Finance

  What is a Credit Market? The credit market is also called debt market or bond market which plays a very significant role from the perspective of financing and investing respectively for corporations as well as individuals. It is a financial market where borrowers can issue new debt in the primary market, subsequently buy and sell securities in the secondary market. Why use credit market? The maturity of the bonds are usually more than one year and used for raising capital while providing interest to the other party. Investors take advantage of credit market for earning money. The financial instruments of credit market can be considered safer than investing in stocks, because investors receive fixed interest and if company happen to go insolvent or bankrupt bondholders get priority before shareholders. Who are the participants of credit market? Typically, there are two parties involved in the credit market in order to make any transaction successful. In a lay man term, one party i...

What is a Float? Float related to funds has already been transferred by the payer but not yet able to utilize the fund to the payee. Float comprises with four major components. Which are briefly described as below: Collection float: It relates the overall time gap from the mailing of payment by the payer until the funds available to the receivers bank account. Mail float: it occurs from the time of the payment or cheque until it received to the payee. Processing float: It is counted from the buffering time before the cheque is deposited into the bank account. Availability float: It refers to the time gap which is taken in order to clear the cheque.   Why use lockbox system? A lock box system create impact on all three components of float. Clients make payment to post office box, which can only be emptied by firm’s bank. The firm allow bank to take the cheques and instantly send them to get clearance. The bank processes the payment as soon as possible and deposits the payme...

Management of Cash:  Many individuals earns hefty amount of cash on a regular basis, but only few of them knows how to actually manage it in a proper way which will minimize risk while providing higher yield. There are four major issues when it comes to manage the cash effectively. They are discussed as below: 1. Controlling the level of cash:  The amount of cash locked should be the amount which is required, not extra or less. This can be done by preparing a good Cash Budget. Cash budget can be defined as forecasting of cash receipts and cash disbursement. It also take into account the timing and the amount of cash in and cash out. It can be estimated by studying the past transaction of business. Cash In a. Capital Receipts Whatever money comes in by a way of raising funds such as- issuing shares, bonds, debentures are counted as capital receipts. b. Revenue Receipts When cash is received by selling products or services it can be considered as revenue. Cash Out a. Cap...

Cash is still considered the most liquid asset. Cash is common denominator to which current assets such as- account receivables, inventories will also be converted at the end. Cash is required to purchase raw materials, equipment, other assets which are required to provide products and services for businesses. Marketable securities such as- stocks, bonds, commercial paper, T-bills and money market instruments are also can be converted into cash in a quick manner. The term cash not only limited into cryptocurrencies, coins, currency notes, cheques, bank drafts but also the marketable securities as mentioned earlier.  In a narrow sense, cash only consider the physical money namely notes and coins. But in a broader sense, anything which is highly liquid can be considered as cash, for example- Fixed deposits in bank, short term investment, etc. It is pivotal to know why we need to hold cash. There are various reasons to hold cash. Among them, there are four important motives can be t...

I n this post I will be discussing the basic terminology of risk management in Finance. Finance is about predicting the future, whereas accounting focuses on recording transaction of the past. In Finance, we always talk about uncertainty and this uncertainty can result in losses sometimes. Hence, in order to protect our investment, asset and instability the importance of risk management arises. According to the Investment Guru, American business tycoon Warren Buffet, “Risk comes from not knowing what you are doing”. In another word, it is indicating about uncertainty. A renowned American Investment Banker, President of Goldman Sachs Gary David Cohn quoted as below, “If you don’t invest in risk management, it does not matter what business you are in, it is a risky business”. The definition of risk in a layman term can be defined as uncertainty concerning the occurrence of a loss in future. Loss exposures relates any situation or circumstances in which there is a probability of loss...

Personal financial planning involves making plans in order to achieve personal financial goal. It refers about all the necessary steps which need to be taken in order to develop a personal financial goal. It plays a very significant role to implement a plan for a family as well as individual. A lot people in this world earn huge amount money but still at the end they are not able to save any money rather they rely on credit cards, bank loans and borrow from others. This might happen due to impulse buying, compulsive buying or lack of seriousness in terms of spending money wisely, all these factors may lead an individual in an insolvent and bankrupted situation. Therefore, it is pivotal to do personal financial planning. Personal financial planning is also important when we want a chase a financial goal. Different individual have different personal financial goal in various stages of their life. It depends on individual’s personal factor such as- marital status, number of children, fami...

  Value Investment Value investing is a kind of investment method or investment philosophy that look at stocks that are undervalued--stock price that is below the intrinsic value but still can seek for the momentum to strong growth in the future. So how to know that whether a stocks is undervalued?  This includes research of importance of the company and its business and also it worth in the market. In the analysis, company can meet the Intrinsic Value or estimation of the true value of stock. If the price of the stock in the market lower than the Intrinsic Value then it is a stock that is worth to invest for.  The style that Warren Buffett is using is how well an organization can make profit as a business and he is not worried about that the market will recognize its own value. To make simple Warren Buffett invests into companies that have a good business model with potential profit earning. In order to understand the value investment we are require to have clear unde...