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how do you use queuing theory | queuing theory is used to identify and correct points of congestion in a process the queue may consist of people things or information in any case they are being forced to wait for service that is inefficient bad for business and annoying when the queue consists of people queuing theory is used to analyze the existing process and map out alternatives with a better result who invented queuing theory agner krarup erlang a danish mathematician statistician and engineer is credited with creating not only queuing theory but the entire field of telephone traffic engineering in the early 20th century erlang was head of a technical laboratory at the copenhagen telephone co his extensive studies of wait time in automated telephone services and his proposals for more efficient networks were widely adopted by telephone companies | |
what are the basic elements of queuing theory | a study of a line using queuing theory would break it down into six elements the arrival process the queue or service capacity the number of servers available the size of the client population the queuing discipline such as first in first out and the departure process creating a model of the entire process from start to finish allows the cause or causes of congestion to be identified and addressed the bottom linequeuing theory is a mathematic discipline that looks at lines specifically how they form how they work and why they sometimes don t work queuing is an unavoidable facet of doing business with customers apt to contend with physical or digital lines depending on what they are trying to purchase queuing has an impact on manufacturing inventory shipping and distribution as a result queuing impacts profits and revenues findings from queuing theory can be used to improve customer service traffic flow and order shipments among other aspects of running a business | |
what are quick assets | quick assets refer to assets owned by a company with a commercial or exchange value that can easily be converted into cash or that are already in a cash form quick assets are therefore considered to be the most highly liquid assets held by a company they include cash and equivalents marketable securities and accounts receivable companies use quick assets to calculate certain financial ratios that are used in decision making primarily the quick ratio the basics of quick assetsunlike other types of assets quick assets represent economic resources that can be turned into cash in a relatively short period of time without a significant loss of value cash and cash equivalents are the most liquid current asset items included in quick assets while marketable securities and accounts receivable are also considered to be quick assets quick assets exclude inventories because it may take more time for a company to convert them into cash companies typically keep some portion of their quick assets in the form of cash and marketable securities as a buffer to meet their immediate operating investing or financing needs a company that has a low cash balance in its quick assets may satisfy its need for liquidity by tapping into its available lines of credit depending on the nature of a business and the industry in which it operates a substantial portion of quick assets may be tied to accounts receivable for example companies that sell products and services to corporate clients may have large accounts receivable balances while retail companies that sell products to individual consumers may have negligible accounts receivable on their balance sheets example of quick assets the quick ratioanalysts most often use quick assets to assess a company s ability to satisfy its immediate bills and obligations that are due within a one year period the total amount of quick assets is used in the quick ratio sometimes referred to as the acid test which is a financial ratio that divides the sum of a company s cash and equivalents marketable securities and accounts receivable by its current liabilities this ratio allows investment professionals to determine whether a company can meet its financial obligations if its revenues or cash collections happen to slow down the formula for the quick ratio is quick ratio c e ms ar current liabilities where c e cash equivalents ms marketable securities ar accounts receivable begin aligned text quick ratio frac text c e text ms text ar text current liabilities textbf where text c e text cash equivalents text ms text marketable securities text ar text accounts receivable end aligned quick ratio current liabilitiesc e ms ar where c e cash equivalentsms marketable securitiesar accounts receivable or quick ratio ca inventory pe current liabilities where ca current assets pe prepaid expenses begin aligned text quick ratio frac text ca text inventory text pe text current liabilities textbf where text ca text current assets text pe text prepaid expenses end aligned quick ratio current liabilitiesca inventory pe where ca current assetspe prepaid expenses quick assets versus current assetsquick assets offer analysts a more conservative view of a company s liquidity or ability to meet its short term liabilities with its short term assets because it doesn t include harder to sell inventory and other current assets that can be difficult to liquidate by excluding inventory and other less liquid assets the quick assets focus on the company s most liquid assets the quick ratio can also be contrasted against the current ratio which is equal to a company s total current assets including its inventories divided by its current liabilities the quick ratio represents a more stringent test for the liquidity of a company in comparison to the current ratio the word quick originates with the old english cwic which meant alive or alert | |
what are quick assets | quick assets refer to assets owned by a company with a commercial or exchange value that can easily be converted into cash or that are already in a cash form quick assets are therefore considered to be the most highly liquid assets held by a company they include cash and equivalents marketable securities and accounts receivable companies use quick assets to calculate certain financial ratios that are used in decision making primarily the quick ratio the basics of quick assetsunlike other types of assets quick assets represent economic resources that can be turned into cash in a relatively short period of time without a significant loss of value cash and cash equivalents are the most liquid current asset items included in quick assets while marketable securities and accounts receivable are also considered to be quick assets quick assets exclude inventories because it may take more time for a company to convert them into cash companies typically keep some portion of their quick assets in the form of cash and marketable securities as a buffer to meet their immediate operating investing or financing needs a company that has a low cash balance in its quick assets may satisfy its need for liquidity by tapping into its available lines of credit depending on the nature of a business and the industry in which it operates a substantial portion of quick assets may be tied to accounts receivable for example companies that sell products and services to corporate clients may have large accounts receivable balances while retail companies that sell products to individual consumers may have negligible accounts receivable on their balance sheets example of quick assets the quick ratioanalysts most often use quick assets to assess a company s ability to satisfy its immediate bills and obligations that are due within a one year period the total amount of quick assets is used in the quick ratio sometimes referred to as the acid test which is a financial ratio that divides the sum of a company s cash and equivalents marketable securities and accounts receivable by its current liabilities this ratio allows investment professionals to determine whether a company can meet its financial obligations if its revenues or cash collections happen to slow down the formula for the quick ratio is quick ratio c e ms ar current liabilities where c e cash equivalents ms marketable securities ar accounts receivable begin aligned text quick ratio frac text c e text ms text ar text current liabilities textbf where text c e text cash equivalents text ms text marketable securities text ar text accounts receivable end aligned quick ratio current liabilitiesc e ms ar where c e cash equivalentsms marketable securitiesar accounts receivable or quick ratio ca inventory pe current liabilities where ca current assets pe prepaid expenses begin aligned text quick ratio frac text ca text inventory text pe text current liabilities textbf where text ca text current assets text pe text prepaid expenses end aligned quick ratio current liabilitiesca inventory pe where ca current assetspe prepaid expenses quick assets versus current assetsquick assets offer analysts a more conservative view of a company s liquidity or ability to meet its short term liabilities with its short term assets because it doesn t include harder to sell inventory and other current assets that can be difficult to liquidate by excluding inventory and other less liquid assets the quick assets focus on the company s most liquid assets the quick ratio can also be contrasted against the current ratio which is equal to a company s total current assets including its inventories divided by its current liabilities the quick ratio represents a more stringent test for the liquidity of a company in comparison to the current ratio the word quick originates with the old english cwic which meant alive or alert | |
what is the quick ratio | the quick ratio is an indicator of a company s short term liquidity position and measures a company s ability to meet its short term obligations with its most liquid assets since it indicates the company s ability to instantly use its near cash assets assets that can be converted quickly to cash to pay down its current liabilities it is also called the acid test ratio an acid test is a slang term for a quick test designed to produce instant results madelyn goodnight investopediaformula for the quick ratiothere are a few different ways to calculate the quick ratio the most common approach is to add the most liquid assets and divide the total by current liabilities quick ratio quick assets current liabilities begin aligned textbf quick ratio mathbf frac textbf quick assets textbf current liabilities end aligned quick ratio current liabilities quick assets quick assets are defined as the most liquid current assets that can easily be exchanged for cash for most companies quick assets are limited to just a few types of assets quick assets cash ce ms nar where ce cash equivalents ms marketable securities nar net accounts receivable begin aligned textbf quick assets mathbf textbf cash mathbf textbf ce mathbf textbf ms mathbf textbf nar textbf where text ce text cash equivalents text ms text marketable securities text nar text net accounts receivable end aligned quick assets cash ce ms narwhere ce cash equivalentsms marketable securitiesnar net accounts receivable depending on what type of current assets a company has on its balance sheet a company may also calculate quick assets by deducting illiquid current assets from its balance sheet for example consider that inventory and prepaid expenses may not be easily or quickly converted to cash a company may calculate quick assets as follows quick assets tca inventory pe where tca total current assets pe prepaid expenses begin aligned textbf quick assets mathbf textbf tca mathbf textbf inventory mathbf textbf pe textbf where textbf tca text total current assets textbf pe text prepaid expenses end aligned quick assets tca inventory pewhere tca total current assetspe prepaid expenses regardless of which method is used to calculate quick assets the calculation for current liabilities is the same as all current liabilities are included in the formula | |
what the quick ratio can tell you | the quick ratio measures the dollar amount of liquid assets available against the dollar amount of current liabilities of a company liquid assets are those current assets that can be quickly converted into cash with minimal impact on the price received in the open market while current liabilities are a company s debts or obligations that are due to be paid to creditors within one year a company that has a quick ratio of less than one may not be able to fully pay off its current liabilities in the short term while a company having a quick ratio higher than one can instantly get rid of its current liabilities for instance a quick ratio of 1 5 indicates that a company has 1 50 of liquid assets available to cover each 1 of its current liabilities while such numbers based ratios offer insight into the viability and certain aspects of a business they may not provide a complete picture of the overall health of the business it is important to look at other associated measures to assess the true picture of a company s financial health the higher the quick ratio the better a company s liquidity and financial health but it is important to look at other related measures to assess the whole picture of a company s financial health components of the quick ratiocash is among the more straightforward pieces of the quick ratio a company should strive to reconcile its cash balance to monthly bank statements received from its financial institutions this cash component may include cash from foreign countries translated to a single denomination cash equivalents are often an extension of cash as this account often houses investments with very low risk and high liquidity cash equivalents often include but may not necessarily be limited to treasury bills certificates of deposits being mindful of options fees to break the cd bankers acceptances corporate commercial paper or other money market instruments in a publication by the american institute of certified public accountants aicpa digital assets such as cryptocurrency or digital tokens may not be reported as cash or cash equivalents 1marketable securities are usually free from such time bound dependencies however to maintain precision in the calculation one should consider only the amount to be actually received in 90 days or less under normal terms early liquidation or premature withdrawal of assets like interest bearing securities may lead to penalties or discounted book value whether accounts receivable is a source of quick ready cash remains a debatable topic and it depends on the credit terms that the company extends to its customers a company that needs advance payments or allows only 30 days for customers to pay will be in a better liquidity position than a company that gives 90 days on the other hand a company could negotiate rapid receipt of payments from its customers and secure longer terms of payment from its suppliers which would keep liabilities on the books longer by converting accounts receivable to cash faster it may have a healthier quick ratio and be fully equipped to pay off its current liabilities the total accounts receivable balance should be reduced by the estimated amount of uncollectible receivables as the quick ratio only wants to reflect the cash that could be on hand the formula should not include any receivables that a company does not expect to receive the quick ratio pulls all current liabilities from a company s balance sheet as it does not attempt to distinguish between when payments may be due the quick ratio assumes that all current liabilities have a near term due date total current liabilities are often calculated as the sum of various accounts including accounts payable wages payable current portions of long term debt and taxes payable because prepaid expenses may not be refundable and inventory may be difficult to quickly convert to cash without severe product discounts both are excluded from the asset portion of the quick ratio the difference between the quick ratio and the current ratiothe quick ratio is more conservative than the current ratio because it excludes inventory and other current assets which are generally more difficult to turn into cash the quick ratio considers only assets that can be converted to cash in a short period of time the current ratio on the other hand considers inventory and prepaid expense assets in most companies inventory takes time to liquidate although a few rare companies can turn their inventory fast enough to consider it a quick asset prepaid expenses though an asset cannot be used to pay for current liabilities so they re omitted from the quick ratio advantages and disadvantages of the quick ratiothe quick ratio has the advantage of being a more conservative estimate of how liquid a company is compared to other calculations that include potentially illiquid assets the quick ratio is often a better true indicator of short term cash capabilities the quick ratio is also fairly easy and straightforward to calculate it s relatively easy to understand especially when comparing a company s liquidity against a target calculation such as 1 0 the quick ratio can be used to analyze a single company over a period of time or can be used to compare similar companies there are several downsides to the quick ratio the financial metric does not give any indication of a company s future cash flow activity though a company may be sitting on 1 million today the company may not be selling a profitable product and may struggle to maintain its cash balance in the future there are also considerations to make regarding the true liquidity of accounts receivable as well as marketable securities in some situations conservative approach to estimating a company s liquidityrelatively straightforward to calculateall components are reported on a company s balance sheetcan be used to compare companies across time periods or sectors | |
does not consider long term liabilities some of which may be due as early as 12 months from now | may overstate the true collectability of accounts receivablemay overstate the true liquidity of marketable securities during economic downturnsexample of how to use the quick ratiopublicly traded companies may report the quick ratio figure under the liquidity financial health heading in the key ratios section of their quarterly reports below is the calculation of the quick ratio based on the figures that appear on the balance sheets of two leading competitors operating in the personal care industrial sector abc and xyz with a quick ratio of over 1 0 xyz appears to be in a decent position to cover its current liabilities as its liquid assets are greater than the total of its short term debt obligations abc on the other hand may not be able to pay off its current obligations using only quick assets as its quick ratio is well below 1 at 0 45 this shows that disregarding profitability or income xyz appears to be in better short term financial health regarding its ability to meet its short term debt requirements | |
why is it called the quick ratio | the quick ratio looks at only the most liquid assets that a company has available to service short term debts and obligations liquid assets are those that can quickly and easily be converted into cash in order to pay those bills | |
why is the quick ratio important | the quick ratio communicates how well a company will be able to pay its short term debts using only the most liquid of assets the ratio is important because it signals to internal management and external investors whether the company will run out of cash the quick ratio also holds more value than other liquidity ratios such as the current ratio because it has the most conservative approach to reflecting how a company can raise cash | |
is a higher quick ratio better | in general a higher quick ratio is better this is because the formula s numerator the most liquid current assets will be higher than the formula s denominator the company s current liabilities a higher quick ratio signals that a company can be more liquid and generate cash quickly in case of emergency keep in mind that a very high quick ratio may not be better for example a company may be sitting on a very large cash balance this capital could be used to generate company growth or invest in new markets there is often a fine line between balancing short term cash needs and spending capital for long term potential | |
how do the quick and current ratios differ | the quick ratio only looks at the most liquid assets on a firm s balance sheet so it gives the most immediate picture of liquidity available if needed in a pinch making it the most conservative measure of liquidity the current ratio also includes less liquid assets such as inventories and other current assets such as prepaid expenses | |
what happens if the quick ratio indicates a firm is not liquid | in this case a liquidity crisis can arise even at healthy companies if circumstances arise that make it difficult to meet short term obligations such as repaying their loans and paying their employees or suppliers one example of a far reaching liquidity crisis from history is the global credit crunch of 2007 08 where many companies found themselves unable to secure short term financing to pay their immediate obligations if new financing cannot be found the company may be forced to liquidate assets in a fire sale or seek bankruptcy protection the bottom linea company can t exist without cash flow and the ability to pay its bills as they come due by measuring its quick ratio a company can better understand what resources it has in the very short term in case it needs to liquidate current assets though other liquidity ratios measure a company s ability to be solvent in the short term the quick ratio is among the most aggressive in deciding short term liquidity capabilities | |
a quick response qr code is a type of barcode that can be scanned by a digital device and which stores information as a series of pixels in a square shaped grid unlike the pandemic era masks the qr codes that became ubiquitous during that period are almost sure to stay 1 qr codes bridge the physical and digital worlds as people can scan menus and posters for information with their cellphones or off websites | but qr codes are used to do more than tell you what appetizers are on special at your local restaurant inventory managers hope they gain wider use to track product information in the supply chain not just in marketing and advertising campaigns qr codes are considered an advance over the older unidimensional barcodes and were approved as an international standard in 2000 by the international organization for standardization iso 2 below we go through the basics of the qr code and why it s gained such wide use in recent years understanding quick response qr codesqr codes were developed in the 1990s to provide more information than a standard barcode they were invented by denso wave a subsidiary of toyota as a way to track automobiles throughout the manufacturing process 3 unlike barcodes which require a beam of light to bounce off the parallel lines mobile phones can digitally scan qr codes qr codes consist of black squares arranged in a grid matrix on a white background and are read by specialized software that can extract data from the patterns in the matrix these codes can contain more information than traditional barcodes and primarily handle four modes of data alphanumeric numeric binary and kanji despite the greater capacity qr codes have not proven as popular with consumers as was expected rather than being created by consumers to share information they are most commonly associated with marketing campaigns qr codes have become more widespread in facilitating digital payments and cryptocurrency systems such as displaying one s bitcoin address qr codes are also increasingly used to transmit web addresses to mobile phones for instance the qr code below encodes this webpage s url on investopedia quick response qr codes vs barcodesthe amount of information that can be conveyed about a product or service was traditionally limited by the amount of space on the product s packaging or the advertisement touting its benefits if a consumer wanted more information about the product availability price attributes they would have to find a salesperson or request extra documentation barcodes are commonly found on the back of product packages and convey data using a combination of various widths of parallel lines which can be read by machines that have an optical scanner 4the barcode revolutionized the way companies managed inventories and pricing and was first put to practical use in the 1960s by u s railroads to track equipment and containers traditional two dimensional barcodes came into common use in u s retail stores in 1974 5 barcodes are now found on everything from employee id badges and hospital bracelets to shipping containers the impact of this humble set of lines is hard to overstate without them the never ending cascade of products cramming every aisle of our stores could not be inventoried and shipped with such relative ease 4barcodes are typically used when a simple identification is needed supermarkets use them to track product prices and inventory libraries use barcodes for book identification and checkouts shipping companies utilize barcodes to track packages throughout the delivery process qr codes meanwhile are commonly used when a large amount of information needs to be shared for instance they are often found on event tickets to quickly provide details or on advertisements to link directly to a website qr codes can also be used in restaurants enabling customers to view digital menus by scanning the code experts envision even broader applications for qr codes in streamlining inventory and supply chains in the years ahead 4 beyond encoding links to drink specials and website urls qr codes can store expansive amounts of data opening possibilities like integrating detailed product information into codes in the future scanning a code could show everything from a product s manufacturing data to its transportation history to precise expiry dates 1some companies are even experimenting with using qr codes to tie digital information to individual products rather than entire product lines with this level of precision scannable qr codes could provide consumers assurance about the origins ingredients or components of the item they are purchasing supply chain managers are hopeful about efficiency improvements too if items can be traced to specific factories batches and delivery dates as the possibilities expand qr codes may radically change how data flows between physical products and digital systems bridging digital life and the real world 4used for sharing extensive informationcommonly found on event tickets and adsenable digital menu viewing in restaurants | |
what is a quick rinse bankruptcy | a quick rinse bankruptcy is a bankruptcy proceeding that is structured to move through legal proceedings faster than the average bankruptcy all parties involved negotiate terms before a company files for bankruptcy the term quick rinse bankruptcy first emerged during the credit crisis that started in 2008 and was used to describe the planned bankruptcies of u s automotive giants chrysler and general motors | |
how a quick rinse bankruptcy works | in order for quick rinse bankruptcies to be effective involved parties must negotiate terms prior to the proceedings these negotiations take place between the government creditors unions shareholders and other parties in order to prevent filings by these parties in court that would otherwise slow down the process a quick rinse bankruptcy also known as a controlled bankruptcy involves taxpayer financing such pre negotiated bankruptcies arose during the credit crisis of 2008 due to the perceived impact that the chrysler and general motors failures would have on the economy it was argued that drawn out bankruptcy proceedings would result in massive layoffs and a loss of customers that would deepen the recession and further stunt economic growth after the financial crisis reforms focused on having companies use bail ins as opposed to bail outs as to not use taxpayer money in bankruptcies such as those of general motors and chrysler where preserving the value of the companies and giving them the best chance of reorganization and survival is of paramount importance speed is of the essence the first question among negotiators and administrators is how fast or when an agreement should be reached a company on the brink only has a limited amount of time before it begins to lose significant portions of its customers working capital financing sources suppliers and vendors benefits of a quick rinse bankruptcythe primary benefit of a quick rinse bankruptcy is speed chapter 11 bankruptcies are time consuming take up resources primarily money and can drag on for months or years impeding the businesses involved a quick rinse bankruptcy moves the process along quickly which is particularly important for creditors so that they can continue on with their own businesses by taking stock of their financial situation after dealing with a bankrupted entity quick rinse bankruptcy vs prepackaged bankruptcya quick rinse bankruptcy has roughly the same purpose as a prepackaged bankruptcy to avoid the slow complicated and expensive drag of court proceedings the two types differ in that a quick rinse bankruptcy comes with the promise of taxpayer financing such as the government bailouts of general motors and chrysler in the wake of the 2008 financial crisis the number of days it took gm to emerge from its quick rinse bankruptcy with a prepackaged bankruptcy a company in distress will tell its creditors that it wants to negotiate bankruptcy terms before it files for court protection this gives creditors the opportunity to work with a company to come to an agreement on repayment terms before a chapter 11 filing is made the new york times described controlled or quick rinse bankruptcies as existing somewhere between a prepackaged bankruptcy and court chaos example of a quick rinse bankruptcycompany abc has not been able to sell many of its goods for the past year the company has generated no profits and has had to borrow money from a few creditors to stay afloat the company has reached a point where it is in debt is not able to borrow more and sees no way out of its current situation the management of the company decides to declare bankruptcy before declaring bankruptcy however abc negotiates terms with its creditors it owes 5 million to bank one 2 million to bank two and 4 million to bank three after assessing the value of all of its assets which includes vehicles machinery and a small warehouse abc determines it can pay bank one 3 million of the 5 million bank two 500 000 of the 2 million and bank three 1 million of the 4 million the banks are not happy about this but rather than receive nothing at all they agree to the terms when company abc declares bankruptcy the court and proceedings move quickly without any hold ups as all parties have already agreed to the terms of the bankruptcy | |
how long do corporate bankruptcies usually take | every bankruptcy situation is unique and therefore will vary in the length of time it takes from filing to closing in general if all parties are prepared a bankruptcy proceeding lasts between four to six months can a company survive chapter 11 yes a company can survive a chapter 11 bankruptcy and many companies have not only have they survived but many have gone on to become stronger companies the purpose of a chapter 11 bankruptcy is for a company to reorganize itself so it is on a better financial footing the goal is not to close down and liquidate assets can you file chapter 7 twice yes you can file a chapter 7 bankruptcy twice if you filed for chapter 7 bankruptcy for the first time and received a discharge you have to wait eight years before filing a second time it is important to receive a discharge from your first bankruptcy otherwise you may be held liable for all debts in your second bankruptcy | |
do stocks go up after bankruptcies | stocks may or may not go up after a bankruptcy if it is a chapter 11 bankruptcy a company s stock will fall upon the news and see little gains during reorganization however it is possible that after some time once the company has reorganized and found new footing it may perform better which will see the value of its shares go up | |
what is a quid | quid is a slang expression for the british pound sterling gbp the currency of the united kingdom a quid equals 100 pence and the nickname may stem from the latin phrase quid pro quo which translates as something for something origins of the term quidthe term quid began sometime in the late 17th century but the link with the british currency is unclear 1 some scholars believe that italian immigrants extracted the term from scudo the name for gold and silver coins of various denominations used in italy from the 16th century through the 19th century the word origin may trace back to quidhampton a village in wiltshire england once home to a royal mint paper mill any paper money made in this mill might have been called a quid the pound sterling has a rich history of more than 12 centuries as the world s oldest currency still in use the modern pound sterling whether in coins or bills contains no silver but retains the word often associated with silver sterling history of the british pound sterlinghistorians trace the pound sterling back to 775 a d when anglo saxon kings used silver pennies called sterlings as currency a collection of 240 equaled 1 pound of sterlings hence the name pound sterling in latin libra means weight and libra pondo translates to pound weight which is why the british pound bears a l or symbol 1the use of a single pound coin or sovereign began in 1489 under king henry vii 2 in addition to the united kingdom the british pound has served as currency in many colonies of the british empire including australia new zealand and canada the u k is made up of england northern ireland scotland and wales 3two hundred forty pence in one pound sterling remained the standard for nearly 1 200 years until 1971 when the british parliament instituted decimalization to make 100 pence equal to one pound sterling 1timeline of u k banknotes and coinsfrom 775 to 1971 british coins were made into many denominations no longer circulating including pennies halfpennies farthings half crowns and double florins in 2023 the u k has eight coins and four notes circulating 56quid and famous phrases idiomsby this point you know that quid is simply a slang term that refers to a specific currency because it has an engrained nature in language the phrase quid is used throughout literacy and has ties to several more common phrases some examples of these phrases include | |
what are common slang terms for the british pound | quid is the common slang term for the british pound and the word is almost never pluralized other terms that refer to a pound include smacker fiver for the 5 note tenner for the 10 note and dosh | |
how many pounds is a quid | a quid equals 1 or one pound sterling | |
what is a quid vs a pound | quid is a slang term for the pound sterling issued by the united kingdom the pound is the name of the currency issued by the u k like the dollar is for the currency issued by the united states | |
how does the value of a quid compare to the euro | the value of a quid compared to the euro varies with exchange rates as of june 2024 it s approximately 1 19 but checking current rates is recommended as this amount will fluctuate potentially daily | |
are there any coins or banknotes specifically labeled as quid | no coins and banknotes are labeled with their denomination in pounds sterling such as 1 5 10 etc the term quid is purely colloquial the bottom linethe british pound sterling gbp is the oldest currency used today it is often referred to by its nickname quid a quid equals 1 or one pound sterling | |
what is quid pro quo | quid pro quo is a latin term for something for something that originated in the middle ages in europe it describes a situation when two parties mutually agree to exchange goods or services reciprocally in a quid pro quo agreement one transfer is thus contingent upon some transfer from the other party in business and legal contexts quid pro quo conveys that a good or service has been exchanged for something of equal value it has been used in politics to describe an unethical practice of i ll do something for you if you do something for me but is allowable if bribery or malfeasance does not occur understanding quid pro quothe key to a quid pro quo business agreement is a consideration which may take the form of a good service money or financial instrument such considerations are attached to a contract in which something is provided and something of equal value is hence returned in exchange without such considerations a court may find a contract to be invalid or nonbinding additionally if the agreement appears to be unfair or overly one sided the courts may rule that the contract is null and void any individual business or other transacting entity should know what is expected of both parties to enter into a contract a bartering arrangement between two parties is an example of a quid pro quo business agreement where one exchanges something for something else of similar value in other contexts a quid pro quo may involve something along the lines of a more questionably ethical situation involving a favor for a favor arrangement rather than a balanced exchange of equally valued goods or services quid pro quo is latin for something for something it first appeared in the mid 16th century in reference to substituting one medicine for another 1negative perception of quid pro quoquid pro quo arrangements can have negative connotations in certain contexts for example in a quid pro quo agreement between an investment bank s research arm and a public company the bank might amend its rating of the company s shares in exchange for underwriting business in response to these potential conflicts of interest u s financial regulators have investigated and issued rules to ensure that firms put customers interests before their own in issuing stock ratings 2another example of a questionable quid pro quo agreement in business is a soft dollar agreement in a soft dollar agreement one firm firm a uses another firm s firm b research in exchange firm b executes all of firm a s trades this exchange of services is used as payment instead of a traditional hard dollar payment research has shown that transactions executed under soft dollar arrangements cost more than execution only arrangements still soft dollar arrangements such as these are legal in the u s and other places though discouraged in some jurisdictions and viewed as unethical by some critics in the u s the federal election campaign act limits the number of contributions made to a campaign by donors quid pro quo in politicsquid pro quo arrangements may also exist in the political realm as an example in exchange for donations a politician may be obliged to provide a future consideration regarding policymaking or decision making such a quid pro quo does not always imply a bribe however merely the understanding that the politician will consider the donor s wishes when creating policy or voting on legislation much controversy surrounds quid pro quo in politics so much so that in the last 40 years many cases have appeared before the supreme court to define what constitutes an illegal agreement | |
what is the definition or meaning of the latin phrase quid pro quo | quid pro quo means something for something in latin while today it denotes something done with the expectation of some favor in return i scratch your back you scratch mine the phrase was first used by apothecaries in the 1500s when they did not have a particular remedy in stock and would thus prescribe a substitute 1 | |
is a quid pro quo legal | a quid pro quo is only illegal if it breaks the law as in the case of a bribe blackmail or some sort of contingency for example requesting something non work related in return for not firing an employee even if an instance of a quid pro quo is deemed legal however it may still be viewed unfavorably | |
what is an example of quid pro quo | there are many examples of quid pro quo from bartering arrangements to gift giving an example of an illegal quid pro quo would be a case of sexual harassment where work outcomes or compensation are linked to sexual favors | |
what is another way to say quid pro quo | other idioms that have similar meanings to quid pro quo are i scratch your back you scratch mine this for that or tit for tat the bottom linequid pro quo is the act of doing something in exchange for something of equal value it is usually not a monetary agreement but typically one service for another most often it is a favor that is granted by one party with an expectation of an equal favor or service to be returned in the future it is used widely throughout business and politics | |
what is a quid pro quo contribution | many nonprofit foundations and organizations rely on charitable donations from corporate sponsors and individuals to meet a large part of their funding needs these can be solicited in many different forms from one off contributions to ongoing sponsorships from businesses in the community during the holidays it is not uncommon to see organizations such as the salvation army collecting individual donations from patrons as they enter or exit retail establishments generally these donations are made without the donor expecting anything in return except an itemized tax deduction a quid pro quo contribution however is a charitable donation for which the donor gets something of value from the recipient in exchange for their funds 1 the organization has created an incentive to the donation it s a device designed to grease the wheels of fundraising understanding a quid pro quo contributiona typical charitable donation is different from a quid pro quo contribution in that the donor receives nothing from the charity in return for the gift or deposit the rules for tax deductions for quid pro quo contributions are also different with a typical donation the donor can deduct the full amount as long as the donation meets eligibility requirements with a quid pro quo contribution the deductible amount is the difference between the donation and the fair market value of the goods or services that the charity provided the donor with in exchange 1for the 2021 tax year even taxpayers who take the standard deduction rather than itemize are allowed to deduct a certain amount of charitable contributions with the limit being 300 for single filers and 600 for a married couple filing jointly 2an example of a quid pro quo contributionduring summer vacation beth sees that her daughter lauren s school is trying to raise money to buy plants and materials to make a school garden beth is excited about the prospect of her daughter learning how to grow fresh fruits and vegetables and gladly donates 75 to the school as a thank you the school offers some of the top donors gift certificates to the farm stand that they will be setting up at the end of the school year to sell off the surplus fruits and vegetables harvested from the garden this is a quid pro quo donation as beth received something in return for her monetary contribution if the school was only soliciting funds and not offering anything in return then it would not qualify as quid pro quo | |
when it is time for beth to file her taxes she remembers the 75 donation and the 5 gift card that she received in exchange when she goes to add the contribution to her itemized deductions for the tax year she can only use 70 from the donation which is the difference between the donation and the gift that she received in return if she hadn t received the gift card she would have been able to use the entire balance of the 75 donation | the charity however does not have to remind beth of the 5 gift card the internal revenue service irs only requires written disclosure statements to be sent to donors if their total quid quo pro contribution not just the deductible amount was greater than 75 1 beth however would be responsible for remembering it herself and deducting 70 rather than 75 | |
what is a quid pro quo contribution | a quid pro quo contribution is a charitable donation for which the donor is rewarded with something of value by the charity in question | |
what is the purpose of a quid pro quo contribution | offering something of value in return for a donation is a way for a charitable organization to prompt donations that otherwise might not be forthcoming | |
is a quid pro quo contribution tax deductible | yes but it does have tax implications a regular contribution to a qualified charitable organization can be deducted in full by taxpayers who itemize their deductions however with a quid pro quo donation the donor must deduct the fair market value of what they received from the charity from the full amount of their donation to arrive at the allowable tax deduction | |
what is a quiet period | before a company s initial public offering ipo the quiet period is an embargo on promotional publicity mandated by the u s securities and exchange commission sec the quiet period prohibits management teams or their marketing agents from making forecasts or expressing any opinions about the value of their company for publicly traded stocks the four weeks before the close of a business quarter is also known as a quiet period understanding a quiet periodduring quiet periods corporate insiders are forbidden to speak to the public about their business to avoid tipping certain analysts journalists investors and portfolio managers to an unfair advantage often to avoid the appearance of insider information whether real or perceived the quiet period s purpose is to create a level playing field for all investors by ensuring that everyone has access to the same information at the same time it s not uncommon for the sec to delay an ipo if a quiet period has been violated interested parties take the process seriously as there s a lot of money on the line after a company files registration for newly issued securities stocks and bonds with the sec its management team investment bankers and lawyers go on a roadshow during a series of presentations potential institutional investors will ask questions about the company to gather investment research management teams must not offer any new information that is not already contained in the registration statement but can provide some level of informational gathering the quiet period begins when the registration statement is made effective and lasts for 40 days after the stock starts trading and is for analysts employed by the offering s managing underwriters and 25 days for analysts employed by other underwriters participating in the ipo the quiet period also includes 15 days before or after the expiration termination or waiver of the ipo lockup period note that the jumpstart our business startups jobs act created the category of emerging growth companies egcs and the quiet period rules that apply to them the jobs act did away with research period quiet periods for egcs allowing research analysts to publish reports after the initial earnings release even if it falls within 25 days of the ipo the act defines egcs as companies with less than 1 billion in revenue in their most recent fiscal year 1the term quiet period has two references in business one relating to an initial public offering ipo and one to the end of the business quarter for a corporation examples of a quiet period violationdebating the objectives of quiet periods and the sec s enforcement are commonplace in financial markets when quiet periods are seen as having been violated and ultimately to have benefitted select parties legal action is usually taken in a 2012 example shareholders alleged impropriety regarding the quiet period surrounding the ipo of facebook now meta arguing that certain information that should have been kept quiet may have been shared selectively unfairly benefitting certain parties facebook s ipo prompted more than a dozen shareholder lawsuits accusing the social networking company and its underwriters of obscuring its weakened growth forecasts ahead of the listing small investors complained they were at an informational disadvantage after underwriters research analysts supposedly passed new and useful earnings estimates to large investors only 2in a more recent case in 2019 wework a commercial real estate company that provides shared workspaces for technology startups and other services for enterprises also faced scrutiny of the sec for a potential violation of the quiet period rules during its initial public offering in the prospectus filed with the sec providing details about the investment offering to the public wework admitted that then ceo adam neumann gave sensitive interviews to axios and business insider taking place during the quiet period wework abandoned its ipo in september 2019 after investors showed concerns about its increasing losses forcing adam neumann to resign 3 | |
what is quiet title | quiet title is a lawsuit filed to establish ownership of real estate when ownership is in question real estate owners want to ensure that they have a clear title meaning that there are no liens or levies against the title and no disputes over the property s ownership these possible problems are known as clouds on the title and can be resolved by action to quiet the title when you quiet the title you are insuring that once and for all there is only one clear owner of the title breaking down quiet titleafter a successful quiet title a clear title is established and is required to close a real estate transaction and is established by title companies who do a title search to confirm a property s legal owner and check for claims against the property title insurance protects the interest in a property against legal defects since title searches are not infallible to initiate an uncontested quiet title a homeowner may file what is known as a quiet title action which is a specific legal process to determine the clear ownership of a property the quiet title action acts as a lawsuit of sorts from the individual or party who is claiming to be the sole owner of the property against all others who claim to have a stake in it once the proceeding has gone through and the purported owner prevails in the quiet title action the title is considered close and quiet for that owner and no further challenges to the title can be leveraged an example of a quiet titleas an example of a quiet title there could be a contractor whose primary job is flipping a house meaning that contractor a purchases a home for a low price makes necessary home improvements and then turns around and sells the home for a profit in order to make a profit off of flipping homes it s usually a house that has been foreclosed on or previously owned by someone who was not able to successfully own the house thus the home may have liens against the house or unpaid debts to make sure that the buyer can own the home free and clear when purchasing the contractor will bring a quiet title action to court to essentially bump up their ownership of the home above other previous owners the action will be published publicly usually in a newspaper or other public publication which allows any other contested owners to come forward and make their claim to the property once sufficient time has passed or other owners have been dealt with accordingly and there is one clear owner the title is considered quiet | |
what is a quiet title action | a quiet title action also known as an action of quiet title is a civil court action or lawsuit that is filed with the intended purpose to establish or settle the title to a property quiet title actions are particularly prevalent in cases where there is a disagreement on the title and the lawsuit is meant to remove or quiet a claim or objection to a title the result is a clear title or an absolute title understanding a quiet title actiona quiet title action occurs when one property claimant challenges one or more other people in a court of law for the purpose of determining who is the rightful legal owner of the property in question it is intended to quiet the conflicting claims on the property by eliminating any ambiguities in the title thus clarifying the question of legal ownership following the quiet title action the plaintiff will be in full possession of the property in perpetuity as will be the plaintiff s heirs and they will also be protected from any further claims of ownership made against the property by other outside entities title insurance can protect property owners against certain legal defects that could be subject to a quiet title action quiet title action usesquiet title action can be used for several reasons among the most common include other grounds for a quiet title action include to settle tax issues with a property errors in surveying fraudulent conveyance of the property by coercion or forged deed treaty disputes between nations or competing claims by lienholders reverters missing heirs or remainders | |
how the quiet title action process works | to initiate a quiet title action you should first determine if it is an appropriate course of action if so obtain a copy of the deed from the county clerk or records office with the aid of a real estate attorney sometimes in conjunction with a realtor write up the complaint for the quiet title action and file the suit with the appropriate courtthe quiet title action acts thus as a lawsuit levied by the party who is claiming to be the sole owner of the property against all others who may claim to have a stake in it a judge will then rule on the merits of the case and if successful they will issue a judgment or court order once the proceeding has gone through and the purported owner prevails in the quiet title action the title is considered clear and quiet for that owner and no further challenges to the title can be leveraged 1the process from start to finish will generally take as little as 30 days and up to more than one year depending on the complexity of the claim the state the action takes place in and the court s backlog special considerationsa quiet title action does not give the new owner the same level of protection against the previous owner in most cases if there are problems with the property the new owner can t sue the previous owner unless they acquired the property via warranty deed and sued for defects when the warranty deed was delivered additionally quiet title actions don t always clear up all issues with a title in some jurisdictions they can only be used to clear up specific claims or title defects | |
what is the meaning of quieting a title | quieting a title is the legal process of removing competing claims or challenges to title to real property | |
how much does a suit to quiet title cost | a quiet title action will typically cost between 1 500 to 5 000 or more depending on what state the action takes place in and the complexity of the claim 2 | |
how do you fight a quiet title action | if you find yourself facing a quiet title action you can fight it by producing a deed and other information proving that you have superior title and that their claim is invalid or mistaken this often involves showing up to a legal hearing to present your arguments defending your title hiring a skilled and knowledgeable attorney to help with the defense is recommended the bottom linethe quiet title action is a legal remedy to resolve property disputes involving competing claims or challenges to its title if a title is not clear it is not quiet this can arise from liens boundary disputes easements gaps in the chain of ownership adverse possession or estate sales this action is essentially a lawsuit where the judgment that is rendered can result in a clear or quiet title | |
what are quintiles | a quintile is a statistical value of a data set that represents 20 of a given population so the first quintile represents the lowest fifth of the data 1 to 20 the second quintile represents the second fifth 21 to 40 and so on quintiles are used to create cut off points for a given population a government sponsored socio economic study may use quintiles to determine the maximum wealth a family could possess in order to belong to the lowest quintile of society this cut off point can then be used as a prerequisite for a family to receive a special government subsidy aimed to help society s less fortunate understanding quintilesa quintile is a type of quantile which is defined as equal sized segments of a population one of the most common metrics in statistical analysis the median is actually just the result of dividing a population into two quantiles a quintile is one of five values that divide a range of data into five equal parts each being 1 5th 20 percent of the range a population split into three equal parts is divided into tertiles while one split into fourths is divided into quartiles the larger the data set the easier it is to divide into greater quantiles economists often use quintiles to analyze very large data sets such as the population of the united states for example if we were to look at all of the closing prices for a specific stock for every day in the last year the top 20 of those prices would represent the upper quintile of the data the bottom 20 of those prices would represent the lower quintile of the data there would be three quintiles in between the upper and lower quintiles while the average of all the stock prices typically falls between the second and fourth quintiles which is the middle point of the data outliers on either the high end or the low end of the data may increase or decrease the average value as a result it is worth considering the distribution of the data points and accounting for any significant outliers when trying to understand the data and the average values common uses of quintilespoliticians invoke quintiles to illustrate the need for policy changes for example a politician who champions economic justice can divide the population into quintiles to illustrate how the top 20 of income earners controls what is in his opinion an unfairly large share of the wealth on the other end of the spectrum a politician calling for an end to progressive taxation might use quintiles to make the argument that the top 20 shoulder too large a share of the tax burden in the bell curve a controversial 1994 book on intelligence quotient iq the authors use quintiles throughout the text to illustrate their research showing that iq is heavily correlated with positive outcomes in life alternatives to quintilesfor certain populations the use of other methods to examine how the data is distributed makes more sense than using quintiles for smaller data sets the use of quartiles or tertiles helps prevent the data from being spread too thin comparing the mean or average of a data set to its median or the cutoff point where the data is divided into two quantiles reveals if the data is evenly distributed or if it is skewed toward the top or bottom a mean that is significantly higher than the median indicates the data is top heavy while a lower mean suggests the opposite | |
a quitclaim deed releases a person s interest in a property without stating the nature of the person s interest or rights and with no warranties of that person s interest or rights in the property | a quitclaim deed neither states nor guarantees that the person relinquishing their claim to the property had valid ownership but it does prevent that person the grantor from later claiming that they have an interest in the property investopedia yurle villegas | |
what is a quitclaim deed | a quitclaim deed usually includes a legal description of the property the name of the person who is transferring their interest the name of the person who is receiving that interest the grantee the date and both parties notarized signatures quitclaim deeds are typically used to transfer property in non sale situations such as transfers of property between family members they can be used to add a spouse to a property title after marriage remove a spouse from a title after divorce clarify ownership of inherited property transfer property into or out of a revocable living trust clarify an easement or change how a property s title is held a quitclaim deed makes no assurance that the grantor actually has an ownership interest in a property it merely states that if the grantor does they release those ownership rights as a result when accepting a quitclaim deed the buyer of a property accepts the risk that the grantor of the deed may not have a valid ownership interest and or that there may be additional ownership interests in the property title insurance is not issued in conjunction with a quitclaim deed types of quitclaim deeddeeds are usually differentiated by what they state or guarantee when the ownership is transferred from the grantor to the grantee buyer unlike a quitclaim deed a warranty deed can grant a certain level of assurances when ownership is transferred warranty deeds are typically used in property sales and are granted in two common forms general warranty deeds and special warranty deeds a general warranty deed provides the grantee with the highest form of protection because it assures that the grantor owns the property free and clear and that no other entity can place a claim on it this guarantee covers the entire history of the property even times when the grantor did not own the property if there are any breaches in this contract the grantor is held responsible a special warranty deed conveys that the grantor owns the property and that no one else has a claim to it for as long as they have owned it special warranty deeds are most commonly used during commercial real estate sales | |
what is a quitclaim deed | a quitclaim deed is a document in which a grantor disclaims all interest in a parcel of real property and then conveys that interest to a grantee unlike grantors in other types of deeds the quitclaim grantor does not promise that their interest in the property is actually valid | |
when is it appropriate to use a quitclaim deed | quitclaim deeds lack certain protections and promises found in other types of deed to real property because of this they should only be used under certain circumstances these include transferring real estate between close family members for example from a parent to a child | |
how can i nullify a quitclaim deed | the easiest way to overturn or cancel a quitclaim deed is if both parties to the transaction explicitly agree to do so if somebody believes that a quitclaim deed was used to illegally transfer a property it can be challenged in court the bottom linea quitclaim deed releases a person s interest in a property without stating the nature of the person s interest or rights and with no warranties of that person s interest or rights in the property quitclaim deeds lack certain protections and promises found in other types of deed to real property because of this they should only be used under certain circumstances | |
what is a quorum | a quorum refers to the minimum acceptable level of individuals with a vested interest in a company needed to make the proceedings of a meeting valid under the corporate charter this clause or general agreement ensures there is sufficient representation present at meetings before any changes can be made by the board a quorum normally consists of a group that is considered as large as possible to be depended on to attend all corporate meetings which is a qualitative assessment the plural of a quorum is quora | |
how a quorum works | since there is no strict number that constitutes a quorum best practices suggest a quorum is established as a simple majority of members within an organization it is also possible to outline a hard number in the by laws of a company in which case it overrides the simple majority if that number is larger it is important that the number decided on is not so small that it doesn t accurately represent the entirety of the members but not so large that it becomes hard to legally hold a meeting regardless the quorum number should be representative of members in a decision making role if for example a company has ten board members a quorum could be a simple majority of six board members rather than 51 of every shareholder in the company the number decided on should not be so small that it doesn t accurately represent the entirety of the members but not so large that it becomes hard to legally hold a meeting tips to reach a quorummeetings are most effective and the decision making process is most efficient when quorum is met and agenda items needing to be voted on can be handled there are several ways a governing body can ensure quorum is met | |
what to do when there is no quorum | the idea and guidelines of a quorum were set by robert s rules of order these rules were implemented to help protect organizations from the decision making power of a select few who might be uninformed or duplicitous however when a quorum is not met during a meeting the existing attendees are allowed to conduct up to four actions on behalf of the company 12the date for the shareholders meeting is stated in a company s bylaws and occurs on the same date each year 3examples of a quorummicrosoft msft has established quorum rules for its shareholders and board of directors the company s bylaws state that the shareholders quorum is the majority in interest of all the shares entitled to vote on a matter 4 generally when voting whatever the majority of the quorum votes for is approved for the board of directors a quorum is the majority of the members of the board when a quorum is present during a meeting the majority of members in attendance are permitted to decide on questions brought before them except for those otherwise restricted by the company s bylaws if the quorum is not present during a meeting the members in attendance can adjourn the meeting concerning its shareholders apple aapl defines its quorum as the majority shareholders in attendance in person or by proxy who are entitled to vote on related matters 5 shareholders can transact business when a quorum is present until adjourned if during that meeting there are no longer enough shareholders to constitute a quorum the meeting may continue and decisions can stand if approved by a majority of the shares required for the quorum apple s quorum of directors is the majority of the authorized number of directors decisions made by a majority of the directors when a quorum is present are approved transactions may continue when the quorum is initially present but later dismissed if the majority of the quorum approves the meeting may be adjourned by the majority of directors present even if the quorum is not | |
what is the quorum for the u s senate | the u s constitution requires that at least 51 senators be present to do business 6 | |
what is a quorum call | a quorum call is a rule that states that members or a number of members of a governing body must be present to pass a vote the procedure of the quorum call is to ensure the members of governing body are present and in attendance before a vote is cast | |
what is a rolling quorum | a rolling quorum is one in which all required members need not be at the same location at the same time to meet the requirements for the quorum for example some members may be in person while some may be on the phone conference call | |
how many are needed for a quorum | the amount of voters needed for a quorum will vary between governing bodies and incorporating documents generally speaking groups of governing bodies will typically need at least half of all member of the group in attendance to have met quorum other formation documents may call for a percentage of the body while others may call for a specific number i e at least 7 board members must be in attendance | |
what is an example of a quorum | society of critical care medicine a california nonprofit lists its quorum requirements in its bylaws 75 members eligible to vote must be present to constitute a quorum though specific items may still be voted on should the quorum not be met 7the bottom linea quorum is the minimum number of people needed to hold meetings or make decisions during certain company meetings most often the quorum is considered the majority of members within a group or organization a designation too small risks inadequately representing the whole and a designation too large risks the inability to hold meetings and make decisions robert s rules of order provide a blueprint from which organizations can form their quorum | |
what is a quota | a quota is a government imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period countries use quotas in international trade to help regulate the volume of trade between them and other countries countries sometimes impose quotas on specific products to reduce imports and increase domestic production in theory quotas boost domestic production by restricting foreign competition government programs that implement quotas are often referred to as protectionism policies additionally governments can enact these policies if they have concerns over the quality or safety of products arriving from other countries investopedia sabrina jiang | |
how a quota works | quotas are different from tariffs or customs which place taxes on imports or exports governments impose both quotas and tariffs as protective measures to try to control trade between countries but there are distinct differences between them quotas focus on limiting the quantities or in some cases cumulative value of a particular good that a country imports or exports for a specific period whereas tariffs impose specific fees on those goods governments design tariffs also known as customs duties to raise the overall cost to the producer or supplier seeking to sell products within a country tariffs provide a country with extra revenue and they offer protection to domestic producers by causing imported items to become more expensive quotas are more effective in restricting trade than tariffs especially if domestic demand for something is not price sensitive quotas may also be more disruptive to international trade than tariffs applied selectively to various countries they can be utilized as a coercive economic weapon quotas are a type of nontariff barrier governments enact to restrict trade other kinds of trade barriers include embargoes levies and sanctions import quota regulatory agenciesthe u s customs and border protection agency a federal law enforcement agency of the u s department of homeland security oversees the regulation of international trade collecting customs and enforcing u s trade regulations within the united states the three forms of quotas are absolute tariff rate and tariff preference level 1various commodities are subject to tariff rate quotas when entering the united states 2 these eligible commodities include but are not limited to milk and cream cotton fabric blended syrups canadian cheese cocoa powder infant formula peanuts sugar and tobacco other types of quotasin business a quota can refer to a sales target that a company wants a salesperson or sales team to achieve for a specific period sales quotas are often monthly quarterly and yearly management can also set sales quotas by region or business unit the most common type of sales quota is based on revenue to have an adequate representation of women and marginalized persons in political offices governments may establish quotas however in democratic societies quotas often draw as much criticism as it does support some argue that it promotes diversity equity and inclusion whereas others argue that it challenges the fabric of democracy whereby voters elect their officials the word quota is not specific to business or trade it can be used in many different contexts related to a target level of activity advantages and disadvantages of quotaswhile quotas can be controversial they are implemented for various reasons and offer several potential benefits for starters quotas can be used to protect domestic industries from foreign competition by limiting the quantity of imported goods entering the market this protection aims to safeguard domestic producers from being overwhelmed by cheaper foreign imports thus protecting domestic jobs quotas can also help address trade imbalances by limiting the inflow of goods from countries with which a nation has a significant trade deficit by restricting imports through quotas governments aim to reduce their dependence on foreign goods quotas may be used to stabilize prices in domestic markets by controlling the supply of imported goods by limiting the quantity of goods imported governments can prevent sudden surges or declines in supply that could lead to price fluctuations and market instability in a similar manner by threatening or imposing quotas on specific goods governments can exert pressure on other countries to reduce tariffs thus trying to promote global economic stability last quotas can be implemented to ensure that imported goods meet certain environmental health or safety standards for instance consider the emissions of certain foreign goods that are shipped to the united states the government in accordance with environmental agreements may limit the quantity of goods allowed for non financial metrics advantages aside there are many disadvantages to quotes that free market enthusiasts are quick to mention quotas can distort market dynamics by artificially limiting the supply of goods this prevents markets from developing naturally instead the government must continually monitor how their quota is changing and potentially upsetting markets quotas restrict competition from foreign producers which in some contexts is a good thing however it can also result in reduced product variety lower quality and higher prices for consumers without competition domestic producers may have less incentive to innovate improve efficiency or lower prices leading to stagnation and reduced competitiveness in the long run one of the advantages mentioned above was the ability to influence global policies however imposing quotas on imports can provoke retaliation from trading partners this may lead to trade disputes tariffs or other protectionist measures that harm trade relations and global economic stability can protect domestic industries by limiting foreign competitioncan be used to drive strategy laid out by the governmentcan be used to balance trade deficitscan be used to protect non financial assets like the environmentmay cause larger issues by not allowing markets to move freelyreduces overall competitionmay lead to poorer quality or cheaper products since there s little incentive for innovationmay cause trade retaliationreal world examplehighly restrictive quotas coupled with high tariffs can lead to trade disputes trade wars and other problems between nations for example in january 2018 president trump imposed 30 tariffs on imported solar panels from china 3 this move signaled a more aggressive approach toward china s political and economic stance it was also a blow to the u s solar industry which was responsible for generating 18 7 billion of investment in the american economy and which at the time imported 80 to 90 of its solar panel products 45presidential proclamations like this occur all the time in december 2023 president joe biden released commentary on the import of steel and aluminum from the european union the briefing detailed how the secretary of homeland security shall recommend to the president as warranted updates to the in quota volumes contained in this proclamation 6other uses of quotathe concept of quota is used extensively throughout business and other non trade contexts for example a sales quota is a target or goal set for sales representatives or teams to achieve within a specific period it s usually the goal a team sets out to achieve for a period and there may be positive or negative repercussions if the quota is not met an employment quota also known as a hiring quota or workforce quota refers to targets set by organizations to achieve a certain level of diversity or representation within their workforce employment quotas may be based on criteria such as gender ethnicity disability status or other demographic factors for example a company may want to have a certain percentage of their staff of a specific demographic they can set a quota or target to ensure hiring practices reflect this target last let s touch on supplier quota a supplier quota is a predetermined quantity or share of goods or services that a supplier is contracted to provide to a buyer within a specified period having a quota with a supplier helps ensure you re able to have enough materials on hand at the right time this is especially important for manufacturing firms or retail companies that rely on inventory | |
what is a quota for people | a quota for people refers to the limit either minimum or maximum on the number of people who are allowed to be included or excluded from something | |
what does quota mean in economics | quotas in economics refer to the time bound restrictions governments impose on trade this is generally done to protect and encourage domestic business and balance trade governments implement quotas by placing limits on the value or number of goods exported or imported for example a nation may restrict another from importing a maximum of 100 barrels of crude oil | |
what is quota for a job | a job or workplace quota refers to the number of jobs allocated to underrepresented members of certain groups for example a company may decide it wants a workforce that mirrors the community or customers it serves as a result it may institute a quota to hire a certain number of women or a certain number of persons with disabilities the bottom linein the context of import export and trade quotas refer to restrictions imposed by governments on the quantity of certain goods that can be imported or exported during a specified period governments use quotas to control markets and implement broader strategies though quotas disrupt free markets and may cause political tension | |
what is a quota share treaty | a quota share treaty is a pro rata reinsurance contract in which the insurer and reinsurer share premiums and losses according to a fixed percentage quota share reinsurance allows an insurer to retain some risk and premium while sharing the rest with an insurer up to a predetermined maximum coverage overall it s a way for an insurer to boost and preserve some of its capital understanding quota share treaties | |
when an insurance company underwrites a new policy the policyholder pays it a premium in exchange it agrees to indemnify the policyholder up to the coverage limit the more policies that an insurer underwrites the more its liabilities will grow and at some point it will run out of capacity to underwrite any new policies | in order to free up capacity the insurer can cede some of its liabilities to a reinsurer through a reinsurance treaty in exchange for taking on an insurer s liabilities the reinsurer receives a portion of the policy premiums a quota share treaty is a reinsurance agreement in which the insurer cedes a portion of its risks and premiums up to a maximum dollar limit losses above this limit are the insurer s responsibility though the insurer can use an excess of loss reinsurance agreement to cover losses that exceed the maximum per policy coverage some quota share treaties also include per occurrence limits that restrict the amount of losses a reinsurer is willing to share on a per occurrence basis insurers are less willing to accept this type of agreement because it can lead to a situation in which the insurer is responsible for most of the losses from a particular occurrence of a peril such as a catastrophic flood quota share treaties are a form of proportional reinsurance as they give a reinsurer a certain percentage of a policy | |
how quota share treaties work | think of a quota share treaty as giving away a part of an insurer s retention in return the insurer gets to increase its acceptance capacity with automatic cover a quota share treaty reduces financial exposure to adverse claim fluctuations the cedent can continue to participate in the underwriting gains in some negotiated percentage even though it has reinsured the business and has access to outside expertise from a professional reinsurer consider an insurance company looking to reduce its exposure to the liabilities created through its underwriting activities it enters into a quota share reinsurance contract the contract has the insurance company retaining 40 of its premiums losses and coverage limits but cedes the remaining 60 to a reinsurer this treaty would be called a 60 quota share treaty because the reinsurer is taking on that percentage of the insurer s liabilities | |
what is quotation | quotations refer to the most recent sale price of a stock bond or any other asset traded in addition most asset classes also quote the bid and ask price that determines the final sale price the bid is defined as the highest price a buyer is willing to pay for the assets while the ask is the lowest price a seller is willing to accept for selling it s common for stable liquid assets to record narrow bid ask spreads in a normal trading environment however the pair will usually divert following systemic concerns like geopolitical events or broad market downturns the onset of volatility and uncertainty moves the supply and demand mechanisms undermining quotations into flux | |
how quotation works | quotations represent two pieces of information for most asset classes the price an investor would need to pay to purchase an asset at a particular moment in time the lowest price asked by sellers and the price an investor would receive for the same asset if they sold it at the same time the highest bid by potential buyers together the difference between the two represents the liquidity cost an investor incurs when trading an asset since they must buy at the bid price and sell at the asking price as an asset s price starts to fall markets will see a concurrent divergence in the bid and ask prices that wider spread can make assets less liquid and difficult to move during broad market volatility quotations aren t confined just to bid and ask prices they also include high low open and close values for a given day a basic stock quote highlights these key data points to provide context around the current day s movements the spread between the open and close or high and low is often a reflection of the ongoing trend for example sharp changes between the open and close signal strong upward momentum and an interesting trading opportunity types of quotationsmost investors won t hesitate to connect the term quotation with stock prices but many other asset classes record quotes of the last price traded for instance fixed income markets also quote the bid and ask prices of a bond during regular trading hours in addition to bid ask spreads bond quotes showcase the asset s par value and yield to maturity bonds are quoted at a par value of 1 000 and the price is quoted as the percentage of its par value which is then converted to a point scale for example if a corporate bond is quoted at 97 then that means it is trading at 97 of face value meaning the actual cost to buy the bond is 970 par value also known as nominal value or face value is often converted to a numeric value and multiplied by 10 to determine a bond s cost a par value is a term used for investments that means original value it most commonly refers to the bond value when it was originally issued typically 100 or 1 000 to give an example let s say a bond is purchased for 100 and it increases in value over time and is worth 125 although the value of the bond is 125 its par value remains 100 if the bond loses value and is worth 75 the par value remains 100 in this instance as well par value is important because it determines the bond s maturity value as well as the amount of interest paid on the bond this rate is also commonly referred to as the bond s coupon rate stock quotes may be the first and most important consideration when placing trades but traders will always use additional information usually technical indicators before placing orders futures contracts and commodities also use quotes to provide investors and the finance audience relevant information about the asset quotations are used in the same way as other assets the difference being that the buyer of a futures contract is agreeing to purchase the asset at a predetermined price at a specified time in the future many investors use futures contracts to hedge trades or speculate on market movements a futures contract and futures are the same thing and investors commonly will only use the phrase futures when referring to futures contracts an example of a quotation in relation to a futures contract is if a trader purchases a futures contract for oil at 80 a barrel in one year that means one year from the purchase date the buyer is obligated to purchase that oil at 80 a barrel and the seller is obligated to sell it to them a benefit of trading futures contracts is that the trader does not need to place the entire trade amount with the brokerage they are instead obligated to make an initial margin payment example of a quotationapple inc aapl is a heavily traded public company due to the extreme liquidity of aapl stock trading it is simple and with very narrow bid ask spreads just as an example let s say aapl closed at 165 a share the day range might be 161 to 167 but at the end of the trading day it closed at 165 some traders during the day wanted to buy aapl stock some wanted to sell if aapl was trading at 163 at 10 30 am a buyer would see the bid ask spread which in this example would be 162 99 for the bid and 163 01 for the ask this is a very narrow spread of only two cents the buyer would then pay the seller the ask the seller would deliver the stock to the buyer and the transaction would be complete although the bid and ask are fundamental aspects of trading in financial markets when anyone refers to a quote they are almost always referring to the last trade price of the stock this is also the first and usually largest number you see when you are researching stocks frequently asked questions | |
how do you read a stock quote | you read a stock quote in a few different parts if you are just curious about the price of the stock just look at the quote when people talk about what price a stock is trading at it is this price if you are trading the stock you can check the bid price to see what sellers are selling the stock for or the ask price to see what price buyers will pay there is always a difference in these two numbers and it is where market movers make their profits | |
what are real time quotes for stocks | real time quotes for stocks are the same as other quotes but are usually updated in real time by sophisticated trading platforms they are most commonly used by day traders who engage in high frequency trading hft however some criticize this style of trading because it will favor companies and individuals who have the most powerful tech | |
what is a nominal quotation | a nominal quotation is a hypothetical price at which a share of stock or other security might trade these are used as what ifs by traders to determine if they should place a trade in the future they are preceded with the prefixes for your information fyi or for valuation only fvo they are the opposite of a firm quotation which is the current real quotation of the security | |
what is an interdealer quotation system | an interdealer quotation system iqs is a system designed to organize price quotes by brokers and dealer firms they exist to provide investors with accurate and relevant information about quotes there are a number of iqss and each has its own specialization for example in the united states the nasdaq the nasdaq s smallcap market and its over the counter bulletin board otcbb platform are all integrated into the same iqs the bottom linefinding a securities quotation is simple and is usually the first number you see if you only want to know the price of a stock this would be enough information if you are intending to trade however there are a number of other considerations within the quotation you would pay attention to such as the bid ask spread and last trade time execution quotations are updated regularly by powerful technology but even then some trading platforms will be faster than others | |
what is a quote | a quote is the last price at which an asset traded it is the most recent price that a buyer and seller agreed upon and at which some amount of the asset was transacted the bid quote is the most current price and quantity at which a share can be bought the bid quote shows the price and quantity of which a current buyer is willing to purchase the shares the ask quote shows what a current participant is willing to sell the shares for a quote is also referred to as an asset s quoted price understanding quotesquotes for assets change throughout the trading day as new transactions occur one after another in a continual stream of trades | |
when a stock quote is referenced for a given company it represents the most recent price at which a trade was successfully executed for that particular security however in general potential investors or sellers in a company will be more concerned about the bid quotes and ask quotes as compared to the stock quote because they reflect the prices at which the stock can be bought or sold the stock quote simply reveals the price at which the stock traded most recently | investors typically reference the historical quotes for an asset in order to examine potential trends in a security s market activity and volatility quotes can be represented in relation to an instance of time allowing for comparisons across comparable time periods for instance investors might reference quotes from the same day but one year apart in order to chart the potential trajectory for the security they could also compare quotes across a day of trading especially if there is volatility in order to develop an investing strategy in response to the activity quotes may be provided by a variety of outlets investment news sites and trading platforms both provide quotes there may be a delay in the reporting of such quotes especially from free services that are publicly available trading and investing platforms may offer quotes as close to real time as possible as part of a service to their paid subscribers this service may be especially crucial for subscribers who want to be able to make decisions on their trading activity as soon as quotes become available investing platforms often allow users to set up quote driven alerts that are sent when shares cross certain thresholds these notifications can also be tied to trigger an automated response for example an investor might put a sell order in place that is contingent on receiving a quote that shares of a security have reached a desired threshold | |
what is a quote currency | in foreign exchange forex the quote currency also known as the counter currency is the second currency in both a direct and indirect currency pair the quote currency is used to determine the value of the base currency the quote currency is listed after the base currency in the pair when currency exchange rates are quoted trading currenciesunderstanding the quotation and pricing structure of currencies is essential for investors who want to trade currencies in the forex market market makers tend to trade specific currency pairs directly or indirectly in a direct quote the quote currency is the foreign currency in an indirect quote the quote currency is the domestic currency investors can determine how much of the quote currency they need to sell to purchase one unit of the first or base currency as the rate in a currency pair increases the value of the quote currency falls whether the pair is direct or indirect most u s dollar usd pairs hold the usd as the base currency if the usd is not the base it is a reciprocal currency currencies are commonly bought and sold on the spot market based on their trading price the price is determined by supply and demand and calculated based on interest rates economic performance geopolitical environment and price speculation | |
what is a quote driven market | a quote driven market is an electronic stock exchange system in which prices are determined from bid and ask quotations made by market makers dealers or specialists in a quote driven market also known as a price driven market dealers fill orders from their own inventory or by matching them with other orders a quote driven market is the opposite of an order driven market which displays individual investors bid and ask prices and the number of shares they want to trade understanding a quote driven marketquote driven markets are most commonly found in markets for bonds currencies and commodities quote driven markets are also known as a dealers market because all trades are executed through dealers the dealers working with investment banks commercial banks and broker dealers provide quotes for different instruments and all customers need to trade through them at the quoted prices some people may also refer to quote driven markets as a dealer or price driven market the following are some of the key points about the quote driven market traders may either accept the prices quoted by the dealers or try to negotiate better prices either themselves or through their broker or agent in a pure quote driven market all traders must trade through dealers however dealers may also trade among themselves through inter dealer brokers in a quote driven market dealers supply all the liquidity in the market dealers may choose not to execute a trade for a specific client this is often done because some dealers specialize in certain types of clients such as retail or institutional hybrid markets like the nyse and nasdaq combine aspects of both quote driven and order driven markets order driven markets vs quote driven marketsorder execution is not guaranteed in an order driven market but it is guaranteed in a quote driven market because market makers are required to meet the bid and ask prices they quote a quote driven market is more liquid than an order driven market but lacks transparency a hybrid market combines aspects of both quote driven and order driven markets the nyse and nasdaq are both considered hybrid markets in an order driven market orders of both buyers and sellers are shown displaying the price at which each is willing to buy or sell a stock and the quantity of the stock that they are willing to buy or sell at that price an order driven market is transparent in the sense that it clearly shows all of the market orders and the prices at which people are willing to buy or sell which is not the case for quote driven markets furthermore a quote driven market is more liquid due to the presence of market makers but this is not the case for order driven markets | |
what is quote stuffing | quote stuffing is the practice of quickly entering and then withdrawing large orders in an attempt to flood the market with quotes and cause competitors to lose time in processing them understanding quote stuffingquote stuffing a term first coined by eric scott hunsader the founder of financial data company nanex is a strategy that high frequency traders use to gain a pricing edge over competitors it is made possible by high frequency trading hft programs that can execute market actions with incredible speed generating hundreds or thousands of orders per second these programs allow high frequency traders to make money by arbitrage exploiting temporary pricing inefficiencies before others have time to notice and or react to them according to nasdaq hft is estimated to account for at least 50 of total market volume 1 hft in and of itself is not illegal however stuffing takes place when traders fraudulently use algorithmic trading tools to overwhelm markets by slowing down an exchange s resources with buy and sell orders in securities only market makers and other large players in the market are capable of executing these tactics since they require a direct link to the securities exchanges in order to be effective this business is all about speed and the closer a hft server is to the exchange the quicker they can react to new information quote stuffing and securities regulatorsquote stuffing has come under scrutiny from financial industry regulators including the securities and exchange commission sec the commodities and futures trading commission cftc and the financial industry regulatory authority finra all three regulating bodies have imposed fines on hfts for violations of exchange rules including quote stuffing front running and price and market manipulation 2though the sec s investigation ultimately placed the cause on other factors quote stuffing was initially blamed as one of the main drivers of the 2010 flash crash which led the dow jones industrial average djia to fall 1 000 points within minutes whatever the cause it is reported to have been widespread and causing negative impacts on securities exchanges efficiency 3additionally research studies compiled by researchgate nanex and the cfa institute among others suggest that hft practices including quote stuffing raise prices decrease liquidity and cause greater volatility in markets 456both the new york stock exchange nyse and finra adopted rule changes to address quote stuffing including rule 5210 publication of transactions and quotations to prohibit two types of quoting and trading activity that are deemed to be disruptive other proposals to address the problem and reduce the advantage of hfts include instituting minimum time periods measured in milliseconds before buy or sell quotes could be canceled 78 | |
what is a quoted price | a quoted price is the most recent price at which an investment or any other type of asset has traded the quoted price of investments such as stocks bonds commodities and derivatives changes constantly throughout the day as events occur that affect the financial markets and the perceived value of various investments the quoted price represents the most recent bid and ask prices that buyers and sellers were able to agree on understanding a quoted pricethe quoted prices of stocks are displayed on an electronic ticker tape which shows up to the minute information on trading price and trading volume for most major exchanges trading hours are 9 30 a m to 4 p m est the ticker tape shows the stock indicated by a one to four letter stock symbol or ticker symbol e g aapl for apple inc or tgt for target corporation the number of shares traded the price they traded at in decimal form whether the quoted price represents an increase or decrease from the last quoted price and the amount of the change in price some of the most prominent exchanges in the world are the new york stock exchange nyse the nasdaq the london stock exchange lse and the tokyo stock exchange tse quoted price and bid and ask pricesthe quoted price represents the most up to date agreement between buyers and sellers or the bid and ask prices the bid price is an offer that an investor trader or dealer makes in order to purchase a security commodity or currency the bid price is the highest price a prospective buyer is willing to pay to acquire the security or asset quote services and stock tickers will generally display the highest bid price available for the security the bid price is opposed by the ask price which is the lowest amount of money the seller will accept for an asset or security an ask price also often referred to as the offer price is always higher than the bid price the difference between the bid price and the ask price is the spread the liquidity of the security is often indicative of its spread size low liquidity stocks will often have a wide spread stocks that are especially liquid will have small spreads often just pennies apart or even a fraction of a penny | |
when a purchase fills at a higher price than the last price both the bid and the ask may move higher for the next transaction a security s current price is the last price paid for it which is usually different from the bid and the ask | special considerationsfor individuals that are trading their own portfolios quoted prices are often displayed in a rectangle in an easy to spot location on their online trading platform the bids and asks are constantly moving if the security is in high demand and trading with a large volume if the security is not well covered and does not have significant demand the quoted price may not move much up or down over the course of the trading day quoted price and tradersmany stakeholders follow the quoted prices of stocks including company management the investor relations team major investors and retail investors traders in particular are constantly watching and predicting a security s quoted price in order to place bets for their clients or their own accounts when a trader works for a financial institution they generally trade with the company s money and credit alternatively a trader may work independently in which case they would not receive the same salary and bonus as for a larger entity but are able to keep all of the profit | |
what is r squared | r squared r2 is a number that tells you how well the independent variable s in a statistical model explain the variation in the dependent variable it ranges from 0 to 1 where 1 indicates a perfect fit of the model to the data xiaojie liu investopediaunderstanding r squaredr squared represents the proportion of the variance in the dependent variable that is predictable from the independent variables a value of 1 implies that all the variability in the dependent variable is explained by the independent variables while a value of 0 suggests that the independent variables do not explain any of the variability r squared should be interpreted alongside other statistics and context as high r squared values can sometimes be misleading if the model is overfitted whereas correlation explains the strength of the relationship between an independent and a dependent variable r squared explains the extent to which the variance of one variable explains the variance of the second variable so if the r squared of a model is 0 50 then approximately half of the observed variation can be explained by the model s inputs formula for r squaredr 2 1 unexplained variation total variation begin aligned text r 2 1 frac text unexplained variation text total variation end aligned r2 1 total variationunexplained variation the calculation of r squared requires several steps steps this includes taking the data points observations of dependent and independent variables and conducting regression analysis to find the line of best fit often from a regression model this regression line helps to visualize the relationship between the variables open a new bank account advertiser disclosure the offers that appear in this table are from partnerships from which investopedia receives compensation this compensation may impact how and where listings appear investopedia does not include all offers available in the marketplace from there you would calculate predicted values subtract actual values and square the results these coefficient estimates and predictions are crucial for understanding the relationship between the variables this yields a list of errors squared which is then summed and equals the unexplained variance to calculate the total variance you would subtract the average actual value from each of the actual values square the results and sum them this process helps in determining the total sum of squares which is an important component in calculating r squared from there divide the first sum of errors unexplained variance by the second sum total variance subtract the result from one and you have the r squared | |
what r squared can tell you | in investing r squared is generally interpreted as the percentage of a fund s or security s movements that can be explained by movements in a benchmark index for example an r squared for a fixed income security vs a bond index identifies the security s proportion of price movement that is predictable based on a price movement of the index the same can be applied to a stock vs the s p 500 index or any other relevant index it may also be known as the co efficient of determination r squared values range from 0 to 1 and are commonly stated as percentages from 0 to 100 an r squared of 100 means that all of the movements of a security or another dependent variable are completely explained by movements in the index or whatever independent variable you are interested in in investing a high r squared from 85 to 100 indicates that the stock s or fund s performance moves relatively in line with the index a fund with a low r squared at 70 or less indicates that the fund does not generally follow the movements of the index a higher r squared value will indicate a more useful beta figure for example if a stock or fund has an r squared value of close to 100 but has a beta below 1 it is most likely offering higher risk adjusted returns r squared vs adjusted r squaredr squared only works as intended in a simple linear regression model with one explanatory variable with a multiple regression made up of several independent variables the r squared must be adjusted the adjusted r squared compares the descriptive power of regression models that include diverse numbers of predictors this is often assessed using measures like r squared to evaluate the goodness of fit every predictor added to a model increases r squared and never decreases it thus a model with more terms may seem to have a better fit just for the fact that it has more terms while the adjusted r squared compensates for the addition of variables it only increases if the new term enhances the model above what would be obtained by probability and decreases when a predictor enhances the model less than what is predicted by chance in an overfitting condition an incorrectly high value of r squared is obtained even when the model actually has a decreased ability to predict this is not the case with the adjusted r squared r squared vs betabeta and r squared are two related but different measures of correlation beta is a measure of relative riskiness a mutual fund with a high r squared correlates highly with a benchmark if the beta is also high it may produce higher returns than the benchmark particularly in bull markets r squared measures how closely each change in the price of an asset is correlated to a benchmark beta measures how large those price changes are relative to a benchmark used together r squared and beta can give investors a thorough picture of the performance of asset managers a beta of exactly 1 0 means that the risk volatility of the asset is identical to that of its benchmark essentially r squared is a statistical analysis technique for the practical use and trustworthiness of betas of securities limitations of r squaredr squared will give you an estimate of the relationship between movements of a dependent variable based on an independent variable s movements however it doesn t tell you whether your chosen model is good or bad nor will it tell you whether the data and predictions are biased a high or low r squared isn t necessarily good or bad it doesn t convey the reliability of the model or whether you ve chosen the right regression you can get a low r squared for a good model or a high r squared for a poorly fitted model and vice versa tips for improving r squaredimproving r squared often requires a nuanced approach to model optimization one potential strategy involves careful consideration of feature selection and engineering by identifying and including only the most relevant predictors in your model you can increase the likelihood of explaining relationships this process may involve conducting thorough exploratory data analysis or using techniques like stepwise regression or regularization to select the optimal set of variables another way of enhancing r squared is addressing multicollinearity multicollinearity is when independent variables are highly correlated with each other however they can distort coefficient estimates and reduce the accuracy of the model techniques like variance inflation factor analysis or principal component analysis can help identify and mitigate multicollinearity you can also improve r squared by refining model specifications and considering nonlinear relationships between variables this may involve exploring higher order terms interactions or transforming variables in different ways to better capture the hidden relationships between data points in some cases you ll have to have strong domain knowledge to get able to get this type of insight outside of the model | |
what does r squared tell you | r squared tells you the proportion of the variance in the dependent variable that is explained by the independent variable s in a regression model it measures the goodness of fit of the model to the observed data indicating how well the model s predictions match the actual data points can r squared be negative no r squared cannot be negative it always falls within the range of 0 to 1 where 0 indicates that the independent variable s do not explain any of the variability in the dependent variable and 1 indicates a perfect fit of the model to the data | |
why is r squared value so low | a low r squared value suggests that the independent variable s in the regression model are not effectively explaining the variation in the dependent variable this could be due to factors such as missing relevant variables non linear relationships or inherent variability in the data that cannot be captured by the model | |
is a higher r squared better | here again it depends on the context suppose you are searching for an index fund that will track a specific index as closely as possible in that scenario you would want the fund s r squared value to be as high as possible since its goal is to match rather than trail the index on the other hand if you are looking for actively managed funds then a high r squared value might be seen as a bad sign indicating that the funds managers are not adding sufficient value relative to their benchmarks the bottom liner squared can be useful in investing and other contexts where you are trying to determine the extent to which one or more independent variables affect a dependent variable however it has limitations that make it less than perfectly predictive | |
what is rabbi trust | a rabbi trust is a trust created to support the non qualified benefit obligations of employers to their employees a rabbi and his congregation first used this type of trust after an internal revenue service irs private letter ruling approved its use it has been referred to as a rabbi trust ever since in essence it is a non qualified employee trust created for the benefit of both the employer and employee understanding rabbi trusta rabbi trust creates security for employees because the assets within the trust are outside the control of employers they are typically set up to be irrevocable in other words once the employer makes contributions to a rabbi trust they cannot retrieve them a significant drawback of rabbi trusts is that they don t protect against creditors if a company becomes insolvent or goes bankrupt both the beneficiaries and the company s creditors have access to the trust s assets for example if a rabbi trust has 500 000 worth of stock and cash in it both the creditors and beneficiaries would go after those assets rabbi trust protectiona rabbi trust protects employees from a company that is experiencing financial hardship and wants to remove some of the trust s assets to meet its other obligations for example an employer cannot withdraw 50 000 from a rabbi trust to pay employee wages a rabbi trust s structure cannot be changed by the employer once it has been established giving further protection to its beneficiaries if a company is taken over the new company does not have the power to change the trust s terms only the beneficiaries of a rabbi trust have the power to change its details rabbi trust taxationa rabbi trust provides tax advantages for employees contributions made to the trust do not count as part of the employee s wages for example if an employee receives an annual income of 100 000 and his or her employer makes monthly contributions of 1 000 to the staff member s rabbi trust their taxable income is 100 000 they do not have to pay tax on the 12 000 of contribution payments rabbi trusts allow employees assets to grow without them having to pay tax on any gains until they withdraw their money in this sense a rabbi trust is similar to a qualified retirement plan a rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts | |
what is the race to the bottom | the race to the bottom refers to a competitive situation where a company state or nation attempts to undercut the competition s prices by sacrificing quality standards or worker safety often defying regulation or reducing labor costs a race to the bottom can also be between governments to attract industry or tax revenues for example a jurisdiction may relax regulations or cut taxes and compromise the public good in an attempt to attract investment such as the building of a new factory or corporate office although there are legitimate ways to compete for business and investment dollars the term race to the bottom is used to characterize unhinged tit for tat competition that has crossed ethical lines and could be destructive for the parties involved understanding the race to the bottomsupreme court justice louis brandeis is generally credited with coining the term race to the bottom in a 1933 judgment for the case liggett v lee he stated that the competition between states to entice companies to incorporate in their jurisdiction was one not of diligence but of laxity meaning states were relaxing rules and regulations instead of refining them to gain an edge over competitors 1the race to the bottom is thus a result of cutthroat competition when companies engage in the race to the bottom its impact is felt beyond the immediate participants lasting damage can be done to the environment employees the community and the companies respective shareholders moreover consumer expectations of ever lower prices may mean that the eventual victor finds profit margins permanently squeezed if consumers confront poor quality goods or services as a result of cost cutting during the race to the bottom the market for those goods or services could dry up the race to the bottom and laborthe phrase race to the bottom is often applied in the context of labor and staffing many companies go to great lengths to keep wages low to protect profit margins while still offering a competitive product the retail sector for example is often accused of engaging in a race to the bottom and using wage reduction and benefits cuts as easy targets the sector as a whole resists labor law changes that would increase benefits or wages which in turn would increase costs in response to rising wages and demands for benefits many retail companies have moved the production of goods overseas to regions with lower wages and benefits or have encouraged their suppliers to do so using their purchasing power the jobs that remain in the domestic market the in store functions may cost more as laws change but the bulk of labor involved in manufacturing and production can be moved to regions with lower cost labor the race to the bottom in taxation and regulationin order to attract more business investment dollars states and national jurisdictions often engage in a race to the bottom by changing their taxation and regulation regimes the disparity in corporate tax worldwide has seen companies shift their head offices or move operations to obtain a favorable effective tax rate there is a cost to lost tax dollars because corporate taxes contribute to a country s infrastructure and social systems taxes also support environmental regulations when a company spoils the environment during production the public pays in the long run no matter how much of a short term boost the business activity generated in an economically rational world where all externalities are known and considered a true race to the bottom is not much of a concern in the real world however where politics and money intersect races to the bottom occur and they are often followed by the creation of a new law or regulation to prevent a repeat occurrence of course over regulation also has risks and disadvantages to an economy because it deters potential investors from entering a market due to the steep costs and red tape involved in the effort example of a race to the bottomwhile globalization has created a fertile market for the exchange of ideas and trade between countries it has also resulted in fierce competition between them to attract trade and investment large multinational corporations are an especially favored target and the competition is intense among low income countries hungry for foreign direct investment fdi according to recent research low income countries often implement lax labor standards whether they pertain to wages or safety conditions to attract manufacturers to their jurisdictions the rana plaza disaster in bangladesh in 2013 was an example of the perils of this approach on the back of low wages and cheap costs to set up shop bangladesh had become the world s second biggest garment manufacturing center the rana plaza building in dhaka was a garment factory that violated several building codes of local laws but enforcement of those codes was lax resulting in a collapse that killed 1 000 workers 23 | |
how can a race to the bottom harm the environment | a race to the bottom can occur when countries or regions loosen environmental regulations or enforcement of standards in order to attract more businesses and tax revenue producers operating in places with more strict regulations would be incentivized to move to those more lax jurisdictions where they could pollute more freely competition between nations especially in the developing world can lead to a series of deregulation that leaves the environment unprotected | |
where did the term race to the bottom first appear | scholars believe that the term race to the bottom first appeared in a 1933 supreme court ruling in the case of liggett vs lee justice louise brandeis writing his opinion on the case argued that in order to gain a competitive advantage firms are incentivized to undercut one another while governments are incentivized to deregulate 1 | |
how does capitalism contribute to the race to the bottom | capitalism is defined by competition between businesses to grab market share and among workers to fill jobs companies must stay profitable and workers need to stay employed as a result firms try to become the low cost producer so that they can best the competition and grab market share this means that firms begin to compete primarily on price however cutting costs amid fierce competition also can mean cutting corners in the form of lower quality lower safety standards and lower wages at the same time it can produce negative externalities like pollution waste and other social ills the bottom linea race to the bottom occurs whenever competition becomes so endemic that it leads to negative consequences and externalities for instance businesses may cut corners and sacrifice quality in order to maintain low prices and keep market share governments may also reduce taxes and reduce regulations and environmental standards in order to attract industry to remain or relocate to their jurisdiction in the end tit for tat undercutting leads businesses and governments to literally race each other to the bottom of the barrel in a destructive spiral | |
what is racketeering | the term racketeering broadly refers to criminal acts typically those involving extortion that involve a racket a racket being some sort of scheme organized to extract illegal profits it is usually used in reference to patterns of illegal activity specified in the racketeer influenced and corrupt organizations act rico this is a u s federal law that makes it illegal to acquire or control a business through certain crimes or income from those crimes it is also illegal to participate even indirectly in certain crimes committed by a business or to conspire to do any of the above under the act the list of federal crimes specified in rico includes bribery fraud gambling offenses money laundering financial and economic crimes obstructing justice or a criminal investigation and murder for hire at the state level racketeering can include crimes such as murder kidnapping gambling arson robbery bribery extortion dealing in obscene matters and drug crimes as long as they align with the generic definition of the state offense referenced at the time rico was enacted 1understanding racketeeringorganized groups may operate illegal businesses known as rackets an organized group may also divert funds from a legal business to use for illegal activities rackets primarily functioned in obviously illegal industries such as prostitution human trafficking drug trafficking illegal weapons trade or counterfeiting racketeering can take many forms including labor unions have also been a frequent target of racketeering allegations organized crime groups generally use one or more labor unions to extort money from a company or contractor s in other cases groups use unions to control workers the italian american mafia criminal society la cosa nostra was famous for its control over labor unions la cosa nostra gained such a strong foothold that both company management and the labor union had to rely on the gangsters for protection 2to contain illegal collusion and profiteering through racketeering the u s government introduced the racketeer influenced and corrupt organizations rico act in october 1970 3 the law permits enforcement agencies to charge individuals or groups involved in various acts of racketeering individuals guilty of committing rico crimes may be prosecuted and if found guilty can face a 20 year prison sentence or more for serious crimes fines and other penalties may also apply 4special considerationscorporations may also engage in racketeering for instance a drug manufacturer may bribe doctors to overprescribe a medicine thus committing fraud in order to boost their profits predatory lending may also be deemed a form of racketeering this happens when a lender tricks a borrower into taking a loan that deliberately ignores or actively hinders their ability to repay it an official personal loan is always safer than anything a loan shark may offer you even if you have bad credit for instance automobile insurer state farm was accused of illegally funding judge lloyd karmeier s 2004 election campaign by channeling money through advocacy groups that didn t disclose donors the case relates to long running litigation by state farm customers who alleged that they were given generic substandard car parts instead of original equipment for more than a decade 5the plaintiffs sought damages worth 1 billion plus 1 8 billion in interest in addition to the damages that could have been tripled under the federal rico act 6 the total damages sought neared 8 5 billion 7 in september 2018 state farm agreed to pay 250 million to settle the racketeering case just before opening statements were set to begin 8the racketeer influenced and corrupt organizations rico actthe department of justice doj provides an expansive view on rico charges according to the doj in order to be found guilty of violating the rico statute the government must prove beyond a reasonable doubt that government prosecutors primarily used the act to target organized crime and criminal organizations when it was enacted before the law was in place prosecutors were forced to try mob related racketeering crimes individually even though a large number of individuals may have been involved in the commission of a crime rico allows law enforcement officials to file cases against an entire racket the law allows prosecutors to seize the assets of an indicted party thereby preventing the transfer of funds and property through shell companies 9providing more tools to law enforcement agencies to combat racketeering the law allows prosecutors to charge organizations or individuals for up to 20 years of ongoing criminal activity for each count of racketeering the law also allows prosecutors to charge organization leaders for crimes that they ordered others to commit 10 federal and state prosecutors must prove beyond a reasonable doubt the extent of any crimes committed and the involvement of those involved in order to apply them to the rico act when charges are filed rico stands for racketeer influenced and corrupt organizations a law that was passed by the united states government in october 1970 | |
how federal vs state racketeering offenses differ | prosecutors can charge someone through rico if they commit at least two acts of racketeering activity one of which occurred after rico became law and the last of which occurred within 10 years after the prior act 11federal crimes lead to prosecution at both the federal and the state levels investigation of federal crimes involves national agencies such as the federal bureau of investigation fbi drug enforcement agency dea border patrol department of homeland security internal revenue service irs bureau of alcohol tobacco and firearms atf and the secret service 12 in some cases international law enforcement may also participate 13state crimes violate the laws of a particular state and are investigated by local state or county police kidnapping robbery and assault are considered state crimes provided they occur within the boundaries of a particular state sentences for federal crimes are generally longer and harsher than those imposed for state crimes 14examples of racketeeringthe department of justice reported an indictment against 40 people in the largest federal racketeering case in south carolina in december 2020 according to a press release charges were filed against gang members who took part in a criminal enterprise south carolina department of corrections inmates used cell phones obtained as contraband to plan murders kidnappings the distribution of firearms and a global drug ring 15in june 2018 counties in kansas and missouri filed federal racketeering cases against more than a dozen opioid painkiller manufacturers they were accused of misleading marketing and distributing painkillers under deceptive pretenses the prosecution alleged that the companies misrepresented addiction dangers for the benefit of their own profits 16officials and corporate executives from fifa were indicted in 2015 for racketeering conspiracy and corruption charges that involved bribes and kickbacks paid to secure profitable media and marketing rights to international soccer tournaments 17in november 2013 los angeles gang leader kevin eleby was sentenced to 25 years in federal prison in a rico case the gang used violence and intimidation to control a housing project in south los angeles the rico trial determined that the enterprise engaged in drug dealing firearms trafficking murder witness intimidation and armed robbery to control and terrorize the housing projects 18two former baltimore police officers pleaded guilty to federal racketeering charges in july 2017 along with several other members of baltimore s gun trace task force they were accused of scheming to steal money property and narcotics by way of detaining individuals entering residences conducting traffic stops and swearing out false search warrant affidavits 19in june 2018 cornel dawson the leader of a violent street gang called black souls received multiple life sentences in a racketeering case five more gang members received similar sentences the gang was found guilty of illegally controlling a six block section of chicago the racketeering conviction included four murders committed and involvement in drug deals 20 | |
is racketeering a felony | racketeering activity covers a range of crimes that involve committing attempting to commit conspiring to commit or intentionally aiding soliciting coercing or intimidating another person to commit a specified list of crimes among these felonies include gambling activities extortion drug offenses weapons offenses murder assault prostitution hazardous waste violations securities violations coercion money laundering arson bribery and forgery 21 | |
is racketeering the same as money laundering | money laundering involves cleaning dirty money so that it appears as if it were earned legitimately when it was not money laundering can fall under the umbrella of racketeering if it is part of an organized scheme for how long can you go to jail for racketeering anyone convicted for rico crimes receives a prison sentence of 20 years or more if they commit more serious crimes fines and penalties may also apply | |
is the rico act effective | the rico act is extremely helpful in the fight against racketeering and organized crime it allows prosecutors to effectively target criminal enterprises and organizations as well as the leaders of these groups even if they had other individuals commit the actual crimes | |
what is a rally | a rally is a period of sustained increases in the prices of stocks bonds or related indexes a rally usually involves rapid or substantial upside moves over a relatively short period of time this type of price movement can happen during either a bull or a bear market when it is known as either a bull market rally or a bear market rally respectively however a rally will typically follow a period of flat or declining prices a rally may be contrasted with a correction or market crash which is a rapid or substantial downward move in short term prices understanding a rallythe term rally is used loosely when referring to upward swings in markets the duration of a rally is what varies from one extreme to another and is relative depending on the time frame used when analyzing markets a rally to a day trader may be the first 30 minutes of the trading day in which price swings continue to reach new highs whereas a portfolio manager for a large retirement fund looking at a much larger picture may perceive the last calendar quarter as a rally even if the previous year was a bear market a rally is caused by a significant increase in demand resulting from a large influx of investment capital into the market this leads to the bidding up of prices the length or magnitude of a rally depends on the depth of buyers along with the amount of selling pressure they face for example if there is a large pool of buyers but few investors willing to sell there is likely to be a large rally if however the same large pool of buyers is matched by a similar amount of sellers the rally is likely to be short and the price movement minimal a rally can be confirmed by various technical indicators oscillators immediately begin to assume overbought conditions trend indicators start shifting to uptrend indications price action begins to display higher highs with strong volume and higher lows with weak volume price resistance levels are approached and broken through underlying causes of ralliesthe causes of rallies vary short term rallies can result from news stories or events that create a short term imbalance in supply and demand sizeable buying activity in a particular stock or sector by a large fund or an introduction of a new product by a popular brand can have a similar effect that results in a short term rally for example almost every time apple inc has launched a new iphone its stock has enjoyed a rally over the following months longer term rallies are typically the outcome of events with a longer term impact such as changes in government tax or fiscal policy business regulation or interest rates economic data announcements that signal positive changes in business and economic cycles also have a longer lasting impact that may cause shifts in investment capital from one sector to another for example a significant lowering of interest rates may cause investors to shift from fixed income instruments to equities this could create the conditions for a rally in the equities markets bear market ralliesmarket prices can rise even during a longer term down trend a sucker rally for instance describes a price increase which quickly reverses course to the downside sucker rallies often occur during a bear market where rallies are short lived sucker rallies occur in all markets and can also be unsupported based on hype not substance rallies which are quickly reversed sucker rallies are easy to identify in hindsight yet in the moment they are harder to see as prices fall more and more investors assume that the next rally will mean the end of the downtrend eventually the downtrend will end in most cases but identifying which rally turns into an uptrend and not a sucker rally is not always easy | |
what is a ramp up | a ramp up is a significant increase in the level of output of a company s products or services a ramp up typically occurs in anticipation of an imminent increase in demand while it is generally a feature of smaller companies at an early stage of development a ramp up can also be undertaken by large companies that are rolling out new products or expanding in new geographies | |
how ramping up works | sometimes a company needs to increase its capacity utilization to meet a surge in demand or expected demand in the near term a ramp up typically entails substantial outlays of capital expenditures which are large amounts of spending by a company on physical assets such as property buildings and manufacturing equipment a ramp up in spending can also involve funds being used for technology upgrades as well as investments in hiring staff for an expected increase in sales or production as a result a company will usually only consider a ramp up once it has a reasonable degree of certainty about additional demand otherwise if the anticipated demand does not materialize or is below projected levels the company will be saddled with excess inventory and surplus capacity understanding ramping upthe term ramp up can also be applied to a larger than normal increase in expenses alluding to the foregoing if a company states that it will ramp up production of goods it could also say that it will ramp up the purchase of automation equipment to support the planned capacity expansion | |
when a ramp up comes up in press releases or on conference calls it typically signals management confidence in the future of the business however the prudent investor should be on the watch for too much exuberance | ramping up vs ramping downa ramp down refers to a decrease in production usually due to a predicted fall in demand or business activity ramp downs are common in seasonal industries where workforce reductions are part of the normal business cycle in order to process final paychecks and benefits employers will typically retain a small core of administrative personnel as the company ramps down ramping down may also be an expected consequence of a company that is offshoring or downsizing its production even after the company begins terminating its workforce it will continue trying to extract as much value as possible from the remaining machinery and industrial capital keeping a small part of the workforce in action examples of ramp upsthe term ramp up tends to roll off the lips of confident executives who expect favorable economic conditions overall leading to brisk demand for their products rarely will a company publicly state that it is ramping down in a 2021 press release general motors outlined plans to increase deliveries to match increased consumer demand in canada and the united states according to the release another example occurred during an earnings conference call of saputo inc a canadian manufacturer of milk dairy products and dairy alternatives in the company s third quarter earnings call of 2021 ceo lino anthony saputo said he was in other words the ceo appeared to be anticipating increased demand from u s consumers sufficient to justify increasing production and exports to the american market ramp up faqsthe term ramp up is similar to terms like scale up or step up each expression signifies moving to a higher tier of production volume and efficiency ramp up is a common corporate term in companies seeking to achieve productive growth it is most commonly used in start up stage companies that are only beginning to market their products as new entrants to the market these small companies are most likely to be ramping up however even large companies may find it necessary to ramp up as they expand to new product lines or new markets ramping up production requires careful planning and market study in manufacturing it is necessary to study the process and machinery in order to optimize production for higher scale the most crucial element of a ramp up is ensuring sufficient market demand for the product 3in venture capital financing ramping up refers to an increase in output prior to the exit of a financial backer in this context the venture capitalist waits for an increase in productivity or sales to raise the value of the company before selling their shares 4the bottom linea ramp up is one of several corporate terms used to describe an increase in production or sales by a company seeking to capture a greater market share most production costs tend to decrease at high volume thanks to economies of scale as a result a well executed ramp up allows most companies to reduce their per unit expenses and increase their profit margins | |
what is a random variable | a random variable is a variable whose value is unknown or a function that assigns values to each of an experiment s outcomes random variables are often designated by letters and can be classified as discrete which are variables that have specific values or continuous which are variables that can have any values within a continuous range random variables are often used in econometric or regression analysis to determine statistical relationships among one another investopedia xiaojie liuunderstanding a random variablein probability and statistics random variables are used to quantify outcomes of a random occurrence and therefore can take on many values random variables are required to be measurable and are typically real numbers for example the letter x may be designated to represent the sum of the resulting numbers after three dice are rolled in this case x could be 3 1 1 1 18 6 6 6 or somewhere between 3 and 18 since the highest number of a die is 6 and the lowest number is 1 a random variable is different from an algebraic variable the variable in an algebraic equation is an unknown value that can be calculated the equation 10 x 13 shows that we can calculate the specific value for x which is 3 on the other hand a random variable has a set of values and any of those values could be the resulting outcome as seen in the example of the dice above in the corporate world random variables can be assigned to properties such as the average price of an asset over a given time period the return on investment after a specified number of years the estimated turnover rate at a company within the following six months etc risk analysts assign random variables to risk models when they want to estimate the probability of an adverse event occurring these variables are presented using tools such as scenario and sensitivity analysis tables which risk managers use to make decisions concerning risk mitigation types of random variablesa random variable has a probability distribution that represents the likelihood that any of the possible values would occur let s say that the random variable z is the number on the top face of a die when it is rolled once the possible values for z will thus be 1 2 3 4 5 and 6 the probability of each of these values is 1 6 as they are all equally likely to be the value of z for instance the probability of getting a 3 or p z 3 when a die is thrown is 1 6 and so is the probability of having a 4 or a 2 or any other number on all six faces of a die note that the sum of all probabilities is 1 a random variable can be either discrete or continuous discrete random variables take on a countable number of distinct values consider an experiment where a coin is tossed three times if x represents the number of times that the coin comes up heads then x is a discrete random variable that can only have the values 0 1 2 or 3 from no heads in three successive coin tosses to all heads no other value is possible for x continuous random variables can represent any value within a specified range or interval and can take on an infinite number of possible values an example of a continuous random variable would be an experiment that involves measuring the amount of rainfall in a city over a year or the average height of a random group of 25 people drawing on the latter if y represents the random variable for the average height of a random group of 25 people you will find that the resulting outcome is a continuous figure since height may be 5 ft or 5 01 ft or 5 0001 ft clearly there is an infinite number of possible values for height example of a random variablea typical example of a random variable is the outcome of a coin toss consider a probability distribution in which the outcomes of a random event are not equally likely to happen if the random variable y is the number of heads we get from tossing two coins then y could be 0 1 or 2 this means that we could have no heads one head or both heads on a two coin toss however the two coins land in four different ways tt ht th and hh therefore the p y 0 1 4 since we have one chance of getting no heads i e two tails tt when the coins are tossed similarly the probability of getting two heads hh is also 1 4 notice that getting one head has a likelihood of occurring twice in ht and th in this case p y 1 2 4 1 2 | |
what are the 2 kinds of random variables | random variables may be categorized as either discrete or continuous a discrete random variable is a type of random variable that has a countable number of distinct values such as heads or tails playing cards or the sides of a die a continuous random variable can reflect an infinite number of potential values such as the average rainfall in a region | |
what is a mixed random variable | a mixed random variable combines elements of both discrete and continuous random variables | |
how do you identify a random variable | a random variable is one whose value is unknown a priori or else is assigned a random value based on some data generating process or mathematical function | |
why are random variables important | random variables produce probability distributions based on experimentation observation or some other data generating process random variables in this way allow us to understand the world around us based on a sample of data by knowing the likelihood that a specific value will occur in the real world or at some point in the future the bottom linerandom variables whether discrete or continuous are a key concept in statistics and experimentation because they are random with unknown exact values these allow us to understand the probability distribution of those values or the relative likelihood of certain events as a result analysts can test hypotheses and make inferences about the natural and social world around us | |
what is random walk theory | random walk theory suggests that changes in asset prices are random this means that stock prices move unpredictably so that past prices cannot be used to accurately predict future prices random walk theory also implies that the stock market is efficient and reflects all available information a random walk challenges the idea that traders can time the market or use technical analysis to identify and profit from patterns or trends in stock prices random walk has been criticized by some traders and analysts who believe that stock prices can be predicted using various methods like technical analysis investopedia daniel fishelunderstanding random walk theoryeconomists had long argued that asset prices were essentially random and unpredictable and that past price action had little or no influence on future changes this indeed was a key assumption of the efficient market hypothesis emh random walk theory is based on the idea that stock prices reflect all available information and adjust quickly to new information making it impossible to act on it economist burton malkiel s theory aligns with the semi strong efficient hypothesis which also argues that it is impossible to consistently outperform the market the theory thus has important implications for investors suggesting that buying and holding a diversified portfolio may be the best long term investment strategy random walk theory was popularized by malkiel in his 1973 book a random walk down wall street 1 in the book malkiel argues that trying to time or beat the market or using fundamental or technical analysis to predict stock prices is a waste of time and can lead to underperformance instead he claims that investors are better off buying and holding a broad index fund while random walk theory has been met with critics who believe that there are in fact ways to predict stock prices and outperform using various techniques it remains a widely accepted theory in the world of financial economics by accepting that stock prices are unpredictable and efficient investors can focus on long term planning and avoid making rash decisions based on short term market movements ultimately random walk theory reminds investors of the importance of remaining disciplined patient and focused on their long term investment goals criticisms of random walk theorythe main criticism of random walk theory is that it oversimplifies the complexity of financial markets ignoring the impact of market participants behavior and actions on prices and outcomes prices can also be influenced by nonrandom factors such as changes in interest rates or government regulations or less ethical practices like insider trading and market manipulation market technicians argue that historical patterns and trends can in fact provide useful information about future prices challenging the theory s assertion that past prices are not informative they claim that technical analysis can intuit market psychology to identify other investors have also challenged the theory by pointing to examples of successful stock pickers such as warren buffett who have consistently outperformed the market over long periods of time by looking closely at company fundamentals another critique is that a random walk implicitly assumes that all investors have the same information when in reality some investors have access to more and better information than others such as large institutional investors indeed information asymmetries have been found in real world markets that cause markets to be inefficient one key critic was benoit mandelbrot a mathematician who argued that stock prices are not random and do not follow a normal distribution which are key assumptions of random walks he observed that stock prices exhibit long term dependence and are better modeled by fractal geometry where investors should consider the risks associated with extreme black swan events these ideas were influential in the development of the field of chaos theory in finance dow theory a nonrandom walkone competing theory to a random walk is known as dow theory dow theory is made up of several tenets which include the idea that stock prices move in trends that these trends have distinct phases accumulation markup and distribution and that volume is an important indicator of the strength of a trend developed by charles dow the founder of dow jones co and the wall street journal in the late 19th century his theory is based on the idea that stock prices can be analyzed to predict future movements based on current trends dow theory is generally at odds with random walk theory which claims that stock prices are unpredictable and that investors cannot consistently outperform the market dow theory does not dispute the fact that stock prices are subject to random fluctuations in the short term but it argues that long run prices do reflect underlying economic trends and that these trends can be identified through technical analysis random walk theory in actiona historical example of random walk theory in practice occurred in 1988 when the wall street journal sought to test malkiel s theory by creating the annual wall street journal dartboard contest pitting professional investors against darts for stock picking supremacy journal staff members played the role of the dart throwing monkeys 2after more than 140 contests the journal presented the results which showed the experts won 87 of the contests and the dart throwers won 55 however the experts were only able to beat the dow jones industrial average djia in 76 contests malkiel commented that the experts picks benefited from the publicity jump in the price of a stock that tends to occur when stock experts make a recommendation passive management proponents contend that because the experts could only beat the market half the time investors would be better off investing in a passive fund that charges far lower management fees |
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