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Valuing an option - Article
The value of an option is dependent on two factors:... |
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Gross and net settlement systems - Article
These are two ways that banks settle payments made on behalf of themselves and their customers. It will depend on which payment system is used when making the payment. Higher value, same-day payment systems use RTGS (Real Time Gross Settlement), whilst bulk payment systems typically use net settlement.... |
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The European System of Central Banks - Article
There are a number of different terms used to identify the central bank participants in the Euro area and the European Union.... |
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World stock market indices - Article
Stock markets around the world use indices of leading shares to illustrate how the market has moved over the measurable past. These indices are increasingly used as the underlying reference instruments in a range of options and futures contracts.... |
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Weather risk - Article
Weather risk is the financial exposure to a change in the weather over a certain period of time. Weather risk is mostly volume-related, as opposed to price-related risks such as “energy risk”. This means that a change in temperature, precipitation or wind speed will have a direct impact on a company’s volume of revenues, sales, costs or production figures. Weather creates volatility in cash flo... |
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Energy risk - Article
This is the risk that a change in energy prices will impose additional costs on a company’s operations. Unlike weather risk which affects volumes (eg, of demand or consumption) energy risk derives from the changes in the price of oil, gas and electricity. There is, of course, a connection between the two.... |
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Standards decoder - Article
We have put together a decoder table of different bodies and standards relating to hedging. While not exhaustive (this would take up the whole magazine!), the table illustrates the different layers of organisations involved in establishing international and country-specific standards.... |
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Pan-European Direct Debit - Article
The direct debit is a payment system in which the debtor authorises the creditor to collect payment from his account. Direct debits differ from standing orders in that, once the debtor has authorised the direct debit arrangement, the payments are initiated by the creditor. This makes direct debits a useful instrument for collecting recurring payments such as utility bills or insurance premiums.... |
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Payment systems - Article
Payment systems process funds and payment instructions. They are sometimes referred to as 'clearing systems' as they 'clear' - in other words, sort out - the payment instruments. ... |
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Convexity Bias - Article
What is convexity? A graph of the relationship between the price and yield of any given bond is convex. This means that the graph has the shape of a curve as opposed to a straight line. Convexity is the measure of the degree of this curve. The stronger the curvature of the graph, the higher the change of a bond’s yield in reaction to a price change. Thus convexity can provide risk information fo... |
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Banker's drafts - Article
A banker’s draft is a type of cheque which is issued by a bank at the request of a customer wishing to transfer funds. The draft is the bank’s own cheque for a specific amount payable to a named beneficiary.... |
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Domestic EFTs - Article
The term Electronic Funds Transfer (EFT) encompasses a wide range of electronic payment methods in which funds are transferred directly from one bank account to another. Many commonly used payments methods are classed as EFTs – payments by debit and credit cards and direct debits, for instance. The following are the main domestic EFT methods:... |
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Arbitrage - Article
Arbitrage is the practice of taking advantage of the price differences which exist between markets. An arbitrageur - a person who engages in arbitrage - spots that particular assets are selling for different prices in two or more markets and exploits this to make a profit: buying the asset on the cheapest market and promptly re-selling it on the more expensive market. In finance, the assets bein... |
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Eurodollar - Article
Eurodollars are US dollar deposits held at banks outside the United States. Originally, most of these deposits were held in Europe and hence the term Eurodollars was used. However, the name Eurodollar should not be confused with the European currency the ‘euro’. Neither are Eurodollars limited to Europe, as they include all US dollar deposits outside of the United States, irrespective of their ... |
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Leveraged buyout - Article
Leveraged buyout... |
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Bid-offer spread - Article
Bid-offer spread is a trading term. It can also be referred to as the ‘bid-ask spread’. Bid-offer spreads can relate to anything traded on an exchange and can be used in a more general context, but the definition used in this article relates to financial instruments – such as foreign exchange or securities – bought and sold by a market maker.... |
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Forfaiting - Article
The term ‘forfaiting’ is derived from the French phrase ‘à forfait’, meaning to relinquish the right to something. Forfaiting is a trade finance technique most commonly used in high value, medium term international trade transactions. Unlike some other receivables financing techniques, which are used to raise finance based on outstanding invoices, forfaiting raises finance against instruments su... |
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Supplier finance - Article
With tighter conditions in the credit markets, supplier finance has become an increasingly popular method of financing companies’ supply chains. According to working capital solutions specialist Demica, 93% of major global banks are now offering this type of solution.
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Countertrade - Article
Countertrade refers to a trade that is paid for using other goods or services in addition to, or in place of, money. It is the oldest form of exchange and involves variations on the idea of barter. It enjoyed a new surge of popularity in the 1960s as a way for centrally planned economies to finance their international trade arrangements without money. In recent years, countertrade has been put ... |
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LIBOR - Article
Standing for the London Interbank Offered Rate, LIBOR is a measure of the interest rates at which banks borrow money from other banks in the London interbank market. It is set daily by the British Bankers’ Association (BBA) independently of the Bank of England, and goes on to influence the rates charged by lenders on trillions of financial products, including home mortgages and personal loans...
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