variety of ways, arbitrage profits are definitely examples of abnormal returns, relatively obvious to identify and easy to capture. Thus, they are the most egregious violations of the principle of market efficiency. A market in which arbitrage profits do not exist is one in which the most obvious violations of market efficiency have been eliminated.
Throughout this blog, we shall study derivatives by using the principle of arbitrage as a guide. We will assume that arbitrage opportunities cannot exist for any significant length of time. Thus, prices must conform to models that assume no arbitrage. On the other hand, we do not want to take the absence of arbitrage opportunities so seriously that we give up and believe that arbitrage opportunities never exist. Otherwise, they will arise, and someone else will take them from us.

CRITICISMS OF DERIVATIVE MARKETS

admin — Mon, 22 Jun 2009 13:25:43 +0000

Derivatives have been highly controversial for a number of reasons. For one, they are very complex. Much of the criticism has stemmed from a failure to understand derivatives. When derivatives fail to do their job, it is often the derivatives themselves, rather than the users of derivatives, that take the blame. Yet, in many cases, the critics of derivatives simply do not understand them well enough. As described in former posts, when homeowners take out mortgages, they usually receive a valuable option: the right to prepay their mortgages. When interest rates fall, homeowners often pay off their mortgages, refinancing them at lower rates. The holders of these mortgages usually sell them to other parties, which can include small organizations and individuals. Thus, we often find unsophisticated investors holding securities based on the payments from mortgages. When homeowners refinance, they capture huge interest savings. Where does this money come from? It comes from the pockets of the holders of mortgage securities. When these unsophisticated investors lose a lot of money, derivatives usually get the blame. Yet these losses went into the pockets of homeowners in the form of interest savings. Who is to blame? Probably the brokers, who sold the securities to investors who did not know what they were buying-which leads us to the next common criticism of derivatives.
The complexity of derivatives means that sometimes the parties that use them do not understand them well. As a result, they are often used improperly, leading to potentially large losses. Such an argument can, however, be used to describe fire, electricity, and chemicals. Used improperly, perhaps in the hands of a child or someone who does not know how to use them, all of these can be extremely dangerous. Yet, we know that sufficient knowledge of fire, electricity, and chemicals to use them properly is not very difficult to obtain. The same is true for derivatives; treat them with respect and healthy doses of knowledge.
Derivatives are also mistakenly characterized as a form of legalized gambling. Although gambling is certainly legal in many parts of the world, derivatives are often viewed as a government’s sanction of gambling via the financial markets. But there is an important distinction between gambling and derivatives: The benefits of derivatives extend much further across society. By providing a means of managing risk along with the other benefits discussed above, derivatives make financial markets work better. The organized gambling industry affects the participants, the owners of casinos, and perhaps some citizens who benefit from state lotteries. Organized gambling does not, however, make society function better, and it arguably incurs social costs.
We have taken a look at what derivatives are, where they come from, where they are now, why we have them, and what people think of them. Understanding derivatives, however, requires a basic understanding of the market forces that govern derivative prices. Although we shall cover derivative pricing in more detail in later posts, here we take a brief look at the process of pricing derivatives by examining some important fundamental principles.