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how the u s dollar became the world s reserve currency | the post war emergence of the u s as the dominant economic power had enormous implications for the global economy at one time u s gross domestic product gdp which is a measure of the total output of a country represented 50 of the world s economic output as a result it made sense that the u s dollar would become the global currency reserve in 1944 following the bretton woods agreement delegates from 44 nations formally agreed to adopt the u s dollar as an official reserve currency since then other countries pegged their exchange rates to the dollar which was convertible to gold at the time because the gold backed dollar was relatively stable it enabled other countries to stabilize their currencies in the beginning the world benefited from a strong and stable dollar and the united states prospered from the favorable exchange rate on its currency the foreign governments did not fully realize that although gold reserves backed their currency reserves the united states could continue to print dollars that were backed by its debt held as u s treasuries as the united states printed more money to finance its spending the gold backing behind the dollars diminished the increase monetary supply of dollars went beyond the backing of gold reserves which reduced the value of the currency reserves held by foreign countries the gold to dollar decouplingas the united states continued to flood the markets with paper dollars to finance its escalating war in vietnam and the great society programs the world grew cautious and began to convert dollar reserves into gold the run on gold was so extensive that president nixon was compelled to step in and decouple the dollar from the gold standard which gave way to the floating exchange rates that are in use today soon after the value of gold tripled and the dollar began its decades long decline continued faith in the u s dollareven with de dollarization the u s dollar remains the world s currency reserve the status is due primarily to the fact that countries accumulated so much of it and that it was still the most stable and liquid form of exchange backed by the safest of all paper assets u s treasuries the dollar is still the most redeemable currency for facilitating world commerce for this reason it s highly unlikely the u s dollar will experience a collapse any time soon the euro introduced in 1999 is the second most commonly held reserve currency in the world according to the international monetary fund imf which is charged with promoting global growth and trade central banks hold more than 6 7 trillion in dollar reserves versus 2 2 trillion in euros as of q4 2019 1 | |
what is a reserve fund | a reserve fund is a savings account or other highly liquid asset set aside by an individual or business to meet any future costs or financial obligations especially those arising unexpectedly if the fund is set up to meet the costs of scheduled upgrades less liquid assets may be used for example a homeowner s association often manages a reserve fund to help maintain the community and its amenities using the dues paid by homeowners | |
how a reserve fund works | a reserve fund sets aside money for covering scheduled routine and unscheduled expenses that would otherwise be drawn from a general fund governments financial institutions and private households may establish reserve funds although the fund size may vary the typical goal is to deposit funds regularly in an account that accrues interest thereby increasing the fund s value while not in use because expenses may arise unexpectedly a reserve fund is typically kept in a highly liquid account such as a savings account in pension funds for example money is invested on behalf of a fund s members and later paid out during retirement when working employees sign up for a pension fund they put money into a reserve fund that is used to ensure money is available for other employees who signed up to receive a payout when they retire reserve funds for condominiums or hoashomeowners associations and condominiums often use reserve funds in the event of large scale maintenance or renovation projects as well as for any costly community emergencies reserve funds are typically managed in tandem with operating funds which more commonly fund the community s day to day expenses or recurring costs such as housekeeping taxes insurance and utilities condo communities and hoas typically establish and maintain the funds using the dues or hoa fees paid by owners to cover maintenance repairs and other expenses incurred by the community the community association s board usually oversees the funds and decides how to allocate its use for example rather than tapping into the operating fund the board may use part of the reserve fund money to cover biannual insurance payments if a condominium incurs a large expense that the reserve fund cannot cover each member or owner may pay an assessment to cover the cost for example when a condominium s parking garage needs emergency repairs unit owners may be asked for additional funds beyond their regular association dues reserve studies and managing reserve fundsthe best way to avoid a special assessment is to ensure the building s reserve fund is well equipped with enough money to handle expenses including those that are unexpected often hoa boards determine how much money should go into their reserve fund supply via a reserve study where independent consultants assess the state of a property and make recommendations for the reserve fund based on physical and financial analysis the experts consider the age of the property its current state and the amenities it provides as well as project maintenance costs that may be needed in the future because condominiums or hoas do not always fully fund their reserves the final figure determined by a reserve study is only a recommendation the implications of a poorly managed reserve fund can translate to higher dues or assessments for members of a community association so potential buyers should investigate the efficacy of a particular hoa or condominium community before purchasing a home under its jurisdiction | |
what is a reserve price | common to auctions a reserve price or a reservation price is the minimum amount that a seller will accept as the winning bid alternatively it is less commonly known as the highest price a buyer is willing to pay for a good or service the reserve price prevents a bidder who offers a price lower than what the owner will accept from winning the auction the point at which the buyer and seller are no longer willing to negotiate is the walk away point the auction s starting price tends to start lower than the reserve price to encourage bidding a reserve price is not to be confused with an opening bid which is the suggested starting bid for an auction understanding reserve pricereserve prices are intended to protect the owner of an auctioned item from an unfavorable outcome on sites like ebay the reserve price is hidden and until the reserve is met the system will show reserve not met | |
when the reserve price is met the system will display reserve met once a bidder submits a bid that has met the reserve price the bid is binding obligating the buyer to purchase the auction item or service and obligating the seller to sell the item or service | sellers can disclose the reserve price in their descriptions or upon request from potential buyers some auction bidders are opposed to reserve prices because they reduce the possibility of winning the auction at a bargain price and because they create uncertainty as to the minimum price that must be paid to win the auction some auction companies and sites e g ebay allow sellers to set reserve prices for an additional fee as it is considered an optional feature and some allow for the reserve price to be changed while an auction is active if changes are allowed the seller can only reduce the reserve price when a reserve price is disallowed such as with an absolute auction owners are typically prohibited from bidding on their items as doing so would allow them to manipulate the process all auctions are not the same the parties to an auction should thus carefully review the rules and guidelines before entering into a selling agreement or submitting bids reserve price vs opening bidoftentimes the reserve price and the opening price bid are used interchangeably however they are not the same while the reserve price is the minimum price a seller is willing to accept the opening bid is the amount suggested to start bidding bidders are not obligated to accept the opening bid and if an item receives no bids the auctioneer will lower the starting opening bid price if an opening bid is too high it may cause bidders to become disinterested even if the item price is subsequently lowered it s like listing a residential property for sale if the price is too high many potential buyers become disinterested and regaining their interest is difficult even when the price is lowered therefore professional auctioneers suggest starting with a lower starting bid to gain interest once bidders are interested and begin bidding they are invested and will likely continue until a higher price is secured example of a reserve pricefor example an ohio auction house has scheduled an auction to liquidate the equipment from a bankrupt manufacturing firm one item on auction is a stamping press used to shape sheets of steel into automotive body panels the auction firm sets a reserve price of 250 000 based on the recommendation of the bankruptcy trustee but opens the bidding at 100 000 after several bidders bring the price to 175 000 a firm that once competed with the bankrupt parts maker bids 200 000 for the press no one else offers a higher bid and the auctioneer removes the press from the auction because the reserve price is unmet can bidders see the reserve price it depends on the auction some auctions allow the reserve price to be known while others do not check the guidelines of the auction you are bidding at in auctions where the reserve price is not known bidders can still see if it has been met or not | |
what is a buyer s reservation price | in addition to sellers having a reserve price at an auction which is the minimum amount they are willing to sell the item buyers also have a reserve price the reserve price for a buyer is the maximum they are willing to bid on an item for | |
what happens if the reserve price is not met | at an auction if the reserve price is not met then the item will not be sold this can be a waste of time for a buyer since bidding happens yet not at levels acceptable to the seller the bottom linein an auction a seller can implement a reserve price which is the minimum amount they are willing to sell the item for if the reserve price is not met by a bidder then the seller has no obligation to sell the item | |
what is the reserve ratio | the reserve ratio is the portion of reservable liabilities that commercial banks must hold onto rather than lend out or invest this is a requirement determined by the country s central bank which in the united states is the federal reserve it is also known as the cash reserve ratio the minimum amount of reserves that a bank must hold on to is referred to as the reserve requirement and is sometimes used synonymously with the reserve ratio the reserve ratio is specified by the federal reserve board s regulation d regulation d created a set of uniform reserve requirements for all depository institutions with transaction accounts and requires banks to provide regular reports to the federal reserve investopedia crea taylorthe formula for the reserve ratio reserve requirement deposits reserve ratio begin aligned text reserve requirement text deposits times text reserve ratio end aligned reserve requirement deposits reserve ratio as a simplistic example assume the federal reserve determined the reserve ratio to be 11 this means if a bank has deposits of 1 billion it is required to have 110 million on reserve 1 billion x 11 110 million during the pandemic of 2020 the federal reserve reduced the reserve requirements to 0 1 | |
what does the reserve ratio tell you | the federal reserve uses the reserve ratio as one of its key monetary policy tools the fed may choose to lower the reserve ratio to increase the money supply in the economy a lower reserve ratio requirement gives banks more money to lend at lower interest rates which makes borrowing more attractive to customers conversely the fed increases the reserve ratio requirement to reduce the amount of funds banks have to lend the fed uses this mechanism to reduce the supply of money in the economy and control inflation by slowing the economy down the fed also sets reserve ratios to ensure that banks have money on hand to prevent them from running out of cash in the event of panicked depositors wanting to make mass withdrawals if a bank doesn t have the funds to meet its reserve it can borrow funds from the fed to satisfy the requirement banks must hold reserves either as cash in their vaults or as deposits with a federal reserve bank on oct 1 2008 the federal reserve began paying interest to banks on these reserves 2 this rate was referred to as the interest rate on required reserves iorr there was also an interest rate on excess reserves ioer which is paid on any funds a bank deposits with the federal reserve in excess of their reserve requirement on july 19 2021 the iorr and ioer were replaced with a new simplified measure the interest on reserve balances iorb 3 as of 2022 the iorb rate is 0 10 u s commercial banks are required to hold reserves against their total reservable liabilities deposits which cannot be lent out by the bank reservable liabilities include net transaction accounts nonpersonal time deposits and eurocurrency liabilities reserve ratio guidelinesthe board of governors of the federal reserve has the sole authority over changes in reserve requirements within limits specified by law as of march 26 2020 the reserve requirement was set at 0 1 that s when the board eliminated the reserve requirement due to the global financial crisis 4 this means that banks aren t required to keep deposits at their reserve bank instead they can use the funds to lend to their customers 4the last time the fed updated its reserve requirements for different depository institutions before the pandemic was in january 2019 banks with more than 124 2 million in net transaction accounts were required to maintain a reserve of 10 of net transaction accounts banks with more than 16 3 million to 124 2 million needed to reserve 3 of net transaction accounts banks with net transaction accounts of up to 16 3 million or less were not required to have a reserve requirement the majority of banks in the united states fell into the first category 5 the fed set a 0 requirement for nonpersonal time deposits and eurocurrency liabilities reserve ratio and the money multiplierin fractional reserve banking the reserve ratio is key to understanding how much credit money banks can make by lending out deposits for example if a bank has 500 million in deposits it must hold 50 million or 10 in reserve it may then lend out the remaining 90 or 450 million which will make its way back to the banking system as new deposits banks may then lend out 90 of that amount or 405 million while retaining 45 million in reserves that 405 million will be deposited again and so on ultimately that 500 million in deposits can turn into 5 billion in loans where the 10 reserve requirement defines the so called money multiplier as | |
what are reserve requirements | reserve requirements are the amount of cash that financial institutions must have in their vaults or at the closest federal reserve bank in line with deposits made by their customers set by the fed s board of governors reserve requirements are one of the three main tools of monetary policy the other two tools are open market operations and the discount rate banks credit unions and savings and loan associations must meet reserve requirements so must u s branches and agencies of foreign banks edge act corporations and agreement corporations 1on march 15 2020 the federal reserve board announced that reserve requirements ratios would be set to 0 effective march 26 2020 prior to the change effective march 26 2020 the reserve requirement ratios on net transactions accounts differed based on the amount of net transactions accounts at the institution 1understanding reserve requirementsbanks loan funds to customers based on a fraction of the cash they have on hand the government makes one requirement of them in exchange for this ability keep a certain amount of deposits on hand to cover possible withdrawals this amount is called the reserve requirement and it is the percentage that banks must keep in reserve and are not allowed to lend if a bank doesn t have enough cash to meet the reserve requirement it borrows from other banks or from the fed s discount window the interest banks charge each other to borrow is called the federal funds rate and it s the basis for many other interest rates in the economy the federal reserve s board of governors sets the requirement as well as the interest rate banks get paid on excess reserves the financial services regulatory relief act of 2006 gave the federal reserve the right to pay interest on excess reserves the effective date on which banks started getting paid interest was oct 1 2011 2 this rate of interest is referred to as the interest rate on excess reserves and serves as a proxy for the federal funds rate the reserve requirement is another tool that the fed has at its disposal to control liquidity in the financial system by reducing the reserve requirement the fed is executing an expansionary monetary policy and conversely when it raises the requirement it s exercising a contractionary monetary policy this latter action cuts liquidity and causes a cool down in the economy in other words when the fed raises reserve requirements banks have less to lend out to consumers and businesses that in turn raises interest rates when the fed drops reserve requirements the opposite happens interest rates fall reserve requirements historythe practice of holding reserves started with the first commercial banks during the early 19th century each bank had its own note that was only used within its geographic area of operation exchanging it to another banknote in a different region was expensive and risky because of the lack of information about funds at the other bank to overcome this problem banks in new york and new jersey arranged for voluntary redemption at each other s branches on the condition that the issuing bank and redeeming bank both maintained an agreed upon deposit of gold or its equivalent subsequently the national bank act of 1863 imposed 25 reserve requirements for banks under its charge 3 those requirements and a tax on state banknotes in 1865 ensured that national bank notes replaced other currencies as a medium of exchange the creation of the federal reserve and its constituent banks in 1913 as a lender of last resort further eliminated risks and costs required in maintaining reserves and pared down reserve requirements from their earlier high levels 4 for example reserve requirements for three types of banks under the federal reserve were set at 13 10 and 7 in 1917 5in response to the covid 19 pandemic the federal reserve reduced the reserve requirement ratio to zero across all deposit tiers effective march 26 2020 1 the aim of this reduction was to jump start the economy by allowing banks to use additional liquidity to lend to individuals and businesses the day president woodrow wilson signed the federal reserve act into law thus creating the federal reserve 6reserve requirements vs capital requirementssome countries don t have reserve requirements these countries include canada the united kingdom new zealand australia and sweden 7 instead some of these countries must adhere to capital requirements which is the amount of equity a bank or financial institution must hold as required by its financial regulator reserve requirements refer to the amount of liquid assets a bank must hold these funds are intended to protect the institution from runs on deposits a financial institution can hold additional funds above the required amount known as free reserves capital requirements are meant to absorb losses on loans and other investments 8example of reserve requirementsas an example assume a bank has 200 million in deposits and is required to hold 10 the bank is now allowed to lend out 180 million which drastically decreases bank credit the amount of money the loans the bank can make to customers in addition to providing a buffer against bank runs and a layer of liquidity reserve requirements are also used as a monetary tool by the federal reserve by increasing the reserve requirement the federal reserve is essentially taking money out of the money supply and increasing the cost of credit lowering the reserve requirement pumps money into the economy by giving banks excess reserves which promotes the expansion of bank credit and lowers rates who sets the reserve requirement in the united states the federal reserve board sets the reserve requirements the federal reserve board receives its authority to set reserve requirements from the federal reserve act the board establishes reserve requirements as a way to carry out a monetary policy on deposits and other liabilities of depository institutions | |
what does a lower reserve requirement mean | a lower reserve requirement means the federal reserve is pursuing an expansionary monetary policy the lower reserve requirement means banks do not need to keep as much cash on hand this gives them more money for consumer and business loans | |
what does a higher reserve requirement mean | a higher reserve requirement means the federal reserve is pursuing a contractionary monetary policy if banks have a higher reserve requirement there will be less money available to lend to consumers and businesses however this money will then provide the banks with a level of protection against possible bank failure should there be an economic downturn or a run on the bank bottom linereserve requirements specify the amount of cash a bank must have close at hand in order to cover sudden withdrawals and protect the system from bank runs by depositors the bank can hold the reserves in a vault or at the closest fed bank | |
what is a resident alien | a resident alien is a foreign born united states resident who isn t an american citizen a resident alien is also known as a permanent resident or a lawful permanent resident they re considered to be an immigrant who has been legally and lawfully recorded as a resident of the country a resident alien must have a green card or pass a substantial presence test understanding resident alien statusa resident alien is someone who is a permanent resident of the country in which they reside but who doesn t have citizenship an individual must either have a current green card or have had one in the previous calendar year to fall into this classification in the united states people can also qualify under the u s classification of resident aliens if they pass the substantial presence test they must have been in the united states for more than 31 days during the current year and for at least 183 days over three years including the current year 1there are three types of resident aliens according to the united states citizenship and immigration services uscis a resident alien can use foreign tax credits but a non resident cannot a resident alien is subject to the same taxes as a u s citizen but a non resident alien only pays tax on domestic income that s generated within the united states not including capital gains the u s department of homeland security recorded admitting 1 018 349 new permanent residents in 2022 the most recent figure available as of may 27 2024 this is a 38 increase from 2021 when the u s admitted 740 002 new permanent residents 5resident alien vs non resident alienthere are some notable differences in how resident and non resident aliens are seen in the eyes of the law a resident alien can use foreign tax credits but a non resident cannot a resident alien is subject to the same taxes as a u s citizen a non resident alien only pays tax on domestic income that s generated within the united states not including capital gains resident aliens are required to report income from sources both within and outside the united states income is reported using form 1040 non resident aliens report domestic income using form 1040nr form 1040nr ez is no longer available after tax year 2020 6special considerationsit s possible to be considered exempt from resident alien status so an individual doesn t have to prove compliance with the green card test or the substantial presence test situations in which a person is present in the united states on government related issues or when a student or teacher is temporarily present in the united states are both examples of exemptions depending on their situations these exempt aliens can file for an adjustment of status a process that allows them to remain in the country and apply to become permanent residents with resident alien status 7 | |
how is a resident alien defined in the united states | an individual is classified as a resident alien of the u s for tax purposes if they meet either the green card test or the substantial presence test for the calendar year from jan 1 through dec 31 the green card test states that a person must either have a current green card or have had one in the previous calendar year the substantial presence test requires that they ve been in the u s for more than 31 days during the current year and 183 days during a three year period that includes the current year and the two years before | |
what are the 3 types of u s resident aliens | there are three categories of resident aliens according to the united states citizenship and immigration services uscis | |
how does taxation differ for non resident and resident aliens | a resident alien can use foreign tax credits but a non resident cannot a resident alien is generally subject to the same taxes as a u s citizen but a non resident alien pays tax only on domestic income that s generated within the u s not including capital gains resident aliens are required to report worldwide income from sources both within and outside the united states income is reported using form 1040 non resident aliens report domestic income using form 1040nr 8the bottom linea resident alien is a united states resident but not an american citizen resident aliens are lawfully recorded residents who hold green cards or who have passed a substantial presence test numerous interlocking residency rules apply to the status and some individuals are exempt resident aliens are generally subject to the same taxes as u s citizens but the irs provides them with their own tax return speak with a government representative or an attorney if you re unsure of your status or you re considering hiring an immigrant | |
what is a residential mortgage backed security rmbs | residential mortgage backed securities rmbs are debt based assets backed by the interest paid on residential loans mortgages and home equity loans have a comparatively low rate of default and a high rate of interest since there is a high demand for the ownership of a personal or family residence investor risk is mitigated by pooling many of these loans to minimize the risk of default | |
how a residential mortgage backed security rmbs works | a residential mortgage backed security is constructed by a government agency such as the federal national mortgage association fannie mae and the federal home loan mortgage corporation freddie mac or a non agency investment banking firm these entities sell or control a large number of residential loans they package them together into a single pool of loans and essentially sell bonds backed by this pool of loans the payments on these loans flow through to the investors who bought into this pool and the interest rates they receive can be better than those offered by u s government backed bonds the issuing institutions keep a fee for the management of the pool and the risks of default on these mortgages are shared by both the issuing entities and the investors advantages and disadvantages of an rmbsan rmbs has the advantage of providing less risk and greater profitability to investors it allows the issuing entities to raise more cash for reserves against which they can make more loans rmbs investors include life insurance companies that benefit from an efficient way to invest billions of dollars in higher interest rate investments than government bonds while still taking acceptable risks an rmbs can contain various types of mortgages they may contain mortgages with fixed rates floating rates adjustable rates and mortgages of varying credit quality risks associated with rmbs include financial system stress that uniformly affects all investments within the pool that underlies the asset this risk was evident in the 2008 financial crisis rmbs investinginvesting in a residential mortgage backed security can expose the investor to prepayment risk and credit risk prepayment is when the mortgage holder pays back the mortgage before its maturity date reducing the interest the investor receives credit risk for rmbs investors arises when the borrower stops making payments on his mortgage residential mortgage backed securities are utilized by financial institutions like insurance companies to provide cash flow over an extended period buyers of residential mortgage backed securities often help determine how they are constructed so they can be uniquely tailored to offset a liability or to fit investor preferences for risk return and timing of cash flows | |
what is the difference between rmbs and cmbs | residential mortgage backed securities rmbs are backed by residential mortgages generally for single family homes commercial mortgage backed securities cmbs are backed by commercial loans | |
what types of mortgages are included in an rmbs | rmbs are pools of residential mortgage loans that may include different types of fixed or floating rate loans the security can be issued by fannie mae or freddie mac and include conforming loans non agency rmbs issued by private financial institutions consists of mortgages that are considered non conforming | |
are rmbs considered collateral backed investments | rmbs consists of pooled small mortgage home loans backed by the houses as collateral so the default risk associated with them is commonly low | |
what is a residual dividend | a residual dividend is a dividend policy used by companies whereby the amount of dividends paid to shareholders amounts to what profits are left over after the company has paid for its capital expenditures capex and working capital costs companies that use a residual dividend policy fund capex with available earnings before paying dividends to shareholders this means the dollar amount of dividends paid to investors each year will vary | |
how a residual dividend works | a residual dividend policy means companies use earnings to pay for capex first dividends are then paid with any remaining earnings generated a company s capital structure typically includes both long term debt and equity capex can be financed with a loan debt or by issuing more stock equity return on assets roa calculated as net income divided by total assets is commonly used to assess management s decision making and the success of a residual dividend policy | |
what is residual income | residual income is the money that continues to flow after an initial investment of time and resources has been completed examples of residual income include artist royalties rental income interest income and dividend payments the term residual income is used in other contexts investopedia michela buttignol | |
how residual income works | residual income broadly speaking is a measurement of tangential profits earned after subtracting all costs of capital related to generating that income other terms for residual income include economic value added economic profit and abnormal earnings although residual income is sometimes known as passive income side hustles can be used to boost personal residual income types of residual incomeresidual income is also a valuation method for estimating the intrinsic value of a company s common stock it accounts for the cost of capital meaning the combination of debt and equity expended to finance the company s operations the residual income valuation model values a company as the sum of book value and the present value of expected future residual income residual income in this case is the profit remaining after the deduction of opportunity costs for all sources of capital residual income is calculated as net income less a charge for the cost of capital this is known as the equity charge and is calculated as the value of equity capital multiplied by the cost of equity or the required rate of return on equity the formula is residual income net income equity chargegiven the opportunity cost of equity a company can have positive net income but negative residual income managerial accounting defines residual income for a company as the amount of leftover operating profit after paying all costs of capital used to generate the revenues it is also considered the company s net operating income or the amount of profit that exceeds its required rate of return residual income in this case may be used to assess the performance of a capital investment a team a department or a business unit the calculation of residual income is as follows residual income operating income minimum required return x operating assets in personal finance residual income is synonymous with monthly disposable income it is the total income that remains after paying all monthly debts thus residual income is often a key factor when a lender considers a loan application an adequate amount of residual income indicates that the borrower can cover the monthly loan payment | |
how to generate residual income | most sources of residual income require an upfront investment of money sweat equity or both some examples residual income vs passive incomethe differences are subtle residual income may be passive income but passive income isn t necessarily residual in personal finance passive income may be derived from stock dividends or from renting a room on airbnb there was an initial outlay of money to buy the stocks or the house but a tangential benefit that costs little in additional time or effort has been derived from the initial investment it is residual income as well as passive income | |
is residual income taxable | yes almost all residual income is taxable maybe the income from some tax exempt municipal bonds is not taxed otherwise whether you got the money from stock dividends or renting your spare bedroom it s taxable income | |
why is residual income important | residual income is often passive income passive income is by definition relatively effortless stock dividends and bond premiums are examples to quote legendary investor warren buffet if you don t find a way to make money while you sleep you will work until you die | |
how do i calculate my residual income | if you are applying for a loan your residual income is the amount of money you have to spend after all of your monthly obligations have been paid this is also called discretionary income if you are planning your long term future residual income takes on a different meaning it is the amount of money you generate or plan to generate in the future from passive sources such as dividends and interest the bottom lineresidual income is not free money it requires an upfront investment of money hard work or sweat equity but once that work is completed a stream of income has been established that takes little or no effort to maintain | |
what is residual standard deviation | residual standard deviation is a statistical term used to describe the difference in standard deviations of observed values vs predicted values as shown by points in a regression analysis regression analysis is a method used in statistics to show a relationship between two different variables and to describe how well you can predict the behavior of one variable from the behavior of another residual standard deviation is also referred to as the standard deviation of points around a fitted line or the standard error of estimate understanding residual standard deviationresidual standard deviation is a goodness of fit measure that can be used to analyze how well a set of data points fit with the actual model in a business setting for example after performing a regression analysis on multiple data points of costs over time the residual standard deviation can provide a business owner with information on the difference between actual costs and projected costs and an idea of how much projected costs could vary from the mean of the historical cost data formula for residual standard deviation residual y y e s t s r e s y y e s t 2 n 2 where s r e s residual standard deviation y observed value y e s t estimated or projected value n data points in population begin aligned text residual left y y est right s res sqrt frac sum left y y est right 2 n 2 textbf where s res text residual standard deviation y text observed value y est text estimated or projected value n text data points in population end aligned residual y yest sres n 2 y yest 2 where sres residual standard deviationy observed valueyest estimated or projected valuen data points in population | |
how to calculate residual standard deviation | to calculate the residual standard deviation the difference between the predicted values and actual values formed around a fitted line must be calculated first this difference is known as the residual value or simply residuals or the distance between known data points and those data points predicted by the model to calculate the residual standard deviation plug the residuals into the residual standard deviation equation to solve the formula example of residual standard deviationstart by calculating residual values for example assuming you have a set of four observed values for an unnamed experiment the table below shows y values observed and recorded for given values of x if the linear equation or slope of the line predicted by the data in the model is given as yest 1 2 where yest predicted y value the residual for each observation can be found the residual is equal to y yest so for the first set the actual y value is 1 and the predicted yest value given by the equation is yest 1 1 2 3 the residual value is thus 1 3 2 a negative residual value for the second set of x and y data points the predicted y value when x is 2 and y is 4 can be calculated as 1 2 2 4 in this case the actual and predicted values are the same so the residual value will be zero you would use the same process for arriving at the predicted values for y in the remaining two data sets once you ve calculated the residuals for all points using the table or a graph use the residual standard deviation formula expanding the table above you calculate the residual standard deviation observe that the sum of the squared residuals 6 which represents the numerator of the residual standard deviation equation for the bottom portion or denominator of the residual standard deviation equation n the number of data points which is 4 in this case calculate the denominator of the equation as finally calculate the square root of the results the magnitude of a typical residual can give you a sense of generally how close your estimates are the smaller the residual standard deviation the closer is the fit of the estimate to the actual data in effect the smaller the residual standard deviation is compared to the sample standard deviation the more predictive or useful the model is the residual standard deviation can be calculated when a regression analysis has been performed as well as an analysis of variance anova when determining a limit of quantitation loq the use of a residual standard deviation is permissible instead of the standard deviation | |
what type of measure is residual standard deviation | residual standard deviation is a goodness of fit measure that can be used to analyze how well a set of data points fit with the actual model goodness of fit is a statistical test that determines how well sample data fits a distribution from a population with a normal distribution | |
how can a residual standard deviation be used in business | after performing a regression analysis on multiple data points of costs over time the residual standard deviation can provide a business owner with information on the difference between actual costs and projected costs it can also give an idea of how much projected costs could vary from the mean of the historical cost data | |
how do i calculate residual standard deviation | first you have to calculate the difference between the predicted values and actual values formed around a fitted line this difference is known as the residual value or residuals to calculate the residual standard deviation plug the residuals into the residual standard deviation equation to solve the formula the bottom lineresidual standard deviation is a term used in statistics it describes the difference in standard deviations of observed values vs predicted values as shown by points in a regression analysis regression analysis shows a relationship between two different variables and describes how well you can predict the behavior of one variable from the behavior of another | |
what is the residual sum of squares rss | the residual sum of squares rss is a statistical technique used to measure the amount of variance in a data set that is not explained by a regression model itself instead it estimates the variance in the residuals or error term linear regression is a measurement that helps determine the strength of the relationship between a dependent variable and one or more other factors known as independent or explanatory variables understanding the residual sum of squares rss in general terms the sum of squares is a statistical technique used in regression analysis to determine the dispersion of data points in a regression analysis the goal is to determine how well a data series can be fitted to a function that might help to explain how the data series was generated the sum of squares is used as a mathematical way to find the function that best fits varies least from the data the rss measures the amount of error remaining between the regression function and the data set after the model has been run a smaller rss figure represents a regression function that is well fit to the data the rss also known as the sum of squared residuals essentially determines how well a regression model explains or represents the data in the model | |
how to calculate the residual sum of squares | residual sum of squares rss vs residual standard error rse the residual standard error rse is another statistical term used to describe the difference in standard deviations of observed values versus predicted values as shown by points in a regression analysis it is a goodness of fit measure that can be used to analyze how well a set of data points fit with the actual model rse is computed by dividing the rss by the number of observations in the sample less 2 and then taking the square root rse rss n 2 1 2minimizing rss for optimal fitin the realm of regression analysis minimizing the residual sum of squares is crucial for achieving the best possible fit of a model to the data among the different techniques to make this happen one of the most fundamental and widely used approaches is least squares regression least squares regression is a method that aims to find the line or curve that minimizes the sum of the squared differences these differences will be between the observed values and the values predicted by the model in essence the least squares regression seeks to strike a balance where the model captures the underlying trend of the data while still minimizing the discrepancies between what s been observed and what s been predicted the process of minimizing rss through least squares regression involves iteratively adjusting the parameters of the model this is usually done until the optimal fit is achieved for a simple linear regression model this typically entails finding the slope and intercept of the line that best fits the data in more complex scenarios the process becomes more intricate but has many of the same principles limitations of rssrss has some limitations to it first rss gives equal weight to all residuals this means that outliers can disproportionately influence the rss meaning that estimated coefficients may be negatively skewed another downside is that rss relies on several assumptions if any assumption such as linearity independence of errors or homoscedasticity are violated rss may lead to biased estimates and incorrect inferences while rss is useful for evaluating the fit of a single model comparing the fit across multiple models using rss alone can be tough this is because rss depends on the number of parameters in the model it isn t really meant to compare models with a different number of parameters last while rss is easy to compute and interpret it provides limited insight into the underlying structure of the data in cases where understanding the relationship between predictors and the response variable is important there may be better metrics to use in some ways rss can act somewhat like a black box where the relationships aren t entirely known only the end value is of most importance special considerationsfinancial markets have increasingly become more quantitatively driven as such in search of an edge many investors are using advanced statistical techniques to aid in their decisions big data machine learning and artificial intelligence applications further necessitate the use of statistical properties to guide contemporary investment strategies the residual sum of squares or rss statistics is one of many statistical properties enjoying a renaissance statistical models are used by investors and portfolio managers to track an investment s price and use that data to predict future movements the study called regression analysis might involve analyzing the relationship in price movements between a commodity and the stocks of companies engaged in producing the commodity finding the residual sum of squares by hand can be difficult and time consuming because it involves a lot of subtracting squaring and summing the calculations can be prone to errors for this reason you may decide to use software such as excel to do the calculations any model might have variances between the predicted values and actual results although the variances might be explained by the regression analysis the rss represents the variances or errors that are not explained since a sufficiently complex regression function can be made to closely fit virtually any data set further study is necessary to determine whether the regression function is in fact useful in explaining the variance of the dataset typically however a smaller or lower value for the rss is ideal in any model since it means there s less variation in the data set in other words the lower the sum of squared residuals the better the regression model is at explaining the data example of the rssfor a simple but lengthy demonstration of the rss calculation consider the well known correlation between a country s consumer spending and its gdp the following chart reflects the published values of consumer spending and gross domestic product for the 27 states of the european union note that this information may have slightly changed since it has been published but the example of residual sum of squares remains valid 12consumer spending and gdp have a strong positive correlation and it is possible to predict a country s gdp based on consumer spending cs using the formula for a best fit line this relationship can be approximated as the units for both gdp and consumer spending are in millions of u s dollars this formula is highly accurate for most purposes but it is not perfect due to the individual variations in each country s economy the following chart compares the projected gdp of each country based on the formula above and the actual gdp as recorded by the world bank the column on the right indicates the residual squares the squared difference between each projected value and its actual value the numbers appear large but their sum is actually lower than the rss for any other possible trendline if a different line had a lower rss for these data points that line would be the best fit line | |
is the residual sum of squares the same as r squared | the residual sum of squares rss is the absolute amount of explained variation whereas r squared is the absolute amount of variation as a proportion of total variation | |
is rss the same as the sum of squared estimate of errors sse | the residual sum of squares rss is also known as the sum of squared estimate of errors sse | |
what is the difference between the residual sum of squares and total sum of squares | the total sum of squares tss measures how much variation there is in the observed data while the residual sum of squares measures the variation in the error between the observed data and modeled values in statistics the values for the residual sum of squares and the total sum of squares tss are oftentimes compared to each other can a residual sum of squares be zero the residual sum of squares can be zero the smaller the residual sum of squares the better your model fits your data the greater the residual sum of squares the poorer your model fits your data a value of zero means your model is a perfect fit the bottom lineresidual sum of squares quantifies the discrepancy between observed data points and the predictions made by a regression model calculated as the sum of the squared residuals minimizing rss is a fundamental objective in regression analysis as it represents the degree to which the model accurately captures the variability in the data | |
what is residual value | the residual value also known as salvage value is the estimated value of a fixed asset at the end of its lease term or useful life in lease situations the lessor uses the residual value as one of its primary methods for determining how much the lessee pays in periodic lease payments as a general rule the longer the useful life or lease period of an asset the lower its residual value investopedia joules garciaunderstanding residual valueresidual value formulas differ across industries but its general meaning what remains is constant in capital budgeting projects residual values reflect how much you can sell an asset for after the firm has finished using it or once the asset generated cash flows can no longer be accurately predicted for investments the residual value is calculated as the difference between profits and the cost of capital in accounting owner s equity is the residual net assets after the deduction of liabilities in the field of mathematics specifically in regression analysis the residual value is found by subtracting the predicted value from the observed or measured value | |
how to calculate residual value | there are two components to calculating residual value estimated salvage value and the cost of asset disposal the net proceeds received by the disposition less the cost of disposal is the residual value residual value salvage value cost of asset disposalbe mindful that for assets with a low salvage value and high cost to dispose of it is entirely possible to have a negative residual value this means it will result in a liability for a company to be rid of the asset at the end of its useful life a strong example is assets that must adhere to regulatory disposal requirements to remove waste without environmental contamination the difficulty in calculating residual value lies in the fact that both the salvage value and the cost to dispose of the asset may not truly be known until disposition management must make an estimate on both and companies often rely heavily on comparable assets or transactions that have happened in the past to better understand the financial implications of their own item s management must periodically reevaluate the estimated value of the asset as asset deterioration obsolescence or changes in market preference may reduce the salvage value in addition the cost to dispose of the asset may become more expensive over time due to government regulation or inflation though residual value is an important part in preparing a company s financial statements residual value is often not directly shown on the reports uses of residual valueif you lease a car for three years its residual value is how much it is worth after three years the residual value is determined by the bank that issues the lease and it is based on past models and future predictions along with interest rate and tax the residual value is an important factor in determining the car s monthly lease payments additionally consider the example of a business owner whose desk has a useful life of seven years how much the desk is worth at the end of seven years its fair market value as determined by agreement or appraisal is its residual value also known as salvage value this information is helpful to management to know how much cash flow it may receive if it were to sell the desk at the end of its useful life residual value vs resale valueresidual value and resale value are two terms that are often used when discussing car purchasing and leasing terms using the example of leasing a car the residual value would be a car s estimated worth at the end of its lease term residual value is used to determine the monthly payment amount for a lease and the price the person holding the lease would have to pay to purchase the car at the end of the lease the residual value of cars is often expressed as a percentage of the manufacturer s suggested retail price msrp for example residual may be expressed this way 30 000 msrp residual value of 50 15 000 value after 3 years so a car with an msrp of 30 000 and a residual value of 50 after three years would be worth 15 000 at the end of its lease resale value is a similar concept but it refers to a car that has been purchased rather than leased so resale value refers to the value of a purchased car after depreciation mileage and damage while residual value is pre determined and based on msrp the resale value of a car can change based on market conditions if you decide to buy your leased car the price is the residual value plus any fees calculating depreciation amortization using residual valueresidual value also figures into a company s calculation of depreciation or amortization suppose a company acquires a new software program to track sales orders internally this software has an initial value of 10 000 and a useful life of five years to calculate yearly amortization for accounting purposes the owner needs the software s residual value or what it is worth at the end of the five years assume this value is zero and the company uses the straight line method to amortize the software therefore the company must subtract the residual value of zero from the 10 000 initial value and divide by the asset s useful life of five years to arrive at its yearly amortization which is 2 000 if the residual value were 2 000 the yearly amortization would be 1 600 10 000 2 000 5 years for tangible assets such as cars computers and machinery a business owner would use the same calculation only instead of amortizing the asset over its useful life he would depreciate it the initial value minus the residual value is also referred to as the depreciable base | |
what is residual value in statistics | in regression analysis the difference between the observed value of the dependent variable and the predicted value is called the residual each data point has one residual | |
how is residual value calculated | to determine the residual value of an asset you must consider the estimated amount that the asset s owner would earn by selling the asset minus any costs that might be incurred during the disposal residual value is often used when referring to a leased car the residual value of a car is the estimated value of the car at the end of the lease the residual value of a car is calculated by the bank or financial institution it is typically calculated as a percentage of the manufacturer s suggested retail price msrp | |
is residual value the same as buyout | residual value and a lease buyout are two different things a lease buyout is an option that is contained in some lease agreements that give you the option to buy your leased vehicle at the end of your lease the price you will pay for a lease buyout will be based on the residual value of the car | |
what is considered a good residual value | residual value is often used in the context of leases for cars the residual value is the value of the car at the end of the lease term a good residual value is 55 65 of the manufacturer s suggested retail price msrp 1for other assets companies aim to have a residual value as high as possible this means that not only do they get to utilize the asset over its useful life they also get to recover funds for the asset when they are done using it the bottom lineresidual value is one of the most important aspects of calculating the terms of a lease it refers to the future value of a good typically the future date is when the lease ends when used in the context of a car lease residual value is calculated using a number of different factors such as market value seasonality product lifecycle and consumer preferences over time in accounting residual value refers to the remaining value of an asset after it has been fully depreciated | |
what is resistance | resistance is one of the foundational elements of technical analysis along with its corollary support resistance is a price or price zone above the current market that contains the upside movement of an asset resistance is where selling interest appears over time blocking further upside progress resistance can be a single price point such as the high of the day or the hourly high resistance can also be a zone meaning an area several points wide such as 0 50 1 00 a resistance zone represents a test of the resistance level which may be broken by a small amount but ultimately turns back the price advance leaving the resistance level essentially intact it could also be interpreted to mean that there is even more supply around the resistance zone potentially signaling a reversal lower resistance can be found in any time frame of chart analysis where a longer time frame daily or weekly suggests a more important multiday resistance level while a short term chart hourly or 30 minutes may reveal only minor resistance good for day traders | |
how do supply and demand affect resistance | demand for an asset is what propels it higher over time absorbing market supply along the way liquidity refers to the amount of total supply and demand at any given time high liquidity is likely to limit the overall share price movement while low liquidity may see prices move excessively potentially making a gap the source of the demand may be a piece of macroeconomic news such as a comment from a federal reserve official or an earnings release after a series of gains however the demand may eventually lessen or stop altogether as in the buying spree has ended if the price forms a top then it now functions as a point or zone of resistance supply can come from multiple sources such as take profit selling around a resistance point or zone another example is where option holders may want to defend their option positions by selling a lot of shares at a specific price point ahead of resistance and of course macro news may pull traders in to short the market for a specific stock or other asset if negative news emerges leaving a resistance point behind in its wake resistance is made to be brokenusing technical analysis traders can identify a particular point or zone of resistance that resistance zone is likely to be tested amid an uptrend if the trend and buying interest are sufficient to challenge a resistance point traders may find that the resistance area breaks bringing in yet more breakout buyers stop loss buy orders above the resistance area may also come in to play bringing in yet another source of buying and clearly breaking above the resistance after a resistance point has been overcome it is not unusual to see sellers briefly test lower to the breakpoint to see if it holds if it does traders are likely to conclude that the break of resistance is valid and that the upside is in play this is an example of a broken resistance level turning into support known as the polarity principle once resistance is broken it becomes support and vice versa whether it is now major or minor support depends on the time frame of the resistance a break above a recent daily high is more bullish than a break of an hourly resistance point trading using resistanceonce identified as a point of resistance agile traders may seek to sell short on the approach to a particular resistance point say 105 per share or take profit on existing longs at or near to 105 both fresh sources of supply potentially reinforcing the resistance point traders who went short ahead of the resistance on speculation will be looking to buy back once the anticipated down move looks like it is about to end or does end if the price moves higher to test the resistance point those take profit sell orders may get filled reducing one source of supply if speculative short sellers also get their orders filled another source of supply is now gone most likely the short sellers probably have left stop loss buy orders higher above the resistance point or zone allowing a margin of error for slippage should the uptrend continue and eventually break above the resistance level those stop loss buy orders may get triggered generating a new source of demand that pushes the price higher alert breakout traders may enter the market on the buy side adding another source of buying demand identifying resistance levels with trendlinestrendlines are powerful tools to analyze a security s historical price action and identify resistance levels the chart below shows an hourly view of nvidia corp stock nvda note how an hourly top is formed at 220 00 50 and is subsequently broken leading to gains in the price to 230 00 50 which is tested again and holds forming a double top in the process also note that 220 00 50 later becomes a pivot line acting both as support and resistance on multiple occasions respecting the notion of polarity that broken resistance becomes support and vice versa in the daily nvda chart below we see how trendlines and basic pattern recognition can provide significant price signals and trading opportunities on the left side a double top pattern is formed over several days suggesting a top and opening up downside potential the following lows create a horizontal trendline that holds after the price failed again at the 190 per share level the price eventually tests the 140 per share trendline level which holds and the price goes into a strong upward channel breaking above the 190 major resistance and extends to the 230 per share level another double top is formed there suggesting that the uptrend is over for the time being alert readers may have noticed that the resistance levels encountered above are key and big round numbers like 140 190 and 230 these are frequently referred to as psychological big figures meaning traders pay close attention to these levels as potential zones of support and resistance there may be no good reason to pay attention to them on their own but psychological behavior makes them potential resistance levels identifying resistance levels with trading systemsmany different technical tools can be used to identify likely resistance levels based on mathematical formulas among them are simple and exponential moving averages 20 50 and 100 are favorites ichimoku cloud charts and bollinger bands to name a few below is an example of a daily nvda chart with bollinger bands overlaid bollinger bands are a momentum indicator set at two standard deviations from a simple 20 day moving average in the center as you can see the upper bollinger band neatly contains the price advances over the course of weeks giving traders an up to date upper resistance band that level could be used to take profit on long positions while the moving average in the middle identifies the overall trend | |
what is resistance | resistance is a price point or price zone that acts to limit gains in a security due to greater supply than demand | |
how do i identify resistance levels | resistance levels can be identified through technical analysis of charts and the various tools that come with them among the favorite tools used to identify resistance levels are key highs trendlines moving averages simple and exponential bollinger bands and ichimoku cloud charts | |
how do i trade with resistance levels | it depends on your position and view of the market as resistance will eventually be broken at some point an aggressive trader might go short from just below the resistance level looking for a pullback or reversal lower essentially speculating that the resistance will hold that same trader would also likely place a buy stop order above the resistance zone in case it breaks a breakout trader might jump in on the long side if the resistance area is breached a trader who is long might want to place a take profit order to sell near to the resistance zone | |
what is the polarity principle | the polarity principle refers to the price phenomenon whereby once resistance is broken it becomes support and vice versa a break of a resistance zone will usually see a quick test of the breakout level to see if the break holds or if it fails and reverses lower the bottom linea resistance point or zone develops when prices are unable to move higher from that zone resistance levels can be found on short term or long term charts with long term resistance levels carrying more weight for the overall direction of the next move in the security resistance levels are identified by technical analysis or visual inspection using such tools as trendlines horizontal lines moving averages and bollinger bands from a trading perspective resistance levels offer various trading opportunities you may go with the flow and buy into a resistance zone looking for a break higher you might jump in on the long side after a breakout has occurred or you could look to sell into the resistance zone going short holding the view that the resistance will hold and prices will turn lower no matter your situation once prices near a resistance zone it s time to take notice of the price action and subsequent opportunities | |
what was the resolution trust corporation rtc | the resolution trust corporation rtc is a now defunct temporary federal agency from 1989 to 1995 it largely resolved the savings and loan s l crisis of the 1980s which resulted in about a third of such u s institutions failing within a 10 year span the rtc became a massive property management company cleaning up what was at the time the largest collapse of u s financial institutions since the great depression the rtc closed failed financial institutions placed in receivership by selling or merging troubled thrifts and folding their assets back into the federal deposit insurance corporation fdic the rtc accomplished its work in roughly six years slowly at first but then by selling pools of assets at heavy discounts to private investors which allowed the rtc to participate in any future market gains from those pools the rtc shuttered a total of 747 failed financial institutions with total assets of 394 billion it also liquidated the assets of these institutions understanding the resolution trust corporation rtc the resolution trust corporation rtc sought to maximize value from the sale of assets from failed s ls while minimizing the impact on real estate and financial markets the financial troubles that led to the rtc s creation began in the 1970s the s l crisis stemmed from risky investments made in both the 1970s and 1980s by many small and supposedly safe s ls thousands of them failed after using investors passbook savings to buy fixed rate home mortgages which were not very liquid many institutions made these investments to take advantage of a poor federal policy in which all s ls paid the same rate of federal deposit insurance no matter the riskiness of their underlying assets this eventually caused the federal savings and loan insurance corporation to fail at which time the fdic took over its responsibilities pros and cons of the resolution trust corporationthe rtc faced many criticisms at the time including the program s cost estimated at 130 million many critics balked at tax dollars being used to rescue private financial institutions perhaps a sharper criticism however is that the failing s ls seemingly posed little threat to the global economy global markets or arguably even the u s economy most economists today do not point to the s l crisis as the primary cause of the 1990 91 recession for example in retrospect the threats posed by the failure of many small savings institutions pale in comparison to such things as the failure of lehman brothers in 2008 some may argue however that the experiences of the rtc especially the pooling and packaging of assets and allowing the government to participate in any market upside from the bailout helped in making decisions about future government bailouts correction nov 5 2023 a previous version of this article stated that the rtc closed failed financial institutions placed in conservatorship when the status is actually receivership | |
what is the resource curse | the term resource curse refers to a paradoxical situation in which a country underperforms economically despite being home to valuable natural resources a resource curse is generally caused by too much of the country s capital and labor force concentrated in just a few resource dependent industries by failing to make adequate investments in other sectors countries can become vulnerable to declines in commodity prices leading to long run economic underperformance | |
how the resource curse works | the resource curse is a paradoxical situation in which countries with an abundance of non renewable natural resources experience stagnant economic growth or even economic contraction although there may be multiple reasons to explain why a resource curse happens the phenomenon mainly occurs when a country begins to focus all of its production means on a single industry such as mining or oil production and neglects investment in other major sectors also called a resource trap or paradox of plenty it may also result from government corruption if a large share of national wealth is concentrated in just a few industries the government might abuse its regulatory powers such as by awarding valuable contracts based on bribes an overabundance of labor and capital that flow into just a small handful of sectors may weaken the rest of the economy and harm the country overall this type of problem is often observed in developing economies that discover large natural resource deposits once a natural resource is discovered available investment capital tends to gravitate to this industry this new industry becomes a source of economic growth and relative economic prosperity offering attractive wages and encouraging citizens to invest their savings in the new industry in the long run this dynamic can lead to countries becoming very dependent on the price of that particular commodity subsequently making it difficult to continue developing the economy the term resource curse is attributed to richard auty who wrote about the concept in his 1993 book titled sustaining development in the mineral economies the resource curse thesis 12special considerationsthe resource curse is considerably noticeable when it comes to one particular natural resource petroleum the political science department at the university of california los angeles conducted a study analyzing the correlation between natural resource wealth and politics it concluded that a resource curse did exist in petroleum rich countries 1according to the study three harmful and largely unresolved effects were evident in these countries the study cited the use of the term resource curse in countries in africa latin america the middle east and the former soviet union this brings out the importance of diversification if a country is too dependent on one or two resources it can have severe and negative effects to its economy countries with more diversified economies tend to weather global economic cycles better than countries with concentrated economies real world examples of the resource curselocated on the west coast of southern africa angola is home to some 34 million citizens 3 its economy however is heavily dependent on commodities particularly oil and gas resources according to the international trade administration roughly 75 of angola s national revenues come from the oil and gas sector 4angola s economy though is extremely vulnerable to any large or sustained decline in the price of oil since virtually all of the nation s wealth is reliant on this one sector in this sense angola may have been cursed by its large oil reserves another country that relies heavily on selling oil to other nations is saudi arabia the value of the kingdom s oil exports exceeded 202 1 billion in 2021 5 but unlike angola saudi arabia took steps to steadily diversify its economy and move away from its resource curse saudi arabia succeeded in increasing its exports of various petroleum related manufactured goods but these lie further up along the value chain in doing so the nation reduced its reliance on crude oil and take steps toward developing its economy making it less vulnerable to the resource curse some of the most notable industries that are flourishing include | |
what is a restatement | a restatement is an act of revising one or more of a company s previous financial statements to correct an error restatements are necessary when it is determined that a previous statement contained a material inaccuracy this can result from accounting mistakes noncompliance with generally accepted accounting principles gaap fraud misrepresentation or a simple clerical error understanding restatementscompany management and independent auditors are responsible for ensuring that quarterly and annual financial statements accurately reflect the financial condition of a firm sometimes previous statements need to be amended at times these mistakes will be spotted by internal auditors on other occasions it might be a third party such as the securities and exchange commission sec that spots them the financial accounting standards board fasb requires companies to issue a restatement to correct previous errors accountants are responsible for deciding whether a past error is material enough to warrant a restatement material is a loose term that is not accompanied by specific percentage guidelines and so forth as a general rule of thumb an error can be considered material if the incorrect information would lead those receiving the statements to come to inaccurate conclusions as part of a standard analysis if an issue or error is found that affects part of a financial document or the document as a whole a restatement will likely be required additionally if certain key information about the original statement is received after the first statement was released a restatement may be issued to adjust the financials based on the discoveries the dangers of restatementsmany restatements are the result of innocent mistakes and basic misinterpretation however some can raise red flags highlighting potential fraud or incompetence over reporting a company s gains can be very misleading it can lead investors to believe the company is in a stronger financial position than is actually the case based on the inaccurate information investors may perform actions in regards to the previously made investments that otherwise would not have been made public companies must file sec form 8 k to alert the investment community of material changes as well as reissue corrected financial statements 1 negative restatements are regularly frowned on shaking investor confidence and causing share prices to decline they can also lead to fines hertz global holdings inc htz was ordered to pay a 16 million civil penalty after internal auditors discovered errors in several of its previous financial statements in 2015 the car rental company disclosed that restatements would weigh on profits for 2011 2012 and 2013 real life example of a restatementin february 2019 molson coors brewing co tap revealed it would restate its financial statements for fiscal years fy 2016 and 2017 after auditors discovered accounting blunders for income taxes related to deferred tax liabilities dtl in a filing with regulators the beer maker blamed the errors on its acquisition of a remaining 58 percent stake in millercoors in 2016 understating deferred tax liability dtl and income tax expense boosted net profits by nearly 400 million in 2016 overall the company said it understated the value of the taxes owed but not yet paid on its balance sheet by 248m and overstated its total equity by the same amount the finding did not inspire much confidence in molson coors brewing s accounting practices as reflected by the sharp subsequent markdown in the company s share price restatement requirements | |
when a publicly traded company determines it needs to amend its financial statements it must file sec form 8 k within four days to notify investors of non reliance on previously issued financial statements it also needs to file amended 10 q forms for the affected quarters and possibly amended 10 ks depending on how many accounting periods are affected by the erroneous data | companies should also provide a breakdown of how past errors occurred how they were corrected and whether there will likely be any future ramifications in their latest financial statements these comments usually appear in the footnotes special considerations | |
when companies issue restatements investors are advised to ascertain to the best of their abilities the seriousness of the error reported how much of an impact is it likely to have and more importantly was it an innocent mistake or something that appears to be more sinister look for indications from management on how it plans to stop similar mistakes from happening in the future | it is also worth remembering that changes in certain financial estimates are not required as these are based on anticipated events and not ones that have already occurred these changes must only be reported on the next financial statement after the change is made and are not applied retroactively restatement faqsa restatement is the restatement of a revised financial statement the restatement is purposed to correct what was previously reported erroneously a reclassification involves correcting the classification of a transaction or entry moving it from one ledger to another for example one could reclassify an entry from a current asset to a long term asset a revision is the correction of a reported amount in subsequent financial statements 2 however the previously reported financial statement need not be reissued with a restatement on the other hand the error must be material prompting a revision and the issuance of a corrected financial statement the restatement of torts is a resource published by the american law institute ali explaining the law as it pertains to certain situations specifically involving torts 3 there are two restatement of torts restatement of the law second torts and restatement of the law third torts which is the most recent published version the restatement of contracts is a resource published by the american law institute ali explaining the law as it pertains to contracts 4 in other words they help courts clarify and interpret contract law the bottom line | |
what is restricted cash | restricted cash in contrast to unrestricted cash is not freely available for a company to spend or invest restricted cash refers to money that is held for a specific purpose and thus not available to the company for immediate or general business use restricted cash appears as a separate item from the cash and cash equivalents listing on a company s balance sheet the reason for the cash being restricted is usually disclosed in the accompanying notes to the financial statements cash can be restricted for a number of reasons including debt reduction and capital investments investopedia michela buttignolunderstanding restricted cashrestricted cash is held aside by companies and is earmarked for a specific purpose restricted cash could be set aside for a particular purchase or to repay a loan or debt cash that has been deemed restricted cannot be used for other purposes restricted cash is classified as either a current asset which is used up within one year or a non current asset which are long term assets as a result if the restricted cash is expected to be used in the short term it is classified as a current asset if it is not expected to be used within a one year time frame it is classified as a non current asset since funds are separated on the balance sheet income statement restricted cash typically appears on a company s balance sheet as either other restricted cash or as other assets special considerationsthere are a number of variables to the handling of restricted cash for example it may or may not be held in a separate bank account designated for the purpose for which the cash is restricted regardless of whether the cash is held in a special bank account or not restricted cash is still included in a company s financial statements as a cash asset in the event that the restricted cash is not spent as intended it may then become unrestricted cash that a company can transfer to a general cash account or spend for general business purposes for example a company may hold restricted cash for the purpose of making a large capital expenditure such as a factory upgrade but later decide against making the expenditure the cash designated as restricted for that purpose is then freed up for the company to spend or invest elsewhere examples of restricted cashalthough there are various reasons companies can restrict a portion of their cash below are two of the most frequent uses for restricted cash companies often hold restricted cash for capital expenditures or as part of an agreement with a third party companies also frequently set aside cash designated as restricted in planning for a major investment expenditure such as a new building lenders sometimes require a company to hold restricted cash as partial collateral against a loan or line of credit a bank or other lender may require the company to set up a designated restricted cash account in which the company must maintain a minimum balance sometimes referred to as a compensating balance equal to a specified percentage of the credit extended by the bank this is a fairly common practice in situations in which a bank grants a business loan to the owner of a new small business | |
what is restricted stock | restricted stocks are unregistered shares of ownership in a corporation that are issued to company executives directors and other employees as part of their compensation restricted stocks are nontransferable and must be traded according to the relevant securities and exchange commission sec regulations the restrictions of these stocks usually relate to their vesting period which is when they can t be sold or transferred the restrictions are intended to discourage premature selling that might negatively affect the company and to provide stability at the firm by providing a benefit to employees who stay on for a certain amount of time restricted stock typically becomes available for sale under a graded vesting schedule that lasts several years restricted stock is called letter stock or section 1244 stock the part of the internal revenue code irc that covers them | |
how restricted stock works | restricted shares provide employees with a stake in their companies however they have no value until they vest that is until a waiting period is over or a company milestone is met vesting gives employees an incentive to perform well and remain with a company the vesting schedule a company sets up determines when employees acquire full ownership of the asset in this case restricted stock units rsus the rsus are assigned a fair market value at the time of their investing restricted stocks became more popular in the mid 2000s as companies were required to expense stock option grants restricted stocks are a form of employee compensation and typically become transferable after satisfying certain conditions such as continued employment for a period of time or the achievement of particular product development earnings or other financial goals an employee might give up restricted stock should they leave the company miss certain performance targets or fail to adhere to regulations from the securities and exchange commission insiders are often given restricted stock after mergers and acquisitions underwriting activity or changes in ownership to prevent premature selling that might negatively affect the company employees might forfeit restricted stock if they leave the company fail to meet corporate or individual performance goals or run afoul of sec trading restrictions the sec regulations that govern the trading of restricted stock are outlined under sec rule 144 which describes the registration and public trading of restricted stock and the limits on holding periods and volume 1these shares can have a double trigger provision that means that an employee s shares become unrestricted if the company is acquired by another and the employee is let go in the restructuring that follows restricted stock units vs restricted stock awardstwo variations on restricted stock are restricted stock units rsus and restricted stock awards a restricted stock unit is granted to an employee and represents the promise to give a certain number of shares of the company s stock at a predetermined time in the future since rsus are not actually stocks but only a right to the promised stock they carry no voting rights an rsu must be exercised to receive the stock once converted the stock carries the standard voting rights for the class of stock issued a restricted stock award is like an rsu however it comes with voting rights because the employee owns the stock immediately once it is awarded in addition though an rsu represents a right to stock in some cases an employee can elect to receive the cash value of the rsu instead this is not the case for restricted stock awards which cannot be redeemed for cash restricted stock vs employee stock optionsrestricted stock and employee stock options are forms of equity compensation furnishing employees with shares in their company however restricted stocks are different from stock options which are derivatives that outside investors can trade the key difference between restricted stock and employee stock options is that restricted stocks do not have an exercise price instead employees automatically receive shares when the restricted stock vests with employee stock options the employee must pay the exercise price of the option to receive the shares another difference is that stock options are typically awarded on a set schedule while restricted stocks can use a fixed schedule as well or vest if the employee makes specific performance benchmarks restricted stocks and employee stock options are also taxed differently restricted stocks are taxed after vesting while stock options are taxed when exercised advantages and disadvantages of restricted stock | |
how restricted stocks are taxed | the taxing of restricted stock is governed by section 1244 of the irc generally restricted stocks are taxable once the vesting schedule is over in addition restricted stocks are taxed as ordinary income in the year they vest this differs from stock options which are taxed when employees exercise their options not when vested 2the amount of declared income for the restricted stock for the internal revenue service is the stock s fair market value on the vesting date minus its original exercise price however the restricted stockholder can elect to use irc section 83 b which permits using the price on the grant date not the vesting date for calculating ordinary income tax the tax bill must be paid sooner in this case but it can be substantially lower if the stock had appreciated between the grant date and the vesting date the risk is that if the restricted stockholder leaves the company before the shares vest the shares are forfeited and taxes that were already paid are nonrefundable | |
why do companies give out restricted stock | the use of restricted stocks is pivotal for the compensation and retention strategies of many firms companies use restricted stock for a few reasons first a long vesting schedule encourages employees to stick around for a longer period also the value of restricted stock relies on the company s stock price which can encourage employees to perform better next unlike stock options restricted stocks still retain some value even when the company s stock price declines making them more stable compensation in volatile markets lastly providing restricted stock can be tax efficient for the company and the employee depending on the jurisdiction and the specific restrictions on the stock put in place | |
what are stock options | stock options give the right but not the obligation to purchase shares at a set price options can be offered to employees or bought and sold by investors on the open market options especially those bought and sold by investors tend to have an expiration date can a private company issue restricted stock yes private companies can offer restricted stock to their employees however because the company is private it could be more difficult for those employees to sell their shares when the restricted stock vests 3 | |
when a restricted stock vests you can sell the shares you ve received it s important to consider your risk tolerance asset allocation and investing goals to decide on the best time to sell your restricted stock just as you would with any other security in your portfolio since that is what it s now become | the bottom lineemployers use restricted stocks to provide an incentive to employees to remain in their jobs and to work to better the company s stock price by giving them shares in the business the vesting of restricted stock can be based on basic timelines or performance based goals making them highly flexible the recipients of restricted stock should take steps to ensure they understand how their restricted stock is taxed and consider how long they plan to hold the stock once it vests | |
what is a restricted stock unit rsu | a restricted stock unit rsu is an award of stock shares usually given as a form of employee compensation the recipient must meet certain conditions before the restricted stock units are transferred to the owner restricted stock units are issued to employees through a vesting plan and distribution schedule after they achieve required performance milestones or upon remaining with their employer for a particular length of time restricted stock units give employees interest in their employer s equity but have no tangible value until they are vested the rsus are assigned a fair market value fmv when they vest restricted stock units are considered income once vested and a portion of the shares is withheld to pay income taxes the employee then receives the remaining shares and has the right to sell them michela buttignol investopediaunderstanding restricted stock units rsus restricted stock gained popularity as a form of employee compensation as an alternative to stock options after the accounting scandals of the mid 2000s involving companies like enron and worldcom at the end of 2004 the financial accounting standards board fasb issued a statement requiring companies to book an accounting expense for stock options issued this action leveled the playing field among equity types 1given those scandals companies began to consider other types of stock awards for attracting and retaining talent rsus which had usually been reserved for higher levels of management became more common the median number of stock options granted individually by fortune 1000 companies dropped by 40 between 2003 and 2005 the median number of rsu awards rose by nearly 41 in the same period 2in certain instances vesting may be permitted to continue if an employee becomes disabled or retired special considerationsrsus are treated differently for tax purposes than other forms of stock options that is the entire value of an employee s vested stock is counted as ordinary income in the year of vesting 3in order to declare the amount an employee must subtract the original purchase of the stock or its exercise price from the fmv on the date it becomes fully vested this difference is then declared as ordinary income by the taxpayer if the stock is sold at a later date and not on the exercise date the difference between the sale price and fmv is declared as either a capital gain or loss on the date of vesting 45advantages and disadvantages of rsusrsus provide an incentive for employees to stay with a company for the long term and help it perform well so that their shares increase in value if an employee decides to hold their shares until they receive the full vested allocation and the company s stock rises the employee receives the capital gain minus the value of the shares withheld for income taxes and the amount due in capital gains taxes administration costs are minimal for employers as there aren t actual shares to track and record rsus also allow a company to defer issuing shares until the vesting schedule is complete which helps delay the dilution of its shares rsus don t provide dividends before they vest 6 but an employer may pay dividend equivalents that can be moved into an escrow account to help offset withholding taxes or be reinvested through the purchase of additional shares the taxation of restricted stocks is governed by section 1244 of the internal revenue code irc 7restricted stock is included in gross income for tax purposes and is recognized on the date when the stocks become transferrable this is also known as the vesting date rsus aren t eligible for the irc 83 b election which allows an employee to pay tax before vesting as the internal revenue service irs doesn t consider them to be tangible property rsus don t have voting rights until actual shares get issued to an employee at vesting 6 if an employee leaves before the conclusion of their vesting schedule they forfeit the remaining shares to the company for instance if an employee s vesting schedule consists of 5 000 rsus over two years and he resigns after 12 months he forfeits 2 500 rsus incentivize employees to stay with the companyemployees receive capital gain minus value of shares withheld for income taxesminimal administrative costs | |
don t come with voting rights | examples of rsussuppose madeline receives a job offer because the company thinks madeline s skill set is valuable and hopes she remains a long term employee it offers her 1 000 rsus in addition to a salary and other benefits the company s stock is worth 10 per share making the rsus potentially worth an additional 10 000 to give madeline an incentive to stay with the company and receive the 1 000 shares it puts the rsus on a five year vesting schedule madeline receives 200 shares after one year with the company another 200 shares after the second year and so on until she acquires all 1 000 shares at the end of the vesting period depending on the company s stock performance madeline may receive more or less than 10 000 as a real world example of what a company does to issue rsus take a look at the december 2017 sec form 4 filed by the electric vehicle company tesla tsla this form indicates that the company s chief accounting officer eric branderiz had received 4 808 restricted stock units and was converting them into common shares source sec edgar | |
how do restricted stock units work | restricted stock units are a type of compensation in which an employee receives shares of stock that are paid out over a period of years restricted stock units fluctuate in value over time from a company s perspective restricted stock units can help employee retention by incentivizing employees to stay with the company long term for employees restricted stock units are a stake in a company s success and occasionally produce very substantial income | |
what is the difference between restricted stock units and stock options | stock options provide employees with the right but not the obligation to acquire shares of the company at a specified price if the share price rises the employee can acquire the shares and sell them at the higher market price restricted stock units are awarded outright on a set series of dates over several years the employee then owns the shares and can sell or keep them | |
do restricted stock units carry voting rights | restricted stock units do not carry voting rights until they become vested once they are vested the units are converted into common stock shares and carry all the usual rights of stock ownership the same goes for dividends restricted stock units do not pay dividends until they vest | |
what is a restrictive covenant | a restrictive covenant is a condition that restricts limits prohibits or prevents the actions of someone named in an enforceable agreement in bond obligations restrictive covenants limit the amount issuers can pay in dividends to investors restrictive covenants are common in real estate deeds and leases where they restrict how owners and tenants can use a property it s important to differentiate between the two main types of covenants negative and positive negative covenants are actions you can t take while positive covenants are actions you must take for example a negative covenant in real estate could prevent you from raising chickens on your property on the other hand a positive covenant could require you to mow your lawn loan documents might have a negative pledge clause banning the borrower from using a given asset to secure other loans understanding restrictive covenantsas the name implies a restrictive covenant is an agreement that restricts one of the parties in a contract from taking specific actions for example a restrictive covenant may limit how much public companies pay their shareholders in dividends it may also place a cap on executive salaries failure to abide by restrictive covenants can result in fines and other penalties including legal action restrictive covenants are commonly used to prevent a bond issuer from issuing more debt until one or more series of bonds mature the issuer may also be restricted from paying dividends above a certain amount to shareholders this restriction minimizes bondholders default risk because when more money is paid to shareholders less money is available to meet payment obligations to lenders the more negative covenants a bond issue has the lower the interest rate will be on the debt restrictive covenants make the bonds safer in the eyes of investors | |
what is restructuring | restructuring is an action taken by a company to significantly modify the financial and operational aspects of the company usually when the business is facing financial pressures restructuring is a type of corporate action taken that involves significantly modifying the debt operations or structure of a company as a way of limiting financial harm and improving the business | |
when a company is having difficulties with making the payments on its debt it will often consolidate and adjust the terms of the debt in a debt restructuring creating a way to pay off bondholders a company can also restructure its operations or structure by cutting costs such as payroll or reducing its size through the sale of assets | understanding restructuringthere are numerous reasons why companies might restructure including deteriorating financial fundamentals poor earnings performance lackluster revenue from sales excessive debt and the company is no longer competitive or too much competition exists in the industry a company may restructure as a means of preparing for a sale buyout merger change in overall goals or transfer to a relative for example a company might choose to restructure after it fails to successfully launch a new product or service which then leaves it in a position where it cannot generate enough revenue to cover payroll and its debt payments as a result depending on agreement by shareholders and creditors the company may sell its assets restructure its financial arrangements issue equity to reduce debt or file for bankruptcy as the business maintains operations restructuring process | |
when a company restructures internally the operations processes departments or ownership may change enabling the business to become more integrated and profitable financial and legal advisors are often hired for negotiating restructuring plans parts of the company may be sold to investors and a new chief executive officer ceo may be hired to help implement the changes | the results may include alterations in procedures computer systems networks locations and legal issues because positions may overlap jobs may be eliminated and employees laid off a company undertakes a restructuring to modify the financial or operational aspect of its business usually when faced with a financial crisis restructuring can be a tumultuous painful process as the internal and external structure of a company is adjusted and jobs are cut but once it is completed restructuring should result in smoother more economically sound business operations after employees adjust to the new environment the company can be in a better position for achieving its goals through greater efficiency in production however not all corporate restructurings end well sometimes a company may need to admit defeat and begin selling or liquidating assets to pay off its creditors before permanently closing special considerationsrestructuring costs can add up quickly for things such as reducing or eliminating product or service lines canceling contracts eliminating divisions writing off assets closing facilities and relocating employees entering a new market adding products or services training new employees and buying property result in extra costs as well new characteristics and amounts of debt often result whether a business expands or contracts its operations real world examplein late march 2019 savers inc the largest for profit thrift store chain in the united states reached a restructuring agreement that cut its debt load by 40 and saw it taken over by ares management corp and crescent capital group lp the out of court restructuring which was approved by the company s board of directors includes refinancing a 700 million first lien loan and lowering the retailer s interest costs under the deal the company s existing term loan holders get paid in full while senior noteholders swapped their debt for equity | |
what are the different types of restructuring | a business can restructure in many different ways the different types of restructuring include legal restructuring turnaround restructuring cost restructuring divestment spin off repositioning restructuring and mergers and acquisitions | |
does restructuring mean layoffs | generally when a company restructures it lays off some of its employees this is typically so because a restructuring involves downsizing which can include closing some groups merging others and generally looking to become more efficient and cut costs | |
how many times can a company restructure | there is no legal limit to how many times a company can restructure a company can decide to change its operations as many times as it deems necessary in order to become more efficient and cut costs that being said restructuring is a complicated process that involves a lot of time and strategy and so is not a process to be done lightly or often | |
what is a restructuring charge | a restructuring charge is a one time expense that a company pays when reorganizing its operations examples of one time expenses include furloughing or laying off employees closing manufacturing plants and shifting production to a new location companies undertake these moves in an effort to boost profitability but first take a one off hit in the form of an upfront restructuring charge the idea is that once that charge is taken there should be no other expenses related to the particular reorganization understanding restructuring chargescompanies restructure their operations to improve efficiency and boost profitability over the long term so restructuring charges can occur for a variety of reasons these include when a company makes an acquisition sells a subsidiary downsizes implements new technology relocates assets decreases or consolidates debt diversifies into a new market or writes off assets whatever the reason a company restructuring is usually driven by a need for change in the organization or business model for instance a company that chooses to restructure is often experiencing significant problems such that it is prepared to stomach certain added costs to improve its fortunes restructuring charges are nonrecurring operating expenses that show up as a line item on the income statement and factor into net income because the charge is an unusual or infrequent expense it is unlikely that it will impact shareholders stakes in the company in other words news of a restructuring charge probably won t significantly impact a company s share price to find out more details about a restructuring charge investors should consult the relevant footnote to the financial statements additional information might also be found in the management discussion and analysis md a section of the financial statement a restructuring charge will cost a company in the short term but should save it money in the long run example of a restructuring chargedue to worrisome industry forecasts company a has decided to downsize operations it lays off several employees who each receive severance checks the severance cost associated with this structural change in the business is a restructuring charge in contrast company z is flourishing and growing rapidly the company decides to hire more employees to keep up with its expansion the costs associated with hiring new staff such as signing bonuses and acquiring more office space are also classified as restructuring charges special considerationsa restructuring charge will be mentioned in financial analyses as decreasing a company s operating income and diluted earnings as a result restructuring charges will often have a significant impact on a company s income statement net income may be manipulated by inflating the amount for a restructuring charge the charge is purposely exaggerated in order to create an expense reserve that will be used to offset ongoing operating expenses creative accountants use the restructuring provision to get rid of losses through one time charges and to clean out the books in effect a large restructuring charge is reported so the company can take a big hit to earnings in the current period in order to make future period earnings appear more profitable analysts closely scrutinize any restructuring charge that shows up on a company s income statement to see if a company may have charged a recurring expense to its restructuring account | |
what types of expenses are restructuring charges | you might see restructuring charges that relate to obtaining a bigger production facility closing an office building or paying bonuses to high value employees to keep them from moving to competitors or they might be expenses related to training new hires and purchasing much needed manufacturing equipment | |
are restructuring charges always made when a company s in trouble | not always they re made when a company feels that a reorganization is necessary for its financial well being which can be for a variety of reasons for instance they can occur when high demand for a company s products requires it to add more production space and employees but they also can occur when a slow economy has depressed consumer spending and a company must shut down a plant to save money | |
how big can a restructuring charge be | as big or small as the associated expenses dictate it needs to be for instance in early 2023 the company meta which owns facebook announced a 4 2 billion restructuring charge relating to its plan to terminate office leases make severance payments to laid off workers and more 1the bottom linea restructuring charge is a nonrecurring one time upfront charge that a company posts to reflect expenses to be paid when a company reorganizes an aspect of its business the goal of the restructuring charge and reorganization is to eliminate certain future expenses improve company profitability and pave the way for long term financial success | |
what is a resume | a resume is a formal document that a job applicant creates to itemize their qualifications for a position a resume is usually accompanied by a customized cover letter in which the applicant expresses an interest in a specific job or company and draws attention to the most relevant specifics on the resume american job coaches insist that a resume should be only one or two pages in length british job applicants traditionally are expected to produce a somewhat more detailed document called a cv curriculum vitae understanding a resumea resume is almost always required for applicants to office jobs they are the first step taken by corporate recruiters and hiring managers to identify candidates who might be invited to interview for a position successful resumes highlight specific accomplishments applicants have achieved in former positions such as cutting costs transcending sales goals increasing profits and building out teams there are many formats for resumes with many variations for particular professions such as investment banking and the fashion trade whatever the format most resumes include a brief summary of skills and experience followed by a bullet list of previous jobs in reverse chronological order and a list of degrees earned a final section might be added to highlight specific skills such as fluency in a foreign language knowledge of computer languages professionally useful hobbies professional affiliations and any honors achieved brevity a clean layout and succinct language all are prized people who have to sort through hundreds of resumes have short attention spans the resume headingthe heading on the resume should include not only your name email address and mobile phone number but also your address on linkedin or another professional community and the address of your website or blog if you have one be aware that any hiring manager will as a matter of course enter your name in the google search field do a search on your own and see if you can optimize your own results or at least decently bury any youthful faux pas resume trouble spotsrecruiters examine job histories for significant employment gaps or a pattern of job hopping be prepared to explain either whether in a cover letter or during an interview an applicant with a history of short lived jobs might consider omitting a few of the oldest ones especially if they aren t relevant to the current job opening for example if you spent years working behind a counter in food service then went back to school to earn physical therapy credentials forget some of those early jobs in food service flesh out the sections that report your skills training and experience in the field that s now your specialty you can mention those other jobs in the interview while explaining what a reliable professional you are the past can be particularly dangerous for applicants to new technology companies seeking to assemble cutting edge teams legacy skills may imply obsolescence the most powerful resumes underline how an applicant can thrive in the job that s open right now changing times for resumesit goes without saying that resumes these days are delivered as email attachments or uploaded for an online application not printed out and mailed although the two page maximum still stands many applicants use the web to its full potential when it comes to attachments video introductions charts graphs and other illustrations can make you stand out so long as they re relevant and slickly made | |
what you should not put on a resume | there is so much talk about what should be in your resume but there are also some things that ought to be kept off the page first and most importantly are your age marital status and the number of children you may have while a potential employer might be able to deduce this information via a web search it isn t relevant for a job application in addition do not list your current salary religion political beliefs or any personal details like your hobbies unless that information is required for the job in question | |
what are common resume mistakes | common resume mistakes include typos vague details without a lack of specifics either being too long in detail or too short grammatical errors poor verb usage impertinent information and not including enough information on skills | |
should i create more than one resume | this depends on whether you are applying for different types of jobs for example if you are applying for an office manager job you should tailor your resume to outline your leadership and organizational skills but you might also be interested in applying for a retail position so creating a second resume that instead highlights any retail experience that you have will put you in a better position to get that job | |
what if i do not have any work experience | you can still create a strong resume even if you do not have any professional work experience your resume can include any volunteer work you have done and the responsibilities you had during this time if you are still in school you can also list any academic organizations you are a part of and any offices and responsibilities you re holding the bottom lineyour resume is what gets you the job interview it s the first step in getting hired so you want to spend plenty of time making sure it s professional represents who you are is void of mistakes does not contain superfluous information and highlights why you would be the best candidate for the job your resume should be recent and contain only the most important information remove anything else if you ve been working for two decades employers aren t interested in your high school gpa or any internships you had during college keep it concise interesting and impressive and you ll be sure to get a response from companies | |
what is retail banking | retail banking also known as consumer banking or personal banking is banking that provides financial services to individual consumers rather than businesses retail banking is a way for individual consumers to manage their money have access to credit and deposit their funds in a secure manner services offered by retail banks include checking and savings accounts mortgages personal loans credit cards and certificates of deposit cds | |
how does retail banking work | many financial services companies aim to be the one stop shop retail banking destination to their individual consumers consumers expect a range of basic services from retail banks such as checking accounts savings accounts personal loans lines of credit mortgages debit cards credit cards and cds 1most consumers use local branch banking services which provide onsite customer service for all of a retail customer s banking needs through local branch locations financial representatives provide customer service and financial advice financial representatives are also the lead contact for underwriting applications related to credit approved products though a consumer may not use all these retail banking services the primary service is a checking and savings account to deposit money this is a common secure way for individuals to store their cash furthermore it allows them the ability to earn interest on their money most savings accounts offer rates based on the fed funds rate checking and savings accounts also come with a debit card to allow for ease of withdrawal of funds and payment for goods and services retail banks are also an important source of credit for individuals they offer consumers credit to purchase big ticket items such as homes and cars this extension of credit can take the form of mortgages auto loans or credit cards and is an important facet of the economy as it provides liquidity to ordinary consumers which helps the economy grow 1one of the biggest trends in retail banking today is the shift to mobile and online banking specifically banks are adding more tools and features such as the ability to put temporary holds on cards view recurring charges or scan a fingerprint to log into an account to retain their existing customers and attract new ones | |
how a retail bank generates income | a retail bank stores the cash deposits of its retail clients it then uses these deposits to make loans to other clients the federal reserve formerly required that all banks keep 10 of their demand and checking deposits in house overnight this was changed to 0 in march 2020 2this is known as the reserve requirement and is seen as a safety and liquidity measure this means that the remainder of the deposit on hand is allowed to be lent out the banks charge interest rates on these loans at a higher rate than they pay on customer deposits which is how banks earn income 3in the banking industry consumers also rely on the federal deposit insurance corp fdic to insure their bank deposits as of march 31 2023 the fdic insured 4 672 institutions commercial banks and savings banks the total amount of assets the fdic insured was 23 72 trillion and the total amount of loans and leases insured was 12 212 trillion 4types of retail banksretail banks come in a variety of types and sizes from local community banks which are small and locally run to the retail banking services of large global corporate banks such as jpmorgan chase and citibank as of march 31 2023 the top five largest u s commercial banks by assets were 5all these banks offer retail banking services which form a large portion of their revenue credit unions are another type of retail bank that works as a non profit cooperative where members pool their assets to be able to provide loans and other financial services to other members credit unions typically provide better interest rates for their members because they aren t corporate entities seeking profits and they don t have to pay corporate taxes on any earnings expanded services in retail bankingbanks are adding to their product offerings to provide a greater range of services for their retail clients in addition to basic retail banking accounts and customer service from local branch financial representatives banks have started offering teams of financial advisors with broadened product offerings investment services such as wealth management brokerage accounts private banking and retirement planning in the 21st century a movement toward internet banking has also broadly expanded the offerings for retail banking customers several banks now provide online services to customers solely through the internet and mobile applications limiting the number of times a customer needs to go to a local branch to do business in addition to traditional banks offering online services many new fintech companies have blossomed offering similar services with more ease and often at better prices as they don t incur the expense of needing traditional brick and mortar bank branches examples of these banks include n26 monzo and chime a chase survey released in early 2023 found that consumers overwhelmingly want to manage their banking activities in one place and prefer using their mobile apps to do this eighty seven percent of survey respondents said they use their banking app at least once a month or more they monitor account balances and deposit checks through their smartphone and may even apply for a mortgage that way 6retail banking vs corporate bankingwhile retail banking services are provided to individuals in the general public corporate banking services are only offered to companies and corporate bodies the scope of the products and services available is also different retail banking is customer oriented and corporate banking is business oriented the financial worth of transactions is comparably higher in corporate banking than in retail banking the source of profit is also different the difference between the margin of interest of borrowers and lenders is the main source of profit in retail banking while corporate banking s source of profit is the interest and fees charged on the services provided 7corporate banks provide businesses with the following services some corporate banks also have investment banking arms that offer related services to their corporate clients such as asset management and securities underwriters | |
what are some features of retail banking | retail banking is intended to help consumers manage their money by giving them access to basic banking services a source of credit and financial advice the general public can access a variety of services through a retail bank including checking and savings accounts mortgages credit cards foreign currency and remittance services and automobile financing | |
what is an example of a retail bank | u s bank and bank of america are two examples of retail banks because they provide consumer banking products like checking and savings accounts mortgages personal loans credit cards and certificates of deposit cds | |
what is the difference between commercial banking and retail banking | retail banking offers deposit access and lending services to individuals commercial banking is another name for corporate banking which offers banking services to businesses governments and other institutions while retail banking offers its services to people for personal use commercial banking serves institutions the bottom lineretail banks offer a variety of products and services to retail customers when people think about a bank they usually think about a retail bank in every city across the country there are bank branches that make banking services accessible to the general public the most common services that retail banks offer are checking and savings accounts mortgages personal loans credit cards and certificates of deposit cds | |
what is a retail investor | a retail investor also known as an individual investor is a non professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and exchange traded funds etfs retail investors execute their trades through traditional or online brokerage firms or other types of investment accounts retail investors purchase securities for their own personal accounts and often trade in dramatically smaller amounts as compared to institutional investors an institutional investor is an umbrella term for larger scale investments by professional portfolio and fund managers who might manage a mutual fund or pension fund understanding retail investorsretail investors usually buy and sell trades in the equity and bond markets and tend to invest much smaller amounts than large institutional investors however wealthier retail investors can now access alternative investment classes like private equity and hedge funds because of their small purchasing power most retail investors may have to pay higher fees or commissions for their trades although many brokers have eliminated fees for online trades the u s securities and exchange commission sec is charged with protecting retail investors to ensure the markets function in a fair and orderly manner the sec helps retail investors by providing education and the enforcement of regulations to ensure people remain confident and comfortable investing in the markets retail investors have a significant impact on market sentiment which represents the overall tone in the financial markets predictors of investor sentiment include mutual fund flows the first day performance of ipos and survey data from the american association of individual investors which questions retail investors about their expectations for the market sentiment is also tracked by stockbrokers like td ameritrade and e trade criticisms of retail investorscritics say smaller investors do not have the knowledge discipline or expertise to research their investments an investor who makes small size trades is sometimes pejoratively known as a piker as a result they undermine the financial markets role in allocating resources efficiently and through crowded trades cause panic selling these unsophisticated investors are said to be vulnerable to behavioral biases the retail investment marketthe retail investment market in the united states is significant in size and scope and according to the sec an upwards of 58 report having invested in public markets 1 forty three million u s households hold a retirement or brokerage account fifty six million u s households 44 of all households own at least one u s mutual fund as of 2018 2and while americans gravitated to savings accounts and passive investing in the aftermath of the 2008 financial crisis the number of households that own stocks has risen since according to the federal reserve s survey of consumer finances 70 of upper middle income families owned stocks in 2019 3retail investors frequently invest in companies that they are familiar with from their own daily lives and purchasing habits this often tends to be larger blue chip companies etfs have also become very popular with retail investors as these funds allow investors to achieve instant diversification each etf contains shares in many companies offering investors a diversified portfolio through investments in a minimal amount of funds retail investors now have access to more financial information investment education and trading tools than ever before brokerage fees have decreased and mobile trading has enabled investors to actively manage their portfolios from their smartphones or other mobile devices a huge range of investment funds and online brokers have no or low minimum investment or minimum deposit amounts ranging from zero to a few hundred dollars even some robo advisors don t require a minimum investment nevertheless as democratized as investing becomes it is still all about doing your homework institutional investorsinstitutional investors are the big players in the market who move big money examples of institutional investors include institutional investors account for a significant amount of the trading volume on the new york stock exchange nyse they move large blocks of shares and have a tremendous influence on the stock market s movements because they are considered sophisticated investors who are knowledgeable and therefore less likely to make uneducated investments institutional investors are subject to fewer of the protective regulations that the sec provides to your average everyday investor the money that institutional investors use is not actually money that the institutions own themselves institutional investors generally invest for other people if you have a pension plan at work a mutual fund or any kind of insurance you are actually benefiting from the expertise of institutional investors | |
what is the retail price index rpi | the retail price index rpi is one of two measures of consumer inflation produced by the united kingdom s office for national statistics ons it measures certain types of cost escalation but is not considered the official inflation statistic in the u k the rpi was introduced in 1947 and implemented in 1956 retail price index rpi and inflationfirst calculated in june 1947 the rpi was the principal measure of inflation in the u k and replaced the previous cost of living index the retail price index rpi was replaced by the consumer prices index cpi as the primary measure of inflation in 2003 to set the inflation target for the bank of england s monetary policy committee in 2013 the office of national statistics reclassified the rpi as not a national statistic but continues to include it with other indexes on its website 1the rate of inflation is the change in prices for goods and services over time using the rpialthough the rpi is not an official statistic it is used to determine 2rpi vs cpithe rpi tracks changes in the cost of a fixed basket of goods over time and it is produced by combining about 180 000 price quotes for around 700 representative items 3 the cpi began in 1996 as the harmonised index of consumer prices hicp this index was developed to unite statistics for measuring all eu economies following the economic and monetary union in 1992 since the cpi was introduced the measurement of 12 month inflation in the u k has generally been higher when measured by the rpi as compared to the cpi the difference arises because the rpi includes several items excluded in the cpi and vice versa secondly the two indicators measure price change for different target populations and both use different formulas leading to a difference known as the formula effect 4 | |
why is the rpi considered a legacy measurement | over time the rpi calculation has not been updated or corrected to create a correct measure of inflation the u k statistics authority considers rpi to be a legacy measure for this reason and publishes it only because it is required to do so 4 | |
what is included in the cpi | the cpi includes all spending by private and institutional households and foreign nationals when visiting the united kingdom | |
what is an example of the rpi vs cpi | due to the varying inputs to both indexes the inflation rate calculations differ significantly in may 2023 the cpi was 8 7 and the rpi was 11 4 the ons in the u k lists the rpi as not a national statistic 1the bottom linethe retail price index rpi is calculated and published by the office of national statistics in the united kingdom the consumer prices index cpi replaced the rpi in 2003 as the statistical measure of inflation in the u k the rpi is considered a legacy measure since its formula is no longer updated or recalculated but continues to be included on the ons website | |
what are retail sales | retail sales are an economic metric that tracks consumer demand for finished goods this figure is a very important data set as it is a key monthly market moving event retail sales are reported each month by the u s census bureau and indicate the direction of the economy it acts as a key economic barometer and whether inflationary pressures exist retail sales are measured by durable and non durable goods purchased over a defined period of time sales for the report are derived from 13 types of retailers from food service to retail stores understanding retail salesretail sales are a good indicator of the pulse of the economy and its projected path toward expansion or contraction retail sales figures are reported by all food service and retail stores and compiled by the u s census bureau the measurement is typically based on data sampling and is used to model the patterns for the entire country 1as a leading macroeconomic indicator healthy retail sales figures typically elicit positive movements in equity markets higher sales are good news for shareholders of retail companies because it means higher earnings bondholders on the other hand are quite ambivalent towards this metric a booming economy is good for all but lower retail sales figures and a contracting economy would translate to a decrease in inflation this may cause investors to gravitate toward bonds eventually leading to higher bond prices retail sales capture in store sales as well as catalog and other out of store sales of both durable last for more than three years and non durable goods those with a three year or shorter life span 234these are broken down into a number of different categories including but not limited to as a broad economic indicator the retail sales report is one of the timeliest reports because it provides data that is only a few weeks old individual retail companies often provide their own sales figures at the same time every month and their stocks can experience volatility as investors process the data major changes in price can affect retail sales figures these fluctuations in prices are seen primarily in two retail sales categories food retailers and gas stations large increases in food and energy prices can cause sales figures to drop in both categories thus affecting the sales of a particular month retail sales for may 2024 which is an increase of 0 3 from april 2024 these figures are seasonally adjusted but not adjusted for inflation 6special considerationsan accurate measure of retail sales is incredibly vital for gauging the economic health of the u s this is because consumer spending or personal consumption expenditure pce accounts for two thirds of gross domestic product gdp retail sales are reported in the u s every month 7the data for the report is collected by the u s census bureau in its monthly retail trade survey the report which is released in the middle of every month shows the total number of sales in the measured period usually the prior month and the percentage change from the last report the report also includes the year over year change in sales to account for the seasonality of consumer based retail 89the sales figures are often presented in two ways with and without the inclusion of auto and gas sales most economists choose to analyze retail sales without including car sales because these figures tend to fluctuate more than other sales the same applies to gas station sales which are subject to oil and gas price volatility the main reason that this volatile data stream is ignored is that consumers don t have a choice when it comes to consumption retail sales are affected by seasonality the holiday season is typically believed to have the highest level of sales this is partly due to the holiday shopping season for christmas this time of the year accounts for a large portion of yearly sales for many retailers primarily for hobby toy game and department stores 1011 | |
how is retail sales data calculated | the retail sales figures are compiled monthly by the census bureau which is part of the u s department of commerce they are released in the middle of the month and cover the previous month s sales | |
how does inflation impact retail sales | higher inflation causes the price of most goods and services to spike as a result consumers tend to scale back overall spending or prioritize necessities and select inflation proof purchases | |
why are retail sales important | retail sales are seen as a stand in for consumer spending and by extension can be seen as a key measure of the health of the economy the bottom lineretail sales is an important indicator that signals either the contraction or expansion of an economy an increase in retail sales signals a healthy economy that is expanding while a decrease in retail sales signals the opposite an increase in retail sales usually moves stocks upward and is good for shareholders |
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