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what is underwriting risk | underwriting risk is the risk of loss borne by an underwriter in insurance underwriting risk may arise from an inaccurate assessment of the risks associated with writing an insurance policy or from uncontrollable factors as a result the insurer s costs may significantly exceed earned premiums | |
how underwriting risk works | an insurance contract represents a guarantee by an insurer that it will pay for damages and losses caused by covered perils creating insurance policies or underwriting typically represents the insurer s primary source of revenue by underwriting new insurance policies the insurer collects premiums and invest the proceeds to generate profit an insurer s profitability depends on how well it understands the risks it insures against and how well it can reduce the costs associated with managing claims the amount an insurer charges for providing coverage is a critical aspect of the underwriting process the premium must be sufficient to cover expected claims but must also take into account the possibility that the insurer will have to access its capital reserve a separate interest bearing account used to fund long term and large scale projects in the securities industry underwriting risk usually arises if an underwriter overestimates demand for an underwritten issue or if market conditions change suddenly in such cases the underwriter may be required to hold part of the issue in its inventory or sell at a loss special considerationsdetermining premiums is complicated because each policyholder has a unique risk profile insurers will evaluate historical loss for perils examine the risk profile of the potential policyholder and estimate the likelihood of the policyholder to experience risk and to what level based on this profile the insurer will establish a monthly premium if the insurer underestimates the risks associated with extending coverage it could pay out more than it receives in premiums since an insurance policy is a contract the insurer cannot claim they will not pay a claim on the basis that they miscalculated the premium the amount of premium that insurers charge is partially determined by how competitive a specific market is in a competitive market composed of several insurers each company has a reduced ability to charge higher rates because of the threat of competitors charging lower rates to secure a larger market share requirements for underwriting riskstate insurance regulators attempt to limit the potential for catastrophic losses by requiring insurers to maintain sufficient capital regulations prevent insurers from investing premiums which represent the insurer s liability to policyholders in risky or illiquid asset classes these regulations exist because one or more insurers becoming insolvent due to an inability to pay claims especially claims resulting from a catastrophe such as a hurricane or a flood can negatively impact local economies underwriting risk is an integral part of the business for insurers and investment banks while it is impossible to eliminate it entirely underwriting risk is a fundamental focus for risk mitigation efforts the long term profitability of an underwriter is directly proportional to its mitigation of underwriting risk | |
what is underwriting spread | an underwriting spread is the difference between the dollar amount that underwriters such as investment banks pay an issuing company for its securities and the dollar amount that underwriters receive from selling the securities in a public offering the underwriting spread is essentially the investment bank s gross profit margin typically disclosed as a percentage or in points per unit of sale understanding underwriting spreadthe size of underwriting spreads is determined on a deal by deal basis and is influenced mainly by the underwriter s perceived risk in the deal this will also be influenced by expectations for the demand of the securities in the market the size of the underwriting spread depends on the negotiations and competitive bidding among members of an underwriter syndicate and the issuing company itself the spread increases as the risks involved with the issuance increase the underwriting spread for an initial public offering ipo usually includes the following components the manager is usually entitled to the whole underwriting spread each member of the underwriting syndicate then gets a not necessarily equal share of the underwriting fee and a portion of the concession additionally a broker dealer which is not itself a member of the underwriter syndicate earns a share of the concession based on how well it does selling the issue the value of an underwriting spread can be influenced by variables such as the size of the issue risk and volatility proportionately the concession increases as total underwriting fees rise meanwhile the management and underwriting fees decrease with gross underwriting fees the effect of size on the division of fees is usually due to differential economies of scale the extent of investment banker work for example in writing the prospectus and preparing the roadshow is somewhat fixed while the amount of sales work is not larger deals will not involve exponentially more investment banker work however it might involve much more sales effort requiring an increase in the proportion of the selling concession alternatively junior banks may join a syndicate even if they receive a smaller share of the fees in the form of a lower selling concession example of an underwriting spreadto illustrate an underwriting spread consider a company that receives 36 per share from the underwriter for its shares if the underwriters turn around and sell the stock to the public at 38 per share the underwriting spread would be 2 per share | |
what are underwriting standards | underwriting standards are guidelines established to ensure that safe and secure loans are issued and maintained the underwriting standards in place help to set benchmarks for how much debt may be issued to a person the terms of the loans how much debt a specific company is willing to issue and what interest rates will be charged | |
how underwriting standards work | sound underwriting standards protect financial institutions from excessive risks that can lead to losses history indicates that lending and underwriting standards are generally pro cyclical as competitive pressures increase for loan growth banks may be enticed to ease underwriting standards to expand the loan portfolio in order to generate earnings as conditions begin to deteriorate this easing of underwriting standards can cause banks to face an increased risk followed by rising losses and an eventual tightening of underwriting standards for example during the financial crisis of 2008 2009 some lenders reduced prepayment fees and offered heightened flexibility on the terms of the loans they issued during that same crisis many companies also tightened underwriting standards one of the culprits in the downturn requirements for underwriting standardsthe choice to modify a financial institution s lending terms and underwriting standards is usually the result of decisions made by the board and senior management alternatively subtle de facto revisions in policies can result from how standards and procedures are actually applied in practice in both instances appropriate risk management steps must be taken to ensure risks are properly identified monitored and controlled and that loan pricing terms or other safeguards against nonperformance are appropriate for the risks being taken a federal reserve study of lending practices outlined six core lending terms and underwriting standards for maintaining strong credit discipline and assuring smart credit decisions those standards include 12example of underwriting standardsthe federal deposit insurance corporation fdic has its own recommended guidelines for underwriting standards for credit cards per the federal deposit insurance corporation fdic underwriting standards help ensure credit cards offered to customers meet an acceptable level of risk some of the key underwriting standards that the federal deposit insurance corporation fdic recommends for credit cards include 3 | |
what are undisclosed reserves | undisclosed reserves include unpublished or hidden reserves that may not appear on public documents such as on the balance sheet but are nonetheless real assets and are considered as such by most banking institutions bank reserves are the cash minimums that financial institutions must keep on hand the federal reserve fed sets the requirements in order to ensure that banks have enough money on hand to cover withdrawals understanding undisclosed reservesundisclosed reserves relate to capital requirements in the banking industry and are designated as tier 2 capital tier 2 is designated as the second or supplementary layer of a bank s capital and is less liquid than tier 1 capital undisclosed reserves are included in tier 2 capital and will occur through provisions or when a bank charges expenses against a p l these items are not disclosed and not visible on public statements such as the balance sheet tier 2 capital or supplementary capital also includes a number of important and legitimate constituents of a bank s capital requirement five items can typically be included in tier 2 capital calculations tier 1 capital which is also known as core capital is more liquid and consists of equity capital and disclosed reserves e g retained earnings tier 1 capital is the money the bank has on its books while it undertakes lending investing trading or other risky transactions simply put tier 1 funds support banks when losses are absorbed so that business functions do not have to be shut down tier 1 and tier 2 capital requirements were largely standardized in the basel i accord issued by the basel committee on banking supervision and left untouched by the basel ii accord national regulators of most countries around the world have implemented tier 2 standards in local legislation in the calculation of regulatory capital tier 2 is limited to 100 of tier 1 capital 1 undisclosed reserves special considerationspreferred or accepted forms of capital and collateral have grown in importance particularly after the banking crisis during 2008 and 2009 bank stress tests which were conducted in response to numerous taxpayer funded bailout programs highlighted how certain assets and reserves were woefully inadequate during the volatile markets of the great recession in practice undisclosed reserves are not common but are accepted by some regulators where a bank has made a profit but the profit has not appeared in normal retained earnings or in general reserves of the bank it is fairly standard for undisclosed reserves to be accepted by a bank s supervisory authorities however many countries do not accept undisclosed reserves as an accounting concept or even as a legitimate form of capital | |
what is an undivided account | an undivided account is an initial public offering ipo for which there are multiple underwriters each taking responsibility for placing any shares that remain unsold that is each firm agrees to pick up the slack if other underwriters fail to sell the portion of the total number of shares that they have been allocated this type of account is sometimes called an eastern account naturally there is a variation called a western account understanding undivided accounts | |
when a company prepares to launch an ipo of stock or bonds it hands off responsibility for marketing its shares to one or more underwriters these are the financial firms that manage the process of preparing the ipo up to and including establishing a price for the shares and selling them those first buyers include large financial institutions and brokerages | in an undivided or eastern account one underwriter might be responsible for placing 15 of an issue while others take up the rest if the entire issue is not placed the firm with 15 must assist in placing the remainder in a western account each underwriter takes responsibility only for placing the percentage of shares it was assigned the share of liability is divided among the underwriters according to the size of their allotment of the total shares available underwriting accounts and agreementsunderwriters in investment brokerages assume considerable risk in managing new issues of bonds or stocks the underwriter agrees to upfront to pay the issuer a certain amount of money regardless of the sale price at issue to offset some of this risk many firms enter into syndication agreements that spread the risks and rewards of underwriting the new issue most syndicates are administered by one of the participating firms and the eastern account is the most common arrangement both the risks and the rewards are greater than they are with western accounts an underwriter who participates in an eastern account with a consortium can share in a percentage of the profits while committing a relatively small amount of money in advance terms of an eastern agreementunderwriters may include a market out clause in the agreement this clause frees the underwriter from the purchase obligation in case of a development that impairs the quality of the securities or that adversely affects the issuer the clause is limited in its application however poor market conditions or over pricing do not qualify the terms are specified in the syndicate agreement which also is called the underwriting agreement the syndicate agreement details the fee structure in addition to the money the syndicate member receives when selling shares or bonds the agreement specifies the percentage of shares or bonds that each syndicate member commits to selling the syndicate manager can set up an underwriting on a western or eastern account basis types of underwriting agreements vary and include firm commitment agreement best efforts agreement mini max agreement all or none agreement and standby agreement | |
what is undivided profit | undivided profits refer to gains from current and past years that have not been transferred to a surplus account or distributed as dividends to shareholders often times financial gains or budget surpluses are set aside in a separate account designated as a surplus account are earmarked for distribution as dividends or assigned to another purpose such as funding a project essentially undivided profit refers to corporate earnings that have been allowed to accumulate over a period of time as opposed to being disbursed for other purposes understanding undivided profitcurrent earnings may be credited to the undivided profits account and will eventually either be distributed to shareholders in the form of dividends or will be held within the company in the form of retained earnings dividend distributions signal strong financial strength within the company while retained earnings can be used to further future growth the desired strategy may depend on the amount of profit generated and the potential for value maximizing projects undivided profit typically reflects a public company s earnings after tax since undivided profits are not earmarked for dividends like funds in a surplus account are at least until they are transferred to a surplus account they are counted as part of the company s equity undivided profit can also be thought of as a company s overall profits that are re invested into the company when not given as dividends this distinction between a bank s undivided profits account and its surplus or surplus fund account was explicitly recognized by the united states supreme court in 1925 with edwards v douglas the ruling stated by incorporated banks the term undivided profits is commonly employed to designate the account in which profits are carried more or less temporarily in contradistinction to the account called surplus in which are carried amounts treated as permanent capital and which may have been derived from payments for stock in excess of par or from profits which have been definitely devoted to using as capital 1 example of undivided profitthe question of whether undivided profits counted as part of the capital or surplus of banks came up in 1964 with the federal reserve bank of dallas which debated how to count this allocation of money after examining the supreme court ruling the then president of the federal reserve bank of dallas stated that it was of the board s opinion that undivided profits do not constitute capital capital stock or surplus for the purposes of provisions of the federal reserve act including those that limit member banks with respect to loans to affiliates purchases of investment securities investments in bank premises loans on stock or bond collateral deposits with nonmember banks and bank acceptances among others 2 | |
what is undue influence | undue influence occurs when an individual is able to persuade another s decisions due to the relationship between the two parties often one of the parties is in a position of power over the other due to elevated status higher education or emotional ties the more powerful individual uses this advantage to coerce the other individual into making decisions that might not be in their long term best interest undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person this inequity in power between the parties can vitiate one party s consent as they are unable to freely exercise their independent will in exerting undue influence the influencing individual is often able to take advantage of the weaker party in contract law a party claiming to be the victim of undue influence may be able to void the terms of the agreement 1understanding undue influenceundue influence occurs when an individual is able to use an advantage to coerce another party s decisions often this coercion occurs to the detriment of the weaker party and the gain of the more powerful or influential party some relationships such as one between a patient and a doctor or a parent and a child are considered to run the risk of undue influence and are legally outlined 2the onus in this type of relationship is on the person with influence to prove that he was not using his position to take advantage of the other party in other situations one party based on previous interactions can be accused of using the trust of the other party to his advantage example of undue influencefor example bert is ernie s therapist bert is also involved in a couple of real estate development deals around town ernie starts talking to bert about how he has heard about units for sale in the complex that bert is invested in developing ernie isn t interested and doesn t feel it s appropriate for him to purchase a home at that time but feels left behind by his friends who are all purchasing units or making other investments in the project bert uses his place of power over ernie to convince him that it s a good step forward in his life also to make an investment in the project this is to ernie s financial detriment but it increases the value of bert s investment bert has used undue influence undue influence in financial marketsthere is a pandemic of undue influence in the financial markets of the world it can be as simple as leveraging information someone has on someone else in order to induce a sale or purchase or it can be as complicated as forcing board members to vote a certain way having third party counsel or a mediator present when deals or large trades are occurring can help to mitigate instances of undue influence | |
what is an unearned discount | an unearned discount is an interest or a fee that has been collected on a loan by a lending institution but has not yet been counted as income or earnings instead it is initially recorded as a liability as the life of the loan progresses proportionate parts of the fee or interest collected up front are removed from the liability side of the balance sheet and counted as income if the loan is paid off early the unearned interest portion must be returned to the borrower an unearned discount is more commonly referred to as unearned interest understanding unearned discountsan unearned discount account recognizes interest deductions before being classified as income earned throughout the term of the outstanding debt over time then the unearned discount creates an increase in the lender s profit and a subsequent decrease in liability not all interest that is received by a lender is classified as earned this is because lenders often pre schedule regular payments to be made at the beginning of each month but the interest paid by the borrower at the beginning of the month applies to the cost of borrowing for the entire month and therefore has not been earned by the lender for example say that a homeowner obtains a mortgage that requires them to make a monthly payment on the 1st of each month in the amount of 1 500 with 500 representing the interest portion however this 500 in interest is meant to cover the entirety of the month and it s considered to be unearned on the 1st as it is prepaid as the month progresses a pro rata amount of that interest is credited to the bank s earnings while the liability of the unearned discount is made smaller calculating an unearned discountunearned discounts may be estimated under the so called rule of 78 which is a method used for loans with precomputed finance charges if the loan is repaid or early or refinanced the rule of 78 can determine the unearned discount to the lender this works as follows | |
where | example of unearned discountsnuffy s bank and trust have made a loan to ernie s brokerage as part of the up front costs of the loan ernie was required to pay a financing charge of 6 of the total loan amount the total loan amount is 10 000 and will be repaid over 5 years in monthly installments the amount of the finance charge paid up front by ernie was 600 initially snuffy s bank and trust record the 600 unearned discount as a liability on its books as ernie pays each of the 60 loan payments 12 per year for 5 years 1 60th of the 600 will be removed from the liability side of the balance sheet and recognized as income | |
what is unearned income | the term unearned income refers to any income that is not acquired through work put simply unearned income is any money you earn by doing nothing this is in contrast to earned income which is any compensation received for performing a service like work there are many types of unearned or passive income including interest from savings accounts bond interest alimony and dividends from stocks understanding unearned incomeas noted above unearned income is any money that is earned passively it differs from earned income which is any form of compensation gained from employment work or business activities unearned income cannot be contributed to individual retirement accounts iras according to the internal revenue service irs earned income includes wages salaries tips and self employment income 1taxation differs for unearned income and earned income due to qualitative differences the tax rates also vary among unearned income sources most unearned income sources are not subject to payroll taxes and none of them is subject to employment taxes such as social security and medicare 23make sure you understand the origin and taxation of any of your unearned income types of unearned incomeunearned income can fall into a number of different categories we ve listed some of the most common and highlighted some of the key considerations for each below interest and dividend income are the most common types of unearned income money received this way is unearned income and the tax paid on it is considered an unearned income tax interest income is normally taxed as ordinary income on sources that earn income including there are certain exceptions to this rule including interest earned on municipal bonds which is exempt from federal income tax 5dividends which are income from investments can be taxed at ordinary tax rates or preferred long term capital gains tax rates 6 investments typically yield dividends payable to shareholders on a regular basis dividends may be paid to the investment account monthly quarterly annually or semi annually taxation of dividends is based on whether the dividend is ordinary or qualified you may get unearned income from other sources such as benefits of unearned incomeunearned income can serve as a supplement to earned income before retirement and it is often the only source of income in postretirement years during the accumulation phase taxes are deferred for many sources of unearned income sources of unearned income that allow a deferment of income tax include 401 k plans and annuity income as a result participants avoid irs penalties and higher tax rates 910tax advisors often recommend diversifying holdings to even out the effect of taxes on unearned income examples of unearned incomehere are a couple of hypothetical examples to show how unearned income actually works let s say jan invests 50 000 in a cd the interest she derives from her investment is considered unearned income and must be reported to the irs for taxation at the ordinary income rate 4 she also wins 10 000 on a game show but she does not get the full amount of her winnings why because the irs deducts taxes from it treating the amount as unearned income 11now let s suppose that michael buys an investment property with the intention of renting it out for additional income he fixes it up and converts it into two apartments the main unit and the basement as a separate studio he signs leases with two different tenants who pay their rent to michael on the first of each month the tenants rent payments are considered unearned or passive income because michael isn t doing any work to earn them | |
what are some types of unearned income | unearned income is income not earned from work examples include inheritance money a financial prize unemployment benefits interest on a savings account and stock dividends 8 | |
do i have to pay tax on unearned income | usually yes though not subject to employment taxes such as social security and medicare and in most cases payroll taxes unearned income is generally treated as taxable income save for a few exceptions such as life insurance proceeds 12 | |
how much tax will i pay on unearned income | unearned income is not taxed uniformly some sources of unearned income are taxed as ordinary income whereas others enjoy more generous tax rates it s also possible with some types of unearned income to defer tax liabilities to a later date 64 | |
what s the difference between unearned income and earned income | unearned income is any form of income you earn passively examples include interest on investments dividends lottery or casino winnings and rental income from investment properties earned income on the other hand is any compensation you receive for providing a service this may be from your employer a self employment gig tips bonuses and vacation pay 2 | |
what is the tax treatment of unearned income for a child | according to the irs there are two possibilities that affect the reporting of a child s unearned income for 2023 any unearned income above 2 500 2 600 for 2024 may be subject to an unearned income tax this is known as the kiddie tax alternatively interest and dividend income of less than 12 500 for 2023 13 000 for 2024 may be included on the parent s return rather than that of the child 131415the bottom lineunearned income isn t a term with which most people are familiar you may know it as passive income or money that you acquire without providing a service put simply you make this money without actually working for it sources of unearned income may include interest income from interest paying accounts dividends and rent from tenants if you have an investment property just because it means it is earned passively doesn t mean you don t have to report it on your tax return in fact the opposite is true be sure to check with the irs or the issuer of the unearned income or you can consult a tax professional if you re unsure of what your unearned means to your tax liability | |
what is unearned interest | unearned interest is interest that has been collected on a loan by a lending institution but has not yet been recognized as income or earnings instead it is initially recorded as a liability if the loan is paid off early the unearned interest portion must be returned to the borrower unearned interest is also called unearned discount breaking down unearned interestinterest recorded in the books of financial institutions as a result of lending activities is either earned or unearned earned interest as the name implies is interest income that is earned over a specific period of time from investments that pay the lender a regular series of mandated payments interest earned can be generated from bonds through interest payments made to bondholders after a stated period of time unearned interest has been collected but is not recognized as income or earnings it is initially recorded as a liability not all interest that is received by a lender is earned most lenders schedule loan payments to be made at the beginning of the month the interest paid by borrowers to compensate lenders for lending them funds for a specified period of time represents interest income to the lender however the interest paid by the borrower at the beginning of the month applies to the cost of borrowing for the entire month and therefore has not been earned by the lender for example assume a borrower on the first of each month makes his regular 1 200 payment on a loan of which 240 is the interest portion the 240 is the borrower s cost for making use of the loan for the entire month since he prepaid the interest the 240 will not be earned by the lending institution because the principal of the loan has not been outstanding long enough to recognize this transaction the cash account is debited increase in cash and the unearned interest income account on the ledger is credited this shows that the bank records such income but recognizes the interest portion as unearned if the loan is paid off early the unearned portion must be returned to the borrower for example assume a borrower takes out a 36 month loan on a car if she pays off the entire loan after 30 months she will be refunded 6 months interest unearned this is the amount she will save by paying off the loan early amortization of unearned interestunearned interest is an accounting method used by lending institutions to deal with long term fixed income securities initially recorded as a liability the unearned interest will eventually be recorded as income in the lending institution s books over the life of the loan as time passes and the interest is earned this accounting process is referred to as amortizing unearned interest | |
when amortizing unearned interest a portion of the income is allocated to one period at a time to amortize prepaid interest the unearned interest income account is debited and the interest income account is credited | calculating unearned interestunearned interest can be estimated using a method known as the rule of 78 the rule of 78 deals with precomputed loans that is loans which have their finance charges calculated before the loan is made the rule of 78 is used to calculate the amount of the finance charge or interest to be rebated in the event that the loan is repaid early the formula for unearned interest is unearned interest f x k k 1 n n 1 | |
where f total finance charge n x m p | m regular monthly loan paymentp original loan amountk remaining number of loan payments after current paymentn original number of paymentsfor example a borrower takes a 10 000 loan on a car to be repaid in 48 monthly installments of 310 00 however she repays the loan after 36 months the lender s unearned interest can be calculated to be f 48 x 310 10 000f 4 880unearned interest 4 880 x 12 x 13 48 x 49 unearned interest 4 880 x 156 2352 unearned interest 4 880 x 0 0663unearned interest 323 67 | |
what are unearned premiums | an unearned premium is the premium amount that corresponds to the time period remaining on an insurance policy in other words it is the portion of the policy premium that has not yet been earned by the insurance company because the policy still has some time before it expires unearned premiums appear as a liability on the insurer s balance sheet because they would be paid back upon cancellation of the policy for example at the end of the first year of a fully prepaid five year insurance policy with insurance premiums of 2 000 per year the insurer has earned a premium of 2 000 and has an unearned premium of 8 000 understanding unearned premiumsan unearned premium is the portion of an insurer s total premiums that is collected in advance by an insurance company unearned premiums may be subject to return if a client ends coverage before the term covered by the premium is complete an unearned premium may be returned when an insured item is declared a total loss and coverage is no longer required or when the insurance provider cancels the coverage for example consider a client who paid an auto insurance premium one year in advance who experiences the complete destruction of his vehicle four months into the coverage period the insurance company keeps one third of the annual premium for coverage provided and returns the other two thirds as unearned premium provisions in the insurance contract govern the terms for unearned premium the provisions must follow regulations related to the area where the coverage is offered a specific formula for calculating the amount of the unearned premium may be required the premium that a policyholder pays for an insurance contract is not immediately recognized as earnings by the insurer in certain circumstances an insurance company may not have to issue a refund for unearned premium for example if the policyholder has falsified information on the application for obtaining insurance coverage the provider may not be required to refund any part of the earned or unearned premiums collected policies typically outline the conditions that must be met when applying for and receiving the unearned portion of a premium insurance providers may not have to return a portion of unearned premium when a policyholder terminates the coverage for no given reason or for reasons such as securing a similar policy with a different provider it is best for the policyholder to wait until the coverage period of the last paid premium is close before switching insurance companies however if the insured can prove the provider did not honor the terms and conditions described in the provisions of the policy any unused portion of the premium should be refunded unearned premium vs earned premiuman unearned premium on an insurance policy can be contrasted with earned premium earned premium is a pro rated amount of paid in advance premiums that has been earned and now belongs to the insurer the amount of the earned premium equates to the sum of the total premiums collected by an insurance company over a period of time in other words the earned premium is the portion of an insurance premium that paid for a portion of time in which the insurance policy was in effect but has now passed and expired since the insurance company covered the risk during that time it can now consider the associated premium payments it took from the insured as earned example of unearned premiumbecause canceling a policy may mean issuing a refund unearned premiums appear as liabilities on an insurance company s balance sheet for example an insurance company receives 600 on january 27 for coverage from february 1 to july 31 but as of january 31 the 600 has not been earned the insurance company reports the 600 in its cash account and reports 600 as a current liability in its unearned premium revenue account as the company earns the premium the provider moves the amount earned from the liability account to a revenue account on its income statement | |
what is unearned revenue | unearned revenue is money received by an individual or company for a service or product that has yet to be provided or delivered it can be thought of as a prepayment for goods or services that a person or company is expected to supply to the purchaser at a later date as a result of this prepayment the seller has a liability equal to the revenue earned until the good or service is delivered this liability is noted under current liabilities as it is expected to be settled within a year unearned revenue is also referred to as deferred revenue and advance payments paige mclaughlin investopediaunderstanding unearned revenueunearned revenue is most common among companies selling subscription based products or other services that require prepayments classic examples include rent payments made in advance prepaid insurance legal retainers airline tickets prepayment for newspaper subscriptions and annual prepayment for the use of software receiving money before a service is fulfilled can be beneficial the early receipt of cash flow can be used for any number of activities such as paying interest on debt and purchasing more inventory recording unearned revenueunearned revenue is recorded on a company s balance sheet as a liability it is treated as a liability because the revenue has still not been earned and represents products or services owed to a customer as the prepaid service or product is gradually delivered over time it is recognized as revenue on the income statement here s an example if a publishing company accepts 1 200 for a one year subscription the amount is recorded as an increase in cash and an increase in unearned revenue both are balance sheet accounts so the transaction does not immediately affect the income statement if it is a monthly publication as each periodical is delivered the liability or unearned revenue is reduced by 100 1 200 divided by 12 months while revenue is increased by the same amount unearned revenue is usually disclosed as a current liability on a company s balance sheet this changes if advance payments are made for services or goods due to be provided 12 months or more after the payment date in such cases the unearned revenue will appear as a long term liability on the balance sheet unearned revenue reporting requirementsthere are several criteria established by the u s securities and exchange commission sec that a public company must meet to recognize revenue if these are not met then revenue recognition is deferred 1according to the sec there must be collection probability or the ability to make a reasonable estimate of an amount for the allowance for doubtful accounts completed delivery or ownership shifted to the buyer persuasive evidence of an arrangement and a determined price 1example of unearned revenuemorningstar inc morn offers a line of products and services for the financial industry including financial advisors and asset managers many of its products are sold through subscriptions under this arrangement many subscribers pay upfront and receive the product over time this creates a situation in which the amount is recorded as unearned revenue or as morningstar calls it deferred revenue at the end of the second quarter of 2020 morningstar had 287 million in unearned revenue up from 250 million from the prior year end the company classifies the revenue as a short term liability meaning it expects the amount to be paid over one year for services to be provided over the same period morningstar quarterly reportunearned revenue can provide clues into future revenue although investors should note the balance change could be due to a change in the business morningstar increased quarterly and monthly invoices but is less reliant on upfront payments from annual invoices meaning the balance has been growing more slowly than in the past | |
what is uneconomic growth | uneconomic growth is growth that produces negative externalities which reduce the overall quality of life this is also known as unsustainable growth where the negative social and environmental consequences outweigh the short term value of an extra unit of growth making it uneconomic understanding uneconomic growthuneconomic growth happens when the marginal benefits of manufacturing more goods and a growing economy are outweighed by the negative social and environmental impacts it has become an article of faith in environmental and ecological economics although the idea of unproductive growth has been around for a while some of its philosophy has also been adopted by climate change conscious investors in the environmental social and governance esg space where large wealth funds and foundations have been divesting themselves of fuel stocks socially conscious investors have been avoiding fossil fuel stocks and making other ethical investment decisions in order to align the core of their investment strategy with their values greens champion the cause of uneconomicsthe concept of uneconomic growth and the steady state economy was popularized by world bank economist herman daly in the late 1990s ecologists like environmental activist david suzuki argue that the global economy is now so large that society can no longer safely pretend it operates within a limitless ecosystem | |
when one nation increases production by damaging the environment it creates negative consequences that are felt by the entire planet in terms of lost ecosystem services the same principle can be applied to the level of a city company or even one s own home | a grim prognosis for the future of global economic growth concerns about possible negative effects of growth on the environment and society have led environmentalists and climate activists to advocate lower levels of economic growth and fossil fuel use to limit the damage to the environment and climate ecological economists think the world has already passed the point when growth costs more than it is worth and that we need to focus on protecting natural habitats the united nations has adopted a progressive agenda to achieve sustained economic growth but even that does not go far enough for green economists who want to move beyond growth and find alternative global indicators to gross domestic product gdp which because it is a monetary valuation does not distinguish between market transactions that contribute positively to sustainable well being such as buying bicycles solar panels or fresh food and those that diminish it such as buying gas guzzlers guns or cigarettes the focus on gdp means that economic policies automatically have a pro growth bias and that there is no distinction between economies that are undermining critical ecosystems and those that are not | |
what is unemployment | unemployment refers to a situation where a person actively searches for employment but is unable to find work unemployment is considered to be a key measure of the health of the economy the most frequently used measure of unemployment is the unemployment rate it s calculated by dividing the number of unemployed people by the number of people in the labor force understanding unemploymentunemployment is a key economic indicator because it signals the ability or inability of workers to obtain gainful work and contribute to the productive output of the economy more unemployed workers mean less total economic production the unemployment definition doesn t include people who leave the workforce for reasons such as retirement higher education and disability 1unemployed workers must maintain at least subsistence consumption during their period of unemployment this means that an economy with high unemployment has lower output without a proportional decline in the need for basic consumption high persistent unemployment can signal serious distress in an economy and even lead to social and political upheaval a low unemployment rate on the other hand means that the economy is more likely to be producing near its full capacity maximizing output driving wage growth and raising living standards over time however extremely low unemployment can also be a cautionary sign of an overheating economy inflationary pressures and tight conditions for businesses in need of additional workers while the definition of unemployment is clear economists divide unemployment into many different categories the two broadest categories are voluntary and involuntary unemployment when unemployment is voluntary it means that a person left their job willingly in search of other employment when it is involuntary it means that a person was fired or laid off and must now look for another job 2types of unemploymentvoluntary and involuntary unemployment can be broken down into four types we highlight them below this type of unemployment is usually short lived it is also the least problematic from an economic standpoint it occurs when people voluntarily change jobs after a person leaves a company it naturally takes time to find another job similarly graduates just starting to look for jobs to enter the workforce add to frictional unemployment frictional unemployment is a natural result of the fact that market processes take time and information can be costly searching for a new job recruiting new workers and matching the right workers to the right jobs all take time and effort this results in frictional unemployment cyclical unemployment is the variation in the number of unemployed workers over the course of economic upturns and downturns such as those related to changes in oil prices unemployment rises during recessionary periods and declines during periods of economic growth preventing and alleviating cyclical unemployment during recessions is one of the key reasons for the study of economics and the various policy tools that governments employ to stimulate the economy on the downside of business cycles structural unemployment comes about through a technological change in the structure of the economy in which labor markets operate technological changes can lead to unemployment among workers displaced from jobs that are no longer needed examples of such changes include the replacement of horse drawn transport with automobiles and the automation of manufacturing retraining these workers can be difficult costly and time consuming displaced workers often end up either unemployed for extended periods or leaving the labor force entirely institutional unemployment results from long term or permanent institutional factors and incentives in the economy the following can all contribute to institutional unemployment many governments offer unemployment insurance to certain unemployed individuals who meet eligibility requirements | |
how to measure unemployment | the u s government uses surveys census counts and the number of unemployment insurance claims to track unemployment the u s census conducts a monthly survey called the current population survey cps on behalf of the bureau of labor statistics bls to produce the primary estimate of the nation s unemployment rate this survey has been done every month since 1940 1the sample consists of about 60 000 eligible households that translates to about 110 000 people each month the census changes a quarter of the sampled households each month so that no household is represented for more than four consecutive months this is meant to strengthen the reliability of the estimates 1many variations of the unemployment rate exist with different definitions of who is an unemployed person and who is in the labor force the bls commonly cites the u 3 unemployment rate defined as the total unemployed as a percentage of the civilian labor force as the official unemployment rate however this definition does not include discouraged unemployed workers who are no longer looking for work 3other categories of unemployment include discouraged workers and part time or underemployed workers who want to work full time but for economic reasons are unable to do so 4history of unemploymentalthough the u s government began tracking unemployment in the 1940s the highest rate of unemployment to date occurred during the great depression when unemployment rose to 24 9 in 1933 5between 1931 and 1940 the unemployment rate remained above 14 but subsequently dropped down to the single digits it remained there until 1982 when it climbed above 10 6in 2009 during the great recession unemployment again rose to 10 in april 2020 amid the covid 19 pandemic unemployment hit 14 8 as of june 2024 the unemployment rate was 4 1 7 | |
what are the main causes of unemployment | there are many reasons for unemployment these include recessions depressions technological improvements job outsourcing and voluntarily leaving one job to find another | |
what are the 3 types of unemployment | today s economists point to three main types of unemployment frictional structural and cyclical frictional unemployment is the result of voluntary employment transitions within an economy frictional unemployment naturally occurs even in a growing stable economy as workers change jobs structural unemployment can produce permanent disruptions due to fundamental and permanent changes that occur in the structure of the economy these changes can marginalize a group of workers they include technological changes a lack of relevant skills and jobs moving overseas to another country cyclical unemployment relates to the loss of jobs that occurs during changes in business cycles | |
what is the strict definition of unemployment | the official unemployment definition comes from the bureau of labor statistics which states that people are classified as unemployed if they do not have a job have actively looked for work in the prior four weeks and are currently available for work 1the bottom lineunemployment is when an individual who is not employed and is seeking employment cannot find work unemployment is a key indicator of the health of an economy a low unemployment rate represents a strong economy while a high unemployment rate represents a weak economy | |
what is an unemployment claim | an unemployment claim is a request for cash benefits made by an individual after they are laid off from their job claims are filed through state governments for temporary payments after people lose their jobs through no fault of their own the united states department of labor dol tracks the number of weekly unemployment claims it provides both seasonally adjusted and seasonally unadjusted claims numbers and also lists increases or decreases of 1 000 or more claims by state this data is reported in the media as an indication of national and state economic health 1understanding unemployment claimsunemployment claims are paid from state funds that are collected from employers in the form of an unemployment insurance tax unemployment benefits are payable for a limited number of weeks and are designed to replace a percentage of a worker s previous wages most states provide up to 26 weeks of benefits for unemployed individuals 23individuals are required to file unemployment claims with the ui program in the state where they worked claims may be filed in person online or over the phone depending on the state when a claim is filed the following information must be provided workers must also meet certain criteria to be eligible for claims they must be actual employees of the business receiving w 2 forms at year end not independent contractors or freelancers they must also have been laid off rather than having quit or been fired for misconduct 56you must demonstrate that you are actively looking for work to continue receiving your unemployment benefits 7the initial date of an unemployment claim determines the benefit year during which claimants may file weekly claims as well as the base period of the claim the base period determines the wages used to compute the weekly and maximum benefit amounts and for which employers will have potential chargeback or reimbursement liability for any benefits paid to the claimant 8only base period employers are part of an unemployment claim non base period employers have no such liability filing an unemployment claimthe time you file an unemployment claim is very important for example consider an employer who hires an employee in march and lets that individual go after 30 days if the claimant files an initial claim before april 1 the base period would not include the first quarter of that year the quarter in progress nor the fourth quarter of the preceding year the lag quarter rather the claim consists of the fourth quarter of the year before the year preceding the current year and the first three quarters of the year preceding the current year since the employer did not report wages during that base period it will have no financial involvement in the claim the same applies if the claimant waits until april may or june to file the initial claim in this case the base period omits the second quarter of the current year and the first quarter of the current year it is made up of the four quarters of the preceding year if the ex employee files an initial claim after june 30 of the current year then the employer could be a base period employer but its chargeback liability would be limited due to having paid only 30 days worth of wages 8 | |
what is the difference between jobless and unemployed | jobless individuals are only reported as unemployed if they are actively seeking work jobless workers aren t included in the unemployment rate the labor force is made up of the employed and unemployed those who are neither employed nor unemployed aren t counted as part of the labor force 9 | |
what do jobless claims mean | jobless claims are a measure of how many people are out of work at a certain time there are two sections of jobless claims reported initial and continuing jobless claims initial jobless claims are for new claimants for unemployment benefits while continuing jobless claims are for people who are continuing to receive benefits 10 | |
what is the current unemployment rate in the united states | the unemployment rate in the united states is 4 1 as of june 2024 11the bottom lineunemployment claims are cash payments made to individuals after they have been laid off from their jobs unemployment claims help individuals cover expenses such as rent mortgages and groceries while they are unemployed and looking for work unemployment claims are not made to people who left their jobs voluntarily or to those who have been fired from their jobs | |
what is unemployment compensation | unemployment compensation is paid by the state to unemployed workers who have lost their jobs due to layoffs or retrenchment it is meant to provide a source of income for jobless workers until they can find employment in order to be eligible for unemployment compensation specific criteria must be satisfied such as having worked for a minimum stipulated period and actively looking for a job unemployment compensation generally provided by an unemployment check or a direct deposit provides partial income replacement for a defined length of time or until the worker finds employment whichever comes first it is also known as unemployment benefits or unemployment insurance 1understanding unemployment compensationunemployment compensation is paid by many developed nations and some developing economies in the united states the unemployment compensation system is jointly managed by the federal government and each individual state government benefits are based on a percentage of a worker s average pay over a recent 52 week period and their calculation can vary by state benefits are generally paid by state governments funded in large part by state and federal payroll taxes paid by employers most states provide benefits for 26 weeks though this varies by state and can go as low as 12 and as high as 30 2 extensions are possible during periods of high unemployment 4unemployment compensation requirementsas noted above both the federal government and the individual states manage unemployment insurance in the united states requirements vary by state in terms of how benefits are determined to be eligible in new york for example you must have worked and been paid wages in two calendar quarters been paid at least 2 600 in one calendar quarter and the total wages paid to you must be at least 1 5 times the amount paid to you in your high quarter the minimum benefit is 104 per week and the maximum benefit is 504 per week 5new york and many other states waived the seven day waiting period for benefits for people who are out of work due to coronavirus covid 19 closures or quarantines 6covid 19 related unemployment programson march 27 2020 president trump signed into law a 2 trillion coronavirus emergency stimulus package called the coronavirus aid relief and economic security cares act 7 it temporarily expanded unemployment insurance benefits through three initiatives here is a quick summary of how they compare president joe biden signed the american rescue plan a stimulus package worth 1 9 trillion on march 11 2021 which provided additional benefits to americans because of the covid 19 pandemic 8 the bill extended unemployment benefits for those who lost their jobs because of the pandemic from march 14 2021 to sept 6 2021 9 the new law extended the pua by an additional 29 weeks from 50 to 79 weeks 3 it also pushed peuc benefits from a total of 24 to 53 weeks 10all unemployment benefits and compensation related to the pandemic ended on sept 6 2021 history of unemployment compensationthe first unemployment compensation system was introduced in the united kingdom with the national insurance act of 1911 under the liberal party government of h h asquith the measures were intended to counteract the increasing footprint of the labour party among the country s working class population the national insurance act gave the british working classes a contributory system of insurance against illness and unemployment however it only applied to wage earners the families of wage earners and those earning non wage income had to rely on other sources of support communists who thought such insurance would prevent workers from starting a revolution criticized the benefit but employers and tories saw it as a necessary evil the british unemployment compensation scheme was based on actuarial principles and it was funded by a fixed amount contributed by workers employers and taxpayers after one week of unemployment the worker was eligible to receive seven shillings per week for up to 15 weeks in a year however the benefits were restricted to particular industries that tended to have more volatile employment requirements such as shipbuilding and it did not make provision for any dependents 1112 by 1913 about 2 5 million people were insured under the british scheme for unemployment benefits 11in the united states unemployment compensation began at the state level when wisconsin enacted it in 1932 to assuage the effect of the great depression in 1935 president franklin d roosevelt signed the social security act and established it nationwide initially employers of fewer than eight employees were exempt from having the coverage that number dropped to four in 1954 and was reduced to one in 1970 13special considerationsthe system is called employment insurance ei in canada and is funded by premiums paid by both employers and employees canada s first national unemployment system was established in 1940 by the unemployment insurance act also prompted by the effects of the great depression the law was expanded and liberalized in 1971 and finally replaced in 1996 by the employment insurance act which changed the program s name to emphasize that it intends to promote employment rather than support unemployment 14 | |
what are the unemployment compensation amendments of 1992 | the unemployment compensation amendments of 1992 are laws in the united states that allow an employee who loses their job to roll over their employer sponsored retirement savings into a qualified retirement plan such as an individual retirement account ira without tax consequences the provision allowing former employees to do this was included among other amendments to the emergency unemployment compensation act of 1991 which at the time extended emergency unemployment benefits 1understanding the unemployment compensation amendments of 1992under the unemployment compensation amendments of 1992 if you lose your job then your employer is required to provide you with the option of rolling over your retirement savings in a company sponsored plan such as a 401 k to an ira or other qualified retirement plan account that you choose the law allows employees the option of trustee to trustee transfers in a trustee to trustee transfer also called a direct transfer the funds are not paid directly to the account holder nor does the account holder receive a check made payable to the new account instead the two financial institutions facilitate the transfer on your behalf with a trustee to trustee transfer no taxes are withheld from the amount that is transferred also the transfer does not count as a distribution which means that the amount is not considered taxable income 2if you choose to receive the funds in a check then there is a mandatory withholding of 20 of the withdrawal amount that is paid to the internal revenue service irs to cover federal income tax regardless of how much you may ultimately end up owing for example if you effectively only owe 12 at tax time this means you ll have to wait until you file your taxes to get that 8 back 3if you lose your job then withdrawing funds from your employer s retirement plan as a lump sum before you are at least age 59 should be a last resort in addition to tax penalties you will lose part of your nest egg and diminish its power to accrue earnings on a tax deferred basis this could put you significantly behind in saving for retirement special considerationsmost 401 k plan rules state that if you have less than 1 000 in your account then an employer is automatically allowed to cash it out and give the funds to you directly in general if you have 1 000 to 5 000 then your employer will put it in an ira if you don t tell them what to do with the funds some employers allow you to leave your retirement savings in the company s plan even after you have left if you meet a minimum balance requirement typically more than 5 000 in your account 3 but keep in mind that if you leave your account with your old employer then you will no longer be able to contribute to it if you choose to move your retirement savings to an ira then you will have a wider range of investment choices than with the employer s plan typically 401 k s offer several mutual funds ranging from conservative to aggressive from which an employee can choose 4 with an ira most types of investments are available 5 | |
what is unemployment income | unemployment income refers to an insurance benefit paid due to taxpayers inability to find gainful employment unemployment income is paid from either a federal or state sponsored fund the recipient must meet certain criteria in trying to find a job employers and employees are assessed a payroll tax to cover the cost of this benefit unemployment income is also known as an unemployment benefit unemployment compensation or unemployment insurance the term is most commonly associated with filing a tax return where such income must be reported understanding unemployment incomeunemployment benefits were first introduced in 1935 along with social security 1 unemployment income is designed to provide a subsistence income for a given length of time giving the unemployed recipient time to find another job in the united states unemployment income is paid to jobless individuals who qualify for them individuals must have worked at least one quarter in the previous year and been laid off by their employer they must be actively seeking work to claim and receive benefits temporary workers or those who worked off the books are not eligible nor are individuals who quit their jobs or were fired for misconduct 2claims may be denied for several reasons including if unemployment income is fully taxable as ordinary income recipients are sent a form 1099 g at year end detailing how much they received which they must report on their 1040 form 4unemployment income amountsindividual states determine how much unemployment income an individual receives every week a figure that may vary significantly from state to state for example minnesota had one of the highest maximum weekly benefit amounts at 762 topped only by massachusetts at 855 5 massachusetts allows up to 30 weeks of payments while minnesota offers a maximum of 26 weeks 67 though not the lowest florida s 375 maximum weekly benefit and 14 weeks of benefits are among the least generous 8during high unemployment such as during the great recession unemployment income payments may last for 99 weeks 9 during times of low unemployment such benefits tend to last for up to roughly six months or 26 weeks in most states though some states may offer a fraction of that 10the covid 19 pandemic and unemployment incomeon march 27 2020 president donald trump signed into law a 2 trillion coronavirus emergency stimulus package called the coronavirus aid relief and economic security cares act which put provisions in place to provide unemployment benefits to unemployed individuals affected by the pandemic the law also expanded eligibility to allow those who otherwise don t qualify for benefits including self employed people freelancers and independent contractors and created three initiatives called the pandemic unemployment assistance pua program the federal pandemic unemployment fpuc program and the pandemic emergency unemployment compensation peuc program 11on sept 6 2021 all of these special pandemic related benefits came to an end 12while the american rescue plan extended the deadline for federal pandemic unemployment relief to sept 6 2021 a number of states elected to end their enrollment in the fpuc and peuc programs early 13 the best way to confirm the status and duration of your unemployment benefits is to check with your state s unemployment office as mentioned above unemployment benefits were expanded under the pua to include people who normally don t qualify for this type of income these benefits are based on someone s previous earnings according to a formula by the disaster unemployment assistance program the minimum benefit provided was 50 of an individual state s average benefit per week approximately 190 for that period 1114the cares act also established the fpuc program which provided unemployed individuals with an extra benefit of 600 this benefit was paid weekly in addition to other unemployment income until july 2020 11this benefit was extended after the passage of the consolidated appropriations act caa of 2021 in december 2020 the amount was then reduced to 300 payable every week beginning dec 26 2020 until march 14 2021 15 president joe biden pushed down the expiration date after signing the 1 9 trillion package called the american rescue plan act of 2021 on march 11 2021 according to the new law unemployed individuals could receive the additional 300 weekly benefit until sept 6 2021 12states typically provide people with 26 weeks of unemployment benefits but the cares act expanded that timeline under the peuc allowing individuals to claim benefits for an additional 13 weeks but the law stated that people must be able to work available to work and actively seeking work 11these benefits were extended to 24 weeks with the passage of the caa in december 2020 15 the biden administration changed that again in march 2021 to 53 weeks and the peuc expired on sept 6 2021 12 | |
what is unemployment insurance ui | unemployment insurance ui also called unemployment benefits is a type of state provided insurance that pays money to individuals weekly when they lose their jobs and meet certain eligibility requirements those who either voluntarily quit or were fired for a just cause are usually not eligible for ui in other words someone separated from their job due to a lack of available work and at no fault of their own usually qualifies for unemployment benefits each state administers its own unemployment insurance program despite it being federal law workers must meet their state s work and wage requirements including time worked the benefits are primarily paid out by state governments and funded by specific payroll taxes collected for that purpose understanding unemployment insurance ui the unemployment initiative is a joint program between individual state governments and the federal government unemployment insurance provides cash stipends to unemployed workers who actively seek employment compensation to eligible unemployed workers is made through the federal unemployment tax act futa along with state employment agencies 1each state has an unemployment insurance program but all states must follow specific guidelines outlined by federal law federal law makes unemployment benefits relatively ubiquitous across state lines the department of labor dol oversees the program and ensures compliance within each state 2workers who meet specific eligibility requirements may receive up to 26 weeks of benefits a year the weekly cash stipend is designed to replace a percentage of the employee s regular wage on average 3states fund unemployment insurance using taxes levied on employers the majority of employers will pay both federal and state unemployment futa tax companies that have 501 c 3 status do not pay futa tax 45continuing claims for unemployment insurance reached approximately 1 85 million during the week ending june 22 2024 the four week moving average for continuing claims was reported at roughly 1 83 million 6three states also require minimal employee contributions to the state unemployment fund reportable income includes freelance work or jobs for which unemployment insurance recipients were paid in cash 7out of work persons who do not find employment after a 26 week period may be eligible for an extended benefits program extended benefits give unemployed workers an additional number of weeks of unemployment benefits the availability of extended benefits will depend on a state s overall unemployment situation 8the federal government established provisions designed to help unemployed americans during the coronavirus pandemic these additional benefits were put in place after former president donald trump signed the coronavirus aid relief and economic security cares act in march 2020 they were extended after the passing of the consolidated appropriations act of 2021 and were extended again when president joe biden signed the 1 9 trillion american rescue plan act of 2021 on march 11 2021 the additional benefits expired on sept 6 2021 9requirements for unemployment insurancean unemployed person must meet two primary requirements to qualify for unemployment insurance benefits an unemployed individual must meet state mandated thresholds for either earned wages or time worked in a stated base period the state must also determine that the eligible person is unemployed through no fault of their own a person may file a ui claim when fulfilling these two requirements individuals file claims in the state where they worked a participant may file claims by phone or on the state unemployment insurance agency s website after the first application it generally takes two to three weeks to process and approve a claim 10after approval of a claim the participant must either file weekly or biweekly reports that test or confirm their employment situation reports must be submitted to remain eligible for benefit payments unemployed workers cannot refuse work during a week and on each weekly or biweekly claim they must report any income that they earned from freelance or consulting gigs 11 | |
how is unemployment insurance funded | unemployment insurance is funded by taxes on employers such as the futa and various state taxes futa charges 6 of the first 7 000 of each employee s wages although this is offset by a 5 4 credit for on time tax payments 4some states pay for unemployment benefits by debiting the former employer s ui account or by raising the employer s ui taxes in future years since employees are usually not eligible for ui if they quit voluntarily some employers may pressure their employees to resign rather than fire them unemployment insurance during the covid 19 pandemicon march 11 2020 the world health organization declared covid 19 the illness caused by a novel coronavirus to be a pandemic states and businesses across the u s closed down causing massive unemployment 112lawmakers agreed on the passage of the cares act a landmark piece of legislation that in part expanded states ability to provide ui to millions of workers affected by covid 19 including people who aren t ordinarily eligible for unemployment benefits the bill was passed and signed into law in march 2020 13three specific programs were designed to help americans who were out of work because of the coronavirus a fourth program was established through an aug 8 2020 memorandum issued by president trump in response to the expiration of the federal pandemic employment compensation program 914while people who voluntarily quit their jobs do not normally qualify for ui you may qualify for benefits if you quit due to unpaid wages unsafe working conditions a sudden decrease in your hours or certain other factors the legal term for this is constructive dismissal 15the federal pandemic unemployment compensation fpuc provided an extra weekly benefit on top of regular ui the original benefit provided an additional 600 weekly under the cares act but that benefit expired on july 31 2020 the fpuc was modified and extended as part of the consolidated appropriations act in december 2020 another extension of the fpuc was approved after president joe biden signed the 1 9 trillion american rescue plan act of 2021 on march 11 2021 under the plan fpuc benefits expired on sept 6 2021 9the pandemic unemployment assistance pua expanded ui eligibility to self employed workers freelancers independent contractors and part time workers impacted by the coronavirus pandemic self employed workers generally may not qualify for ui and the pua provided them with financial assistance as per the american rescue plan act the pua expired on sept 6 2021 after a total of 79 weeks 9the pandemic emergency unemployment compensation peuc extended ui benefits under the cares act after regular unemployment compensation benefits were exhausted the peuc program officially expired on sept 6 2021 9the lost wages assistance lwa program was a federal state unemployment benefit that provided 300 to 400 in weekly compensation to eligible claimants lwa came into existence in response to the expiration of fpuc on july 31 2020 16 | |
what are the 4 types of unemployment | the four types of unemployment are cyclical frictional institutional and structural unemployment | |
how is unemployment calculated | in the united states the unemployment rate is calculated by dividing the number of unemployed people who are actively looking for work by the total number of people who are employed or actively seeking employment this does not include unemployed people who are unable to work or have given up seeking employment 18who is counted as unemployed the unemployed include anyone who doesn t have a job is available for work and has been actively looking for work in the previous four weeks actively looking for work includes having job interviews or contacting employers 19 | |
what is the meaning of ui | ui or unemployment insurance is a government benefit for those who lose their jobs through no fault of their own ui provides a temporary safety net so that people can continue searching for jobs after they are fired or laid off notably employees who voluntarily quit or are fired for absenteeism or insubordination do not normally qualify for ui and those who leave due to intolerable working conditions may qualify even if they did quit the bottom lineunemployment insurance is a form of state provided insurance that provides weekly payments to people who have recently been fired or laid off although it only provides a fraction of a full paycheck ui payments can help workers make ends meet as they search for a new job | |
what is the unemployment rate | the u s unemployment rate is released on the first friday of every month for the preceding month the current and past editions of the report are available from the bureau of labor statistics bls the unemployment rate is the percentage of the labor force without a job it is a lagging indicator and generally rises or falls with changing economic conditions 12investopedia dennis madambaunderstanding the unemployment ratein the u s the most commonly cited national unemployment rate is the u 3 which the bls releases as part of its monthly employment situation report it defines unemployed people as those willing and available to work and who have actively sought work within the past four weeks 45the national unemployment rate for june 2024 3according to the bls those with temporary part time or full time jobs are considered employed as are those who perform at least 15 hours of unpaid work for a family business or farm many people who want to work but cannot or become discouraged after looking for work without success are not considered unemployed but categorized outside the labor force 6the unemployment rate is seasonally adjusted to account for predictable variations such as extra hiring during the holidays the bls also provides the unadjusted rate 784unemployment by stateother metricsthe bls publishes five alternative measures u 1 u 2 u 4 u 5 and u 6 u 6 is often called the real unemployment rate but u 3 is the only official unemployment rate the others are measures of labor underutilization 4u 1 the u 1 unemployment rate includes those unemployed for 15 weeks or more as a percent of the civilian labor force the u 1 unemployment rate as of june 2024 was 1 5 4u 1 unemployed for 15 weeks labor force 100 begin aligned u 1 bigg frac text unemployed for 15 weeks text labor force bigg times 100 end aligned u 1 labor forceunemployed for 15 weeks 100 u 2 those who lost jobs and completed temporary jobs as a percent of the civilian labor force account for the u 2 unemployment rate this rate for june 2024 was 1 9 4u 2 lost jobs completed temp jobslabor force 100 begin aligned u 2 bigg frac text lost jobs text completed temp jobs text labor force bigg times 100 end aligned u 2 labor forcelost jobs completed temp jobs 100 u 4 unemployed people plus discouraged workers as a percent of the labor force make up the u 4 unemployment rate which was 4 3 as of june 2024 this category includes people who lack the necessary qualifications or education and believe work is unavailable in their field 94u 4 unemployed discouraged workerslabor force discouraged workers 100 begin aligned u 4 frac text unemployed text discouraged workers text labor force text discouraged workers times 100 end aligned u 4 labor force discouraged workersunemployed discouraged workers 100 u 5 unemployed people discouraged workers plus those marginally attached to the labor force as a percent of the labor force make up the u 5 rate the u 5 rate for june 2024 was 4 9 the marginally attached include discouraged workers and anyone who would like a job and has looked for one in the past 12 months but actively gave up searching as with u 5 the denominator is expanded to include the marginally attached who are not technically part of the labor force 104u 5 unemployed marginally attachedlabor force marginally attached 100 begin aligned u 5 frac text unemployed text marginally attached text labor force text marginally attached times100 end aligned u 5 labor force marginally attachedunemployed marginally attached 100 u 6 this metric is the bls s most comprehensive and includes unemployed people people who are marginally attached to the labor force plus those who are employed part time for economic reasons as a percentage of the labor force the denominator for this ratio is the same as in u 5 the rate for june 2024 was 7 4 114u 6 unemployed ma pterlabor force ma 100where ma marginally attachedpter part time for economic reasons begin aligned u 6 frac text unemployed text ma text pter text labor force text ma times 100 textbf where text ma text marginally attached text pter text part time for economic reasons end aligned u 6 labor force maunemployed ma pter 100where ma marginally attachedpter part time for economic reasons collecting dataemployment statistics are produced by the bls an agency within the department of labor dol every month the census bureau part of the department of commerce doc conducts the current population survey cps using a sample of approximately 60 000 households or about 110 000 individuals the survey includes information on race ethnicity age veteran status and gender the sample is rotated so that 75 of the households remain constant from month to month and 50 from year to year the surveys include industry information occupations average earnings and union membership for those who are jobless interviewers also ask whether they quit or were fired or laid off 1213the survey excludes individuals under the age of 16 and those who are in the armed forces people in correctional facilities mental healthcare facilities and similar institutions are also excluded 14interviewers ask questions that determine employment status but do not ask whether respondents are employed or unemployed nor do the interviewers assign employment status they record the answers for the bls to analyze 15unemployment and the economyunemployment is one of the most closely watched indicators for economic health along with gross domestic product gdp and the consumer price index cpi the unemployment rate has an inverse relationship with the stock market and inflation two key metrics for the overall economy a low unemployment rate tends to be associated with an increased average wage due to the reduced labor supply this can result in inflation as employers raise prices to account for increased labor costs low unemployment also tends to be accompanied by increased stock prices because the workforce has more disposable income | |
what is the u s unemployment rate | the u 3 unemployment rate in the united states was 4 1 for june 2024 3 | |
what is a healthy unemployment rate | low unemployment is not considered healthy as lower rates can be seen as inflationary due to pricing pressure on salaries however high unemployment is not considered healthy as higher rates can be seen as a financial strain on consumer spending in general most experts deem unemployment between 3 and 5 to be ideal though there is no single consensus on what constitutes healthy unemployment 16 | |
what s the difference between u 3 and u 6 unemployment rates | u 3 is the headline unemployment number seen in the news it looks at out of work americans looking for employment within the past four weeks the more comprehensive u 6 includes everyone in u 3 plus those with only temporary work and people considered marginally attached to the labor force 54 | |
how is u s unemployment data collected | the bureau of labor statistics surveys approximately 60 000 households in person or over the phone the responses are later aggregated by race ethnicity age veteran status and gender all of which along with geography add greater detail to the employment picture 15the bottom linein assessing an economy s health the nation s unemployment rate plays a major factor in setting monetary policy and making strategic economic decisions there are various ways to calculate unemployment however the general public is most familiar with the u 3 rate the calculation for this iteration of the unemployment rate is to divide the number of unemployed individuals by the total workforce | |
what is unencumbered | unencumbered refers to an asset or property that is free and clear of any encumbrances such as creditor claims or liens an unencumbered asset is much easier to sell or transfer than one with an encumbrance examples of common unencumbered assets are houses free from mortgages and other liens cars with paid off loans notes or stocks purchased in a cash account understanding unencumberedcreditors do not have claims to unencumbered assets as there are no associated debts as a result these assets are the full property of the person s listed as the owner s in an official capacity such as on a title or deed unencumbered assets are not listed as collateral for any debt and are not subject to competing claims such as past due property taxes for the majority of consumers especially young couples and recent graduates high value assets such as real estate and cars are unlikely to be unencumbered this is because these purchases are often financed leading to the acquisition of debt with the asset as collateral over time as the mortgage or car loan is paid off these assets become unencumbered a title search is a key part of the due diligence process for a buyer of real estate or a used car to confirm that the asset is unencumbered or has outstanding liens encumbered vs unencumbered assetsunencumbered assets are easier to transfer because only the property owner acting as the seller and the party interested in purchasing the property acting as the buyer must approve the sale further there will be no predetermined required sale price allowing the seller to set the price at his or her discretion encumbered assets can be sold but the sale process requires approval by the buyer and seller as well as any other entity that has a claim to the asset such as the bank that issued the loan for the collateralized asset 1 this can lead to minimum sales price requirements often in an amount equal to or above the collateralized debt amount against the subject property this allows the debt to be effectively paid off as part of the sales transaction special considerationsin most bankruptcy proceedings involving liquidations encumbered assets are first considered the property of those holding rights to the property through the encumbrance allowing the institution to recoup some of the losses through the acquisition and a possible later sale of the assets in question 2in some cases unencumbered assets do not have a predetermined owner if the assets are liquidated in bankruptcy this allows the value of any liquidated unencumbered assets to be distributed to creditors who extended unsecured credit 3in certain circumstances the irs state or even local taxing authorities can place a lien on previously unencumbered property to collect past due taxes 4 | |
what is unfair claims practice | unfair claims practice is the improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim by engaging in unfair claims practices an insurer tries to reduce its costs however this is illegal in many jurisdictions understanding unfair claims practicethe national association of insurance commissioners naic has created a model of unfair claims practice legislation that mandates claims be handled fairly and that there be clear communication between the insurer and the insured states not the federal government regulate insurance many jurisdictions have implemented unfair claims practices laws modeled after the naic s model act also most states have enacted a version of this model law called the unfair claims settlement practices act it protects insurance buyers from unjust behavior by insurers in the claims settlement process specifics of the law vary from state to state unfair claims settlement practices acts ucspa are not federal law instead they are enforced by individual state insurance departments example of unfair claims practiceconsider a small business owner that insures his company s building and business personal property under a commercial property policy unfortunately a fire broke out in the building causing 100 000 in property damage the insurance company delays payment rendering the business owner unable to repair any of the damage the insurance company continues using delay tactics to avoid making a payment for example the claims representative keeps forgetting to send the claim forms also the adjuster says he needs another proof of loss but the small business owner has already submitted proof of loss twice these are the types of situations that unfair claims practice laws are designed to prevent other examples of unfair claims practice | |
what is an unfair trade practice | unfair trade practices refer to the use of various deceptive fraudulent or unethical methods to obtain business unfair business practices include misrepresentation false advertising or representation of a good or service tied selling false free prize or gift offers deceptive pricing and noncompliance with manufacturing standards such acts are considered unlawful by statute through the consumer protection law which opens up recourse for consumers by way of compensatory or punitive damages an unfair trade practice is sometimes referred to as deceptive trade practices or unfair business practices understanding unfair trade practicesunfair trade practices are commonly seen in the purchase of goods and services by consumers tenancy insurance claims and settlements and debt collection most states unfair trade practices statutes were originally enacted between the 1960s and 1970s 1 since then many states have adopted these laws to prevent unfair trade practices consumers who have been victimized should examine the unfair trade practice statute in their state to determine whether they have a cause of action unfair trade practices are commonly seen in the purchase of goods and services by consumers tenancy insurance claims and settlements and debt collection in the united states unfair trade practices are addressed in section 5 a of the federal trade commission act which prohibits unfair or deceptive acts or practices in or affecting commerce it applies to all individuals engaged in commerce including banks and sets the legal standard for unfair trade practices which may be deemed unfair deceptive or both below are lists of unfair and deceptive practices as per the rule unfair practicesan act is unfair when it meets the following criteria deceptive practicesan act or practice is deceptive when it meets the following criteria examples of unfair trade practices in insuranceunfair trade practices can happen in any industry but are significant enough to prompt the national association of insurance commissioners naic to issue guidance related to the sale of insurance products the naic defines unfair trade practices in the following ways the naic considers a deceptive trade practice to be any of the above acts coupled with the conditions below | |
what is unfavorable variance | unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or projected costs an unfavorable variance can alert management that the company s profit will be less than expected the sooner an unfavorable variance is detected the sooner attention can be directed towards fixing any problems understanding unfavorable variancea budget is a forecast of revenue and expenses including fixed costs as well as variable costs budgets are important to corporations because it helps them plan for the future by projecting how much revenue is expected to be generated from sales as a result companies can plan how much to spend on various projects or investments in the company companies create sales budgets which forecast how many new customers for new products and services are going to be sold by the sales staff in the coming months from there companies can determine the revenue that will be generated and the costs needed to bring in those sales and deliver those products and services eventually the company can project its net income or profit after subtracting all of the fixed and variable costs from total revenue if the net income is less than their forecasts the company has an unfavorable variance in other words the company hasn t generated as much profit as it had hoped however an unfavorable variance doesn t necessarily mean the company took a loss instead it merely means that the net income was lower than the forecasted projections for the period the unfavorable variance could be the result of lower revenue higher expenses or a combination of both oftentimes an unfavorable variance could be due to a combination of factors the shortfall could be due in part to an increase in variable costs such as a price increase in the cost of raw materials which go into producing the product the unfavorable variance could also be due in part to lower sales results versus the projected numbers types of unfavorable variancesin practice an unfavorable variance can take any number of forms or definitions in budgeting or financial planning and analysis scenarios unplanned deviations from plan invite the same managerial reactions as unfavorable variances in other business applications when business results deviate from expectations the ensuing analysis may describe the variance in different ways but the end result is usually the same things did not go according to plan in finance unfavorable variance refers to a difference between an actual experience and a budgeted experience in any financial category where the actual outcome is less favorable than the projected outcome publicly traded companies with stocks listed on exchanges such as the newyork stock exchange nyse typically forecast earnings or net income quarterly or annually companies that fail to meet their earnings forecasts essentially have an unfavorable variance within their company whether it be from higher costs lower revenue or lower sales a sales variance occurs when the projected sales volumes of a product or service don t meet the goal or projected figures a company may not have hired enough sales staff to bring in the projected number of new clients a management team could analyze whether to bring in temporary workers to help boost sales efforts management could also offer target based financial incentives to salespeople or create more robust marketing campaigns to generate buzz in the marketplace for their product or service in manufacturing the standard cost of a finished product is calculated by adding the standard costs of the direct material direct labor and direct overhead which are the direct costs tied to production an unfavorable variance is the opposite of a favorable variance where actual costs are less than standard costs rising costs for direct materials or inefficient operations within the production facility could be the cause of an unfavorable variance in manufacturing causes of unfavorable variancesan unfavorable variance can occur due to changing economic conditions such as lower economic growth lower consumer spending or a recession which leads to higher unemployment market conditions can also change such as new competitors entering the market with new products and services companies could also suffer from lower revenue and sales if new technology advances make their products outdated or obsolete it s critical that a company s management team analyze an unfavorable variance and pinpoint the cause once the cause is determined the company can make the necessary changes and get back on target with their plan example of unfavorable variancefor example let s say that a company s sales were budgeted to be 200 000 for a period however the company only generated 180 000 in sales the unfavorable variance would be 20 000 or 10 similarly if expenses were projected to be 200 000 for the period but were actually 250 000 there would be an unfavorable variance of 50 000 or 25 | |
what is black tuesday | black tuesday was oct 29 1929 and it was marked by a sharp fall in the stock market with the dow jones industrial average djia especially hard hit in high trading volume the djia fell 12 one of the largest one day drops in stock market history more than 16 million shares were traded in the panic sell off which effectively ended the roaring twenties and led the global economy into the great depression understanding black tuesdayblack tuesday signaled the end of a period of post world war i economic expansion and the beginning of the great depression which lasted until the beginning of world war ii the united states emerged from world war i as a major economic power but the country s focus was on developing its own industry rather than international cooperation high tariffs were imposed on many imported products to protect nascent industries such as cars and steel agricultural prices fell as european production returned after being shut down during the war and tariffs were imposed to try to protect american farmers as well however their incomes and the value of their farms fell and migration to the industrialized cities accelerated the boom years of the so called roaring twenties were fueled by optimism that the world had fought the war to end all wars and good times had arrived permanently between 1921 and the crash in 1929 stock prices went up nearly 10 times as ordinary individuals bought stock often for the first time 1 this was fueled by lending by brokers that at times reached two thirds of the stock price with the purchased stock serving as collateral income inequality also rose it is estimated that the top 1 of america s population held 19 6 of its wealth 2 the 1929 crashby the middle of 1929 the economy was showing signs of slowing led by declines in purchases of houses and cars as consumers were burdened with debt steel production weakened a few years earlier european production of agricultural goods began to recover following world war i which meant american farmers would lose that market to sell their goods as a result the u s congress passed a series of bills designed to help american farmers by increasing tariffs or prices on imports including agricultural products at the same time news from europe indicated an excellent harvest which meant an increased supply and overproduction pushing commodity prices lower and rattling the markets the u s congress stepped in again and passed the smoot hawley tariff act which not only increased tariffs on agricultural goods but on goods in other sectors as well many other countries had also adopted protectionist policies the impact on global trade was devastating international trade had decreased by 66 from 1929 to 1934 3 in august the federal reserve bank allowed its new york regional board to raise its discount rate 4 the monetary policy move caused central banks around the world to follow suit the london stock market dropped sharply on sept 20 when top investor clarence hatry was jailed for fraud markets gyrated for the next month all of these factors eventually caused the stock market to crash on black thursday oct 24 the market fell 11 at the open heads of the major american banks devised a plan to support the market by buying large chunks of stock and the market closed down just 6 points but by black monday the 28th panic and margin calls spread the market fell 13 and a further 12 on black tuesday in record setting volume 5 efforts led by the financiers and industrialists to support prices could not stem the tide of selling the market lost 30 billion of value in those two days the market hit a 20th century low of 41 22 on july 8 1932 which was a fall of 89 from its high of 381 17 on sept 3 1929 1 economic growth as measured by gross domestic product gdp shrank by more than 36 from 1929 to 1933 the unemployment rate in the united states surged to over 25 as workers were laid off after they had been hired during the boom years 6 it was only after president franklin delano roosevelt was elected that the economy showed signs of taking a turn towards the better among his achievements is stopping the smoot hawley tariffs and establishing the reciprocal trade agreement act in 1934 still a new high wasn t reached until nov 23 1954 | |
what is a blended rate | a blended rate is an interest rate charged on a loan that represents the combination of a previous rate and a new rate blended rates are usually offered through the refinancing of existing loans that are charged a rate of interest that is higher than the old loan s rate but lower than the rate on a brand new loan this type of rate is calculated for accounting purposes to better understand the true debt obligation for multiple loans with different rates or the revenue from several streams of interest blended rates are often used to understand the true interest rate paid when refinancing a loan but they can also be used when adding additional debt such as a second mortgage | |
how blended rates work | a blended rate is used by lenders to encourage borrowers to refinance existing low interest loans and also used to calculate the pooled cost of funds 1 these rates also represent a weighted average interest rate on corporate debt the resulting rate is considered the aggregate interest rate on corporate debt blended rates also apply to individual borrowers who refinance a personal loan or mortgage there are several free online calculators available for consumers to compute their blended average interest rate after a refinance examples of blended ratesblended rates can apply to refinanced corporate debt or to personal loans taken out by individuals calculating the blended rate involves taking the weighted average of the interest rates on the loans some companies have more than one type of corporate debt for example if a company has 50 000 in debt at a 5 interest rate and 50 000 in debt at a 10 interest rate the total blended rate would be calculated as the blended rate is also used in cost of funds accounting to quantify liabilities or investment income on a balance sheet for example if a company had two loans one for 1 000 at 5 and the other for 3 000 at 6 and it paid the interest off every month the 1 000 loan would charge 50 after one year and the 3 000 loan would charge 180 the blended rate would thus be as another hypothetical example suppose company a announced 2q 2020 results with a note in the earnings report on the balance sheet section that outlined the company s blended rate on its 3 5 billion debt its blended interest rate for the quarter was 3 76 banks use a blended rate to retain customers and increase loan amounts to proven creditworthy clients for example if a customer currently holds a 75 000 mortgage with a 7 interest rate and wishes to refinance when the current rate is 9 the bank might offer a blended rate of 8 the borrower could then decide to refinance for 150 000 with a blended rate of 8 | |
what is a blind trust | a blind trust is a trust established by the owner or trustor giving another party the trustee full control of the trust the trustee has full discretion over the assets and investments while being charged with managing the assets and any income generated in the trust the trustor can terminate the trust but otherwise exercises no control over the actions taken within the trust and receives no reports from the trustees while the blind trust is in force blind trusts are often established in situations when individuals want to avoid conflicts of interest between their employment and investments | |
how a blind trust works | in a typical trust the trustor or originator appoints a trustee to act as the fiduciary meaning the trustee is charged with honoring the trust agreement such as distributing the funds following the death of the trustor the trust can contain various investments including equities bonds and real estate the trustor and trustee are often in contact with each other while the beneficiary of the trust is usually aware of the trust and perhaps aware of the holdings within the trust conversely a blind trust is designed so that the trust beneficiaries and the trustor have no knowledge of the investment holdings within the trust neither party has any control or say in how the investments are managed including whether to buy or sell specific securities a blind trust can be a revocable trust meaning the trustor can make any changes to the trust trustee and terminate the trust a blind trust can also be an irrevocable trust which means nothing can be changed once it has been established whether the trustor would set up a revocable or irrevocable trust depends on the particular situation and goal of the trust an irrevocable trust for example can be designed so that assets are no longer the legal property of the trustor and thus preventing creditors or the government such as medicaid from claiming the assets special considerationsthere are challenges and issues that can arise with a blind trust since the trustor establishing the trust is at least aware of the investment mix at the onset and cannot realistically forget that information when weighing future decisions the trustors may also set the rules under which the investments are managed and of course pick trustees that they are confident will act in a certain way in potential situations as a result the efficacy of a blind trust in truly eliminating conflict of interest is far from proven that said politicians with a large amount of wealth or in high office use blind trusts to show that at least the effort is being taken to establish impartiality blind trust alternativesestablishing a blind trust can be expensive politicians and executives have other ways to remove potential conflicts of interest without a blind trust they can sell out of the specific investments real estate or private holdings in favor of index funds and bonds a person could also sell the assets converting them to cash while occupying the position of employment however the process of selling investments can trigger tax implications and some investments such as land or real estate can be difficult to sell although blind trusts are helpful there is no legal structure that can remove all conflicts of interest nor can they guarantee ethical behavior from the person holding the position or office examples of blind trustsalthough anyone can set up a blind trust they are often used to leave money to beneficiaries and to prevent conflicts of interest a blind trust might be established during the estate planning process if the trustor doesn t want the beneficiaries to know how much money is in the trust a blind trust could also be tailored so that the funds go to the beneficiary when the person reaches a certain age or milestone such as graduating from college blind trusts are also used when a wealthy individual is elected to a political office where the investment holdings could potentially create a conflict of interest the ethics in government act of 1978 requires those holding political offices to disclose all of their assets unless those assets are held in a blind trust 1 for example if a politician owns equity in a company that has a pending regulatory issue it might create a conflict of interest the blind trust separates the politician from any trades that are initiated by the trustee or the financial institution acting as the trustee | |
what is a block trade | a block trade is a large privately negotiated securities transaction 1 block trades are arranged away from public markets to lessen the effect on the security s price 2 they are usually carried out by hedge funds and institutional investors via investment banks and other intermediaries though high net worth accredited investors may also be eligible to participate 1the new york stock exchange and the nasdaq define a block trade as one involving at least 10 000 shares of stock or one worth more than 200 000 34 most block trades far exceed these minimums understanding block tradesa bulk sized sell order placed on a stock exchange may have an outsized effect on the share price in contrast while a block trade negotiated privately will often provide a discount to the market price for the buyer it will not inform other market participants about the additional supply until the transaction has been publicly recorded block trades not yet publicly disclosed are considered material non public information and the financial industry s self regulatory organization finra prohibits the disclosure of such information as front running 5block trading facilities and block houses are specialized intermediaries that can facilitate block trades block houses are departments within brokerages that operate dark pools private exchanges where large buy and sell orders can be matched out of public view 6 block houses can also break up large trades on public markets to conceal the scope of additional supply for example by placing numerous iceberg orders block trade examplea hedge fund wants to sell 100 000 shares of a small cap company near the current market price of 10 this is a million dollar transaction on a company that may only be worth a few hundred million so the sale would probably push down the price significantly if entered as a single market order moreover the size of the order means it would be executed at progressively worse prices after exhausting demand at the 10 asking price so the hedge fund would see slippage on the order and the other market participants might pile on shorting the stock based on the price action and forcing the price down further to avoid this the hedge fund can contact a block house for help block house staffers would break up the large trade into manageable chunks for example they might split the block trade into 50 offers of 2 000 shares each posted by a different broker to further disguise their origin alternatively a broker could find a buyer willing to buy all 100 000 shares at a price arranged outside the open market this would typically be another institutional investor | |
what is a blockchain | a blockchain is a distributed database or ledger shared among a computer network s nodes they are best known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions but they are not limited to cryptocurrency uses blockchains can be used to make data in any industry immutable the term used to describe the inability to be altered because there is no way to change a block the only trust needed is at the point where a user or program enters data this aspect reduces the need for trusted third parties which are usually auditors or other humans that add costs and make mistakes since bitcoin s introduction in 2009 blockchain uses have exploded via the creation of various cryptocurrencies decentralized finance defi applications non fungible tokens nfts and smart contracts investopedia xiaojie liu | |
how does a blockchain work | you might be familiar with spreadsheets or databases a blockchain is somewhat similar because it is a database where information is entered and stored but the key difference between a traditional database or spreadsheet and a blockchain is how the data is structured and accessed a blockchain consists of programs called scripts that conduct the tasks you usually would in a database entering and accessing information and saving and storing it somewhere a blockchain is distributed which means multiple copies are saved on many machines and they must all match for it to be valid the bitcoin blockchain collects transaction information and enters it into a 4mb file called a block other blockchains use different size blocks once it is full certain information is run through an encryption algorithm which creates a hexadecimal number called the block header hash the hash is then entered into the following block header and encrypted with the other information in that block s header creating a chain of blocks transactions follow a specific process depending on the blockchain they are taking place on for example on bitcoin s blockchain if you initiate a transaction using your cryptocurrency wallet the application that provides an interface for the blockchain it starts a sequence of events in bitcoin your transaction is sent to a memory pool where it is stored and queued until a miner picks it up once it is entered into a block and the block fills up with transactions it is closed and the mining begins every node in the network proposes its own blocks in this way because they all choose different transactions each works on their own blocks trying to find a solution to the difficulty target using the nonce short for number used once the nonce value is a field in the block header that is changeable and its value incrementally increases every attempt every miner starts with a nonce of zero if the resulting hash isn t equal to or less than the target hash a value of one is added to the nonce a new hash is generated and so on the nonce rolls over about every 4 5 billion attempts which takes less than one second and uses another value called the extra nonce as an additional counter this continues until a miner generates a valid hash winning the race and receiving the reward generating these hashes until a specific value is found is the proof of work you hear so much about it proves the miner did the work the amount of work it takes to validate the hash is why the bitcoin network consumes so much computational power and energy once a block is closed a transaction is complete however the block is not considered to be confirmed until five other blocks have been validated confirmation takes the network about one hour to complete because it averages just under 10 minutes per block the first block with your transaction and five following blocks multiplied by 10 equals 60 minutes not all blockchains follow this process for instance the ethereum network randomly chooses one validator from all users with ether staked to validate blocks which are then confirmed by the network this is much faster and less energy intensive than bitcoin s process blockchain decentralizationa blockchain allows the data in a database to be spread out among several network nodes computers or devices running software for the blockchain at various locations this not only creates redundancy but maintains the fidelity of the data for example if someone tries to alter a record at one instance of the database the other nodes would prevent it from happening because they compare block hashes this way no single node within the network can alter information within the chain because of this distribution and the encrypted proof that work was done the information and history like the transactions in cryptocurrency are irreversible such a record could be a list of transactions such as with a cryptocurrency but it is also possible for a non public blockchain to hold a variety of other information like legal contracts state identifications or a company s inventory most blockchains wouldn t store these items they would likely be sent through a hashing algorithm and represented on the blockchain by a token blockchain transparencybecause of the decentralized nature of the bitcoin blockchain all transactions can be transparently viewed by downloading and inspecting them or by using blockchain explorers that allow anyone to see transactions occurring live each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added this means that if you wanted to you could track a bitcoin wherever it goes for example exchanges have been hacked in the past resulting in the loss of large amounts of cryptocurrency while the hackers may have been anonymous except for their wallet address the crypto they extracted is easily traceable because the wallet addresses are published on the blockchain of course the records stored in the bitcoin blockchain as well as most others are encrypted this means that only the person assigned an address can reveal their identity as a result blockchain users can remain anonymous while preserving transparency | |
is blockchain secure | blockchain technology achieves decentralized security and trust in several ways to begin with new blocks are always stored linearly and chronologically that is they are always added to the end of the blockchain after a block has been added to the end of the blockchain previous blocks cannot be changed a change in any data changes the hash of the block it was in because each block contains the previous block s hash a change in one would change the following blocks the network would generally reject an altered block because the hashes would not match however this can be accomplished on smaller blockchain networks not all blockchains are 100 impenetrable they are distributed ledgers that use code to create the security level they have become known for if there are vulnerabilities in the coding they can be exploited a new and smaller chain might be susceptible to this kind of attack but the attacker would need at least half of the computational power of the network called a 51 attack on the bitcoin and other larger blockchains this is nearly impossible by the time the hacker takes any action the network is likely to have moved past the blocks they were trying to alter this is because the rate at which these networks hash is exceptionally fast the bitcoin network hashed at a rate of 566 657 exahashes per second 18 zeros between may and june 2024 1the ethereum blockchain is not likely to be hacked either the attackers would need to control more than half of the blockchain s staked ether between april and june 2024 more than 32 million eth was staked by more than one million validators 2 an attacker or group would need to own more than half of the validators about 16 4 million eth and be randomly selected to validate blocks enough times to get their blocks implemented bitcoin vs blockchainblockchain technology was first outlined in 1991 by stuart haber and w scott stornetta two researchers who wanted to implement a system where document timestamps could not be tampered with 3 but it wasn t until almost two decades later with the launch of bitcoin in january 2009 that blockchain had its first real world application the bitcoin protocol is built on a blockchain in a research paper introducing the digital currency bitcoin s pseudonymous creator satoshi nakamoto referred to it as a new electronic cash system that s fully peer to peer with no trusted third party 4the key thing to understand is that bitcoin uses blockchain as a means to transparently record a ledger of payments or other transactions between parties blockchain can be used to immutably record any number of data points this could be in the form of transactions votes in an election product inventories state identifications deeds to homes and much more currently tens of thousands of projects are looking to implement blockchains in various ways to help society other than just recording transactions for example as a way to vote securely in democratic elections the nature of blockchain s immutability means that fraudulent voting would become far more difficult for example a voting system could work such that each country s citizens would be issued a single cryptocurrency or token each candidate could then be given a specific wallet address and the voters would send their token or crypto to the address of whichever candidate they wish to vote for the transparent and traceable nature of blockchain would eliminate the need for human vote counting and the ability of bad actors to tamper with physical ballots blockchain vs banksblockchains have been heralded as a disruptive force in the finance sector especially with the functions of payments and banking however banks and decentralized blockchains are vastly different to see how a bank differs from blockchain let s compare the banking system to bitcoin s blockchain implementation | |
how are blockchains used | as we now know blocks on bitcoin s blockchain store transactional data today tens of thousands of other cryptocurrency systems are running on a blockchain but it turns out that blockchain is a reliable way of storing data about other types of transactions some companies experimenting with blockchain include walmart pfizer aig siemens and unilever among others for example ibm has created its food trust blockchain to trace the journey that food products take to get to their locations 5 | |
why do this the food industry has seen countless outbreaks of e coli salmonella and listeria in some cases hazardous materials were accidentally introduced to foods in the past it has taken weeks to find the source of these outbreaks or the cause of sickness from what people are eating | using blockchain allows brands to track a food product s route from its origin through each stop it makes to delivery not only that but these companies can also now see everything else it may have come in contact with allowing the identification of the problem to occur far sooner potentially saving lives this is one example of blockchain in practice but many other forms of blockchain implementation exist perhaps no industry stands to benefit from integrating blockchain into its business operations more than personal banking financial institutions only operate during business hours usually five days a week that means if you try to deposit a check on friday at 6 p m you will likely have to wait until monday morning to see that money hit your account even if you make your deposit during business hours the transaction can still take one to three days to verify due to the sheer volume of transactions that banks need to settle blockchain on the other hand never sleeps by integrating blockchain into banks consumers might see their transactions processed in minutes or seconds the time it takes to add a block to the blockchain regardless of holidays or the time of day or week with blockchain banks also have the opportunity to exchange funds between institutions more quickly and securely given the size of the sums involved even the few days the money is in transit can carry significant costs and risks for banks the settlement and clearing process for stock traders can take up to three days or longer if trading internationally meaning that the money and shares are frozen for that period blockchain could drastically reduce that time blockchain forms the bedrock for cryptocurrencies like bitcoin this design also allows for easier cross border transactions because it bypasses currency restrictions instabilities or lack of infrastructure by using a distributed network that can reach anyone with an internet connection healthcare providers can leverage blockchain to store their patients medical records securely when a medical record is generated and signed it can be written into the blockchain which provides patients with proof and confidence that the record cannot be changed these personal health records could be encoded and stored on the blockchain with a private key so that they are only accessible to specific individuals thereby ensuring privacy if you have ever spent time in your local recorder s office you will know that recording property rights is both burdensome and inefficient today a physical deed must be delivered to a government employee at the local recording office where it is manually entered into the county s central database and public index in the case of a property dispute claims to the property must be reconciled with the public index this process is not just costly and time consuming it is also prone to human error where each inaccuracy makes tracking property ownership less efficient blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office if property ownership is stored and verified on the blockchain owners can trust that their deed is accurate and permanently recorded proving property ownership can be nearly impossible in war torn countries or areas with little to no government or financial infrastructure and no recorder s office if a group of people living in such an area can leverage blockchain then transparent and clear timelines of property ownership could be established a smart contract is computer code that can be built into the blockchain to facilitate transactions it operates under a set of conditions to which users agree when those conditions are met the smart contract conducts the transaction for the users as in the ibm food trust example suppliers can use blockchain to record the origins of materials that they have purchased this would allow companies to verify the authenticity of not only their products but also common labels such as organic local and fair trade as reported by forbes the food industry is increasingly adopting the use of blockchain to track the path and safety of food throughout the farm to user journey 6as mentioned above blockchain could facilitate a modern voting system voting with blockchain carries the potential to eliminate election fraud and boost voter turnout as was tested in the november 2018 midterm elections in west virginia 7using blockchain in this way would make votes nearly impossible to tamper with the blockchain protocol would also maintain transparency in the electoral process reducing the personnel needed to conduct an election and providing officials with nearly instant results this would eliminate the need for recounts or any real concern that fraud might threaten the election pros and cons of blockchainfor all of its complexity blockchain s potential as a decentralized form of record keeping is almost without limit from greater user privacy and heightened security to lower processing fees and fewer errors blockchain technology may very well see applications beyond those outlined above but there are also some disadvantages improved accuracy by removing human involvement in verificationcost reductions by eliminating third party verificationdecentralization makes it harder to tamper withtransactions are secure private and efficienttransparent technologyprovides a banking alternative and a way to secure personal information for citizens of countries with unstable or underdeveloped governmentssignificant technology cost associated with some blockchainslow transactions per secondhistory of use in illicit activities such as on the dark webregulation varies by jurisdiction and remains uncertaindata storage limitationsbenefits of blockchainstransactions on the blockchain network are approved by thousands of computers and devices this removes almost all people from the verification process resulting in less human error and an accurate record of information even if a computer on the network were to make a computational mistake the error would only be made to one copy of the blockchain and not be accepted by the rest of the network typically consumers pay a bank to verify a transaction or a notary to sign a document blockchain eliminates the need for third party verification and with it their associated costs for example business owners incur a small fee when they accept credit card payments because banks and payment processing companies have to process those transactions bitcoin on the other hand does not have a central authority and has limited transaction fees blockchain does not store any of its information in a central location instead the blockchain is copied and spread across a network of computers whenever a new block is added to the blockchain every computer on the network updates its blockchain to reflect the change by spreading that information across a network rather than storing it in one central database blockchain becomes more difficult to tamper with transactions placed through a central authority can take up to a few days to settle if you attempt to deposit a check on friday evening for example you may not actually see funds in your account until monday morning financial institutions operate during business hours usually five days a week but a blockchain works 24 hours a day seven days a week and 365 days a year on some blockchains transactions can be completed in minutes and considered secure after just a few this is particularly useful for cross border trades which usually take much longer because of time zone issues and the fact that all parties must confirm payment processing many blockchain networks operate as public databases meaning anyone with an internet connection can view a list of the network s transaction history although users can access transaction details they cannot access identifying information about the users making those transactions it is a common misperception that blockchain networks like bitcoin are fully anonymous they are actually pseudonymous because there is a viewable address that can be associated with a user if the information gets out once a transaction is recorded its authenticity must be verified by the blockchain network after the transaction is validated it is added to the blockchain block each block on the blockchain contains its unique hash and the unique hash of the block before it therefore the blocks cannot be altered once the network confirms them many blockchains are entirely open source software this means that everyone can view its code this gives auditors the ability to review cryptocurrencies like bitcoin for security however it also means there is no real authority on who controls bitcoin s code or how it is edited because of this anyone can suggest changes or upgrades to the system if a majority of the network users agree that the new version of the code with the upgrade is sound and worthwhile then bitcoin can be updated private or permission blockchains may not allow for public transparency depending on how they are designed or their purpose these types of blockchains might be made only for an organization that wishes to track data accurately without allowing anyone outside of the permissioned users to see it alternatively there might come a point where publicly traded companies are required to provide investors with financial transparency through a regulator approved blockchain reporting system using blockchains in business accounting and financial reporting would prevent companies from altering their financials to appear more profitable than they really are perhaps the most profound facet of blockchain and cryptocurrency is the ability for anyone regardless of ethnicity gender location or cultural background to use it according to the world bank an estimated 1 4 billion adults do not have bank accounts or any means of storing their money or wealth 8 moreover nearly all of these individuals live in developing countries where the economy is in its infancy and entirely dependent on cash these people are often paid in physical cash they then need to store this physical cash in hidden locations in their homes or other places incentivizing robbers or violence while not impossible to steal crypto makes it more difficult for would be thieves drawbacks of blockchainsalthough blockchain can save users money on transaction fees the technology is far from free for example the bitcoin network s proof of work system to validate transactions consumes vast amounts of computational power in the real world the energy consumed by the millions of devices on the bitcoin network is more than pakistan consumes annually 9some solutions to these issues are beginning to arise for example bitcoin mining farms have been set up to use solar power excess natural gas from fracking sites or energy from wind farms bitcoin is a perfect case study for the possible inefficiencies of blockchain bitcoin s pow system takes about 10 minutes to add a new block to the blockchain at that rate it s estimated that the blockchain network can only manage about seven transactions per second tps 10 although other cryptocurrencies such as ethereum perform better than bitcoin blockchain still limits them legacy brand visa for context can process 65 000 tps 11solutions to this issue have been in development for years there are currently blockchain projects that claim tens of thousands of tps ethereum is rolling out a series of upgrades that include data sampling binary large objects blobs and rollups these improvements are expected to increase network participation reduce congestion decrease fees and increase transaction speeds 12the other issue with many blockchains is that each block can only hold so much data the block size debate has been and continues to be one of the most pressing issues for the scalability of blockchains in the future while confidentiality on the blockchain network protects users from hacks and preserves privacy it also allows for illegal trading and activity on the blockchain network the most cited example of blockchain being used for illicit transactions is probably the silk road an online dark web illegal drug and money laundering marketplace operating from february 2011 until october 2013 when the fbi shut it down 13the dark web allows users to buy and sell illegal goods without being tracked by using the tor browser and make illicit purchases in bitcoin or other cryptocurrencies this is in stark contrast to u s regulations which require financial service providers to obtain information about their customers when they open an account they are supposed to verify the identity of each customer and confirm that they do not appear on any list of known or suspected terrorist organizations 14illicit activity accounted for only 0 34 of all cryptocurrency transactions in 2023 15this system can be seen as both a pro and a con it gives anyone access to financial accounts but allows criminals to transact more easily many have argued that the good uses of crypto like banking the unbanked world outweigh the bad uses of cryptocurrency especially when most illegal activity is still accomplished through untraceable cash many in the crypto space have expressed concerns about government regulation of cryptocurrencies several jurisdictions are tightening control over certain types of crypto and other virtual currencies however no regulations have yet been introduced that focus on restricting blockchain uses and development only certain products created using it another significant implication of blockchains is that they require storage this may not appear to be substantial because we already store lots of information and data however as time passes the number of growing blockchain uses will require more storage especially on blockchains where nodes store the entire chain currently data storage is centralized in large centers but if the world transitions to blockchain for every industry and use its exponentially growing size would mean more advanced techniques to reduce its size or that any participants would need to continually upgrade their storage this could become significantly expensive in terms of both money and physical space needed as the bitcoin blockchain itself was more than 581 gigabytes on june 29 2024 and this blockchain records only bitcoin transactions 16 this is small compared to the amount of data stored in large data centers but a growing number of blockchains will only add to the amount of storage already required for the connected and digital world | |
what exactly is a blockchain | simply put a blockchain is a shared database or ledger bits of data are stored in files known as blocks and each network node has a replica of the entire database security is ensured since the majority of nodes will not accept a change if someone tries to edit or delete an entry in one copy of the ledger | |
what is a blockchain in easy terms | imagine you typed some information into a document on your computer and sent it through a program that gave you a string of numbers and letters called hashing with the string called a hash you add this hash to the beginning of another document and type information into it again you use the program to create a hash which you add to the following document each hash is a representation of the previous document which creates a chain of encoded documents that cannot be altered without changing the hash each document is stored on computers in a network this network of programs compares each document with the ones they have stored and accepts them as valid based on the hashes they generate if a document doesn t generate a hash that is a match that document is rejected by the network | |
what is a blockchain for beginners | a blockchain is a distributed network of files chained together using programs that create hashes or strings of numbers and letters that represent the information contained in the files every network participant is a computer or device that compares these hashes to the one they generate if there is a match the file is kept if there isn t the file is rejected the bottom linewith many practical applications for the technology already being implemented and explored blockchain is finally making a name for itself in no small part because of bitcoin and cryptocurrency as a buzzword on the tongue of every investor in the nation blockchain stands to make business and government operations more accurate efficient secure and cheap with fewer intermediaries as we head into the third decade of blockchain it s no longer a question of if legacy companies will catch on to the technology it s a question of when today we see a proliferation of nfts and the tokenization of assets tomorrow we may see a combination of blockchains tokens and artificial intelligence all incorporated into business and consumer solutions the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info | |
what is blockchain as a service baas | blockchain as a service baas is the third party creation and management of cloud based networks for companies in the business of building blockchain applications these third party services are a relatively new development in the growing field of blockchain technology the application of blockchain technology has moved well beyond its best known use in cryptocurrency transactions and has broadened to address secure transactions of all kinds as a result there is a demand for hosting services understanding blockchain as a service baas baas is based on the software as a service saas model and works in a similar fashion it allows customers to leverage cloud based solutions to build host and operate their own blockchain apps and related functions on the blockchain at the same time the cloud based service provider keeps the infrastructure agile and operational as a development in the greater blockchain ecosystem baas is seen as boosting blockchain adoption across businesses major players in the baas space include consumers and businesses are increasingly willing to adapt to blockchain technology however the technical complexities and operational overhead involved in creating configuring and operating a blockchain and maintaining its infrastructure often act as a barrier baas offers an external service provider to set up all the necessary blockchain technology and infrastructure for a fee once created the provider continues to handle the complex back end operations for the client the baas operator typically offers support activities such as bandwidth management suitable allocation of resources hosting requirements and data security features the baas operator frees the client to focus on the core job the functionality of the blockchain example of blockchain as a service baas below is a graphic demonstrating the working model of blockchain as a service hyperledger cello a baas like blockchain module toolkit and utility system under the hyperledger project in fact a baas provider s role is similar to that of a web hosting provider the website creators create and run all the website content on their own personal computers they may hire support staff or sign up with an external hosting provider like amazon web services or hostgator these third party companies take care of the infrastructure and maintenance issues baas may be the catalyst that leads to a wider and deeper penetration of blockchain technology across various industry sectors and businesses instead of creating and running their own blockchains a business large or small can now simply outsource the technically complex work and focus on its core activities | |
a blockchain wallet is a digital wallet that allows users to store and manage their bitcoin ether and other cryptocurrencies blockchain wallet can also refer to the wallet service provided by blockchain a software company founded by peter smith and nicolas cary a blockchain wallet allows transfers in cryptocurrencies and the ability to convert them back into a user s local currency | understanding blockchain wallete wallets allow individuals to store cryptocurrencies and other digital assets in the case of blockchain wallet users can manage their balances of various cryptocurrencies such as the well known bitcoin and ether as well as stellar tether and paxos standard 1creating an e wallet with blockchain wallet is free and the account setup process is done online individuals must provide an email address and password that will be used to manage the account and the system will send an automated email requesting that the account be verified once the wallet is created the user is provided with a wallet id which is a unique identifier similar to a bank account number 2 wallet holders can access their e wallet by logging into the blockchain website or by downloading and accessing a mobile application 3the blockchain wallet interface shows the current wallet balance for crypto assets and the user s most recent transactions users can also access the price charts and see the value of the funds in the chosen local currency of the user there is also an educational did you know section sharing crypto facts and news 4 | |
how a blockchain wallet works | users can send a request to another party for a specific amount of bitcoin or other crypto assets and the system generates a unique address that can be sent to a third party or converted into a quick response code or qr code for short a qr code is similar to a barcode which stores financial information and can be read by a digital device a unique address is generated each time the user makes a request users can also send crypto assets when someone provides them with a unique address 5 the send and receive process is similar to sending or receiving funds through paypal but uses cryptocurrency instead paypal is an online payment provider that acts as a go between for customers and their banks and credit cards by facilitating online transfers through financial institutions users can also exchange bitcoin for other crypto assets and visa versa known as swapping this practice is an easy way to switch out crypto without leaving the security of the blockchain wallet 6 users are shown a quote indicating how much they will receive based on the current exchange rate with the rate changing depending on how long the user takes to complete the transaction 7 swaps should take a couple of hours while the transactions are added to each currency s blockchain however if it takes longer than six hours users should contact customer support 8blockchain wallet only allows six crypto assets for swapping bitcoin ethereum bitcoin cash stellar lumens tether usd digital wrapped dgld 9users can also buy or sell crypto through the buy crypto interface available to blockchain wallet buy and sell services are not available in all locations to make a purchase a user can either transfer funds from a bank use a credit or debit card or use the available cash balance 10 there is a daily limit of 25 000 and a weekly limit of 100 000 as well as a minimum buy order of 5 and a maximum buy order of 25 000 11blockchain wallet feeshowever it s important to note that the blockchain wallet uses a process they call dynamic fees meaning that the fee charged per transaction can be different based on various factors both the transaction size and the conditions of the network at the time of the transaction can greatly impact the size of the fee only so many transactions can be processed within a block by the high powered computers called miners the miners typically process the transactions that have the highest fees first since it s financially advantageous to them blockchain wallet offers a priority fee which could possibly get the transaction processed within an hour there s also a regular fee which is cheaper but the transaction would likely take more than an hour fees can also be customized by the customer however if the customer sets the fee too low the transfer or transaction could be delayed or rejected 12blockchain wallet securitywallet security is an important consideration for users as a compromised account may result in users losing control of their assets blockchain wallet has several levels of security to protect user funds from any possible attacker including the company itself like other digital services blockchain wallet accounts require passwords for the users protection however the blockchain company does not store user passwords and cannot reset the password if lost this measure prevents company insiders from being able to steal cryptocurrencies if a user forgets or loses their password the account can only be recovered with a mnemonic seed 13a mnemonic seed is a random string of english words that function similarly to a password if a user loses access to their phone or device the seed can be used to restore the wallet including any cryptocurrencies like passwords the blockchain company does not store users mnemonic seeds these seeds follow an industry standard meaning the wallets can be recovered even if the company goes out of business 13in addition to the protections outlined above there are also several optional security measures that are not required but can help secure user wallets against outside attacks to reduce the danger of phishing the blockchain wallet allows users to use two factor authentication or ip whitelists to prevent log ins from unfamiliar devices it is also possible to block access through the tor network thereby preventing prospective hackers from disguising their ip addresses 14 | |
what is bloomberg | bloomberg is a global provider of financial news and information including real time and historical price data financial data trading news and analyst coverage its services which span its platform television radio and print offer professional analysis tools for financial professionals one of bloomberg s key revenue earners is the bloomberg terminal an integrated platform that streams price data financials news and trading data to more than 325 000 customers worldwide 1history of bloombergbloomberg was founded by michael bloomberg in 1981 as a provider of financial analytics and information the company started with its flagship bloomberg terminal and grew to over 10 000 installed units within its first ten years of operation it then implemented bloomberg news an international financial news provider subscriptions for the news source grew to 150 000 over the next 10 years and the company then bloomberg tradebook allowing people to trade directly through bloomberg the company provides financial products and media services 21bloomberg grew to a leading financial company with over 325 000 subscriptions to its professional services almost 1 million global circulations of bloomberg businessweek and over 150 news bureaus internationally 34the bloomberg terminalthe bloomberg terminal also known as the bloomberg professional service is a software system and computer interface that gives financial professionals the ability to track and analyze breaking news across the globe the bloomberg terminal is geared toward large institutional investors and facilitates communication information and trade between institutions the average customer pays upwards of 20 000 per year for the service 51to support this massive network of financial information data encryption messaging and trading bloomberg employs over 4 000 computer engineers around the globe these engineers make improvements to the bloomberg professional service so it continues to provide the most comprehensive array of financial capabilities open to the general public bloomberg implements aspects of current tech trends such as its adoption of open source technologies like hadoop big data framework and solar search platform in may 2015 bloomberg opened up a technology hub in san francisco moving the majority of its engineers away from its new york headquarter offices 6 | |
what information does a bloomberg offer | bloomberg provides online information on markets technology politics and opinion bloomberg live is the largest newsroom in the world using bloomberg intelligence and bloomberg global data to enable moderators and speakers to produce compelling news conversations 7 | |
what is a bloomberg terminal | a bloomberg terminal is a computer system that allows investors to access the bloomberg data service which provides real time global financial data news feeds and messages investors can also use the bloomberg terminal s trading system to facilitate the placement of financial transactions such as stock and options trades 1bloomberg charges an annual subscription fee with the price for the proprietary electronic trading system at an estimated 27 660 per year as of 2020 2 | |
how a bloomberg terminal works | bloomberg terminals are one of the main product offerings from bloomberg l p they are one of the most heavily used and highly regarded professional investment systems to be created for the financial marketplace institutional investors are the typical customers of this product since the relatively high ongoing cost makes it unfeasible for individual investors with relatively small amounts of capital to purchase the system provides news price quotes and messaging across its proprietary secure network it is well known among the financial community for its black interface which is not optimized for user experience but has become a recognizable trait of the service it s not uncommon to see bloomberg s rather bland visuals carried into their television station although they round their media empire out with visually rich content in their flagship magazine bloomberg businessweek the approximate number of subscribers worldwide of the bloomberg terminal 1benefits of a bloomberg terminalthe bloomberg terminal was developed in 1982 by new york businessman michael bloomberg the terminal was originally a piece of dedicated all in one hardware for connecting to a network 3 now the terminal operates on any pc via windows compatible software a custom bloomberg keyboard and fingerprint scanner 1 based on design the system is compatible with the popular excel program a very important aspect of the system for those in the finance industry 4bloomberg also offers users access to the application online and through mobile devices via its bloomberg anywhere service 1 for portfolio managers and brokers having the ability to access real time market information from almost anywhere in the world is an incredibly convenient and important advantage of a bloomberg subscription bloomberg s instant messaging service has become popular among traders who use it to post quotes updates on trades and news about market activity the tools included in the bloomberg terminal are widely used by portfolio managers sell side finance professionals and buy side analysts bloomberg s data sets are comprehensive and quickly updated to reflect current market activity bloomberg s treasure trove of fixed income data appeals to bond traders 1bloomberg terminal competitorsthe largest competitor to the bloomberg s terminal is thomson reuters which started offering its reuters 3000 xtra electronic trading platform in 1999 5 then in 2010 they launched the eikon platform which officially replaced its predecessor in july 2012 67 in 2018 thomson reuters completed a deal with the private equity firm blackstone selling a 55 stake in the company for approximately 17 billion in gross cash proceeds 8bloomberg and thomson reuters split the market share in by 2010 each coming in at around one third of the market 9 in 2018 bloomberg s market share remained at around one third compared to thomson reuters drop to 22 market share 10 in 2018 thomson reuters sold its financial data and analysis platform to blackstone group under the rebranded name refinitiv and announced a renewed focus on enhancing the firm s flagship products the eikon desktop platform and the elektron data platform 11refinitiv was later sold to the london stock exchange lse group 12 bloomberg still commanded a one third market share as of 2022 with refinitiv holding its own at 19 the rivalry between bloomberg and its competitors continues as competitive pressure from smaller firms that offer financial data and analysis at a much lower price point two such firms are s p capital iq and factset the proliferation of big data analytics and machine learning look to cut into bloomberg s stranglehold on the financial data space 13can you trade directly from a bloomberg terminal yes you can place a wide range of order types and trade from the bloomberg terminal the bloomberg terminal can serve as a complete end to end trading system across a wide range of markets and financial products such as trading stocks and options | |
how much does a bloomberg terminal cost | the bloomberg terminal is only available as a subscription service and can run around 2 020 per month or 24 240 for a year if there are two or more licenses for a single subscription the cost is 27 660 per year there are discounts available for academic licenses by universities for purposes of education and research 2 | |
what are some alternatives to the bloomberg terminal | while the bloomberg terminal remains the dominant technology platform in the financial world for market data analysis and breaking headlines several other competitors exist according to investopedia s own reviewing among the best include can i invest in bloomberg s company no bloomberg lp the maker of the bloomberg terminal owned by billionaire and former nyc mayor michael bloomberg is a privately held company 14 | |
what is a blotter | a blotter also called a deal blotter or trade blotter is a physical or digital record of all trades made over a period of time usually one trading day along with their relevant details understanding a blotterthe purpose of a trade blotter is to carefully document trades so that they can be reviewed and confirmed by a trader or brokerage firm the blotter is mainly used in the stock market foreign exchange market and the bond market it can be customized based on the needs of the user a trade blotter is also used in the options and commodity markets the details of a trade will include such things as the time price order size and a specification of whether it was a buy or sell order this serves as an audit trail of transactions and is helpful to review if a particular trading strategy utilized was successful while blotters used to be written down on large boards or paper spreadsheets today they are usually created through trading software programs that automatically record the trades made through a data feed a broker usually provides a blotter to its traders as a software program it includes what security was traded the time of trade the quantity and price of sale or purchase the ecn market the trade occurred over and whether it was a buy sell or short order the blotter also indicates whether a trade was settled appropriately and includes orders that were entered but canceled before being filled the trader can customize what details are to be shown on the blotter a broker uses a blotter to keep a record of all transactions in the event that any issue with a trade arises blotter usagea blotter can be used with or in place of a trading journal by traders who utilize it to improve their trading techniques and strategies at the end of a trading day traders will usually use the blotter to review how well they performed they can sort through the blotter to review areas in which they could have performed better such as timing with entries and or exits compliance departments and regulators such as the securities and exchange commission sec also sort the blotter to detect whether any illegal trading has been done the sorting can be done in numerous ways to reveal any discrepancies in trading during an sec audit trading blotters are used by firms to show a record of their trades by type of investment a separate trading blotter will be used for equities for example and another one for fixed income securities and so on if some trades were carried out on stocks on the watchlist or restricted trading list this might indicate insider trading blotters might also reveal that some portfolio managers are showing favoritism to select clients if the following or other information is revealed furthermore a portfolio manager involved in an investment strategy that deviates from the strategy disclosed to clients may be found out through a blotter one example of a red flag is when a supposed buy and hold investment portfolio actually has only short term traded securities any unusual trading activity highlighted on a blotter will be investigated further to determine whether any wrongdoing was carried out example of a blotter templatelet s say that investment firm abc is preparing for an sec audit it separates out its trades by type of investment and generates a trading blotter for each investment for the time period requested by the sec each spreadsheet usually using excel contains details of the trade as categorized below in the case of fixed income securities such as bonds an additional column called accrued interest is added to the sheet | |
what are the blotters of original entry | all blotters are considered blotters of original entry as they all record new information the different types of blotters such as those for the receipt and delivery of securities for the purchase and sale of securities and the disbursements of cash all fall under blotters of original entry | |
what does a trade blotter do | a trade blotter simply records the trading activity of an individual and by doing so creates a trading history information in a trade blotter includes the client name the trade name the settlement date if the trade was a buy or sell the cusip the security symbol the quantity purchased the unit price and more | |
what triggers an insider trading investigation | a variety of activities can trigger an insider trading investigation by the sec this usually occurs around some large news event such as before a merger or acquisition where the sec or other regulatory agencies look for unusual movement in a specific security the bottom lineblotters are records of trades and are used for organizational purposes and tracking they re also useful for when adjustments or updates need to be made as well as being useful in spotting illegal trading like any type of record blotters can be designed and applied in a variety of contexts | |
what is a blue book | the blue book or kelley blue book is a guidebook that compiles and quotes prices for new and used automobiles and other vehicles of all makes models and types first published in 1926 by los angeles car dealer les kelley the blue book was originally only available to those in the automotive industry but both a consumer edition and an online edition was made available in the 1990s for the general public 1 the blue book provides a fair market range reflecting an estimated range of prices car buyers will pay for a specific car based on make model style and year understanding the blue bookblue book has become the premier appraisal guide for vehicle price quotes in north america car sellers and car buyers will consult the blue book to determine the resale value of used cars kelley blue book also provides an actual cash value for vehicles this can be used to check your insurance company s valuation should you get in a wreck and potentially negotiate with them the blue book analyzes the private party value trade in value suggested retail value and certified pre owned cpo value for used cars the new car blue book shows what consumers are currently paying for new cars over the decades blue book pricing guides have been published for a variety of markets including guides for motorcycles travel trailers campers atvs snowmobiles and manufactured housing | |
how blue books are used | blue books show buyers and sellers of automobiles what prices others have paid the so called fair purchase price to acquire vehicles of the same make model year and comparable mileage and use furthermore blue books can detail the anticipated costs associated with a vehicle such as fuel maintenance repairs insurance and financing along with the anticipated depreciation of its value over time that way buyers can see the potential cost to own the vehicle five years out from the date it is acquired | |
how the blue book determines car prices | the fair purchase price listed in the blue book is established to show the price other consumers typically pay for the same vehicle these prices are adjusted based on the region where the transactions take place from new vehicle purchases that occur across the country the prices are adjusted on a recurring basis to account for changes in market conditions the blue book does not show the lowest prices paid in the market for vehicles but rather the going price that a vehicle currently sells for the prices in the blue book are set by gathering data on thousands of consumer vehicle purchase prices this is coupled with data taken from national vehicle registration databases kelley blue book reviews the aggregate information each week 2 the company uses a proprietary algorithm to analyze pricing data historical trends location time of year and economic conditions to come up with the value ranges it compiles in the blue book special considerationsoriginated by the kelley blue book company which was acquired by autotrader com and cox automotive the guidebook is not to be confused with other titles referred to as blue books such as the social security blue book that lists disabling impairments in addition to the blue book there are several other resources car buyers and sellers can consult to research car pricing j d power and consumer reports both offer consumers a variety of resources including data on new car prices used car book value and vehicle history reports for those planning to rely on a loan for financing a vehicle purchase an auto loan calculator is another tool worth adding to their arsenal | |
what is a blue chip | a blue chip is a nationally or internationally recognized well established and financially sound company that s publicly traded blue chips generally sell high quality widely accepted products and services blue chip companies have reputable brands that have been built and maintained over many years that and the fact that they ve weathered multiple downturns in the economy make them stable companies to maintain in a portfolio blue chip companies operate profitably despite adverse economic conditions this helps to contribute to their long records of stable and reliable growth understanding blue chipsthe term blue chip was first used in 1923 by oliver gingold an employee of dow jones to describe stocks that traded at 200 or more per share 1 it relates to blue white and red poker chips with the blue chips having the greatest value blue chip stocks aren t necessarily stocks with a high price tag they re shares of high quality companies in healthy financial condition that have withstood the tests of time a blue chip stock is generally a component of the most reputable market indexes or averages such as the dow jones industrial average the standard poor s s p 500 and the nasdaq 100 in the united states the tsx 60 in canada and the ftse index in the united kingdom they re usually listed on major stock exchanges such as the nyse and the nasdaq | |
how large a company must be to qualify for blue chip status is open to debate a generally accepted benchmark is a market capitalization of 10 billion although market or sector leaders can be companies of all sizes | many conservative investors with low risk profiles or those who are nearing retirement might prefer blue chip stocks they can offer capital preservation and consistent dividend payments for income and protection against inflation benjamin graham suggests in his book the intelligent investor that conservative investors look for companies that have paid dividends consistently for 20 years or more 2the dividend aristocrat stock list published by standard and poor s is made up of large cap blue chip companies in the s p 500 that have increased dividends every year for 25 years examples of blue chip stocksa blue chip company can be a multinational firm that has operated successfully for several years is a dominant leader in its industry and is widely recognized some examples include the name blue chip comes from the game of poker in which blue chips have the highest value characteristics of blue chip stocksblue chip stocks are seen as less volatile investments than shares in companies without blue chip status because of their noteworthy institutional profile and longstanding financial health they share some other characteristics as well an investor can track the performance of blue chip stocks through a blue chip index and this can also be seen as an indicator of industry or economic performance | |
what is a blue chip stock | a blue chip stock is stock issued by a large well established financially sound company with an excellent reputation normally such companies have operated for many years have dependable earnings and usually pay dividends to investors a blue chip company typically has a market capitalization in the billions it s generally the market leader or among the top three companies in its sector and more often than not is a household name for all of these reasons blue chip stocks can make good investments and are among the most popular stock purchases for investors some examples of blue chip stocks are ibm corp coca cola co microsoft american express mcdonald s and boeing co investopedia jessica olahunderstanding a blue chip stockwhile dividend payments are not absolutely necessary for a stock to be considered a blue chip most blue chips have long records of paying stable or growing dividends a blue chip stock is generally a component of the most reputable market indexes or averages such as the dow jones industrial average the standard poor s s p 500 and the nasdaq 100 in the united states the tsx 60 in canada or the ftse index in the united kingdom | |
how big a company needs to be to qualify for blue chip status is open to debate a generally accepted benchmark is a market capitalization of 10 billion although market or sector leaders can be companies of all sizes | for example the t rowe price blue chip growth fund doesn t have a specific guideline for what type of company qualifies outside of its focus on large cap and mid cap companies that are well established in their industries its top ten holdings have market capitalizations that range from over 670 billion tesla to over 2 4 trillion microsoft 12blue chips get their name from the game of poker where a blue chip has the highest value and is the most attractive to players the safety of blue chip stocksblue chips are considered safe investments due to their longstanding financial stability they may have survived difficult challenges and market cycles over the years however the bankruptcies of general motors and lehman brothers as well as a number of leading european banks during the global recession of 2008 are proof that even the best companies may struggle and even fail during periods of extreme stress | |
are blue chips good investments | whether or not blue chip stocks or any other securities represent a good investment depends on an investor s financial needs investment objectives diversification goals risk tolerance and investment style nonetheless blue chips can play an important role in a portfolio they provide a useful combination of growth and value characteristics that can balance the ups and downs caused by economic distress and market volatility the companies are consistent top performers with solid fundamentals and income from dividends is usually dependable reinvesting dividends harnesses the power of compounding which is always a plus the coca cola company has paid dividends to investors for over 120 years since 1893 3blue chips as part of a larger portfoliowhile blue chip stocks are appropriate for use as core holdings within a larger portfolio they generally shouldn t be the entire portfolio a diversified portfolio usually contains some allocation to bonds and cash within a portfolio s allocation to stocks an investor should consider owning mid caps and small caps as well younger investors can generally tolerate the risk that comes from having a greater percentage of their portfolios in stocks including blue chips while older investors may choose to focus more on capital preservation through the addition of investments in bonds and cash | |
what makes a company a blue chip | blue chip stocks are the titans of their sectors industry defining companies that are well known well capitalized long term stable plays with solid financial prospects many blue chip stocks appear on the dow jones industrial average and the s p 500 they also appear on the non benchmark compiled list known as the nifty fifty | |
what companies are considered to be blue chips | many of the largest companies in the s p 500 or the dow 30 are blue chips such as ibm jpmorgan chase walmart microsoft and american express | |
where does the term blue chip come from | the term blue chip stock comes from the world of poker where chips used in gambling have different colors to represent different dollar amounts a blue chip is typically the one with the highest value of all surpassing white chips and red chips | |
how do i invest in blue chip stocks | an investor can buy blue chip stocks individually or by buying mutual funds or exchange traded funds etfs that invest in them in some cases funds and etfs will hold a variety of stocks and asset classes including blue chips in other cases the funds or etfs might be focused exclusively on blue chips such as an etf that tracks the dow jones industrial average which comprises 30 of the largest blue chip stocks the bottom lineblue chip stocks are aptly named because they re issued by the best companies in an industry sector and usually have rock solid financials and enviable valuations typically blue chips demonstrate a history of exceptional performance and attractive returns for generations of investors that s why they can be an excellent addition to a portfolio depending on your investment goals and style yet they re not immune to market downturns and economic upheaval that s something all investors considering blue chips should bear in mind | |
what is blue ocean | blue ocean is an entrepreneurship industry term created in 2005 to describe a new market with little competition or barriers standing in the way of innovators the term refers to the vast empty ocean of market options and opportunities that occur when a new or unknown industry or innovation appears 1the term blue ocean was coined by insead business school professors chan kim and renee mauborgne in their book blue ocean strategy how to create uncontested market space and make the competition irrelevant 2005 the authors define blue oceans as those markets associated with high potential profits 1 | |
how a blue ocean works | in an established industry companies compete with each other for every piece of available market share the competition is often so intense that some firms cannot sustain themselves this type of industry describes a red ocean representing a saturated market bloodied by competition 1blue oceans offer the opposite many firms choose to innovate or expand in the hopes of finding a blue ocean market with uncontested competition blue ocean markets are also of high interest to entrepreneurs overall blue ocean markets have several characteristics that innovators and entrepreneurs love a pure blue ocean market has no competitors a blue ocean market business leader has first mover advantages cost advantages in marketing with no competition the ability to set prices without competitive constraints and the flexibility to take its offering in various directions business leaders with innovative products and services who can identify blue ocean markets have endless opportunities blue ocean vs red ocean strategiesin contrast to a blue ocean a red ocean describes an environment of cutthroat competition among many industry players because the marketplace is crowded with rivals new companies must fight fiercely for a share of any profits companies in a red ocean business environment will use very different business strategies than those that have a marketplace to themselves rather than try to create demand red ocean companies try to attract existing consumers through marketing lower prices or improved products for example consider the marketplace for car insurance most insurers sell nearly identical products and try to capture market share by offering a more attractive deal than their competitors examples of blue ocean companiesa blue ocean is specific to a time and place ford and apple are two examples of leading companies that created their blue oceans by pursuing high product differentiation at a relatively low cost which also raised the barriers for competition they also were paradigmatic of burgeoning industries at the time that were later exemplified and emulated by others in 1908 ford motor co introduced the model t as the car for the masses it only came in one color and one model but it was reliable durable and affordable 3at the time the automobile industry was still in its infancy with approximately 500 automakers producing custom made cars that were more expensive and less reliable ford created a new manufacturing process for mass producing standardized cars at a fraction of the price of its competitors the model t s market share jumped from 9 in 1908 to 61 in 1921 officially replacing the horse drawn carriage as the principal mode of transportation 4apple inc found a blue ocean with its itunes music download service while billions of music files were being downloaded each month illegally apple created the first legal format for downloading music in 2003 5it was easy to use providing users with the ability to buy individual songs at a reasonable price apple won over millions of music listeners who had been pirating music by offering higher quality sound along with search and navigation functions apple made itunes a win win win for the music producers music listeners and apple by creating a new stream of revenue from a new market while providing more convenient access to music 5another example of a blue ocean firm is netflix a company that reinvented the entertainment industry in the 2000s rather than enter the competitive marketplace of video rental stores netflix created new models of entertainment first by introducing mail order video rentals and later by pioneering the first streaming video platform paid for by user subscriptions following their success many other companies have followed in netflix s footsteps as a result any new company trying to launch a video subscription model will find itself facing a red ocean rather than a blue one the bottom linea blue ocean describes an entrepreneur s dream an unexplored market without any competition allowing innovators to create and introduce new products that capture a large share of the market however a blue ocean is not always easy sailing entrepreneurs who seek to employ a blue ocean strategy must first create their own market attract customers and develop a product that has never been tried before for that reason successful blue ocean opportunities can be rare and far between | |
what are the steps to implement a blue ocean strategy | in blue ocean shift kim and mauborgne lay out a five step process for a company seeking to pivot to a blue ocean strategy in short they are | |
why is a blue ocean strategy difficult to implement | blue ocean strategies are difficult to implement for a simple reason if it were easy someone probably would have already done it since blue ocean strategies require identifying untapped markets and sometimes reinventing the market itself a blue ocean strategy is a high risk play that does not always pay off when it succeeds however the rewards are considerable | |
what was jcpenney s failed blue ocean strategy | in 2011 jcpenney made a spectacular strategic blunder under its new ceo ron johnson who attempted to pivot the company towards a blue ocean strategy at the time jcpenney had some financial struggles but was still regarded as an industry leader for value shopping johnson attempted to differentiate jcpenney to a more upscale clientele with in store boutiques and exclusive merchandise at the same time he did away with the clearance racks and coupons that attracted the company s most loyal customers to make matters worse rather than testing the changes on a small group of experimental stores johnson implemented them in all 1800 jcpenney stores after less than 18 months at the helm jcpenney fell out of the s p 500 index and johnson was fired | |
what are blue sky laws | blue sky laws are state regulations established as safeguards for investors against securities fraud the laws which may vary by state typically require sellers of new issues to register their offerings and provide financial details of the deal and the entities involved as a result investors have a wealth of verifiable information on which to base their judgment and investment decisions understanding blue sky lawsblue sky laws which serve as an additional regulatory layer to federal securities regulations usually mandate licenses for brokerage firms investment advisors and individual brokers offering securities in their states these laws require that private investment funds register not only in their home state but in every state where they wish to do business issuers of securities must reveal the terms of the offering including disclosures of material information that may affect the security the state based nature of these laws means each jurisdiction can include different filing requirements for registering offerings the process usually includes a merit review by state agents who determine whether the offering is balanced and fair for the buyer while blue sky laws vary by state they all aim to protect individuals from fraudulent or overly speculative investments the laws provisions also create liability for any fraudulent statements or failure to disclose information allowing lawsuits and other legal actions to be brought against issuers the intent of such laws is to deter sellers from taking advantage of investors who lack experience or knowledge and to ensure that investors are presented with offers for new issues that have already been vetted by their state administrators for fairness and equitability there are certain exceptions regarding the types of offerings that must be registered these exemptions include securities listed on national stock exchanges part of an effort by federal regulators to streamline the oversight process where possible offerings that fall under rule 506 of regulation d of the securities act of 1933 for example qualify as covered securities and are also exempt history of blue sky lawsthe term blue sky law is said to have originated in the early 1900s gaining widespread use when a kansas supreme court justice declared his desire to protect investors from speculative ventures that had no more basis than so many feet of blue sky in the years leading up to the 1929 stock market crash such speculative ventures were rife many companies issued stock promoted real estate and other investment deals while making lofty unsubstantiated promises of greater profits to come there was no securities and exchange commission sec and little regulatory oversight of the investment and financial industry securities were sold without corroborating material evidence to support these claims in some cases details were fraudulently hidden to attract more investors such activities contributed to the hyper speculative environment of the 1920s that led to inflation of the stock market before its inevitable collapse although blue sky laws did exist during that time period kansas enacted the earliest one in 1911 they tended to be weakly worded and enforced and the unscrupulous could easily avoid them by doing business in another state after the stock market crash and the onset of the great depression congress enacted several securities acts to regulate the stock market and the financial industry on a federal level and to establish the sec in 1956 the uniform securities act was passed a model law providing a framework that guides states in the crafting of their own securities legislation it forms the foundation for 40 out of 50 state laws today and itself is often nicknamed the blue sky law subsequent legislation such as the national securities markets improvement act of 1996 pre empts blue sky laws where they duplicate federal law | |
what is a board of directors | a board of directors bofd is the governing body of a company whose members are elected by shareholders in the case of public companies to set strategy oversee management and protect the interests of shareholders and stakeholders every public company must have a board of directors some private companies and nonprofit organizations also have a board of directors investopedia michela buttignol | |
how a board of directors works | the structure and powers of a board are determined by a company s articles of incorporation and its corporate bylaws bylaws can set the number of board members how the board is elected e g by a shareholder vote at an annual meeting and how often the board meets the board typically meets at regular intervals the board makes decisions as a fiduciary on behalf of the company and its shareholders broadly speaking it provides insight advice and leadership for important objectives such as protecting the interests of shareholders a board will promote efforts and activities that maximize the value that shareholders receive for their investment in addition to ensuring an efficiently run and profitable operation it makes certain that shareholders receive properly reported financial data and any other important information that could impact their holdings managing risk a board will establish policies that allow a company to identify evaluate and respond to financial security and legal risks as well as to mitigate actual loss facilitating ongoing risk monitoring is an essential responsibility of a board engaging with stakeholders a board will communicate with individuals and firms with vested interests in the company so that it understands those interests can address concerns pursue necessary changes in corporate behavior and make a positive impact that strengthens these relationships | |
what a board of directors does | a board of directors is responsible for overseeing and advising a company so that it functions as effectively as possible the board ensures that an organization operates lawfully and in the interests of the company s shareholders and other stakeholders such as its employees it operates independently of company management and day to day operations a board of directors considers important issues relating to the company its shareholders its employees and the public it s involved in the new york stock exchange and the nasdaq require listed companies to have boards with a majority of independent directors and to include independent directors on key board committees such as the audit committee 1 | |
how a board of directors is chosen | while no set number of members is required for a corporate board many pursuing diversity as well as cohesion settle on a range of 8 to 12 directors some boards require an uneven number of members to prevent votes from ending in a tie boards often stagger the terms of directors to avoid a full slate of yearly elections for publicly listed companies in the u s members of the board of directors are elected by shareholders at the annual meeting board candidates can be nominated by the board s nomination committee or by investors seeking to change a board s membership and policies for private companies a board of directors can be chosen in a manner that abides by a company s bylaws or articles of incorporation directors may also be chosen by shareholders via simple agreement on whom to appoint directors may be removed in elections or otherwise in instances of fiduciary duty violations in addition some corporate boards have fitness to serve rules that may lead to the removal of a director if broken for example some rules are intended to prevent abuse of board power director conduct that indicates a conflict of interest using insider information for financial gain selling one s votes for personal gain to outside interests or attempting to sway other directors votes to benefit an outside business types of boardsdifferent boards of directors can have different broad mandates for example executive boardthe role of this board is to take on the role of a chief executive officer where there is none and manage a company s operations effectively and profitably it acts to ensure that a company has and maintains a mission and a purpose and meets its goals on an ongoing basis governing boardthis board s purpose is to offer a company owner specific guidance related to the company s business mandate so that it can operate effectively and achieve its future goals advisory boardlike the governing board this board brings insight to a company s top executive it offers different perspectives and experience that can help the company meet specific goals such as growing a network achieving community brand recognition and connection and building a new customer segment fundraising boardthis board is focused on attracting funds that can help an organization meet its goals board members organize various opportunities such as campaigns special events galas tournaments auctions and more to raise money they use their positions in the business community and personal relationships to help an organization financially types of board membersthe board of directors typically is formed from inside and outside directors an inside director is most commonly defined as a company employee though the category sometimes also covers significant shareholders outside or independent directors are only involved with the company through their board membership as a result independent directors face fewer conflicts of interest than company insiders in discharging their fiduciary obligations in addition they bring to the board different points of view and expertise related to different kinds of business outside directors can be invaluable to a board in helping it carry out its responsibilities effectively the board usually will include the company s chief executive officer who is often the board s chairperson and sometimes other senior officers or managers directors may have specific roles and titles for example chairperson or president this individual leads and manages the board of directors they are responsible for setting agendas running successful board meetings establishing committees and other duties they normally represent the company at public events vice chair or vice president the vice chair works closely with the chairperson or president in support of their responsibilities they also help to facilitate directives and may address potential conflicts of interest of board members the vice chair normally fulfills the chairperson s duties when the latter is unavailable secretary the secretary manages the board s administrative tasks they take the board meeting minutes and maintain accurate corporate records treasurer the treasurer focuses on a company s budget financial policies and accounting investments and other financial issues they work with other professionals concerned with the company s financial well being |
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