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what is another word for remuneration | compensation is a fair synonym for remuneration it implies total payments salary or wages may be only one part of remuneration the bottom lineremuneration is the total compensation earned such as salary bonuses commission payments overtime pay or other monetary benefits federal law requires that most workers receive a minimum hourly wage currently 7 25 although many states pay a higher rate | |
what is a renewable energy certificate rec | in the fight against climate change renewable energy certificates recs are part of market based initiatives that gained traction in the early 2000s as a tool for supporting clean energy production recs certify that one megawatt hour mwh of electricity was generated from a renewable source and fed into the grid enabling the rec owner to claim the environmental benefits the reduced carbon footprint of that clean energy when recs are sold what s transferred is not the electricity produced by the attributes that make it clean energy which is separate it s like selling the right for a utility to take the label clean energy and apply it to 1 mwh of power it generated elsewhere also known as green tags or renewable energy credits recs are meant to provide incentives to support renewable energy production 12below we explain how recs work how they can help reduce carbon emissions and what they mean for the efforts against climate change | |
when companies buy recs they provide financial support for the renewable energy projects that produce them making those systems more economically sustainable and producing even more green energy this in turn is meant to reduce reliance on fossil fuels and decrease greenhouse gas emissions 4 | however critics argue that recs haven t led to as many new renewable energy projects as promised they simply provide a way for businesses to claim they support efforts to transition to green energy without making meaningful changes in their operations for example a 2024 study reviewing almost 40 years of data argues that recs tend to discourage companies from innovating to produce cleaner energy compared with other policies like environmental taxes and feed in tariffs for solar energy 5 other studies have argued that recs have contributed significantly to building out a greater supply of renewable energy 6 | |
how recs work | recs are a way to track solar wind and other green energies as they flow into the power grid since electricity generated from renewable energy sources is indistinguishable from what s produced by different sources some form of tracking is required 7 companies use them to offset their carbon emissions 2batteries for storing electricity generated from solar and other renewable sources are still quite costly especially for homeowners and small businesses so much renewable generated power such as from a home s solar system is fed back into the power grid for use by the utility for other customers since it has nowhere else to go if there s no battery on site the renewable electricity provider such as a homeowner with rooftop solar panels might receive a payment for each rec these certificates can be sold but are typically used as a credit toward their power usage later on for example when the solar panels on the roof don t produce enough power for the home and the house has to draw power from the electricity grid recs expire at the end of the fifth calendar year following the year they were generated 8requirements for recsmany states require power utilities to buy or generate renewable solar power often called solar carve outs in addition 30 u s states plus the district of columbia have renewable portfolio standards rps that require power utilities to use a certain amount of renewable power 9 these rps requirements are behind the trading of recs a power company can purchase these certificates from homeowners and others to meet the state s renewable requirements 10while state laws vary on the use and sale of recs the certificates are recognized by many state and local governments regional electricity transmission authorities nongovernment organizations and trade groups as a measure of a company s commitment to sustainability besides solar and wind generated power recs are issued for energy produced from geothermal hydropower without dams biofuels and hydrogen fuel cells buying and selling recsutilities and other businesses buy recs for a few reasons one is to meet legal requirements many states require utility companies to produce a minimum amount of renewable energy buying recs allows companies to get credit for renewable production to meet these standards for example in 2020 massachusetts began requiring all electricity suppliers to produce or purchase recs amounting to 15 of the electricity they provided to the state 11typically these laws have an alternative compliance payment that allow companies to pay a fee if they don t purchase enough recs the price of these payments along with supply and demand help set the market value of recs 12recs are typically traded by power companies and people who own residential energy systems such as solar panels they can be bought or sold directly but some third party companies have created marketplaces to aid these transactions for example srectrade helps residential solar owners track their recs and sell them to utility companies and other buyers 13in late 2023 aes corporation aes constellation energy corporation ceg and tech giants google and microsoft msft partnered with energy marketplace administrator levelten energy to form the granular certificate trading alliance 14 the alliance is set to form a new rec trading marketplace that would include detailed information on the time and location of renewable energy generation this would be far more detailed than what s available now and also be on a far wider scale than rec marketplaces now these granular certificates would also be a step forward for recs since they have typically lacked any specificity about the actual origins of renewable energy this information could be quite attractive to corporate and utility energy buyers looking to meet their clean energy goals day and night while also being able to be far more specific with the public and customers about how they are sourcing their energy needs the new trading platform slated to go live in 2024 could thus increase transparency and accessibility in the rec market this in turn could provide clearer signals to renewable energy developers about where new projects are most needed potentially influencing the location and development of future renewable energy installations 14solar renewable energy certificatesssolar renewable energy certificates srecs are for electricity produced by solar panels these are found in these states which differentiate them from other energy sources 15example of a recrec arbitrage is also called a rec swap 16 these trades involve the near simultaneous buying and selling of recs with differing prices traders try to profit from the disparity in prices to sell them for more than they bought them 7for example suppose state a has higher rps requirements and solar carve outs than state b the higher requirement drives demand for the price of recs in state a the state a provider who must meet the higher requirements would have a reason to buy less expensive state b certificates the provider can then use these credits to meet their requirements recs all represent 1 mwh of electricity wherever it s produced however the price may vary because of supply and demand in practice brokers are used to make rec arbitrage possible | |
how much electricity does one rec represent | one rec is 1 mwh of electricity generated and delivered to the grid 17 this is about a month s worth of electricity for the typical american home 2 | |
why do some states differentiate between recs and srecs | states differentiate between recs and srecs for different reasons some states may require that a specific amount of an electric company s power come from solar rather than other forms of renewable energy they hope to encourage the adoption of solar energy especially among homeowners and businesses 18can i keep the electricty my solar panels produce if i sell recs yes because you re not selling the electricity but its attributes that make it clean power if you have solar panels on your home you produce electricity and can receive recs for the power produced you may still use the electricity and have it cut the amount of your electric bill while selling the rec selling the rec is not about electricity as such instead it is selling a legal instrument that allows the buyer to claim the environmental benefits of the electricity produced 7the bottom linerecs are an important part of the drive for renewable energy in the u s and across the world they are legal instruments that show that the electricity was produced using environmentally friendly methods many states have laws mandating that a certain percentage of power be produced using renewables creating a market for recs for green energy producers recs increase the value of their electricity by allowing them to sell the excess power they generate and the recs associated with it | |
what is a renewable resource | a renewable resource is a resource that can be replenished naturally over time as a result it is sustainable despite its consumption by humankind renewable resources for the production of energy are considered especially important for their potential to replace non renewable or finite resources additionally renewable resources can offer cleaner energy solutions than those provided by non renewable resources such as coal and fossil fuels examples of renewable resources include the sun wind water the earth s heat geothermal and biomass understanding renewable resourcesa renewable resource is a resource of which there is a seemingly endless supply because it can be replenished for example renewable resources such as the sun the wind and geothermal heat are considered inexhaustible water is also considered a renewable natural resource as long as there is precipitation changing climate patterns have underscored the need for conservation efforts to protect water supplies other natural resources are considered renewable even though some time and effort must go into their renewal in addition most precious metals are considered renewable because they re reusable since they are not destroyed during their extraction and use they can be recycled unlike renewable resources once a non renewable resource is depleted it cannot be recovered as the human population continues to grow and finite resources become increasingly scarce the demand for renewable resources increases fossil fuels have been used since the late 1880s to produce the energy we use renewable resources such as hydropower and wood have been used much longer in fact they were the two primary renewable energy resources up to the 1990s in the years since renewable energy production has come increasingly from biomass geothermal solar water and wind resources renewable resources that can replace fossil fuels in the production of energy are a major focus of nations around the world the challenges for successful renewable energy production include reliability and expense a great deal of research is taking place to determine the viability and best implementation of renewable energy on a mass scale the paris climate accord is an agreement involving over 180 countries to reduce greenhouse gas emissions and limit the global temperature increase to less than 2 degrees celsius 3 6 degrees fahrenheit above pre industrial levels by the year 2100 on jan 20 2021 president joe biden signed an executive order for the united states to rejoin the paris agreement after the trump administration withdrew from it on nov 4 2020 1examples of renewable resourcessunlight is a widely recognized renewable resource in fact it has been used throughout human history to warm shelters dry and cook foods and heat water different technologies exist and continue to be developed to collect and convert solar radiation into heat energy that can be used for various purposes for example solar photovoltaic pv devices or solar cells change sunlight into electricity depending on the number of solar cells in use they can power small appliances or provide electricity for many homes the challenge with using sunlight for our energy needs is that it can vary and at times be unreliable the availability of sunlight depends on time of day existing weather conditions season of the year and geographic location 2wind has a direct relationship to the sun daily winds result when the sun s heat is captured unevenly by the varying surfaces on the earth including oceans and other water masses air above land heats up faster than air above water during the day when the sun is shining that warm air expands and rises cooler air takes its place this creates wind in earlier years windmills were used across the u s to capture energy and pump water from wells they still exist in some farming areas to provide livestock with water 3today wind is harnessed to produce electricity wind flows over blades in wind turbines the blades turn and that drives an electric generator in turn that generates electricity 3typically wind turbines don t produce emissions capable of polluting the air or water also they don t need to be cooled by water though rare they can have some negative effects on the environment if they leak lubricating fluids or catch fire they can also negatively impact bird life and species 3in 2023 wind turbines provided about 10 2 of total u s utility scale electricity generation 4hydropower is the energy produced by water it was an early renewable source of energy even before it was used to generate electricity for example hydropower turned paddle wheels on rivers to allow for the milling of grain and lumber however changes in precipitation and lack of water due to droughts can affect hydropower production hydropower was used to generate electricity in the u s beginning in 1880 today most of the nation s hydroelectricity is produced in facilities located at large dams built in the 1970s until 2019 hydropower was the largest source of total annual renewable electricity generation in the u s in 2023 hydropower accounted for 5 7 of total utility scale electricity generation 4geothermal is a renewable resource that uses earth s heat to generate power hot springs heated by the earth have been used for centuries for bathing geothermal energy has also been used and still is for district heating systems geothermal energy is used to generate electricity as well power plants for this purpose are built below ground within approximately a mile of earth s surface seven u s states had geothermal power plants in 2023 california hawaii idaho nevada new mexico oregon and utah in that year they produced approximately 17 billion kilowatt hours kwh of electricity 5in 2023 geothermal accounted for about 0 4 of total u s utility scale electricity generation 4geothermal heat pumps are another way to use earth s heat they transfer heat from the ground or water into buildings during the winter and reverse the process in the summer to aid in heating and cooling 5renewable organic products that produce energy are referred to as biomass the process of photosynthesis uses energy from the sun to convert biomass resources into chemical energy in 2023 biomass provided nearly five quadrillion british thermal units btu and about 5 of total primary energy use in the united states in the same year it accounted for about 1 1 of total u s utility scale electricity generation 46biomass renewable resources include wood and wood waste agricultural crops and waste which are mainly used for biofuel municipal waste including paper cotton food and yard waste and animal manure and sewage 7biofuel refers to liquid fuels and blending components produced from feedstock biomass materials most biofuels are used as transportation fuels but they may also be used for heating and electricity generation this renewable resource has become more prevalent in recent years as an alternative to non renewable resources such as coal oil and natural gas 8in january 2023 u s biofuels production capacity was about 23 billion gallons an increase over the same period in 2022 in addition the u s was a net exporter of biofuels the fuel ethanol accounted for 78 of biofuel production 9although prices are still high for biofuel some experts project that as the prices of fossil fuels increase the price of biofuel will become more competitive renewable resources vs non renewable resourcesrenewable resources are those resources that can continue to exist despite being consumed or can replenish themselves over a period of time even as they are used they include sun wind water geothermal and biomass the disadvantage of renewable resources is that they may not be available for use when needed for example the ability to collect and use solar energy is limited at night and when the sky is overcast the continued availability of water depends on ongoing precipitation and weather conditions renewable resources are considered to have less of a negative impact on the environment than non renewable resources non renewable resources are those resources that are considered finite due to the extremely long time it takes for nature to create them once depleted they become unavailable they include coal natural gas and oil the advantage of non renewable resources is that they re readily available now and the infrastructure for their use exists to produce power on demand however they have a greater negative environmental impact than renewable resources the heat trapped by carbon dioxide gas when coal and oil are burned contributes to the atmosphere s rising temperature and global climate change activists consumers and government leaders promote renewable energy as a way to generate needed power without the emissions that are warming the planet and threatening life on earth the covid 19 pandemic supported the trend toward lower fossil fuel prices due to record low consumption in 2020 10 however with the outbreak of the ukraine russia war in early 2022 the price of oil skyrocketed and has remained high in 2024 11special considerationsrenewable resources have become a focal point of the environmental movement both politically and economically energy obtained from renewable resources puts much less strain on the limited supply of fossil fuels which are non renewable resources the problem with using renewable resources on a large scale is that they are costly in most cases more research is needed to determine how to use them most cost effectively beyond their limited supply energy sources such as fossil fuels damage the environment when produced and consumed and they contribute to global warming the first major international accord to curb carbon dioxide emissions and global warming was the kyoto protocol signed in 1997 12 more recently global powers met in paris in 2015 to pledge emissions reductions and a focus on higher reliance on renewable resources for energy 13incentives can encourage the use of alternative energy for example energy taxes place a surcharge on fossil fuels this can make the prices of renewable resources more competitive and attractive as a result people may be more inclined to use renewable energy also the reward of renewable energy certificates recs acts as an incentive to produce energy using green sources green funds which are investments such as mutual funds support eco friendly and sustainable companies by investing in them these investments also help to promote environmental awareness these incentives seem to be having an effect according to the u s energy information administration eia in 2022 renewable energy provided almost 13 2 quadrillion british thermal units btu this represented 13 of total u s energy consumption 14in 2023 21 4 of u s utility scale electricity was generated by renewable energy sources 4state and federal governments have encouraged more biofuel consumption with requirements and incentives for the use of renewable energy the eia anticipates that u s renewable energy consumption will continue to increase through 2050 14 | |
what does renewable resource mean | the term renewable resource refers to a resource that replenishes itself naturally over a span of time it can be used without worry that it will be depleted permanently renewable resources are of particular interest as sources of renewable energy | |
what is an example of a renewable resource | the wind is one example so are the sun and water biomass is a source of renewable energy from plants and animals it includes wood agricultural crops food waste and animal manure | |
what is being done to encourage the use of renewable resources | energy taxes place a surcharge on fossil fuels the hope is that the prices of energy options produced by renewable resources will become more attractive and encourage consumer interest green mutual funds support eco friendly and sustainable companies by investing in them and helping to promote environmental awareness | |
what is the kyoto protocol | the kyoto protocol is an international agreement to reduce carbon dioxide co2 emissions and greenhouse gases ghg in the atmosphere the essential tenet of the kyoto protocol is that industrialized nations need to lessen the amount of their co2 emissions the protocol was adopted in kyoto japan in 1997 when greenhouse gases were rapidly threatening our climate life on earth and the planet itself the bottom linerenewable resources include the sun the wind water earth s heat geothermal and biomass renewable resources are natural resources that replenish themselves or exist on a continual basis in recent years they have been of special interest for the vital role they can play in the production of energy they re also seen as having less of a negative impact on the environment of course renewable resources were used for thousands of years before non renewable resources such as coal and oil began to be used extensively in the late 19th century due to the finite nature of coal and oil plus the threat from climate change the world community is focused on the greater use of renewable resources to meet energy needs | |
what is a renko chart | a renko chart is a type of chart developed by the japanese that is built using price movement rather than both price and standardized time intervals like most charts are it is thought to be named after the japanese word for bricks renga since the chart looks like a series of bricks a new brick is created when the price moves a specified price amount and each block is positioned at a 45 degree angle up or down to the right of the prior brick an up brick is typically colored white or green while a down brick is typically colored black or red | |
what does a renko chart tell you | renko charts are designed to filter out minor price movements to make it easier for traders to focus on important trends while this makes trends much easier to spot the downside is that some price information is lost due to simple brick construction of renko charts the first step in building a renko chart is selecting a box size that represents the magnitude of price movement for example a stock may have a 0 25 box size or a currency may have a 50 pip box size a renko chart is then constructed by placing a brick in the next column once the price has surpassed the top or bottom of the previous brick by the box size amount for the stock example assume a stock is trading at 10 and has a 0 25 box size if the price moves up to 10 25 a new brick will be drawn that brick will only be drawn once the price closes at 10 25 or higher if the price only reaches 10 24 a new brick will not be drawn once a brick is drawn it is not deleted if the price rises to 10 50 or higher and closes there another brick will be drawn renko bricks are not drawn beside each other therefore if the stock drops back to 10 25 a down brick is not drawn next to the prior up box the price would have to drop to 10 in order for a down brick to appear below the prior up brick while a fixed box size is common average true range atr is also used atr is a measure of volatility and therefore it fluctuates over time renko charts based on atr will use the fluctuating atr value as the box size renko charts show a time axis but the time intervals are not fixed one brick could take months to form while several bricks may form within a day this varies from candlestick or bar charts where a new candle bar forms at specific time intervals increasing or decreasing the box size will affect the smoothness of the chart decreasing the box size will create more swings but will also highlight possible price reversals earlier a larger box size will reduce the number of swings and noise but will be slower to signal a price reversal renko charts are effective in identifying support and resistance levels since there is a lot less noise than a candlestick chart when a strong trend forms renko traders may be able to ride that trend for a long time before even one brick in the opposite direction forms trading signals are typically generated when the direction of the trend changes and the bricks alternate colors for example a trader might sell the asset when a red box appears after a series of climbing white boxes similarly if the overall trend is up lots of white green boxes a trader may enter a long position when a white brick occurs after one or two red boxes a pullback 1example of how to use renko chartsthe chart shows a strong uptrend in a stock with a 2 box size boxes are drawn based on closing prices so highs and lows as well as moves smaller than 2 are ignored there is a brief pullback marked by a red box but then the green boxes emerge again given the strong uptrend this could be used as an opportunity to enter long consider an exit when another red down box forms after the uptrend a strong downtrend forms a similar tactic could be used to enter short wait for a pullback marked by the green up box when a red down brick forms enter a short position as the price could be heading lower again in alignment with the longer term downtrend exit when up brick occurs these are sample guidelines some traders may wish to see two or more bricks in a particular direction before deciding to enter or exit the difference between renko charts and heikin ashi chartsheikin ashi charts also developed in japan can have a similar look to renko charts in that both show sustained periods of up or down boxes that highlight the trend while renko charts use a fixed box amount heikin ashi charts are taking an average of the open high low and close for the current and prior time period therefore the size of each box or candle is a different size and reflects the average price heikin ashi charts are useful for highlighting trends in the same way that renko charts are 2limitations of using renko chartsrenko charts don t show as much detail as candlestick or bar charts given their lack of reliance on time a stock that has been ranging for a long period of time may be represented with a single box which doesn t convey everything that went on during that time this may be beneficial for some traders but not for others highs and lows are also ignored only closing prices are used this leaves out a lot of price data since high and low prices can vary greatly from closing prices the use of only closing prices will reduce the amount of noise but it also means the price could break significantly before a new box es forms and alerts the trader by then it could be too late to get out with a manageable loss therefore when using renko charts traders often still use stop loss orders at fixed prices and won t rely solely on renko signals since this type of chart was designed to follow the general price trend of an asset there can often be false signals where the color of the bricks changes too early producing a whipsaw effect this is why it s important to use renko charts in conjunction with other forms of technical analysis | |
how do you set up a renko chart on thinkorswim | thinkorswim is a popular brokerage and trading app from charles schwab although candlestick charts are the default you can easily set your account to display renko charts as well simply navigate to the time axis settings settings select range from aggregation type and choose renko bars then set the price range equal to the desired box size 3 | |
how do you set up a renko chart on tradingview | in order to access renko charts on tradingview you need to have a paid subscription navigate to the chart menu in the top menu bar and scroll down to renko after that go to the settings menu to select your desired box size 4 | |
how do you set the box size of a renko chart | the best box size for a renko chart is determined in part by the trader s time horizon risk tolerance and trading goals larger box sizes are more appropriate for longer term trading but they also incur higher risks because they do not reflect smaller price movements that can accumulate over time | |
what is a renko chart | a renko chart is a type of chart developed by the japanese that is built using price movement rather than both price and standardized time intervals like most charts are it is thought to be named after the japanese word for bricks renga since the chart looks like a series of bricks a new brick is created when the price moves a specified price amount and each block is positioned at a 45 degree angle up or down to the right of the prior brick an up brick is typically colored white or green while a down brick is typically colored black or red | |
what does a renko chart tell you | renko charts are designed to filter out minor price movements to make it easier for traders to focus on important trends while this makes trends much easier to spot the downside is that some price information is lost due to simple brick construction of renko charts the first step in building a renko chart is selecting a box size that represents the magnitude of price movement for example a stock may have a 0 25 box size or a currency may have a 50 pip box size a renko chart is then constructed by placing a brick in the next column once the price has surpassed the top or bottom of the previous brick by the box size amount for the stock example assume a stock is trading at 10 and has a 0 25 box size if the price moves up to 10 25 a new brick will be drawn that brick will only be drawn once the price closes at 10 25 or higher if the price only reaches 10 24 a new brick will not be drawn once a brick is drawn it is not deleted if the price rises to 10 50 or higher and closes there another brick will be drawn renko bricks are not drawn beside each other therefore if the stock drops back to 10 25 a down brick is not drawn next to the prior up box the price would have to drop to 10 in order for a down brick to appear below the prior up brick while a fixed box size is common average true range atr is also used atr is a measure of volatility and therefore it fluctuates over time renko charts based on atr will use the fluctuating atr value as the box size renko charts show a time axis but the time intervals are not fixed one brick could take months to form while several bricks may form within a day this varies from candlestick or bar charts where a new candle bar forms at specific time intervals increasing or decreasing the box size will affect the smoothness of the chart decreasing the box size will create more swings but will also highlight possible price reversals earlier a larger box size will reduce the number of swings and noise but will be slower to signal a price reversal renko charts are effective in identifying support and resistance levels since there is a lot less noise than a candlestick chart when a strong trend forms renko traders may be able to ride that trend for a long time before even one brick in the opposite direction forms trading signals are typically generated when the direction of the trend changes and the bricks alternate colors for example a trader might sell the asset when a red box appears after a series of climbing white boxes similarly if the overall trend is up lots of white green boxes a trader may enter a long position when a white brick occurs after one or two red boxes a pullback 1example of how to use renko chartsthe chart shows a strong uptrend in a stock with a 2 box size boxes are drawn based on closing prices so highs and lows as well as moves smaller than 2 are ignored there is a brief pullback marked by a red box but then the green boxes emerge again given the strong uptrend this could be used as an opportunity to enter long consider an exit when another red down box forms after the uptrend a strong downtrend forms a similar tactic could be used to enter short wait for a pullback marked by the green up box when a red down brick forms enter a short position as the price could be heading lower again in alignment with the longer term downtrend exit when up brick occurs these are sample guidelines some traders may wish to see two or more bricks in a particular direction before deciding to enter or exit the difference between renko charts and heikin ashi chartsheikin ashi charts also developed in japan can have a similar look to renko charts in that both show sustained periods of up or down boxes that highlight the trend while renko charts use a fixed box amount heikin ashi charts are taking an average of the open high low and close for the current and prior time period therefore the size of each box or candle is a different size and reflects the average price heikin ashi charts are useful for highlighting trends in the same way that renko charts are 2limitations of using renko chartsrenko charts don t show as much detail as candlestick or bar charts given their lack of reliance on time a stock that has been ranging for a long period of time may be represented with a single box which doesn t convey everything that went on during that time this may be beneficial for some traders but not for others highs and lows are also ignored only closing prices are used this leaves out a lot of price data since high and low prices can vary greatly from closing prices the use of only closing prices will reduce the amount of noise but it also means the price could break significantly before a new box es forms and alerts the trader by then it could be too late to get out with a manageable loss therefore when using renko charts traders often still use stop loss orders at fixed prices and won t rely solely on renko signals since this type of chart was designed to follow the general price trend of an asset there can often be false signals where the color of the bricks changes too early producing a whipsaw effect this is why it s important to use renko charts in conjunction with other forms of technical analysis | |
how do you set up a renko chart on thinkorswim | thinkorswim is a popular brokerage and trading app from charles schwab although candlestick charts are the default you can easily set your account to display renko charts as well simply navigate to the time axis settings settings select range from aggregation type and choose renko bars then set the price range equal to the desired box size 3 | |
how do you set up a renko chart on tradingview | in order to access renko charts on tradingview you need to have a paid subscription navigate to the chart menu in the top menu bar and scroll down to renko after that go to the settings menu to select your desired box size 4 | |
how do you set the box size of a renko chart | the best box size for a renko chart is determined in part by the trader s time horizon risk tolerance and trading goals larger box sizes are more appropriate for longer term trading but they also incur higher risks because they do not reflect smaller price movements that can accumulate over time | |
what is rent seeking | rent seeking or rent seeking is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity typically it revolves around government funded social services and social service programs | |
how does rent seeking work | the concept of rent seeking was established in 1967 by gordon tullock and popularized by anne krueger in 1974 it evolved from the studies of adam smith who is often regarded as the father of economics the concept is based on an economic definition of rent defined as economic wealth obtained through shrewd or potentially manipulative use of resources 2smith s studies suggested that entities earn income from wages profit and rent to create profit usually requires the risk of capital with the goal of gaining a return earning wages comes from employment however rent is the easiest to obtain of the three income sources and can require little risk 2economic rent is the income earned from the utilization of resource ownership entities that own resources can lend them to earn interest rents lease them to earn rental income or utilize them in other income producing ways in general the term economic rent has evolved to mean receiving a payment that exceeds the costs involved in the associated resource entities therefore will take rent seeking steps to obtain economic rent that requires no reciprocal contribution of production one example of rent seeking is when a company hires lobbyists to encourage the government to change regulations to make it easier for them to earn profits vs trying to spend time and money on improving their goods in the marketplace rent seeking factors and examplesrent seeking is a byproduct of political legislation and government funding politicians decide the laws regulations and funding allocations that govern industries and government subsidy distributions these legislations and actions manifest rent seeking behaviors by offering economic rent with little or no reciprocity business social service programs are typically designed to provide aid for businesses with the goal of fostering economic prosperity for example businesses such as banks can lobby the government for help in the areas of competition special subsidies grants and tariff protection if a business succeeds in getting laws passed to limit their competition bail them out of economic hardship or create barriers to entry for others it can achieve economic rents without any added productivity or capital at risk 1lobbying for the lessening of occupational licensing requirements is another very specific example of rent seeking doctors dentists airline pilots and many other fields require licensing to practice however in many u s states this licensing process is expensive and time consuming often regulations exist due to past lobbying efforts from existing industry members if certification and license obligations prevent newcomers from competing fewer professionals may share the revenue thus a more significant portion of money accrues to each existing member without additional economic benefit also since limits to competition can be a driver for prices consumers may be required to pay more issues arising from rent seekingrent seeking can disrupt market efficiencies and create pricing disadvantages for market participants it has been known to cause limited competition and high barriers to entry those that benefit from successful rent seeking obtain added economic rents without any added obligations this can potentially create unfair advantages specifically providing wealth to certain businesses that lead to greater market share at the detriment of competitors lastly rent seeking wealth is typically a function of taxpayer funding these tax revenues are used to provide economic wealth for rent seekers but may or may not improve the economic climate or produce any benefits for taxpayers at large this can lead to disparaging funds that lack regeneration and require higher taxes in the future | |
is rent seeking illegal | in general competition for rents is legal regardless of any harm it may do to an economy however various rent seeking behaviors are illegal such as the forming of cartels or the bribing of politicians | |
why is rent seeking bad for the economy | rent seeking can make markets less efficient by creating price disadvantages for consumers or companies rent seeking behavior can also create artificial bars to entry for new companies stifling innovation | |
are landlords rent seekers | not generally the use of the word rent can create some confusion here the term rent in rent seeking is based on the economic definition of rent which is defined as economic wealth obtained through shrewd or potentially manipulative use of resources that said it s possible for landlords to engage in rent seeking behavior the bottom linerent seeking is an economic concept that occurs when an entity seeks to gain wealth without any reciprocal contribution of productivity an example of rent seeking is when a company lobbies the government for grants subsidies or tariff protection rent seeking comes in many forms from lobbying or donating funds for example if you donate money but write it off on your taxes it could be considered a form of rent seeking rent seeking interferes with the efficient operation of the free market and it imposes unfair prices and barriers on individuals and companies | |
what is renters insurance | renters insurance refers to property insurance that protects tenants who live in a rented dwelling coverage is provided by insurance companies in exchange for premiums paid by people living in apartments single family homes and condominiums policies provide coverage for an insured party s personal property as well as liability claims that are not due to a structural problem with the property these kinds of policies also cover living expenses that need to be paid out when someone makes an insurance claim after their unit is damaged although renters insurance isn t a legal requirement some landlords prefer their tenants to have some type of coverage | |
how renters insurance works | insurance policies cover different types of losses life insurance provides a death benefit for a certain amount to an insured party s beneficiaries health insurance mitigates the costs associated with routine and unexpected medical expenses there are also insurance policies that cover properties for instance homeowners insurance protects policyholders against damage to their homes and belongings as well as any claims filed against them by others for injuries sustained while on the premises renters insurance is a common form of property insurance that tenants take out when they rent a home townhouse apartment condo room or another type of dwelling it s also available to anyone who sublets a property from another tenant policies vary based on the type of coverage a renter chooses the higher the coverage the higher the premium these kinds of policies protect the insured party against losses to their personal property within the dwelling as a result of loss from theft fire and other types of disastrous loss events the amount of coverage depends on premiums paid and other factors you should buy enough renters insurance to replace all of your possessions in the event of a loss event the easiest way to determine this amount is to create a detailed list of all of your belongings with estimated values additional living expensespolicies also provide financial protection against liability claims and additional living expenses ales policyholders are covered against lawsuits for bodily injury or property damage done by the renter their family members and pets it also covers legal defense costs up to the limit of a policy additional living expenses coverage provides financial protection against an insured disaster that makes it necessary to temporarily live somewhere else the coverage pays for hotel bills temporary rentals meals and other costs while a rental home is being repaired or rebuilt most policies reimburse the insured for the full difference between the additional expenses and their normal living expenses there is however either a dollar limit on the total amount an insurer will pay or a time limit on the ale payments renters insurance and valuationrenters can choose between replacement cost value rcv or actual cash value acv coverage the type of coverage for each policy may be substantially different based on how the policy calculates the value of what was lost if you have an acv policy the insurance company will reimburse you for the value of your belongings at the time of the loss taking into account depreciation and wear and tear for example if your five year old laptop gets stolen the insurance company will consider its current market value which will probably be significantly lower than the original purchase price as a result the payout under an acv policy might not be enough to replace your belongings with new items if you have an rcv policy the insurance company will reimburse you for the cost of replacing your belongings with new items of similar kind and quality without considering depreciation in the same example of the stolen laptop an rcv policy would provide the funds needed to purchase a new laptop with similar specifications to the one that was stolen even if the cost exceeds the value of the depreciated laptop proof of renters insurance is required by many landlords without this coverage the tenant is responsible for the loss out of pocket renters insurance vs landlord s insurancerenters insurance is designed to protect tenants or renters it covers the personal belongings and liability of the tenant if a covered event such as theft fire or water damage damages or destroys the tenant s personal property renters insurance can provide compensation for the loss landlord s insurance also known as landlord insurance or dwelling insurance is designed to protect the property owner or landlord this insurance policy covers the physical structure of the rental property such as the building roof walls and fixtures it also provides liability coverage for the landlord if a tenant or visitor is injured on the property and holds the landlord responsible the important takeaway here is that landlord s insurance does not cover the personal belongings of the tenants personal belongings of the tenant are the responsibility of the individual tenants through their own renters insurance make sure your renters insurance policy includes no fault medical coverage as part of the liability protection which allows individuals who are injured on your property to submit their medical bills directly to the insurance company in lieu of a lawsuit renters insurance vs other policiesalthough most renters insurance policies cover losses from fire or smoke lightning vandalism theft explosion windstorms and certain types of water damage the majority don t cover floods or earthquakes flood insurance is available from the national flood insurance program and a few private insurers earthquake insurance may be purchased separately or added as an endorsement to an existing renters policy for example in california obviously a high risk state for earthquakes the legislature created the nonprofit california earthquake authority to help people get affordable coverage can i get renters insurance if i live with roommates yes you can get renters insurance when living with roommates however it s essential to discuss the coverage with your insurance provider as individual policies might be needed to ensure each person s belongings are adequately protected | |
is renters insurance mandatory by law | renters insurance is not usually mandatory by law but some landlords may require it as a condition of the lease agreement even if it s not required having renters insurance is highly recommended to protect your belongings and liability can i transfer my renters insurance to a new apartment yes most renters insurance policies can be transferred to a new apartment or rental property inform your insurance provider about the move and update the address on your policy to ensure continuous coverage should you end up buying a property be mindful that you ll have to cancel your renters insurance in favor of homeowners insurance can i cancel my renters insurance at any time yes you can cancel your renters insurance at any time by notifying your insurance provider keep in mind that you may lose coverage for any future incidents if you cancel before the policy term expires in addition you can enter into coverage during any time of the month the bottom linerenters insurance is a policy that protects tenants personal belongings and provides liability coverage it safeguards against financial loss due to theft fire or other covered events and offers liability protection if someone is injured in the rental unit though not always required it is coverage that is needed by renters as landlord policies do not cover tenants personal belongings | |
what is a reorganization | a reorganization is a significant and disruptive overhaul of a troubled business intended to restore it to profitability it may include shutting down or selling divisions replacing management cutting budgets and laying off workers a supervised reorganization is the focus of the chapter 11 bankruptcy process during which a company is required to submit a plan for how it hopes to recover and repay some if not all of its obligations understanding reorganizationthe function of a bankruptcy court is to give an insolvent company the chance to submit a reorganization plan if approved the company can continue to operate and postpone paying its most pressing debts until a later date to get the approval of a bankruptcy judge the reorganization plan must include drastic steps to reduce costs and increase revenue if the plan is rejected or is approved but does not succeed the company is forced into liquidation its assets will be sold and distributed to its creditors a reorganization requires a restatement of the company s assets and liabilities as well as negotiations with major creditors to set schedules for repayment reorganization can include a change in the structure or ownership of a company through a merger or consolidation spinoff acquisition transfer recapitalization a change in name or a change in management this part of a reorganization is known as restructuring a reorganization to stave off bankruptcy may have a favorable outcome for shareholders a reorganization in bankruptcy is usually bad news for shareholders not all reorganizations are overseen by a bankruptcy court the management of an unprofitable company may impose a drastic series of budget cuts staff layoffs management ousters and product line revisions with the aim of restoring the health of the company in such cases the company is not yet in bankruptcy and is hoping to stave it off this is sometimes called a structural reorganization | |
when supervised by a court during bankruptcy proceedings a reorganization focuses on restructuring a company s finances the company is temporarily protected from claims by creditors for full repayment of outstanding debts | once the bankruptcy court approves the reorganization plan the company will restructure its finances operations management and whatever else is deemed necessary to revive it it also will begin paying its creditors according to a revised schedule u s bankruptcy law gives public companies the option of reorganizing rather than liquidating through the terms of chapter 11 bankruptcy firms can renegotiate their debts to try to get better terms the business continues operating and works toward repaying its debts the process is complex and expensive firms that have no hope of reorganization go through chapter 7 bankruptcy also called liquidation bankruptcy a court supervised reorganization is typically bad for shareholders and creditors who may lose part or all of their investments even if the company emerges successfully from the reorganization it may issue new shares which will wipe out the previous shareholders if the reorganization is unsuccessful the company will liquidate and sell off any remaining assets shareholders are last in line to receive any proceeds and receive nothing unless money is left over after repaying creditors senior lenders bondholders and preferred stock shareholders in full a reorganization by a company that is in trouble but not yet in bankruptcy is more likely to be good news for shareholders its focus is to improve company performance not stave off creditors it often follows the entrance of a new ceo in some cases the second type of reorganization is a precursor to the first if the company s attempt at reorganizing through something like a merger is unsuccessful it might next try to reorganize through chapter 11 bankruptcy | |
what is repackaging in private equity | repackaging in the private equity industry is when a private equity firm buys all the stock in a troubled public company thus taking the company private with the intention of revamping its operations and re selling it at a profit for some years the primary goal of repackaging was to prepare a company for a return to the market with an initial public offering ipo more recently private equity firms have found other ways of maximizing their profits that involve less regulatory and shareholder scrutiny | |
how repackaging in private equity works | a private equity firm looks for a company that is unprofitable or underperforming and buys it outright in the belief that the business can be turned around once the company is no longer public the private equity firm can take whatever measures it thinks will be effective such as selling off divisions replacing management or slashing overhead costs its goal may be to take the revamped company public with a new initial public offering ipo to sell the company outright to another private buyer or to merge it with another larger entity or entities in any case if the repackaging succeeds the private equity firm will make more money than it spent reviving the company most of the money used to purchase the company is borrowed as opposed to the cash on hand at the firm thus the transaction is usually termed a leveraged buyout cashing in on repackagingrepackaging with an eye to launching a new initial public offering has been a lucrative business for private equity firms there were 22 ipos brought to the market by private equity buyout firms in 2020 for an exit value of 74 5 billion 1however this strategy appears to have lost its luster for the most part the number of initial public offerings brought to the market by private equity firms has been in decline since 2013 with a slight uptick in 2018 and then a surge in 2020 1private equity firms appear to have found easier and more lucrative ways to cash in on their acquisitions considering the government regulatory and shareholder scrutiny that public companies face burger king for example had a long string of corporate owners including the pillsbury company before it was bought in 2002 by tpg capital the investment group retooled the company and launched a successful initial public offering in 2006 only four years later in the midst of the great recession burger king was in trouble again it was taken private again in a buyout by 3g capital today burger king is a subsidiary of restaurant brands international a fast food conglomerate that is headquartered in toronto canada but majority owned by 3g a brazilian company the conglomerate also owns the canadian coffee shop chain tim hortons and the fried chicken chain popeyes real world examplesprivate equity repackagings are far and wide and include panera bread the bakery restaurant chain and staples the business supplies store panera bread was taken private in 2017 by bdt capital partners and jab holding co in a buyout that cost 7 5 billion the combined equity firms had previously bought peet s coffee and tea and krispy kreme doughnuts as of 2021 panera bread may go public again as jab just completed an 800 million refinancing deal on the business 2staples was bought by sycamore partners for 6 9 billion also in 2017 staples had previously acquired its one time rival officemax and was worth approximately 19 billion in 2010 showing just how much the company had slipped 3 it has been assumed that sycamore was going to exit its investment in staples in 2020 through an ipo but that has yet to happen 4 | |
what does repatriable mean | repatriable refers to the ability to move liquid financial assets from a foreign country to an investor s country of origin understanding repatriablerepatriable financial assets are financial assets capable of being withdrawn from an account in a foreign country and being deposited to an account in an investor s country of residence or citizenship and if the financial asset is a currency its conversion from foreign currency to home country currency repatriable describes something as capable of repatriation repatriation brings back home something brought to or acquired in a foreign country something is repatriable if the laws of both the foreign and home country permit and don t impede their repatriation repatriation laws can impede or encourage foreign investment and cross border currency flow repatriation is impeded to and from countries with tight currency borders and highly regulated foreign investment repatriation is also stifled to and from countries that otherwise freely permit repatriation but subject it to taxation monitoring or access and timing restrictions an example of monitoring regulations is found in the united states the foreign account tax compliance act fatca and the bank secrecy act bsa impose reporting requirements on foreign financial institutions ffis and on u s persons about foreign financial accounts and foreign asset holdings the united states also imposes taxes on foreign earned income albeit reduced by the foreign tax credit this taxation dis incentivizes repatriation and has driven many u s companies and investors to park their foreign earned income abroad and offshore congress recently amended u s tax law to provide tax changes hoped to encourage u s corporations to repatriate the parked funds to the united states repatriable dividendsrepatriable dividends are dividends capable of being paid by a foreign corporation to a u s corporation foreign direct investment fdi in majority american owned foreign corporations known as controlled foreign corporations cfcs may be subject to foreign tax but are generally not subject to u s tax until dividends are paid to their controlling u s parent companies and they are thus repatriated the repatriated dividends are then subjected to the sometimes higher u s tax rate minus the foreign tax credit repatriable nre and fcnr b accounts in india for nrisrepatriable as a stand alone term is unusual in the u s finance lexicon except among english speaking indians india has enacted foreign direct investment fdi and repatriation laws to encourage investment currency and asset inflow to india particularly from its citizens working abroad these laws establish financial accounts at indian financial institutions exclusively for non resident indians nris these nri only accounts are designated by law as repatriable or non repatriable nris may choose between two types of repatriable deposit savings accounts the non resident external account nre account and the foreign currency non resident bank deposits fcnr b account the funds in these accounts can be repatriated by transferring them back to the nris country of residence or by converting to any foreign currency nris may also choose a non resident ordinary rupee account nro account an nro account is a non repatriable account meaning its funds cannot be transferred back to the nris country of residence nor can they be converted to any foreign currency please note that under indian law both the nre and fcnr b accounts accept foreign currency deposits but any foreign currency deposited to an nre account is converted to inr indian law also permits some of these accounts to be owned by persons of indian origin pios or to be jointly owned by an nri with a pio or an indian resident | |
what is repatriation | repatriation refers to the return of people money or objects of cultural heritage to their country or culture of origin in finance the term repatriation refers to the conversion or exchange of foreign currency into someone s home currency in most cases it involves moving money back after someone returns home after living or working abroad though repatriation is also a common occurrence in other areas of the financial sector such as business transactions foreign investments or international travel the act of repatriating currency can result in losses and certain risks including foreign exchange risks the word covers a large array of returns outside of finance as well in reference to people the term can refer to the return of refugees forced or voluntary as well as the expulsion or return of diplomats or the resettlement of citizens in recent decades increasing attention has been paid to repatriation of cultural goods especially ones that were looted as a result of colonialism or that were pillaged during war goods of significant cultural value enjoy some protections under international law and numerous court cases have arisen seeking the return of looted property 1understanding repatriationrepatriation can fall along several categories including people finances or objects of significant cultural value the reasons for repatriation vary as much as the kinds of repatriation repatriation is a process that occurs when people return to their home country after living visiting or working abroad in the most benign case this can refer to people returning home after working abroad for instance someone from canada may take a contract job in the united kingdom for two years when their contract is up they may decide to return home in which case the act of returning home is known as repatriation in other cases repatriation can involve the return of refugees such as what was called for in an agreement between myanmar and bangladesh which was supposed to lead to the 2018 return of rohingya migrants to the rakhine state 2 | |
when a repatriation is done willingly it is referred to as voluntary repatriation which typically involves a commitment from the country of origin to help reintegrate the repatriated people 3 countries may offer assistance for this the u s repatriation program for instance exists to offer assistance to those who don t have the resources to return to the u s for a number of reasons including war mental illness or poverty 4 these returns however can be done with force such as in the depression era removal of mexican americans in the united states in that forced repatriation about 1 million mexican nationals and american citizens of mexican descent from throughout the united states of which perhaps 60 were u s citizens were mass deported out of the country according to an estimate from professor of american history and chicano studies at california state university los angeles francisco balderrama 56 | under international law cultural property defined as movable or immovable property constituting the cultural heritage of all mankind is protected from pillaging or looting especially during conflict 7ultimately the protections exist to preserve cultural heritage and to keep it from being dismantled or defaced by war or theft and the legal framework became increasingly codified in response to the second world war particularly with the 1954 hague convention for the protection of cultural property in the event of armed conflict which was later expanded 8 related to that idea is that each peoples have contributed in their own way to the common heritage and therefore have some meaningful claim over cultural goods of value that is independent of national jurisdiction or property rights although national interest also plays a large role in conversations about cultural heritage the protections are meant to dissuade acts like the destruction of the bamiyan buddhas by the taliban in afghanistan which was called a crime against culture by unesco in 2001 9in western countries repatriation of native cultural heritage has become integrated into law that is a relatively recent development in some places in the united states for example no consistent national policy existed for the repatriation of native american remains and sacred objects until the 1990s according to a historical note about the political implications of archeology 10repatriation in finance commonly refers to the conversion of offshore capital back to the home currency of a corporation in the global economy many corporations based in the united states generate earnings abroad there are legal steps corporations take to repatriate their currency including 11individuals might also repatriate funds for example americans returning from a visit to japan typically repatriate their currency converting any remaining yen into u s dollars the number of dollars they receive when they exchange their remaining yen will depend on the exchange rate between the two currencies at the time of the repatriation many companies choose not to repatriate their offshore earnings in order to avoid corporate taxes charged on repatriated funds special considerations for financial repatriationamerican taxpayers including individuals and corporations have historically been taxed on any income they earned abroad this includes any foreign income earned and repatriated for example u s corporations were taxed for dividends issued by a foreign subsidiary tax rates for repatriated currency were as high as 35 this changed following the signing of the tax cuts and jobs act tcja by president donald trump in late 2017 once signed the law cut the corporate repatriation tax which is referred to as a transition tax from that rate of 35 it allowed u s companies to repatriate money earned overseas at 15 5 for any foreign earnings held in cash and cash equivalents and 8 for any foreign income that doesn t fall in this category 12these changes could bring in as much as 340 billion between 2018 and 2027 in tax revenue 13 u s corporations repatriated 777 billion of cash stored overseas in 2018 according to the federal reserve 14repatriation risks for financial repatriationcompanies that operate in more than one country generally accept the local currency of the economy that they transact business when a company earns income in foreign currencies the earnings are subject to foreign exchange risk meaning they could potentially lose or gain in value based on fluctuations in the value of either currency for example though apple aapl is a u s based corporation an apple store in france accepts euros as payment for product sales since the euro is the currency used in france if apple earned one million euros from product sales in france at an exchange rate of 1 15 dollars per euro the earnings would equal 1 15 million or one million euros x 1 15 but if it earned one million euros during the next quarter and the exchange fell to 1 10 dollars per euro the earnings would equal 1 1 million or 1 1 million euros x 1 10 in other words apple would lose 50 000 in earnings based on the exchange rate decline despite having the same amount in sales in euros for both quarters the volatility or fluctuations in the exchange rate is called foreign exchange risk which companies are exposed to when they do business internationally as a result the volatility in exchange rates can impact a company s earnings some u s corporations repatriate funds from overseas translating the cash into u s dollars these funds are typically used to invest in new technologies and fixed assets like property plant and equipment pp e example of financial repatriationat the time that the tcja was passed apple had the largest amount of cash holdings abroad of any u s company following the changes made to the u s tax laws with the passing of the act the company said it was bringing home roughly all of the 250 billion held overseas as a result apple agreed to a one time tax payment to the internal revenue service irs of 38 billion to repatriate its foreign cash holdings 1516 | |
how much money has been repatriated since 2000 | billions of dollars have been repatriated back to the united states since 2000 as much as 777 billion in cash stored overseas was repatriated by corporations back to the united states in 2018 according to the federal reserve this was largely due to the passing of the tax cuts and jobs act which lowered the transition tax for corporations that wanted to exchange their foreign held currency into u s dollars 14 | |
which corporations repatriate the most money | some of the largest american corporations repatriate the most money for instance apple was considered to have the largest amount of cash held overseas following the passing of the tax cuts and jobs act the company said it would repatriate as much as 250 billion held in foreign countries back to the united states 1516 | |
what is the meaning of the word repatriation | in a general context repatriation commonly refers to the act of anyone or anything returning home from another country in the financial world repatriation occurs when a taxpaying entity transfers money earned overseas back to the country where it is based this can refer to a corporation that earns money from a foreign subsidiary or an individual who has investments earned income or money accumulated during travels abroad | |
repayment is the act of paying back a lender the money you ve borrowed typically it consists of periodic payments toward the principal the original amount borrowed and interest a fee for the privilege of being lent the money some loans even allow you to repay the full amount at any time though there might be early repayment fees | loan repayment is a common financial obligation affecting everyone from those with low incomes to the wealthiest most people are dealing with one or more of the following auto loans mortgages education loans and credit card charges businesses too often manage a portfolio of debts that include mortgages lines of credit bonds and other structured corporate debt falling behind on repayments isn t just a minor hiccup it can trigger severe consequences like involuntary bankruptcy late payment charges and a damaging blow to your credit rating | |
when consumers take out loans their lenders expect they will likely repay the debt interest is charged based on an agreed upon rate and payment schedule from when a loan is disbursed to when it s settled when making loans financial institutions forgo other investment opportunities that could offer returns the interest charges pay them for this opportunity cost and the risks associated with lending usually interest rates are presented as an annual percentage rate | repayment schedules depend on the type of loan and the lender involved whether applying for or paying off a loan it s crucial to study the sections of the loan agreement outlining your options should you be unable to make scheduled payments borrowers who can t cover their loans may turn to bankruptcy protection however it would be best to explore this as a last resort since it will significantly affect your ability to take out loans in the future alternatives to this drastic step include refinancing the loan seeking help from debt relief companies or credit counseling agencies and directly negotiating with creditors when the unexpected happens and you must miss one or more payments it s often best to contact your lender before missed payments and fees escalate some lenders may even offer special terms for those facing hardship 1types of repaymentfrom covering education expenses to buying a new home or car achieving your financial goals often requires borrowing money each kind of loan has a specific purpose and has its own repayment terms auto loans for example usually have fixed interest rates and are designed to be paid back within a few years mortgages are long term commitments that can last several decades and may have variable interest rates student loans may have deferment options allowing borrowers to delay payments as they continue their education or are unemployed for an extended period 2 | |
when taking out a loan you obtain money from a lender typically a company financial institution or government entity your agreement with the lender will specify the expectations for repaying your debt while the terms may vary here s a look at the primary forms of repayment for the most common types of loans | federal student loansfederal student loans typically permit reduced or deferred payments and loan forgiveness in some instances plans for widespread forgiveness of federal student loans remain the subject of intense political debate and legal challenges 3whatever the long term outcome of student debt forgiveness these loans typically have some flexibility your options for student loan refinancing change as your life does this can be particularly helpful if you re facing a health or financial crisis standard payments are the best option regular payments at the same monthly amount and on a specified date each month until the loan plus interest is paid off regular payments satisfy the debt in the least amount of time also this method accrues the least amount of interest for most federal student loans this means a 10 year period of repayment 4other choices include extended and graduated payment plans 5 both involve paying back the loan over a longer period than the standard option unfortunately extended time frames go hand in hand with accruing additional interest charges during the deferral that will eventually need to be cleared extended repayment plans are just like standard repayment plans except the borrower has up to 25 years to pay back the money because this takes longer the monthly bills are lower however the interest fees can significantly increase the tab for the initial loan since they cover the additional time until the loan is settled graduated payment plans for student loans like graduated payment mortgages feature payments that start low and gradually increase over time this is meant to accommodate borrowers who are expected to earn higher incomes later in life graduated payment plans can offer a real benefit for those with limited earnings straight out of college as the initial payments can start as low as 0 per month however once again the borrower ends up with higher long term costs because payments are lower initially additional interest accrues over time increasing the overall loan balance 6student loan borrowers can explore if they are eligible for loan forgiveness among those who may qualify for debt relief are teachers service members peace corps and americorps volunteers first responders such as police officers and other emergency service workers government and tribal employees workers at certain nonprofit agencies and those who have made 20 or more years of payments toward their loans 7home mortgageshomeowners facing difficulties with their mortgages have some choices to stave off foreclosure borrowers with an adjustable rate mortgage may be able to refinance their loans as a fixed rate mortgage with a lower interest rate if the problem with payments is temporary borrowers can work toward reinstatement paying the lender the past due amount along with late fees and penalties by an agreed upon date payments are reduced or suspended for a set time if a mortgage goes into forbearance regular payments then resume along with a lump sum payment or additional partial payments for a specified period until the loan is cleared loan modifications offer another potential means of relief these are adjustments to the mortgage to make payments more manageable including lowering the interest rate extending the loan term or rolling missed payments into the existing loan balance sometimes a part of the mortgage may be forgiven reducing the overall debt under certain circumstances the most feasible solution may be to sell the home and use the proceeds to pay off all or part of the mortgage this strategy can help those behind on their payments to avoid bankruptcy for some selling the home may be the least worst option it can help those who have fallen behind on their payments to dodge the long term consequences of bankruptcy once in default depending on the jurisdiction and other factors the house could be seized as an asset anyway forbearance consolidation and debt reliefsome debts may qualify for forbearance a temporary relief that allows borrowers to pause or reduce payments because of financial hardship while this option can give you time to recover financially interest will continue to accrue during the forbearance period deferment choices also exist particularly for federal student loans for borrowers who are unemployed or whose income is too low to make payments it s best to communicate with lenders once events have affected your ability to cover your loan payments before your problems build further if you hold several federal student loans credit cards or other types of loans consolidation might be an option worth exploring consolidation combines separate debts into one loan typically with a fixed interest rate and a single monthly payment this could extend your repayment period and reduce the amount due for individual monthly payments the downside is that you will likely end up paying more in interest over the life of the loan an alternative to consolidation is debt relief not to be confused with federal debt forgiveness proposals using the same name 8 rather it s when a company negotiates with your creditors on your behalf debt relief or debt settlement is generally offered by for profit companies that charge a fee if they successfully get your creditors to reduce the total amount of your debt alternatively credit counseling agencies usually nonprofit firms can advise you on financial management and debt control while helping to restructure your debt payment schedule these agencies work with your creditors to lower your interest rates or waive certain fees including those for late payments and collections activities so your monthly debt payments are more manageable however they typically can t reduce how much is left of the debt you owe 2 | |
what is a grace period when repaying loans | a grace period is a set time after the due date when a payment can be received without penalty not all loans offer grace periods and terms can vary among lending institutions and the loan type if a loan has a grace period making a payment within this window can help you avoid late fees although interest may still accrue this is not to be confused with a loan moratorium which is a more extended period like deferment or forbearance when your lender allows you to stop making payments while you get your financial house in order | |
what is a replacement cost | replacement cost is a term referring to the amount of money a business must currently spend to replace an asset like a fixture a machine a vehicle or an equipment at current market prices sometimes referred to as a replacement value a replacement cost may fluctuate depending on factors such as the market value of components used to reconstruct or repurchase the asset and the expenses involved in preparing assets for use insurance companies routinely use replacement costs to determine the value of an insured item the practice of calculating a replacement cost is known as replacement valuation replacing an asset can be an expensive decision and companies analyze the net present value npv of the future cash inflows and outflows to make purchasing decisions once an asset is purchased the company determines a useful life for the asset and depreciates the asset s cost over the useful life investopedia daniel fishelunderstanding replacement costsas part of the process of determining what asset is in need of replacement and what the value of the asset is companies use a process called net present value to make a decision about an expensive asset purchase companies first decide on a discount rate which is an assumption about a minimum rate of return on any company investment a business then considers the cash outflow for the purchase and the cash inflows generated based on the increased productivity of using a new and more productive asset the cash inflows and outflow are adjusted to present value using the discount rate and if the net total of all present values is a positive amount the company makes the purchase the cost to replace an asset can change depending on variations in the market value of the asset and other costs needed to get the asset ready for use special considerations | |
when calculating the replacement cost of an asset a company must account for depreciation costs a business capitalizes an asset purchase by posting the cost of a new asset to an asset account and the asset account is depreciated over the asset s useful life the cost of the asset includes all costs to prepare the asset for use such as insurance costs and the cost of setup | some assets are depreciated on a straight line basis meaning the cost of the asset is divided by the useful life to determine the annual depreciation amount other assets are depreciated on an accelerated basis so more depreciation is recognized in the early years and less in later years the total depreciation expense recognized over the asset s useful life is the same regardless of which method is used given the cost of replacing expensive assets well managed firms create a capital expenditure budget to plan for both future asset purchases and for how the firm will generate cash inflows to pay for the new assets budgeting for asset purchases is critical because replacing assets is required to operate the business a manufacturer for example budgets for equipment and machine replacement and a retailer budgets to update the look of each store | |
how do insurance companies calculate replacement cost | replacement cost is calculated as the cost of the materials and labor to replace or restore damaged property to the quality and condition before it was damaged this does not include value lost to depreciation or changes in the market value of that property due to fluctuations in supply and demand 1 | |
what is the difference between replacement cost and cash value | replacement cost and actual cash value are two methods that insurers use to estimate the value of damaged property replacement cost is defined as the cost of restoring the property to the pre damage condition regardless of the actual value of that property actual cash value refers to the monetary value of the property measured as replacement cost minus depreciation 2 | |
what is replacement cost coverage | in insurance replacement cost coverage is a policy that covers the full cost of your property in the event of a covered casualty rather than just the cash value for example if a storm causes damage to your home that is covered by a replacement cost policy the insurer will reimburse the full cost of repairing your property to the pre damage condition whether it is decades old or brand new in contrast an actual cost policy is likely to reduce the payout for property that has lost value due to age or depreciation 3the bottom linein business a replacement cost is the cost of restoring or replacing an asset that has been sold or damaged this may be different from the cash value of that asset due to factors like depreciation and market fluctuations | |
what is a replacement rate | a replacement rate is the percentage of a worker s pre retirement income that is paid out by a pension program after the worker retires in pension systems that pay workers substantially different payouts based on their differing incomes the replacement rate is a common measurement that can be used to determine the effectiveness of the pension system more generally a retirement replacement rate is the percentage of a person s pre retirement income that will be needed for the person to maintain the desired standard of living after retiring the calculation should be based on all sources of income including social security pension retirement savings plan and any other sources understanding replacement ratesthe replacement rate also referred to as the income replacement rate serves as a way to measure the percentage of a worker s current income that a particular pension based retirement plan can be expected to produce replacement rates are commonly mentioned in the debate over the u s social security system under social security law replacement rates should target about 40 of the replacement rate for the average retiree 1 as some workers have retirement plans or benefits beyond the social security benefit this replacement rate may only be one portion of the funds available at retirement income replacement needs vary from individual to individual the amount requires an analysis of the standard of living the person wishes to maintain and an understanding of the costs required to maintain that standard for example if two employees earn the same annual pay of 100 000 but one requires 45 000 per year to maintain the desired standard of living while the other requires 60 000 the replacement rates for those individuals will be 45 and 60 respectively replacement rates and pensionspension plans also referred to as defined benefit plans provide a specified benefit to employees often these calculations are based on the number of years each employee has worked for the organization allowing for a certain percentage of replacement rate credit per year of service upon retirement an eligible employee can receive benefits calculated based on the total earned replacement rate as compared to the average annual salary received over a particular period of time while these types of pensions can be offered by a variety of organizations they are more commonly seen today in the public sector such as government employees instead of the private sector | |
what is a representative sample | a representative sample is a subset of a population that seeks to accurately reflect the characteristics of the larger group for example a classroom of 30 students with 15 males and 15 females could generate a representative sample that might include six students three males and three females samples are useful in statistical analysis when population sizes are large because they contain smaller manageable versions of the larger group investopedia danie drankwalterunderstanding representative samplessampling is used in statistical analysis methodologies to gain insights and observations about a population group statisticians can use a variety of sampling methods to build samples that seek to meet the goals of their research studies representative samples are one type of sampling method this method uses stratified random sampling to help identify its components other methods can include random sampling and systematic sampling a representative sample seeks to choose components that match with key characteristics in the entire population being examined statisticians can choose the representative characteristics that they feel best meet their research goals typically representative sample characteristics are focused on demographic categories some examples of key characteristics can include sex age education level socioeconomic status and marital status generally the larger the population being examined the more characteristics that may arise for consideration types of sampling methodschoosing a sampling method can depend on a variety of factors representative samples are usually an ideal choice for sampling analysis because they are expected to yield insights and observations that closely align with the entire population group | |
when a sample is not representative it can be known as a random sample while random sampling is a simplified sampling approach it comes with a higher risk of sampling error which can potentially lead to incorrect results or strategies that can be costly random sampling can choose its components completely at random such as choosing names randomly from a list using the classroom example again a random sample could include six male students | systematic sampling is another type of sampling method that seeks to systemize its components this type of sampling may include choosing every fifth person from a population list to gather a sample while this method takes a systematic approach it is still likely to result in a random sample stratified random samplingstratified random sampling can be an important part of the process in creating a representative sample stratified random sampling examines the characteristics of a population group and breaks down the population into what is known as strata dividing out the population by strata helps an analyst to easily choose the appropriate number of individuals from each stratum based on proportions of the population while this method is more time consuming and often more costly as it requires more upfront information the information yielded is typically of higher quality one example of representative sampling is the american community survey an annual study of the nation s key demographic characteristics in order to ensure a representative sample the census bureau stratifies the population according to county living situation and other demographic features this ensures that the sampled population is an accurate snapshot of the population as a whole 1special considerationsa representative sample is generally expected to yield the best collection of results representative samples are known for collecting results insights and observations that can be confidently relied on as a representation of the larger population being studied as such representative sampling is typically the best method for marketing or psychology studies while representative samples are often the sampling method of choice they do have some barriers oftentimes it is impractical in terms of time budget and effort to collect the data needed to build a representative sample using stratified random sampling researchers must identify characteristics divide the population into strata and proportionally choose individuals for the representative sample in general the larger the population target to be studied the more difficult representative sampling can be this method can be especially difficult for an extremely large population such as an entire country or race when dealing with large populations it can also be difficult to obtain the desired members for participation for example individuals who are too busy to participate will be under represented in the representative sample understanding the pros and cons of both representative sampling and random sampling can help researchers select the best approach for their specific study | |
what is the best way to avoid sampling bias | the simplest way to avoid sampling bias is to use a simple random sample where each member of the population has an equal chance of being included in the sample while this type of sample is statistically the most reliable it is still possible to get a biased sample due to chance or sampling error | |
how do you ensure a representative sample | in order to ensure that their are sampling an accurate cross section of the population researchers will sometimes use systematic or stratified sampling methods to ensure that the sample resembles the known features of the population for example if the subject population is 55 male and 45 female they will deliberately choose a sample that is 55 male note that this method requires the researchers to have a certain level of certainty about the population being sampled | |
what are the downsides of representative sampling | like other statistical tools representative sampling can sometimes produce biased or inaccurate results moreover the time and cost of creating a representative sample may be prohibitive especially if the population is spread out over a wide geographical area there may also be self selection bias if some members of the sample fail to respond to the researchers attempts to make contact the bottom linea representative sample is a statistical snapshot that is used to make inferences about a wider population while it is possible to get accurate results from a simple random sample a representative sample is one that shares the same demographic characteristic of the larger population these samples are more difficult to create but can lead to more accurate analysis especially for a large study | |
what is repudiation | repudiation involves disputing the validity of a contract and refusing to honor its terms in investing repudiation is most relevant in fixed income securities particularly sovereign debt fixed income instruments are fundamentally contracts where the borrower lends a certain amount of principal in return for payments of interest and principal on a preset schedule understanding repudiationrepudiation occurs if the borrower refuses to honor this contract and stops making the agreed upon payments with fixed income instruments it is always possible that the borrower may default dispute the validity of the contract or otherwise refuse to pay if the borrower repudiates the contract the corresponding investors may lose their entire investment unless they can recourse against the borrower in the case of sovereign debt however there is often not any method of recourse against the borrowing nation in the context of repudiation it may be that the repudiating party is unwilling or unable to perform its obligations under a contract repudiation is seen to be quite a serious matter and the court requires a clear indication that a party is unready or unwilling to perform the contract when repudiation occurs before the actual breach of a contract it can be referred to as an anticipatory breach the simplest method of repudiation is when a party comes right out and admits that they are unwilling or unable to perform their obligations under the contract a party s conduct can also amount to an act of repudiation whether a party repudiates or not is an objective test undertaken by the court making it a complex situation in the legal world each matter is considered individually put simply determining repudiation requires a detailed review of the actual terms of the contract and the obligations of each party and then the conduct and statements of the parties if you wrongfully form the view that the other party has repudiated the contract and terminate the contract based on this and you are not entitled to do so you could be held to have actually repudiated the contract yourself it s then critical that you analyze the circumstances carefully types of repudiationthere are essentially three main types of repudiation that a party can make when pulling out of an agreement or contract are transferring the deed to the property that is the subject of the deal such as a home or building a verbal repudiation when one party unconditionally refuses to stand by the contract or when one party takes an action that makes it unable for the other party to perform or follow up on the contract or agreement all three types are ways to breach a contract that is recognizable in the eyes of the law 1responding to repudiationthe party on the receiving end of repudiation i e the party not pulling out of the contract should be careful and ensure they respond appropriately if one party believes another party has repudiated the contract the innocent party may repudiation itself does not terminate a contract it simply allows the innocent party to determine how they want to proceed such a party should either accept the repudiation or continue the performance of the contract without actually meaning to in many cases termination is the only way forward to responding to repudiation since continuing the contract may mean losing money or property repudiation is a complex area of law and each case is taken on its own merits by the courts and involves a deep dive review of the situation and the contract repudiation vs rescindrepudiation occurs when one party decided to terminate a contract made with another party by letting them know they cannot for whatever reason honor the contract agreement when a contract is rescinded it means the contract is terminated by a court of law usually due to an error in the contract itself or because the other party has behaved badly or conducted unlawful business on behalf of the other party in short repudiation occurs by a party a rescission happens in a court of law example of repudiationsay a buyer finds a house they love and makes an offer on it the seller contacts their sales agent arranges to meet the buyer and their agent and all parties agree on the price offered for the home a contract is drawn up with contingencies for a home inspection after the inspection occurs the seller decides they do not want to sell their home after all the seller lets the buyer s agent know that they want out of the contract this is an act of repudiation in the real estate industry the contract is then breached and the seller will most likely have to return any earnest money given to them by the buyer | |
what is non repudiation | nonrepudiation is often used in communications and technology fields and means that no one party can deny it sent or received messages nor deny the authorship or authenticity of a document or signature | |
what is repudiation of a credit default swap | the repudiation of a credit default swap is when one party disputes the validity of a contract between a creditor and borrower | |
how do you accept repudiation | if you believe your party on a contract has repudiated the contract you can terminate the contract as an acceptance of the repudiation or you may simply continue with the contract | |
how do you prove repudiation | an unconditional reusable is the reputation of a contract if one party refuses to perform what a contract promises it is a breach of contract so if you are in a contract and the second party does not follow the outline of the contract you could take them to court for a breach of contract the courts recognize three forms of repudiation an unconditional refusal to follow the contract agreement taking an action that makes it impossible for the contract to stand or the second party to perform or the transference of property that is the subject of a contract for example in the sale of a home promised to another buyer | |
a repurchase agreement repo is a form of short term borrowing for dealers in government securities for a repo a dealer sells government securities to an investor usually overnight and buys them back the following day at a slightly higher price the small price difference is an implicit overnight interest rate repos are typically used to raise short term capital they are also commonly used in central bank open market operations during the early 2020s the federal reserve instituted changes that massively increased the volume of repos traded a trend it began to unwind in 2023 | the party selling the security and agreeing to repurchase it later is involved in a repo meanwhile the party buying the security and agreeing to sell it back is engaged in a reverse repurchase agreement or reverse repo 1the language around repos gets abstract even dry very fast but the daily work of finance is done through and with these mostly overnight flows it s a crucial issue for anyone interested in the market to watch since it s about nothing less than the liquidity of the capital markets that run our economy investopedia katie kerpelunderstanding repurchase agreementsin recent years the federal reserve has significantly increased its involvement in the repo market establishing the standing repo facility srf and the overnight reverse repo facility on rrp has given it powerful tools for managing liquidity in american short term funding markets repurchase agreements are safe investments because the securities involved typically treasury bonds federal agency mortgage backed securities mbs and others are the collateral classified as a money market instrument a repo is thus a short term collateral backed interest bearing loan the buyer acts as a short term lender while the seller is a short term borrower 23repurchase agreements are made between a variety of parties the u s federal reserve uses repos to regulate the money supply and bank reserves individuals typically use them to finance the purchase of debt securities or other investments repurchase agreements are strictly short term investments and their maturity period is called the rate the term or the tenor 3despite some similarities with collateralized loans repos count as purchases however because the buyer only temporarily owns the security these agreements are usually treated as loans for tax and accounting purposes 4 when there s a bankruptcy repo investors can generally sell their collateral this distinguishes repos from collateralized loans bankrupt investors would be subject to an automatic stay for most collateralized loans 5repurchase agreement examplesuppose a bank needs a quick cash injection it agrees with an investor who offers to give it the money it needs so long as it pays it back quickly with interest in the meantime the bank also puts up collateral in return at issue in the agreement are treasury bonds the bank sells them to the investor with a deal that it will repurchase them very soon at a slight premium the treasury bonds serve as collateral the bank temporarily relinquishes control of the bonds for the cash it needs 6 then at a preset time the bank receives them back by paying back the money it received plus a little extra difference between repurchase and reverse repo agreementsa reverse repo agreement is the inverse of a repurchase agreement every trade has two parties the buyer and the seller whether it s a repo agreement or a reverse repo agreement depends on which side of the trade you are on it s a repo transaction for the party initially selling the security with the agreement to repurchase it for the investor buying the security under the stipulation of selling it back shortly it s a reverse repo agreement in other words a reverse repo is the seller of a repurchase agreement 7reverse repos are commonly used by financial institutions as a form of short term lending and by central banks to reduce the money supply a repo puts money into the banking system a reverse repo meanwhile borrows money from the system when there is too much liquidity 8for example the fed used reverse repos to inject liquidity into the economy in 2020 the height of the covid 19 pandemic and then engaged in reverse repos as part of its quantitative tightening in the years that followed 910term vs open repurchase agreementsthe major difference between a term and an open repo lies in the time between the sale and the repurchase of the securities repos with a specific maturity date usually the following day though it can be up to a week are term repurchase agreements 11 a dealer sells securities to a counterparty who agrees to repurchase them at a higher price on a given date under the agreement the counterparty gets the securities for the transaction term and earns interest through the difference between the initial sale price and the buyback price the interest rate is fixed and is paid at maturity by the dealer a term repo is used to invest cash or finance assets when the parties know how long they need to do so an open repurchase agreement or on demand repo works the same way as a term repo except that the dealer and the counterparty agree to the transaction without setting the maturity date instead either party can end the trade by giving notice to the other before an agreed upon deadline that arises daily if an open repo is not closed it automatically rolls over into the next day 12 interest is paid monthly and the interest rate is periodically repriced by mutual agreement 13the interest rate on an open repo is generally close to the federal funds rate 1415 an open repo is used to invest cash or finance assets when the parties do not know how long they will need to do so but most open agreements conclude within one to two years 16the significance of the tenorrepos with longer tenors time until maturity are usually considered higher risk a longer tenor means that more can happen which affects the repurchaser s ability to do so also interest rate fluctuations are more likely to influence the value of the repurchased asset this is like those factors that affect bond interest rates under normal credit market conditions a longer duration bond yields higher interest investors buy long term bonds as part of a wager that interest rates won t rise substantially during the term a tail event is more likely to drive interest rates above forecast ranges when there s a longer duration if there is a period of high inflation the interest paid on bonds preceding that period will be worth less in real terms the same principles apply to repos the longer the term of the repo the more likely the collateral securities value will fluctuate before the repurchase and business activities can affect the repurchaser s ability to complete the contract counterparty credit risk is primary in repos as with any loan the creditor bears the risk that the debtor won t repay the principal repos function as collateralized debt which reduces the total risk and because the repo price exceeds the collateral s value these agreements tend to be mutually beneficial 17types of repurchase agreementsthere are three main types of repurchase agreements also known as a tri party repo this is the most common in this arrangement involving three entities a clearing agent or bank conducts the transactions between the buyer and seller and protects the interests of each it holds the securities and ensures that the seller receives cash at the onset that the buyer transfers funds for the benefit of the seller and that the securities are delivered at maturity clearing banks for tri party repos in the u s include jpmorgan chase co jpm and bank of new york mellon bny in addition to taking custody of the securities involved clearing agents also value the securities and ensure that a set margin is applied they settle the transaction on their books and help dealers with collateral 18 however clearing banks don t act as matchmakers they don t find dealers for cash investors or vice versa and they don t broker the deals typically clearing banks begin to settle repos early in the day although they re not technically settled until the end of the day this delay usually means that billions of dollars of intraday credit are extended to dealers daily these agreements are about 80 of the repurchase agreement market which stood at about 3 65 trillion in january 2024 19specialized repos have a bond guarantee at the beginning of the agreement and at maturity along with the collateral this type of agreement is uncommon in this kind of agreement the seller gets cash for the security but holds it in a custodial account for the buyer this type is even less common than specialized delivery repos because there is a risk that the seller may become insolvent and the borrower may not have access to the collateral near and far legslike many parts of the financial world repurchase agreements involve terminology not common elsewhere one common term in the repo space is the leg for instance the part of the repurchase agreement in which the security is initially sold is sometimes called the start leg while the repurchase that follows is the close leg these terms are also sometimes exchanged for near leg and far leg respectively in the near leg of a repo transaction the security is sold in the far leg it is repurchased 16 in the table below we give you a help cheat sheet to check for these and other terms significance of the repo rate | |
when the fed banks repurchases securities from private banks it does so at a discounted rate known as the repo rate like prime rates repo rates are set by central banks 20 the repo rate system allows the fed to control the money supply by increasing or decreasing available funds | an increase in repo rates means banks pay more for the money they borrow from the central bank this squeezes lenders profits and increases interest rates on loans made to the public this generally discourages people and businesses from taking out loans which can cut consumer spending business investment and the amount of money circulating in the economy this might be necessary if the central bank is attempting to tackle inflation a decrease in the repo rates has the opposite effect it makes borrowing cheaper resulting in more money being spent and swirling around the economy this can be helpful when central banks want to stimulate the economy to determine the costs and benefits of a repurchase agreement a buyer or seller makes three different calculations the cash paid for the initial security sale and paid for the repurchase will depend on the value and type of security in the repo in the case of a bond for instance both will derive from the clean price and the value of the accrued interest for the bond a crucial calculation for any repo agreement is the implied rate of interest if interest rates are unfavorable a repo agreement may not be the most efficient way to access short term cash a formula that can be used to calculate the real rate of interest is below interest rate future value present value 1 year number of days between consecutive legsonce the real interest rate has been calculated comparing the rate against other funding sources should reveal whether the repurchase agreement is a good deal generally as a secured form of lending repurchase agreements offer better terms than money market cash lending agreements from the perspective of a reverse repo participant the agreement can also produce extra income on excess cash reserves risks of reporepurchase agreements are low risk the most significant risk in a repo is that the seller may fail to repurchase the securities at the maturity date when this happens the security buyer may liquidate the security to recover the cash it paid 21this still constitutes a risk since the security value may decline after the initial sale and the buyer may have few options other than to hold onto the security which it never wanted for this purpose or sell it for a loss the borrower also faces some risk if the security value rises above the agreed upon terms the creditor may not return the security there are ways to mitigate these risks in repurchase agreements for instance many repos are over collateralized in these cases if the collateral falls in value a margin call will require the borrower to amend the securities offered if it seems likely that the security value may rise and the creditor may not sell it back to the borrower under collateralization can be used to mitigate this risk 17generally credit risk for repurchase agreements depends on many factors including the terms of the transaction the liquidity of the security and the needs of the counterparties involved the financial crisis and the repo marketafter the 2008 financial crisis investors focused on a particular type of repo known as repo 105 there was speculation that these repos played a part in lehman brothers attempts at hiding its declining financial health leading up to the crisis 22 during this time the repo market in the u s and abroad shrunk significantly though it has since recovered and continues to grow 19the crisis revealed problems with the repo market in general since then the federal reserve has stepped in to analyze and mitigate systemic risk the fed identified at least three areas of concern starting in late 2008 the fed and other regulators established new rules to address these and other concerns the new regulations increased pressure on banks to maintain their safest assets such as treasurys giving them incentives not to lend them through repos 23despite these and other regulatory changes over the last decade there are still systemic risks within the repo space the fed continues to worry that a default by a major repo dealer could inspire a fire sale among money funds which would then negatively affect the broader market the future of the repo space may involve continuing regulations that limit the actions of these transactors or it may involve a shift toward a centralized clearinghouse system for the time being though repurchase agreements remain an important means of facilitating short term borrowing 2recent changes in the repo marketthe results from the fed s post 2008 actions were significant up through late 2008 the estimated value of global securities lent this way was close to 4 trillion that figure hovered near 2 trillion for much of the next decade 12by the 2020s the fed was increasingly entering into repurchase or reverse repurchase agreements to offset temporary swings in bank reserves the major jump comes from 2021 to 2023 when there was a major boost in the estimated value of repos traded peaking at about 4 7 trillion in june 2023 before settling back to under 4 0 trillion by the end of that year 19until 2021 the fed was a relatively minor player in repos when a sudden jump in fed actions put it at the center of the market on rrp agreements grew from about 1 trillion in the spring of 2021 to 2 7 trillion in assets by december 2022 24 by 2023 the repo market was about three times larger than at the beginning of 2021 with the fed serving as the critical counterparty for most of these transactions the significant rise in repo volumes can be attributed to several prominent changes within the market and the broader economy the pandemic set off a rush for safe assets driven by the period s extensive economic uncertainties in july 2021 the federal open market committee fomc established the srf as a backstop in the money markets the srf was intended to smooth liquidity in the repo market further and provide a dependable source of cash in exchange for safe investments like government bonds it soon became a crucial part of how major financial institutions across the u s managed their short term liquidity needs 25 meant as a supplement it replaced much of the market under the srf eligible institutions could borrow money overnight from the federal reserve using securities such as treasury bonds as collateral the interest rate on these loans known as the repo rate is set by the fomc and is generally above the market rate ensuring the srf is used as a backstop rather than a primary funding source 25 concurrently the fed s increase in bond holdings a measure to improve market liquidity was part of its broader monetary policy to stabilize and support the economy however from mid 2022 through 2023 the fed wound down these holdings under a policy known as quantitative tightening marking a shift from its earlier expansionary monetary stance 2627 pulling back its efforts to support the economy by this time inflation was a critical worry the fed sought to decrease the size of its balance sheet reducing the fed s balance sheet mainly involves cuts in three crucial areas of federal reserve liabilities deposits of the u s treasury deposits of banks known as reserves and deposits of money market funds at the fed through the on rrp 24 the size of its part in the repo market would be easier to cut given that the fed has less control over the other two as the fed sought to decrease its balance sheet on rrp made the most sense to pull back although bank reserves were to play a vital role in future cuts to the fed s balance sheet scaling back the on rrp is generally regarded as less disruptive to the monetary system than cuts to bank reserves the combination of pandemic driven economic uncertainty the establishment of the srf increased bond holdings quantitative tightening and regulatory changes led to a significant increase in the federal reserve s involvement in repo transactions this resulted in the fed becoming a critical counterparty in the repo market with the market size tripling from the beginning of 2021 to 2023 changes in the on rrp should cause a move away from the fed as a primary counterparty toward the private sector as its overnight repo sales continue downward however the capacity of the private repo market to handle much higher volumes in the mid 2020s and beyond is in some doubt 2426 the fed s active participation has significantly increased the repo market s size and it s unknown if the private sector could adjust to step in for the fed s increased role in the repo market the signs are positive the first quarter of 2024 saw a return to may 2021 on rrp levels about 327 billion with the private market absorbing the lost liquidity from the fed 28 money market funds have been adjusting their strategies significant providers of cash to the repo market they have increased their private repo lending volumes especially above the on rrp rates that said the jury is still out if the private markets can make up for the massive place the fed filled in this area in the early 2020s who benefits in a repurchase agreement in theory all parties benefit the seller gets the cash injection it needs while the buyer gets to make money from lending capital who buys repurchase agreements the sellers of repo agreements can be banks hedge funds insurance companies money market mutual funds and any other entity in need of a short term infusion of cash on the other side of the trade the buyers are commercial banks central banks asset managers with temporary cash surpluses and so on 21 | |
which types of securities are used in a repo agreement | high quality debt instruments with little risk of default are most commonly used such as government bonds corporate bonds or mortgage backed securities the collateral needs to have a predictable value reflect the value of the loan and be easy to sell in the event the loan isn t repaid on time the collateral doesn t need to be debt other assets can be used including for example equity market indexes 29the bottom linea repurchase agreement or repo is a short term lending instrument that involves a bank selling securities usually government bonds or other debt instruments with steady values to an investor and then repurchasing them a short time later at a slightly higher price repos essentially act as short term collateral backed interest bearing loans with the buyer playing the role of lender the seller as the borrower and the security as the collateral in the 2020s the u s federal reserve became a significant player in the repo market its reverse repo facility put a floor underneath short term rates through this the fed takes in cash from eligible firms in loans collateralized with treasurys it holds in the mid 2020s the fed has been slowly shrinking its bond holdings and also its part in the repo market after a massive move into it during the pandemic era | |
what is reputational risk | reputational risk is a threat or danger to the good name or standing of a business or entity reputational risk can occur in the following ways in addition to having good governance practices and transparency companies need to be socially responsible and environmentally conscious to avoid or minimize reputational risk understanding reputational riskreputational risk is a hidden danger that can pose a threat to the survival of the biggest and best run companies often the risk results in outcomes not easily measured however it can adversely affect a company s profitability and valuation it can wipe out millions or billions of dollars in market capitalization or potential revenues and can occasionally result in a change at the uppermost levels of management reputational risk can also arise from the actions of errant employees such as egregious fraud or massive trading losses disclosed by some of the world s biggest financial institutions in an increasingly globalized environment reputational risk can arise even in a peripheral region far away from home base in some instances reputational risk can be mitigated through prompt damage control measures which is essential in this age of instant communication and social media networks in other instances this risk can be more insidious and last for years for example gas and oil companies have been increasingly targeted by activists because of the perceived damage to the environment caused by their extraction activities it can be a time intensive process to monitor for online activity such as negative reviews that can jeopardize a company s reputation online reputation management orm software can help companies track what consumers say about a brand on review sites social media and search engines many of these solutions allow you to use one dashboard to look at and respond to reviews example of reputational riskreputational risk exploded into full view in 2016 when the scandal involving the opening of millions of unauthorized accounts by retail bankers and encouraged or coerced by certain supervisors was exposed at wells fargo 1the ceo john stumpf and others were forced out or fired regulators subjected the bank to fines and penalties and a number of large customers reduced suspended or discontinued altogether doing business with the bank 2 wells fargo s reputation was tarnished and the company has had to rebuild its reputation and its brand 3 | |
what is a request for quote rfq | a request for quote rfq also known as an invitation for bid ifb is a process in which a company solicits select suppliers and contractors to submit price quotes and bids for the chance to fulfill certain tasks or projects the rfq process is especially important to businesses that need a consistent supply of a specific number of standard products companies may send rfqs alone or before a request for proposal rfp | |
how requests for a quote work | an rfq is usually the first step in submitting a request for proposal rfp these two documents are similar as they provide details of the project or services required but rfqs generally ask for a more comprehensive price quote also businesses usually design rfqs for generic products in which the quantity needed is known and rfps are for unique niche projects where quantities and specifications are unknown in addition to pricing rfqs may include details such as payment terms factors that could influence a company s bid selection submission deadline and the like a government agency that wants to buy 500 computers with a specific hard drive size and processing speed for example would send an rfq to several vendors as prospective bidders because the rfq format is uniform within a given company when the rfqs come back with price quotes the soliciting company may compare them easily typically an rfq process consists of four sections the preparation phase the processing phase the awarding phase and the closing phase the company generally will award the contract to the vendor that meets the minimum qualifying criteria and presents the lowest bid special considerationsrfqs are not public announcements because the soliciting company sends rfqs only to businesses that it trusts it does not need to prepare lengthy procurement documentation also unlike a public solicitation a company can get back only the number of bids that it requested which also saves time using an rfq reduces the amount of time needed to procure goods or services it also offers a degree of security as a company will receive bids only from vendors it prefers on the other hand because rfqs reduce the amount of competition a company may miss receiving the lowest available price or learning about new high quality vendors | |
what is a request for quote rfq | a request for quote rfq also known as an invitation for bid ifb is a process in which a company solicits select suppliers and contractors to submit price quotes and bids for the chance to fulfill certain tasks or projects the rfq process is especially important to businesses that need a consistent supply of a specific number of standard products companies may send rfqs alone or before a request for proposal rfp | |
how requests for a quote work | an rfq is usually the first step in submitting a request for proposal rfp these two documents are similar as they provide details of the project or services required but rfqs generally ask for a more comprehensive price quote also businesses usually design rfqs for generic products in which the quantity needed is known and rfps are for unique niche projects where quantities and specifications are unknown in addition to pricing rfqs may include details such as payment terms factors that could influence a company s bid selection submission deadline and the like a government agency that wants to buy 500 computers with a specific hard drive size and processing speed for example would send an rfq to several vendors as prospective bidders because the rfq format is uniform within a given company when the rfqs come back with price quotes the soliciting company may compare them easily typically an rfq process consists of four sections the preparation phase the processing phase the awarding phase and the closing phase the company generally will award the contract to the vendor that meets the minimum qualifying criteria and presents the lowest bid special considerationsrfqs are not public announcements because the soliciting company sends rfqs only to businesses that it trusts it does not need to prepare lengthy procurement documentation also unlike a public solicitation a company can get back only the number of bids that it requested which also saves time using an rfq reduces the amount of time needed to procure goods or services it also offers a degree of security as a company will receive bids only from vendors it prefers on the other hand because rfqs reduce the amount of competition a company may miss receiving the lowest available price or learning about new high quality vendors | |
what is a required minimum distribution rmd | a required minimum distribution rmd is the amount of money that must be withdrawn annually from certain employer sponsored retirement plans like 401 k s and certain individual retirement accounts iras such as the traditional ira rmds must be taken by april 1 after you turn 73 years old you must calculate and withdraw the correct rmd every year after that or face a penalty from the internal revenue service irs 1 rmds do not apply to roth accounts until after the account owner dies 2investopedia nono floresunderstanding required minimum distributions rmds as noted above a required minimum distribution is the minimum amount of money required to be withdrawn from certain retirement accounts these accounts include 401 k s traditional iras simplified employee pension sep iras and simple iras the money must be taken by april 1 the year after you turn 73 the correct amount must be withdrawn or you will face a penalty rmds are determined by dividing the fair market value fmv of the retirement account in the prior year end using the applicable distribution period or life expectancy 3 your account custodian can tell you what your rmd is or you can calculate it on your own using irs worksheets make sure that you re using the latest worksheets because the tables are updated to reflect life expectancy changes different situations call for different tables for example if you have a non roth ira and the account s sole beneficiary is your spouse and your spouse is more than 10 years younger than you you will need to use a different table than other account holders 4for traditional ira account holders the rmd calculation involves three steps if you don t need the funds from your rmd to live and your income meets the requirements you could use the rmd to contribute to a roth ira special considerationsthere are circumstances when the rmd rules noted above don t apply for instance if the owner of a roth account a 401 k or an ira dies rmds don t need to be taken until after they die 1some qualified plans allow certain participants to defer the start of their rmds until they retire even if they are over 73 this deferment rule generally applies to plans at the workplace where they are currently employed not to iras or qualified plans from previous employers these qualified plan participants should also check with their employers to determine if they are eligible for this deferral older workers who must take rmds from non roth accounts may find themselves in higher taxable income brackets however there are a few strategies like state tax loopholes that they may take to reduce the impact of this rmd boost in annual income while an account holder must withdraw the rmd amount they can also choose to withdraw more than that amount if the account holder wants to withdraw 100 of their account in the first year that s perfectly legal but the tax bill could be a bit of a shock rmd rules can be complex so it s important to review irs publication 590 b distributions from individual retirement arrangements iras when making decisions regarding your distributions from an inherited ira different rules apply to inherited iras for instance however if the account owner died after dec 31 2019 you need to follow the rmd rules established by the secure act these rules distinguish between eligible designated and non designated beneficiaries the timeframe and calculation of your rmd can vary greatly depending on which of these categories define you as a beneficiary some designated beneficiaries may be required to withdraw the entire account balance by the 10th calendar year following the year of the account owner s post 2019 death whereas some non designated beneficiaries may be required to withdraw the entire account balance within five years of the account owner s death 63these rules effectively eliminate the stretch ira an estate planning strategy that some beneficiaries of inherited iras had used in the past to extend the tax deferred benefits of an ira 1if you have multiple iras you may aggregate the rmd amounts for each of them and then withdraw the total from one or a portion of the total from each 7example of a required minimum distribution rmd you must withdraw your rmd from the relevant retirement savings account s by dec 31 every year funds can be withdrawn periodically throughout the year or you can wait until the year s end to earn the maximum interest on your funds here s an example bob a retirement account holder turned 74 on oct 1 his ira was worth 205 000 on dec 31 of the prior year to calculate the annual amount to be withdrawn that prior dec 31 balance is divided by the distribution factor from the relevant irs table that means bob divides 205 000 by 25 5 which is the distribution period from the latest uniform lifetime table for a 74 year old there are other tables for beneficiaries of retirement accounts and account holders with much younger spouses 35rmd 205 000 25 5 8 039 21 begin aligned text rmd frac 205 000 25 5 8 039 21 end aligned rmd 25 5 205 000 8 039 21 divide 205 000 by 25 5 and you get 8 039 22 that s the minimum amount bob needs to withdraw from his retirement account in the current year to avoid a fine there are some other things bob should keep in mind let s suppose bob has multiple iras this means the rmd for each account must be calculated separately depending on the types of accounts involved in this scenario bob may have to take rmds from each account rather than a total amount for all rmds from one account 1fortunately you probably don t need to worry about calculating the minimum amount to withdraw each year generally the custodian of the account can calculate your rmd for you | |
when do rmds start | at present individuals must start taking required minimum distributions from qualified retirement accounts at age 73 prior to 2023 the rmd age was 72 before 2020 it was 70 | |
are rmd distributions taxed | yes you are responsible for a deferred tax liability because rmds are withdrawn from retirement accounts that had contributions made with pre tax dollars you must pay income tax on rmds when they are taken at your current tax bracket | |
what if i don t take rmds | if you are over age 73 and choose not to take your rmd you will be penalized by the irs the amount not withdrawn will be subject to a 25 tax before the secure 2 0 act was passed in 2022 this was a 50 penalty 8 according to the irs the penalty drops to 10 if the rmd is timely corrected within two years 9 | |
when do you have to start taking ira distributions | a traditional ira follows the rmd rule so you need to start taking distributions at age 73 roth iras and roth 401 k s do not have rmds 101 | |
why does the irs impose rmds | an rmd acts as a safeguard against people using a retirement account to avoid paying taxes because traditional iras and non roth 401 k plans use pre tax dollars the irs imposes rmds to prevent individuals from avoiding paying the deferred tax liability owed on those contributions the bottom linethe rmd rule is in place to prevent individuals from avoiding the deferred tax liability owed on their retirement contributions still most people start withdrawing from their retirement accounts before they must start taking rmds because they need the money they live off their retirement funds rmds begin at age 73 and are calculated by dividing the retirement account s prior year end fair market value by a life expectancy factor published by the irs failure to take rmds as currently required results in a 25 penalty fortunately the irs publishes a worksheet that makes it very easy to calculate how much you must take out each year however other factors can be a bit tricky such as what to do with multiple iras and how rmds work when the retirement account holder passes away and the funds are inherited be sure to do your tax time research and stay abreast of what you need to do | |
what is required rate of return rrr | the required rate of return rrr is the minimum return an investor will accept for owning a company s stock as compensation for a given level of risk associated with holding the stock the rrr is also used in corporate finance to analyze the profitability of potential investment projects the rrr is also known as the hurdle rate which like rrr denotes the appropriate compensation needed for the level of risk present riskier projects usually have higher hurdle rates or rrrs than those that are less risky investopedia jessica olah2 methods to calculate the required rate of return rrr there are a couple of ways to calculate the required rate of return either using the dividend discount model ddm or the capital asset pricing model capm the choice of model used to calculate the rrr depends on the situation for which it is being used if an investor is considering buying equity shares in a company that pays dividends the dividend discount model is ideal a popular variation of the dividend discount model is also known as the gordon growth model the dividend discount model calculates the rrr for equity of a dividend paying stock by utilizing the current stock price the dividend payment per share and the forecasted dividend growth rate the formula is as follows rrr expected dividend payment share price forecasted dividend growth rateto calculate rrr using the dividend discount model another way to calculate rrr is to use the capital asset pricing model capm which is typically used by investors for stocks that do not pay dividends the capm model of calculating rrr uses the beta of an asset beta is the risk coefficient of the holding in other words beta attempts to measure the riskiness of a stock or investment over time stocks with betas greater than 1 are considered riskier than the overall market often represented by a benchmark equity index such as the s p 500 in the u s or the tsx composite in canada whereas stocks with betas less than 1 are considered less risky than the overall market the formula also uses the risk free rate of return which is typically the yield on short term u s treasury securities the final variable is the market rate of return which is typically the annual return of the s p 500 index the formula for rrr using the capm model is as follows rrr risk free rate of return beta x market rate of return risk free rate of return to calculate rrr using the capm | |
what does the required rate of return tell you | the required rate of return rrr is a key concept in equity valuation and corporate finance it s a difficult metric to pinpoint due to the different investment goals and risk tolerances of individual investors and companies risk return preferences inflation expectations and a company s capital structure all play a role in determining the company s own required rate each one of these and other factors can have major effects on a security s intrinsic value for investors using the capm formula the required rate of return for a stock with a high beta relative to the market should have a higher rrr the higher rrr relative to other investments with low betas is necessary to compensate investors for the added level of risk associated with investing in the higher beta stock in other words rrr is in part calculated by adding the risk premium to the expected risk free rate of return to account for the added volatility and subsequent risk for capital projects rrr is useful in determining whether to pursue one project versus another the rrr is what s needed to go ahead with the project although some projects might not meet the rrr but are in the long term best interests of the company to accurately calculate the rrr and make it more meaningful the investor must also consider their cost of capital as well as the return available from other competing investments in addition inflation must also be factored into rrr analysis so as to obtain the real or inflation adjusted rate of return example of rrr using the dividend discount model ddm a company is expected to pay an annual dividend of 3 next year and its stock is currently trading at 100 a share the company has been steadily raising its dividend each year at a 4 growth rate example of rrr using the capital asset pricing model capm in the capital asset pricing model capm rrr can be calculated using the beta of a security or risk coefficient as well as the excess return that investing in the stock pays over a risk free rate called the equity risk premium assume the following let s say company a has a beta of 1 50 meaning that it is riskier than the overall market which has a beta of 1 to invest in company a rrr 14 or 2 1 50 x 10 2 company b has a beta of 0 50 which implies that it is less risky than the overall market to invest in company b rrr 6 or 2 0 50 x 10 2 thus an investor evaluating the merits of investing in company a versus company b would require a significantly higher rate of return from company a because of its much higher beta required rate of return vs cost of capitalalthough the required rate of return is used in capital budgeting projects rrr is not the same level of return that s needed to cover the cost of capital the cost of capital is the minimum return needed to cover the cost of debt and equity issuance to raise funds for the project the cost of capital is the lowest return needed to account for the capital structure the rrr should always be higher than the cost of capital limitations of the required rate of returnthe rrr calculation does not factor in inflation expectations since rising prices erode investment gains however inflation expectations are subjective and can be wrong also the rrr will vary between investors with different risk tolerance levels a retiree will have a lower risk tolerance than an investor who recently graduated college as a result the rrr is a subjective rate of return rrr does not factor in the liquidity of an investment if an investment can t be sold for a period of time the security will likely carry a higher risk than one that s more liquid also comparing stocks in different industries can be difficult since the risk or beta will be different as with any financial ratio or metric it s best to utilize multiple ratios in your analysis when considering investment opportunities | |
what is the difference between the internal rate of return and the required rate of return | the internal rate of return looks at the investment s annual growth rate stating that an investment should be pursued if this rate is greater than the minimum required rate of return | |
should the required rate of return be high or low | the inherent risks of an investment or project are determined through its required rate of return and thus a high rrr indicates higher risks while a low rrr implies minimal risks | |
what is considered a good return on an investment | a good return on investment is generally considered to be approximately 7 per year or higher which is also the average annual return of the s p 500 adjusting for inflation | |
what is a requisition | a requisition is a demand or request for a service or item typically using a purchase requisition form or another standardized document the requisition process is a standardized way of keeping track of and accounting for all requisitions made within a business | |
how a requisition works | a requisition initiates the request for a specific action and also records that action for subsequent reporting needs for example employees within a company would use a purchase requisition if they needed additional supplies at one time requisitions were done via paper forms but most companies now use digital requisition processes that enable easier process tracking including accounting for relevant inventory these types of requisitions often automatically update the inventory for better control a formalized requisition process improves efficiency and accountability across all points of contact compared to an approach where employees take supplies anytime the purchase requisition provides a more controlled and documented method for managing internal supply inventories and future demand in the medical profession doctors complete a requisition form when requesting lab tests these digital forms include the patient id and other medical information assuring patients receive correct lab tests standardized requisition formsrequisition forms typically include line items such as the the forms generally also include the signature of the individual fulfilling the request and the date completed in large corporations with multiple locations and centralized purchasing these requisition processes are critical for maintaining employee productivity another example of a requisition process occurs within the world of finance when shareholders choose to requisition a company s board of directors to take a vote on proposed resolutions at its essence a requisition process is a formalized documented procedure key to improving efficiencies within a business setting purchase requisition vs purchase ordera purchase requisition is an internal form used for procuring goods and services and has no legal or binding contractual obligations a company s internal purchase requisition form is for employees who wish to request supplies for their departments or themselves frequently these forms require managerial signoff a purchase order is a contractual agreement companies use when ordering goods and services from an external vendor for example a company ordering supplies from an office store will issue a purchase order detailing the items purchased their prices payment terms delivery dates and any special discounts for early payment example of a requisitionto better understand the requisition process consider the following example a health insurance company s learning and development team needs new supplies for its training program the team lead must request these supplies through the company s automated requisition system the lead searches a catalog and selects an assortment of products for the team after completing the requisition form it is submitted to management for approval the manager reviews and approves it then sends the request to the purchasing department like the manager the purchasing department reviews and approves the requisition if errors are present or if not enough information is included the request may be returned to the manager or the requestor for updates in this example no errors or omissions were found so a purchase order was created the purchase order lists the specifics of the order such as the product type and the quantity needed once final the purchase order is sent to the supplier for fulfillment the supplier receives the order and if accepted contracts with the purchaser for the products requested the purchase order serves as the contract the supplier delivers the products as requested and receives payment special considerationspurchase to pay systems p2p streamline and automate companies requisition and procurement processes three main processes are cared for by these systems requisitioning purchasing and payment by automating these processes purchase to pay systems increase efficiency and accuracy in accounting purchase to pay systems can reduce costs by approximately 80 1the automated process begins with requisitioning users are presented with a catalog of products or services items are then selected and saved in a shopping cart the requisition is routed to management for approval and once received the system moves to the purchasing process and then finalized once payment is made to the vendor | |
what is requisitioned property | requisitioned property is property taken by the government such as with eminent domain in the u s the fifth amendment requires the government to compensate the owner of seized property for the property s full market value 2 | |
what is a job requisition | a job requisition is a formal request to hire someone for a job the requisition contains the job details including desired candidate qualifications role requirements and job details some companies also post the target salary or salary range in the requisition | |
what is requisition reconciliation in accounting | requisition reconciliation in accounting is the process by which two sets of records are compared for accuracy completeness and consistency the comparison will help identify and explain discrepancies under generally accepted accounting principles gaap the required double entry accounting method helps to pinpoint when and where errors exist the bottom linea requisition is a formal request for a product or service and can be submitted manually or electronically a structured requisition process improves a business s efficiency and accountability procure to pay systems fully automate the procurement process from requisition to payment further increasing accuracy and efficiency | |
what is a research analyst | a research analyst is a professional who prepares investigative reports on securities or assets for in house or client use other titles for this function include securities analyst investment analyst equity analyst rating analyst or simply analyst the work conducted by a research analyst is in an effort to inquire into examine find or revise facts principles and theories for internal use by a financial institution or an external financial client the report an analyst prepares entails the examination of public securities records of companies or industries and often concludes with a buy sell or hold recommendation if a research analyst is involved with an investment bank or a securities firm controlled by a member organization of the financial industry regulatory authority finra they may be required to register with a self regulatory organization sro and or take certain exams 1the basics of being a research analystresearch analysts are usually divided into two groups buy side and sell side analysts a buy side brokerage research analyst is typically employed by an asset management company and recommends securities for investment to the money managers of the fund that employs them the research of a sell side investment firm analyst tends to be sold to the buy side sell side research is also given to clients for free for consideration in an attempt to win business for example such research can be used to promote companies a buy side analyst usually works for institutional investors such as hedge funds pension funds or mutual funds buy side research analysts are often considered more professional academic and reputable compared to the sell side sell side research jobs are often likened to marketing and sometimes pay higher salaries 2buy side analysts will determine how promising an investment seems and how well it coincides with the fund s investment strategy sell side analysts are those who issue recommendations of strong buy outperform neutral or sell research analysts can work at a variety of companies such as at asset management companies investment banks insurance companies hedge funds pension funds brokerages or any business that needs to crunch data to spot trends or decide on a valuation make an investment decision or forecast the outlook of a company or asset according to glassdoor the average base salary for a research analyst is 90 838 ranging anywhere between 68 000 and 125 000 3research analyst qualificationscompanies that employ research analysts sometimes require a master s degree in finance or a chartered financial analyst cfa designation on top of several regulatory hurdles research analysts might be required to take the series 86 87 exams if they are involved with a member organization 1other required securities licenses often include the series 7 general securities representative license and the series 63 uniform securities agent license 4 finra licenses are typically associated with the selling of specific securities as a firm s registered representative investment analysts may also seek to obtain the chartered financial analyst cfa certification 5financial analyst vs research analystfinancial firms in the united states do not really present a unified definition of either of these job titles some financial analysts are really just researchers who collect and organize market data while others put together specific proposals for securities investments with large institutional clients similarly some research analysts are glorified marketing specialists while others apply socioeconomic or political insights and are probably better classified as management consultants it s possible to narrow the differences between research analysts and financial analysts generally speaking financial analysts focus on analyzing investments and market performance they rely on a fundamental understanding of business valuation and economic principles to create reports and make recommendations they are the behind the scenes experts research analysts occupy a less prescriptive role than financial analysts instead of looking through the lens of broad economic principles they focus more on mathematical models to produce objective answers about historical data financial analysts collect and analyze data but always within the context of a prior deductive understanding of how markets should function their thinking is systemic and particularly at more senior levels subjective research analysts tend to be operations focused give a research analyst a series of inputs and they can calculate the most efficient way to maximize output if the research analyst works in the securities business it s likely that recommendations may be made based on some predetermined criteria | |
what do you need to become a research analyst | research analysts gather analyze and work with data to prepare reports for internal use by a financial institution or an external financial client for this work strong mathematics and statistics skills are required typically a research analyst will have a bachelor s degree in a business related field and a master s degree in finance or a chartered financial analyst s certification may be required depending on the requirements of their job they also may need to gain securities licenses | |
what is a research analyst s salary | in 2024 the average base salary for a research analyst is 90 838 anad ranges anywhere between 68 000 and 125 000 according to glassdoor 3 | |
is a research analyst a stressful job | it can be being a research analyst requires constant learning problem solving and good communication skills there also may be tight deadlines complex challenges and high expectations which can make this type of work pressured and stressful the bottom lineresearch analysts are finance professionals who analyze securities data to make recommendations to their own firms or outside clients they may be buy side or sell side analysts which are distinguished by what types of companies they work for qualifications may include a master s degree in finance or certification as a chartered financial analyst cfa sometimes they may be required to take certain tests for licensure base salaries hover around 90 000 | |
what is research and development r d | research and development r d is the series of activities that companies undertake to innovate r d is often the first stage in the development process that results in market research product development and product testing understanding research and development r d the concept of research and development is widely linked to innovation both in the corporate and government sectors r d allows a company to stay ahead of its competition without an r d program a company may not survive on its own and may have to rely on other ways to innovate such as engaging in mergers and acquisitions m a or partnerships through r d companies can design new products and improve their existing offerings r d is distinct from most operational activities performed by a corporation the research and or development is typically not performed with the expectation of immediate profit instead it is expected to contribute to the long term profitability of a company r d may often allow companies to secure intellectual property including patents copyrights and trademarks as discoveries are made and products created companies that set up and employ departments dedicated entirely to r d commit substantial capital to the effort they must estimate the risk adjusted return on their r d expenditures which inevitably involves risk of capital that s because there is no immediate payoff and the return on investment roi is uncertain as more money is invested in r d the level of capital risk increases other companies may choose to outsource their r d for a variety of reasons including size and cost companies across all sectors and industries undergo r d activities corporations experience growth through these improvements and the development of new goods and services pharmaceuticals semiconductors and software technology companies tend to spend the most on r d in europe r d is known as research and technical or technological development many small and mid sized businesses may choose to outsource their r d efforts because they don t have the right staff in house to meet their needs types of research and development r d there are several different types of r d that exist in the corporate world and within government the type used depends entirely on the entity undertaking it and the results can differ there are business incubators and accelerators where corporations invest in startups and provide funding assistance and guidance to entrepreneurs in the hope that innovations will result that they can use to their benefit m as and partnerships are also forms of r d as companies join forces to take advantage of other companies institutional knowledge and talent one r d model is a department staffed primarily by engineers who develop new products a task that typically involves extensive research there is no specific goal or application in mind with this model instead the research is done for the sake of research this model involves a department composed of industrial scientists or researchers all of who are tasked with applied research in technical scientific or industrial fields this model facilitates the development of future products or the improvement of current products and or operating procedures the largest companies may also be the ones that drive the most r d spend for example amazon has reported 1 147 billion of research and development value on its 2023 annual report 1advantages and disadvantages of r dthere are several key benefits to research and development it facilitates innovation allowing companies to improve existing products and services or by letting them develop new ones to bring to the market because r d also is a key component of innovation it requires a greater degree of skill from employees who take part this allows companies to expand their talent pool which often comes with special skill sets the advantages go beyond corporations consumers stand to benefit from r d because it gives them better high quality products and services as well as a wider range of options corporations can therefore rely on consumers to remain loyal to their brands it also helps drive productivity and economic growth one of the major drawbacks to r d is the cost first there is the financial expense as it requires a significant investment of cash upfront this can include setting up a separate r d department hiring talent and product and service testing among others innovation doesn t happen overnight so there is also a time factor to consider this means that it takes a lot of time to bring products and services to market from conception to production to delivery because it does take time to go from concept to product companies stand the risk of being at the mercy of changing market trends so what they thought may be a great seller at one time may reach the market too late and not fly off the shelves once it s ready facilitates innovationimproved or new products and servicesexpands knowledge and talent poolincreased consumer choice and brand loyaltyeconomic driverfinancial investmenttakes timeshifting market trendsr d accountingr d may be beneficial to a company s bottom line but it is considered an expense after all companies spend substantial amounts on research and trying to develop new products and services as such these expenses are often reported for accounting purposes on the income statement and do not carry long term value there are certain situations where r d costs are capitalized and reported on the balance sheet some examples include but are not limited to r d considerationsbefore taking on the task of research and development it s important for companies and governments to consider some of the key factors associated with it some of the most notable considerations are research and development vs applied researchbasic research is aimed at a fuller more complete understanding of the fundamental aspects of a concept or phenomenon this understanding is generally the first step in r d these activities provide a basis of information without directed applications toward products policies or operational processes applied research entails the activities used to gain knowledge with a specific goal in mind the activities may be to determine and develop new products policies or operational processes while basic research is time consuming applied research is painstaking and more costly because of its detailed and complex nature r d tax creditsthe irs offers a r d tax credit to encourage innovation and significantly reduction their tax liability the credit calls for specific types of spend such as product development process improvement and software creation enacted under section 41 of the internal revenue code this credit encourages innovation by providing a dollar for dollar reduction in tax obligations the eligibility criteria expanded by the protecting americans from tax hikes path act of 2015 now encompass a broader spectrum of businesses the credit tens to benefit small to midsize enterprises 2to claim r d tax credits businesses must document their qualifying expenses and complete irs form 6765 credit for increasing research activities the credit typically ranging from 6 to 8 of annual qualifying expenses offers businesses a direct offset against federal income tax liabilities additionally businesses can claim up to 250 000 per year against their payroll taxes 3example of research and development r d one of the more innovative companies of this millennium is apple inc as part of its annual reporting it has the following to say about its research and development spend 4in 2023 apple reported having spent 29 915 billion this is 8 of their annual total net sales note that apple s r d spend was reported to be higher than the company s selling general and administrative costs of 24 932 billion 4note that the company doesn t go into length about what exactly the r d spend is for according to the notes the company s year over year growth was driven primarily by increases in headcount related expenses however this does not explain the underlying basis carried from prior years i e materials patents etc 4 | |
what is research and development | research and development refers to the systematic process of investigating experimenting and innovating to create new products processes or technologies it encompasses activities such as scientific research technological development and experimentation conducted to achieve specific objectives to bring new items to market | |
what types of activities can be found in research and development | research and development activities focus on the innovation of new products or services in a company among the primary purposes of r d activities is for a company to remain competitive as it produces products that advance and elevate its current product line since r d typically operates on a longer term horizon its activities are not anticipated to generate immediate returns however in time r d projects may lead to patents trademarks or breakthrough discoveries with lasting benefits to the company | |
why is research and development important | given the rapid rate of technological advancement r d is important for companies to stay competitive specifically r d allows companies to create products that are difficult for their competitors to replicate meanwhile r d efforts can lead to improved productivity that helps increase margins further creating an edge in outpacing competitors from a broader perspective r d can allow a company to stay ahead of the curve anticipating customer demands or trends the bottom linethere are many things companies can do in order to advance in their industries and the overall market research and development is just one way they can set themselves apart from their competition it opens up the potential for innovation and increasing sales however it does come with some drawbacks the most obvious being the financial cost and the time it takes to innovate | |
what are research and development r d expenses | research and development r d expenses are associated directly with the research and development of a company s goods or services and any intellectual property generated in the process a company generally incurs r d expenses in the process of finding and creating new products or services as a common type of operating expense a company may capitalize r d expenses understanding research and development expensesresearch and development is a systematic activity that combines basic and applied research to discover solutions to new or existing problems or to create or update goods and services when a company conducts its own r d it often results in the ownership of intellectual property in the form of patents or copyrights that result from discoveries or inventions an essential component of a company s research and development arm is its direct r d expenses which can range on a spectrum from relatively minor costs to several billions of dollars for large research focused corporations companies in the industrial technological health care and pharmaceutical sectors usually have the highest levels of r d expenses some companies for example those in technology reinvest a significant portion of their profits back into research and development as an investment in their continued growth large companies have also been able to conduct r d through acquisition by investing in or subsidizing some of those smaller companies costs or acquiring them outright real world example of r d expensestech companies rely heavily on their research and development capabilities so they have relatively outsized r d expenses in a constantly changing environment it s important for such a company to remain on the bleeding edge of innovation for example meta meta formerly facebook invests heavily in the research and development of products such as virtual reality and predictive ai chatbots 3 these endeavors allow meta to diversify its business and find new growth opportunities as technology continues to evolve meta s 2014 acquisition of oculus rift is an example of r d expenses through acquisition 4 meta already had the internal resources necessary to build out a virtual reality division but by acquiring an existing virtual reality company it was able to expedite the time it took them to develop this capability reasons to conduct r dbusinesses conduct r d for many reasons the first and foremost being new product research and development before any new product is released into the marketplace it goes through significant research and development phases which include a product s market opportunity cost and production timeline after adequate research a new product enters the development phase where a company creates the product or service using the concept laid out during the research phase some companies use r d to update existing products or conduct quality checks in which a business evaluates a product to ensure that it is still adequate and discusses any improvements if the improvements are cost effective they will be implemented during the development phase | |
what is a research associate | a research associate typically works within a research department of an investment bank or asset management firm to provide helpful data to the decision makers who buy and sell securities for the firm a research associate can plan organize and conduct research about industries sectors individual companies markets various investment vehicles and economics understanding the role of investment researchmost large investment banks have in house research departments that support their sales and trading efforts a sell side firm may have several research groups according to the company s different investment products for example stocks corporate bonds derivatives and so on a firm s research professionals provide critical decision making information to its salesmen and traders that substantiate the financial products they sell to institutional investors a firm s research often provides specific buy sell and hold recommendations along with their rationale a key product of a research department is its written research whether that takes the form of scrawled notes to the trading desk or a formal published research report along with appropriate financial models that goes out to the buy side usually it s a combination of both and each format plays a specific role in providing time sensitive analysis that supports decision making | |
what does a research associate do | a research associate s responsibilities can vary depending on the size and needs of the organization the end purpose of the job however is to provide helpful information to the decision makers a research associate could gather data from primary and secondary sources organize and analyze this material and draft outlines for their superiors if an equity research associate has had at least one year of experience at the firm they might begin to conduct fundamental company analysis with the goal of generating actionable information from the data a research associate can become an expert in specific areas or be utilized as a generalist to cover a broad range of products markets and industries a firm s research department provides critical time sensitive analyses of companies industries markets asset classes and economics to decision makers and traders on both the buy and sell sides job skills and requirementsbecause the end product of a research department is written research it s critical that a research associate be able to write well the role usually requires a bachelor s or master s degree in economics business or finance as well as facility with numbers and the ability to distill large amounts of data and communicate it effectively to others other skills would come into play as the individual advances in the role of research associate for example if they end up attending client meetings they might need good listening notetaking and intersocial abilities if they travel for pre initial public offering ipo roadshows they would need good presentation and sales skills and so on career path of a research associatedepending on an organization s hierarchical structure a research associate can be at the same level as a research assistant or above it and at the same level or below a research analyst the research associate generally spends at least two years at that level before moving up the ladder whether to a senior research associate role or research analyst position most organizations place the analyst position above the associate position by accumulating more experience a research associate can climb vertically toward becoming a senior analyst or research director or they may move laterally inside or outside an organization inside the company for example a seasoned research professional who does not aspire to become head of research could move to a product group in a marketing role or to a different part of the firm altogether it s also not unheard of for a research associate to decide that they prefer trading instead of research in the case of a research associate on the sell side a career jump to the buy side as an analyst also could offer potential advancement | |
what is a research report | a research report is a document prepared by an analyst or strategist who is a part of the investment research team in a stock brokerage or investment bank a research report may focus on a specific stock or industry sector a currency commodity or fixed income instrument or on a geographic region or country research reports generally but not always have actionable recommendations such as investment ideas that investors can act upon understanding research reportsresearch reports are produced by a variety of sources ranging from market research firms to in house departments at large organizations when applied to the investment industry the term usually refers to sell side research or investment research produced by brokerage houses such research is disseminated to the institutional and retail clients of the brokerage that produces it research produced by the buy side which includes pension funds mutual funds and portfolio managers is usually for internal use only and is not distributed to external parties financial analyst research reportsfinancial analysts may produce research reports for the purpose of supporting a particular recommendation such as whether to buy or sell a particular security or whether a client should consider a particular financial product for example an analyst may create a report in regards to a new offering being proposed by a company the report could include relevant metrics regarding the company itself such as the number of years they have been in operation as well as the names of key stakeholders along with statistics regarding the current state of the market in which the company participates information regarding overall profitability and the intended use of the funds can also be included research report impactenthusiasts of the efficient market hypothesis emh might insist that the value of professional analysts research reports is suspect and that investors likely place too much confidence in the conclusions such analysts make while a definitive conclusion about this topic is difficult to make because comparisons are not exact some research papers do exist which claim empirical evidence supporting the value of such reports one such paper studied the market for india based investments and analysts who cover them the paper was published in the march 2014 edition of the international research journal of business and management its authors concluded that analyst recommendations do have an impact and are beneficial to investors at least in short term decisions conflicts of interestwhile some analysts are functionally unaffiliated others may be directly or indirectly affiliated with the companies for which they produce reports unaffiliated analysts traditionally perform independent research to determine an appropriate recommendation and may have a limited concern regarding the outcome affiliated analysts may feel best served by ensuring any research reports portray clients in a favorable light additionally if an analyst is also an investor in the company on which the report is based he may have a personal incentive to avoid topics that may result in a lowered valuation of the securities in which he has invested | |
what is the reserve bank of india rbi | the reserve bank of india rbi is the central bank of india which began operations on apr 1 1935 under the reserve bank of india act the reserve bank of india uses monetary policy to create financial stability in india and it is charged with regulating the country s currency and credit systems understanding the reserve bank of india rbi located in mumbai the rbi serves the financial market in many ways the bank sets the overnight interbank lending rate the mumbai interbank offer rate mibor serves as a benchmark for interest rate related financial instruments in india the main purpose of the rbi is to conduct consolidated supervision of the financial sector in india which is made up of commercial banks financial institutions and non banking finance firms initiatives adopted by the rbi include restructuring bank inspections introducing off site surveillance of banks and financial institutions and strengthening the role of auditorsfirst and foremost the rbi formulates implements and monitors india s monetary policy the bank s management objective is to maintain price stability and ensure that credit is flowing to productive economic sectors the rbi also manages all foreign exchange under the foreign exchange management act of 1999 this act allows the rbi to facilitate external trade and payments to promote the development and health of the foreign exchange market in india 2the rbi acts as a regulator and supervisor of the overall financial system this injects public confidence into the national financial system protects interest rates and provides positive banking alternatives to the public finally the rbi acts as the issuer of national currency for india this means that currency is either issued or destroyed depending on its fit for current circulation this provides the indian public with a supply of currency in the form of dependable notes and coins a lingering issue in india the current governor is shri shaktikanta das and he has four deputy governors that report to him directly 3reserve bank of india departmentsthe reserve bank of india has a number of departments each of which have a very specific purpose an entire list of departments can be found on the reserve bank of india s site some of the key departments within the reserve bank of india along with what that department does includes but isn t limited to reserve bank of india operationsthe rbi was originally set up as a private entity but it was nationalized in 1949 the reserve bank is governed by a central board of directors appointed by the national government the government has always appointed the rbi s directors and this has been the case since the bank became fully owned by the government of india as outlined by the reserve bank of india act directors are appointed for a period of four years 5according to its website the current focus of the rbi is to continue its increased supervision of financial institutions while dealing with legal issues related to bank fraud and consolidated accounting and attempting to create a supervisory rating model for its banks 5reserve bank of india and communicationthe reserve bank of india acknowledges the pivotal role that communication plays in modern central banking on its website it emphasizes a collegial approach to monetary policy decision making the reserve bank of india s communication policy adheres to guiding principles of relevance transparency clarity comprehensiveness and timeliness with the aim of enhancing public understanding of developments across its various domains 6in its medium term vision statement titled utkarsh 2022 the rbi delineates objectives including excellence in statutory functions enhanced public trust increased relevance nationally and globally transparent governance modern infrastructure and a skilled workforce strategies to achieve these objectives involve consolidating past gains leveraging emerging opportunities and addressing future challenges through tangible time bound milestones 6the rbi commits to reviewing its communication policy every three years reflecting its recognition of communication as a dynamic process crucial for effective central banking operations 6 | |
how does the rbi regulate banks and financial institutions in india | the rbi regulates banks and financial institutions in india through various measures such as licensing and supervision setting capital adequacy norms and conducting inspections and audits the rbi is also the governing body responsible for issuing regulatory guidelines and directives | |
what are the primary objectives of the rbi as outlined in the reserve bank of india act of 1934 | the primary objectives of the rbi as outlined in the reserve bank of india act 1934 include regulating the issuance of banknotes maintaining monetary stability operating the currency and credit system to the country s advantage and fostering economic growth | |
what are the key initiatives and strategies outlined in the rbi s medium term vision statement | the rbi s medium term vision statement outlines key initiatives and strategies aimed at achieving excellence in statutory functions strengthening public trust and enhancing relevance nationally and globally it also is currently aiming to ensure transparent governance modernize infrastructure and foster a skilled workforce the bottom linethe reserve bank of india is the central banking institution in india responsible for formulating and implementing monetary policy regulating and supervising the banking and financial system and managing the issuance and circulation of currency it plays a crucial role in maintaining financial stability not just for the country for the broader global economy | |
what is a reserve currency | a reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments transactions and international debt obligations or to influence their domestic exchange rate a large percentage of commodities such as gold and oil are priced in the reserve currency causing other countries to hold this currency to pay for these goods understanding reserve currencyholding a reserve currency minimizes exchange rate risk as the purchasing nation will not have to exchange its currency for the current reserve currency to make the purchase since 1944 the u s dollar has been the primary reserve currency used by other countries as a result foreign nations closely monitor the monetary policy of the united states to ensure that the value of their reserves is not adversely affected by inflation or rising prices |
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