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is face value the same as par value | yes face value refers to the dollar value of a financial instrument when it is issued the face value of a bond is the price that the issuer pays at the time of maturity also referred to as par value by comparison the face value of a stock is the price set by the issuer when the stock is first issued | |
what is the difference between face value and market value | while face value is the original price of a stock as set by its issuer market value is influenced by supply and demand market value is the price that the market will bear and it can differ significantly from a stock s initial price for example the face value of apple shares is 0 00001 while the market value of each of its shares at the close of trading on june 10 2024 was 193 12 4 | |
what is the difference between face value and a bond s price | a bond s face value is fixed often issued in 1 000 denominations by contrast its price fluctuates in response to market interest rates time to maturity and the issuer s credit rating a bond may be priced above par or below par based on these conditions for example if interest rates increase bond prices will decline trading at a discount to face value in the secondary market | |
what is book value | book value is the net value of a company s assets as recorded on its balance sheet it s calculated by subtracting a company s total liabilities from its total assets essentially book value reflects the amount that would be left over for shareholders if a company were to liquidate all its assets and pay off all its debts this measure provides insight into a company s intrinsic value and is often used by investors to gauge whether a stock is overvalued or undervalued 5the bottom linein finance face value refers to the nominal or dollar value of a security stated by the issuer this is also known as par value or par typically about bonds face value differs from market value which is the security price based on supply and demand with bonds face value refers to the amount paid to the bondholder at maturity although as with stocks bond market prices can fluctuate if sold on the secondary market historically face value ensured companies didn t sell stocks below a specific price as a data point in a time of limited information face value also protected shareholders for issuers face value created a value expectation when shares were sold | |
what is a facility | a facility is a formal financial assistance program offered by a lending institution to help a company that requires operating capital types of facilities include overdraft services deferred payment plans lines of credit loc revolving credit term loans letters of credit and swingline loans a facility is essentially another name for a loan taken out by a company | |
how a facility works | a facility is an agreement between a company and a public or private lender that allows the business to borrow a particular amount of money for different purposes for a short period of time the loan is for a set amount and does not require collateral the borrower often makes monthly or quarterly payments with interest until the debt is paid in full a facility is especially important for companies that want to avoid things such as laying off workers slowing growth or closing down during seasonal sales cycles when revenue is low for example if a jewelry store is low on cash in december when sales are down the owner can request a 2 million facility from a bank which will be paid back in full by july as business picks up the jeweler uses the funds to continue operations and pays back the loan in monthly installments by the agreed upon date examples of facilitiesthere are a number of facilities available for short term borrowers depending on the needs of the borrowing businesses these loans can be committed or uncommitted overdraft services provide a loan to a company when the company s cash account is empty the lender charges interest and fees on the borrowed money overdraft services cost less than loans are quickly completed and do not include penalties for an early payoff an unsecured business line of credit gives corporations access to cash as needed at a competitive rate with flexible payment choices a traditional line of credit provides check writing privileges requires an annual review and can be called early by the lender a non traditional line of credit provides businesses with quick access to cash and a high credit limit revolving credit has a specific limit and no set monthly payments yet interest accrues and is capitalized companies with low cash balances that need to fund their net working capital needs will usually go for a revolving credit facility which provides access to funds any time the business needs capital a term loan is a commercial loan with a set interest rate and maturity date a company typically uses the money to finance a large investment or acquisition intermediate term loans are under three years and are repaid monthly possibly with balloon payments long term loans can be up to 20 years and are backed by collateral domestic and international trade companies use letters of credit to facilitate transactions and payments a financial institution assures payment and completion of obligations between the applicant buyer and the beneficiary seller | |
what is a factor | a factor is an intermediary agent that provides cash or financing to companies by purchasing their accounts receivables in short a factor is a funding source the factor agrees to pay the company the value of an invoice less a discount for commission and fees factoring can help companies improve their short term cash needs by selling their receivables in return for an injection of cash from the factoring company the practice is also known as factoring factoring finance and accounts receivable financing investopedia sydney burnsunderstanding a factorfactoring allows a business to obtain immediate capital in the amount of the anticipated future income due from all outstanding invoices these invoices are captured in accounts receivable an asset account on a company s balance sheet which represents money owed to the company from customers for sales made on credit for accounting purposes receivables are recorded on the balance sheet as current assets since the money is usually collected in less than one year 1a company can experience cash flow shortfalls when its short term debts or bills exceed the revenue being generated from sales if a company has a significant portion of its sales done via accounts receivables the money collected from the receivables might not be paid in time for the company to meet its short term accounts payable as a result companies can opt to sell their receivables to a factor and receive cash there are three parties directly involved in a transaction involving a factor the first party is the company selling its accounts receivables the second party is the factor that purchases the receivables finally the third party is the company s customer who must now pay the receivable amount to the factor rather than paying the company that was originally owed the money requirements for a factoralthough the terms and conditions set by a factor can vary depending on its internal practices the funds are often released to the seller of the receivables within 24 hours in return for paying the company cash for its accounts receivables the factor earns a fee 1the company selling the receivables transfers the risk of default by its customers to the factor as a result the factor must charge a fee to help compensate for that risk typically a percentage of the receivable amount is kept by the factor however that percentage can vary depending on the creditworthiness of the customers paying the receivables if the financial company acting as the factor believes there s an increased risk of incurring a loss due to the customers not being able to pay the receivable amounts they ll charge a higher fee to the company selling the receivables if there s a low risk from collecting the receivables the factoring fee charged to the company will be lower the duration of time the receivables have been outstanding or uncollected can impact the factoring fee too some financial institutions that provide factoring may have additional terms and conditions for example a factor may want the company to pay additional money in the event one of the company s customers defaults on a receivable 1factoring is not considered a loan because the involved parties neither issue nor acquire debt as part of the transaction the funds provided to the company in exchange for the accounts receivable are also not subject to any restrictions regarding use benefits of a factorthe company selling its receivables gets an immediate cash injection which can help fund its business operations or improve its working capital working capital is vital to companies because it represents the difference between its short term cash inflows such as revenue versus the short term bills or financial obligations such as debt payments selling all or a portion of its accounts receivables to a factor can help prevent a company that s cash strapped from defaulting on its loan payments with a creditor such as a bank although factoring is a relatively expensive form of financing it can help a company improve its cash flow factors provide a valuable service to companies that operate in industries where it takes a long time to convert receivables to cash and to companies that are growing rapidly and need cash to take advantage of new business opportunities 2a financial institution that provides factoring also benefits from these transactions because it can purchase uncollected receivables or assets at a discounted price in exchange for being able to provide cash upfront example of a factorassume a factor has agreed to purchase an invoice of 1 million from clothing manufacturers inc representing outstanding receivables from behemoth co the factor negotiates to discount the invoice by 4 and will advance 720 000 to clothing manufacturers inc the balance of 240 000 will be forwarded by the factor to clothing manufacturers inc upon receipt of the 1 million accounts receivable invoice for behemoth co the factor s fees and commissions from this factoring deal amount to 40 000 the factor is more concerned with the creditworthiness of the invoiced party behemoth co than the company from which it has purchased the receivables | |
is factoring a good investment | determining whether factoring is a good investment for a company will depend on many things including the specifics of the company the type of business and its financial condition generally factoring is a good investment choice for a business because it increases liquidity increases competitiveness improves cash flow is efficient removes the need for good credit and reduces the reliance on traditional debt | |
how does factoring work | suppose a company is waiting on payment from its customers depending on the company s finances it may need that cash to continue operating its business or funding growth the longer it takes to collect the accounts receivables the more difficult it is for a business to run its operations factoring allows a company to sell off all of its outstanding invoices at one time rather than having to wait on collecting payments from customers the receivables are sold at a discount meaning that the factoring company may pay the company 80 or 90 of the full amount of the receivables | |
what is a factoring company | a factoring company specializes in accounts receivable financing or more simply factoring a factoring company purchases invoices from businesses that need an immediate boost in their cash flow a business may be in the position of waiting 30 to 90 days for its customers to pay their invoices for a company that is growing rapidly and needs cash to take advantage of new business opportunities this can be too long to wait therefore they may work with a factoring company the factoring company will pay the full amount of the company s invoices less a discount for commission and fees the bottom linea factor can act as a source of funding for a company a factor is usually a financial institution it agrees to pay a company the value of its outstanding invoices less a discount for commission and fees this practice is called factoring or accounts receivable financing the factoring company will set specific terms and conditions depending on the risk involved in the transaction the practice of factoring is beneficial because it allows a company to boost its cash flow in the short term for a factoring company these transactions are beneficial because they earn a factoring fee for each transaction most factoring companies take between 1 and 5 of the total amount of the invoice value but this amount can vary based on the factoring volume client creditworthiness business stability and other considerations | |
what is factor investing | factor investing is a strategy that chooses securities on attributes that are associated with higher returns there are two main types of factors that have driven returns of stocks bonds and other factors macroeconomic factors and style factors the former captures broad risks across asset classes while the latter aims to explain returns and risks within asset classes some common macroeconomic factors include the rate of inflation gdp growth and the unemployment rate microeconomic factors include a company s credit its share liquidity and stock price volatility style factors encompass growth versus value stocks market capitalization and industry sector understanding factor investingfactor investing from a theoretical standpoint is designed to enhance diversification generate above market returns and manage risk portfolio diversification has long been a popular safety tactic but the gains of diversification are lost if the chosen securities move in lockstep with the broader market for example an investor may choose a mixture of stocks and bonds that all decline in value when certain market conditions arise the good news is factor investing can offset potential risks by targeting broad persistent and long recognized drivers of returns since traditional portfolio allocations like 60 stocks and 40 bonds are relatively easy to implement factor investing can seem overwhelming given the number of factors to choose from rather than look at complex attributes such as momentum beginners to factor investing can focus on simpler elements such as style growth vs value size large cap vs small cap and risk beta these attributes are readily available for most securities and are listed on popular stock research websites foundations of factor investingvalue aims to capture excess returns from stocks that have low prices relative to their fundamental value this is commonly tracked by price to book price to earnings dividends and free cash flow 1historically portfolios consisting of small cap stocks exhibit greater returns than portfolios with just large cap stocks investors can capture size by looking at the market capitalization of a stock 2stocks that have outperformed in the past tend to exhibit strong returns going forward a momentum strategy is grounded in relative returns from three months to a one year time frame 3quality is defined by low debt stable earnings and consistent asset growth investors can identify quality stocks by using common financial metrics like a return to equity debt to equity and earnings variability 4empirical research suggests that stocks with low volatility earn greater risk adjusted returns than highly volatile assets 5 measuring standard deviation from a one to three year time frame is a common method of capturing beta example the fama french 3 factor modelone widely used multi factor model is the fama and french three factor model that expands on the capital asset pricing model capm built by economists eugene fama and kenneth french the fama and french model utilizes three factors size of firms book to market values and excess return on the market in the model s terminology the three factors used are smb small minus big hml high minus low and the portfolio s return less the risk free rate of return smb accounts for publicly traded companies with small market caps that generate higher returns while hml accounts for value stocks with high book to market ratios that generate higher returns in comparison to the market 6 | |
what is a factor market | factor market is a term economists use for all of the resources that businesses use to purchase rent or hire what they need in order to produce goods or services those needs are the factors of production which include raw materials land labor and capital the factor market is also called the input market by this definition all markets are either factor markets where businesses obtain the resources they need or goods and services markets where consumers make their purchases understanding a factor marketa factor market is also termed an input market while the market for finished products or services is called the output market this can be viewed as a closed loop flow in the factor market households are sellers and businesses are buyers while in the goods and services market businesses are sellers and households are buyers 1workers participate in the factor market when they make their services available to businesses an individual member of a household who is looking for a job is participating in the factor market an employee s wages are a component of the factor market but the money will be spent in the goods and services market the factor market provides every component required to produce goods and services in the appliance manufacturing industry workers who are skilled in refrigerator and dishwasher assembly are considered to be part of the factor market when they are available for hire in the modern world job search websites are part of the factor market similarly raw materials like steel and plastic both of which are used to build refrigerators and dishwashers are also examples of factor market products when the refrigerators and dishwashers are sold they are part of the output market most people participate in the factor markets in at least two ways if you work for a salary you are effectively part of the labor market moreover if you save or invest your income you are also participating in the capital market flow of a factor marketthe combination of the factor markets and the goods and services market forms a closed loop for the flow of money households supply labor to companies which pay them wages that are then used to buy goods and services from companies the goods and services market drives the factor market when consumers demand more goods and services manufacturers increase their purchases of the resources used to make those goods and services factor market producers in turn step up production of the raw materials that the manufacturers need free markets in a factor economythe factor market is one of the defining characteristics of a market economy traditional models of socialism are characterized by the replacement of factor markets which respond to the dictates of supply and demand with central economic planning which dictates supply and assigns resources accordingly the assumption of socialism is that market exchanges are redundant within the production process if capital goods are owned by a single entity representing the interests of the society as a whole a market economy has three components the factor market at one end the consumers market at the other end and in between the producers the companies that create the products we use a monopoly exists when there is only a single producer or seller of a product or service to serve many buyers a monopsony is the opposite there are many producers but only one buyer both are considered examples of market failures the law of supply and demand can t work efficiently in either situation because of a lack of competition this has particular relevance to the labor component of the factor market an employee has no bargaining power in a town where there is only one possible employer moreover a consumer faced with one brand has no choice but to pay the price demanded and accept the quality offered a monopoly has an equally destructive effect in the factor market a single supplier is under no pressure to cut prices innovate or even excel monopoly and monopsony are seen as disturbing the equilibrium of a factor market which depends on competition to work efficiently 2 | |
why are factor markets important | a market economy can t exist without three interdependent components the factor market at one end the goods and services market at the other end and in between the producers the companies that create the products we use the producers obtain what they need in the factor market produce finished products and sell them to end users the end users by their actions create and sustain demand for raw materials that are then made available by the factor market in order to supply the producers this is known as derived demand 3the factor market responds to demand and the cycle continues | |
how do supply and demand impact factor markets | the factor market is driven by demand in the product market the resources needed to produce goods and services are created or obtained in sufficient quantities to satisfy demand in the product market in effect the consumer market dictates the factor market | |
what transactions take place in a factor market | in the factor market businesses are the buyers they may buy rent or hire raw materials land or labor whatever a business needs in order to build package and deliver the products or services they provide must be obtained in the factor market the sellers include producers of raw materials however every individual who has a job is a participant in the factor market the skills and labor that the person is offering in return for compensation is a product that is made available in the factor market | |
what are the types of factor market | economists generally divide the factor market into three components these are the factors of production the bottom linethe factor market refers to the costs of all the different inputs that are used in economic activity such as raw materials machinery investments and labor whenever a person earns a salary or saves it in the bank they are effectively participating in the factor markets | |
what are factors of production | the factors of production are land labor entrepreneurship and capital these inputs are needed for the creation of goods and services those who control the factors of production often enjoy the greatest wealth in a society in capitalism the factors of production are most often controlled by business owners and investors in socialist systems the government exerts greater control over the factors of production mira norian investopedia | |
how factors of production work | the modern definition of factors of production is primarily derived from a neoclassical view of economics initially only labor was considered by most economists but eventually land and capital were considered as well entrepreneurship is a slightly more recent addition to the list as it was formerly lumped in with capital labor was the original factor of production identified by early economists such as adam smith and david ricardo in the early 20th century two swedish economists named bertil heckscher and eli ohlin were the first to expand the factors of production beyond labor production such as manufacturing can be tracked by certain indexes including the ism manufacturing index 1the 4 factors of productionthere are four factors of production land labor capital and entrepreneurship land as a factorland has a broad definition as a factor of production and can take on various forms from agricultural land to commercial real estate to the resources available from a particular piece of land natural resources such as oil and gold can be extracted and refined for human consumption from the land the cultivation of crops on land by farmers increases its value and utility for a group of early french economists called the physiocrats who predated the classical political economists land was responsible for generating economic value while land is an essential component of most ventures its importance can diminish or increase based on industry for example a technology company can easily begin operations in the founder s home with zero business investment in land on the other hand land is the most significant investment for a real estate venture labor as a factorlabor refers to the effort expended by an individual to bring a product or service to the market again it can take on various forms for example the construction worker at a hotel site is part of the labor as is the waiter who serves guests or the receptionist who enrolls them into the hotel within the software industry labor refers to the work done by project managers and developers in building the final product even an artist involved in making art whether it is a painting or a symphony is considered labor for the early political economists labor was the primary driver of economic value production workers are paid for their time and effort in wages that depend on their skill and training labor by an uneducated and untrained worker is typically paid at low prices skilled and trained workers are called human capital and are paid higher wages because they bring more than their physical capacity to the task for example an accountant s job requires the analysis of financial data for a company countries that are rich in human capital experience increased productivity and efficiency the difference in skill levels and terminology also helps companies and entrepreneurs create corresponding disparities in pay scales this can result in a transformation of factors of production for entire industries an example of this is the change in production processes in the information technology it industry after jobs were outsourced to countries with lower salaries capital as a factorin economics capital typically refers to money however money is not considered part of the capital factor of production because it is not directly involved in producing a good or service instead it facilitates the acquisition of things that are considered capital such as capital goods capital goods are items that allow a person or business to produce goods and services for example the machinery in a factory the computers of a tech company and the instrument of a musician are capital goods for modern mainstream neoclassical economists capital is the primary driver of value it is important to distinguish personal and private capital in factors of production a personal vehicle used to transport family is not considered a capital good but a commercial vehicle used expressly for official purposes is during an economic contraction or when they suffer losses companies cut back on capital expenditure to ensure profits however during periods of economic expansion they invest in new machinery and equipment to bring more products to market this investment further feeds economic growth an illustration of the above is the difference in markets for robots in china compared to the united states after the 2008 financial crisis after the crisis china experienced a multi year growth cycle and its manufacturers invested in robots to improve productivity at their facilities and meet growing market demands 23as a result the country became the biggest market for robots manufacturers within the united states which had been in the throes of an economic recession after the financial crisis cut back on their investments related to production due to tepid demand 45as a factor of production capital refers to the purchase of goods made with money in production for example a tractor purchased for farming is capital along the same lines desks and chairs used in an office are also capital entrepreneurship as a factorentrepreneurship is the secret sauce that combines all the other factors of production into a product or service for the consumer market an example of entrepreneurship is the evolution of the social media behemoth meta meta formerly facebook mark zuckerberg assumed the risk for the success or failure of his social media network when he began allocating time from his daily schedule toward that activity when he coded the minimum viable product himself zuckerberg s labor was the only factor of production after facebook became popular and spread across campuses zuckerberg realized he needed to recruit additional employees he hired two people an engineer dustin moskovitz and a spokesperson chris hughes who both allocated hours to the project meaning that their invested time became a factor of production the continued popularity of the product meant that zuckerberg also had to scale technology and operations he raised venture capital money to rent office space hire more employees and purchase additional server space for development at first there was no need for land however as business continued to grow meta built its own office space and data centers each of these requires significant real estate and capital investments connecting the factorsanother example of entrepreneurship is starbucks corporation sbux the retail coffee chain needs land prime real estate in big cities for its coffee chain capital large machinery to produce and dispense coffee and labor employees at its retail outposts for service entrepreneur howard schultz the company s founder provided the fourth factor of production by being the first person to realize that a market for such a chain existed and figuring out the connections among the other three factors of production 6while large companies make for excellent examples a majority of companies within the united states are small businesses started by entrepreneurs because entrepreneurs are vital for economic growth countries are creating the necessary framework and policies to make it easier for them to start companies 7ownership of factors of productionthe definition of factors of production in economic systems presumes that ownership lies with households who lend or lease them to entrepreneurs and organizations but that is a theoretical construct and rarely the case in practice except for labor ownership for factors of production varies based on industry and economic system for example a firm operating in the real estate industry typically owns significant parcels of land while retail corporations and shops lease land for extended periods of time capital also follows a similar model in that it can be owned or leased from another party under no circumstances however is labor owned by firms labor s transaction with firms is based on wages ownership of the factors of production also differs based on the economic system for example private enterprises and individuals own most of the factors of production in capitalism however collective good is the predominating principle in socialism at least in theory as such factors of production such as land and capital are owned partially or fully by the government under socialism and communism as we have seen in history the implementation has never matched the promises of the idealist theory with the factors of production usually being used for the benefit of those ruling the country rather than the common good in communist systems the role of technologywhile not directly listed as a factor technology plays a vital role in influencing production in this context technology has a fairly broad definition and can refer to software hardware or a combination of both used to streamline organizational or manufacturing processes increasingly technology is responsible for the difference in efficiency among firms to that end technology like money is a facilitator of the factors of production the introduction of technology into a labor or capital process makes it more efficient for example the use of robots in manufacturing has the potential to improve productivity and output similarly the use of kiosks in self serve restaurants can help firms cut back on their labor costs the solow residual also known as total factor productivity tfp measures the residual output that remains unaccounted for from the four factors of production and typically increases when technological processes or equipment are applied to production economists consider tfp to be the main factor driving economic growth for a country the greater a firm s or country s tfp the greater its growth | |
what are the factors of production | the factors of production are an important economic concept outlining the elements needed to produce a good or service for sale they are commonly broken down into four elements land labor capital and entrepreneurship depending on the specific circumstances one or more factors of production might be more important than the others | |
what are examples of the factors of production | land refers to physical lands such as the acres used for a farm or the city block on which a building is constructed labor refers to all wage earning activities such as the work of professionals retail workers and so on entrepreneurship refers to the initiatives taken by entrepreneurs who typically begin as the first workers in their firms and then gradually employ other factors of production to grow their businesses finally capital refers to the capital goods needed to start or grow a business these can include things such as factory machinery tractors and computers basically any items needed to run a given business | |
are all factors of production equally important | depending on the context some factors of production might be more important than others for example a software company that relies primarily on the labor of skilled software engineers might see labor as its most valuable factor of production meanwhile a company that makes its money from building and renting out office space might see land and capital as its most valuable factors as the demands of a business change over time the relative importance of the factors of production will also change accordingly the bottom linethe factors of production land labor entrepreneurship and capital are necessary for businesses to create products and services to sell to consumers and earn a profit how companies manage their factors of production is critical to their success | |
what is factset | factset research systems provides computer based financial data and analysis for financial professionals including investment managers hedge funds and investment bankers it consolidates data on global markets public and private companies and equity and fixed income portfolios factset was founded in 1978 by howard wille and charles snyder and is headquartered in connecticut with additional offices in the united states and around the world 12 the company has over 130 partners who uses their information 3 | |
how factset works | factset s mission is to help the performance of investment professionals throughout the world by providing analytical insight gleaned from raw financial data the company seeks to do this by providing investors and other professionals with the tools needed to convert this data into information that can be used in financial analysis and financial reporting factset provides its services for a lower price than some of its competitors because the company uses multiple sources to provide its data which creates pricing competition between suppliers the number of independent data providers factset allows members to access 4the company gives its clients an all inclusive computer system that can be personalized for the specific needs of investment managers hedge funds investment bankers and other quantitative fields and industries factset offers products that take care of market analytics financial content financial screening customized data analytics and more as of 2023 factset services over 200 000 users in more than 8 000 companies and organizations factset has 37 offices in 20 countries the company reports it has had a client retention rate of 95 with 43 years of revenue growth 56factset research system s competitors include morningstar s p global and bloomberg the company structurefactset is broken down into three business units one in the united states one in europe and one in asia pacific the business unit located in the united states provides financial solutions to financial professionals as well as domestic financial institutions the european and asia pacific business units only service financial professionals in the regions in which each unit operates as of october 2019 the company is led by its chief executive officer ceo philip snow who assumed the head role in 2015 snow began his career at factset in 1996 as a consultant and held various company positions in the united states and abroad snow holds a degree in chemistry from the university of california berkeley and a master s degree in international management from the thunderbird school of global management from arizona state university 7factset has an established corporate governance with audit board committees made up of independent directors to help with financial and corporate compliance 89 the company also requires an employee hotline that allows for the reporting of ethical or accounting concerns 10 | |
what is facultative reinsurance | facultative reinsurance is coverage purchased by a primary insurer to cover a single risk or a block of risks held in the primary insurer s book of business facultative reinsurance is one of two types of reinsurance the other type of reinsurance is called treaty reinsurance facultative reinsurance is considered to be more of a one time transactional deal while treaty reinsurance is typically part of a long term arrangement of coverage between two parties | |
how facultative reinsurance works | an insurance company that enters into a reinsurance contract with a reinsurance company also known as a ceding company does so in order to pass off some of their risk in exchange for a fee this fee may be a portion of the premium the insurer receives for a policy the primary insurer that cedes risk to the reinsurer has the option of either ceding specific risks or a block of risks reinsurance contract types determine whether the reinsurer is able to accept or reject an individual risk or if the reinsurer must accept all the specified risks facultative reinsurance allows the reinsurance company to review individual risks and determine whether to accept or reject them the profitability of a reinsurance company depends on how wisely it chooses its customers in a facultative reinsurance arrangement the ceding company and the reinsurer create a facultative certificate that indicates that the reinsurer is accepting a given risk insurance companies looking to cede risk to a reinsurer may find that facultative reinsurance contracts are more expensive than treaty reinsurance this is because treaty reinsurance covers a book of risks this is an indicator that the relationship between the ceding company and the reinsurer is expected to become a long term relationship versus if the reinsurer only wants to cover a single risk in a one off transaction while the increased cost is a burden a facultative reinsurance arrangement may allow the ceding company to reinsure specific risks that it may otherwise not be able to take on treaty reinsurance vs facultative reinsuranceboth treaty and facultative reinsurance contracts can be written on a proportional or excess of loss basis or a combination of both treaty reinsurance is a broad agreement covering some portion of a particular class or class of business such as an insurer s entire workers compensation or property business reinsurance treaties automatically cover all risks written by the insured that fall within treaty terms unless they specifically exclude certain exposures while treaty reinsurance does not require review of individual risks by the reinsurer it demands a careful review of the underwriting philosophy practice and historical experience of the ceding insurer facultative reinsurance is usually the simplest way for an insurer to obtain reinsurance protection these policies are also the easiest to tailor to specific circumstances facultative reinsurance contracts are much more focused in nature they cover individual underlying policies and they are written on a policy specific basis a facultative agreement covers a specific risk of the ceding insurer a reinsurer and ceding insurer must agree on terms and conditions for each individual contract facultative reinsurance agreements often cover catastrophic or unusual risk exposures because it is so specific facultative reinsurance requires the use of substantial personnel and technical resources for underwriting activities benefits of facultative reinsuranceby covering itself against a single risk or a block of risks reinsurance gives the insurer more security for its equity and solvency and more stability when unusual or major events occur reinsurance also allows an insurer to underwrite policies covering a larger volume of risks without excessively raising the costs of covering their solvency margins the amount by which the assets of the insurance company at fair values are considered to exceed its liabilities and other comparable commitments in fact reinsurance makes substantial liquid assets available for insurers in case of exceptional losses example of facultative reinsurancesuppose a standard insurance provider issues a policy on major commercial real estate such as a large corporate office building the policy is written for 35 million meaning the original insurer faces a potential 35 million in liability if the building is badly damaged but the insurer believes it cannot afford to pay out more than 25 million so before even agreeing to issue the policy the insurer must look for facultative reinsurance and try the market until it gets takers for the remaining 10 million the insurer might get pieces of the 10 million from 10 different reinsurers but without that it cannot agree to issue the policy once it has the agreement from the companies to cover the 10 million and is confident it can potentially cover the full amount should a claim come in it can issue the policy | |
what is failure to deliver ftd | failure to deliver ftd refers to a situation where one party in a trading contract whether it s shares futures options or forward contracts doesn t deliver on their obligation such failures occur when a buyer the party with a long position doesn t have enough money to take delivery and pay for the transaction at settlement a failure can also occur when the seller the party with a short position does not own all or any of the underlying assets required at settlement and so cannot make the delivery understanding failure to deliverwhenever a trade is made both parties in the transaction are contractually obligated to transfer either cash or assets before the settlement date subsequently if the transaction is not settled one side of the transaction has failed to deliver failure to deliver can also occur if there is a technical problem in the settlement process carried out by the respective clearinghouse failure to deliver is critical when discussing naked short selling when naked short selling occurs an individual agrees to sell a stock that neither they nor their associated broker possess and the individual has no way to substantiate their access to such shares the average individual is incapable of doing this kind of trade however an individual working as a proprietary trader for a trading firm and risking their own capital may be able though it would be considered illegal to do so some such individuals or institutions may believe the company they short will go out of business and thus in a naked short sale they may be able to make a profit with no accountability subsequently the pending failure to deliver creates what are called phantom shares in the marketplace which may dilute the price of the underlying stock in other words the buyer on the other side of such trades may own shares on paper which do not actually exist chain reactions of failure to deliver eventsseveral potential problems occur when trades don t settle appropriately due to failure to deliver both equity and derivative markets can have a failure to deliver occurrence with forward contracts a party with a short position s failure to deliver can cause significant problems for the party with the long position this difficulty happens because these contracts often involve substantial volumes of assets that are pertinent to the long position s business operations in business a seller may pre sell an item that they do not yet have in their possession often this will be due to a delayed shipment from the supplier when it comes time for the seller to deliver to the buyer they can t fulfill the order because the supplier was late the buyer may cancel the order leaving the seller with a lost sale useless inventory and the need to deal with the tardy supplier meanwhile the buyer will not have what they need remedies include the seller going into the market to buy the desired goods at what may be higher prices the same scenario applies to financial and commodity instruments failure to deliver in one part of the chain can impact participants much further down that chain during the financial crisis of 2008 failures to deliver increased much the same as check kiting where someone writes a check but has not yet secured the funds to cover it sellers did not surrender securities sold on time they delayed the process to buy securities at a lower price for delivery | |
what is the fair credit billing act | the fair credit billing act is a 1974 federal law enacted to protect consumers from unfair credit billing practices it enables individuals to dispute unauthorized charges on their accounts and those for undelivered goods or services | |
how the fair credit billing act works | the federal trade commission enforces the fair credit billing act which covers open end credit accounts such as credit cards charge accounts and lines of credit the act provides consumers with protection from unfair billing practices such as during an investigation a consumer may withhold payment only on the disputed amount not on the rest of their bill 1rules for consumersrules for card issuers and other lenderswhile the fair credit billing act limits a cardholder s liability for unauthorized charges to 50 many card issuers now have voluntary zero liability policies that reduce it to 0 fair credit billing act fcba vs fair credit reporting act fcra the fair credit billing act is often compared to the fair credit reporting act fcra both are designed to protect consumers from bad credit practices but the purpose of each law is different the fair credit reporting act is a federal law that regulates the collection and reporting of credit information about consumers the law governs how a consumer s credit information is collected and shared with others 2in other words the fcba protects consumers from unfair billing practices while the fcra protects them from unfair practices involving their personal information | |
what kinds of credit does the fair credit billing act not cover | the fair credit billing act applies only to open end credit the kind that a consumer can borrow from repeatedly examples include credit cards charge cards and home equity lines of credit it does not apply to closed end credit such as auto loans mortgages and home equity loans consumers who wish to dispute a charge involving closed end credit are covered by other laws for example the real estate settlement procedures act respa governs disputes between borrowers and their mortgage companies or loan servicers 3 | |
what does account in dispute mean | under the fair credit billing act account in dispute refers to the 90 day period in which a credit issuer is investigating a consumer s dispute the credit issuer must either remedy the situation or send a letter to the consumer explaining why it considers the dispute invalid can a consumer dispute a non refundable charge just like with any other charge the consumer has the right to dispute a transaction involving a non refundable charge as long as they believe they have a valid claim valid claims include not receiving the product or service or not having signed or authorized the non refundable charge | |
what is a chargeback | a chargeback is the return of money to a customer following the successful dispute of a particular credit transaction it reverses a money transfer from the payer s bank account or credit card will a credit billing dispute affect your credit score no filing a dispute has no impact on a consumer s credit score however the card issuer may report the dispute to one or more of the three major credit bureaus while its investigation is in progress and that information may show up in the consumer s credit report 4the bottom linethe fair credit billing act is designed to protect consumers from unfair billing practices the act provides a path for consumers to dispute billing errors or unauthorized charges and requires that credit issuers investigate and resolve them | |
what is the fair credit reporting act fcra | the fair credit reporting act fcra is a federal law that regulates the collection of consumers credit information and access to their credit reports it was passed in 1970 to address the fairness accuracy and privacy of the personal information contained in the files of the credit reporting agencies cras | |
how the fair credit reporting act fcra works | the fair credit reporting act is the primary federal law that governs the collection and reporting of credit information about consumers its rules cover how a consumer s credit information is obtained how long it is kept and how it is shared with others including consumers themselves the federal trade commission ftc and the consumer financial protection bureau cfpb are the two federal agencies charged with overseeing and enforcing the provisions of the law many states also have their own laws relating to credit reporting the fcra in its entirety can be found in united states code title 15 section 1681 1the three major credit reporting bureaus equifax experian and transunion as well as other more specialized companies collect and sell information on individual consumers financial history the information in their reports is also used to compute consumers credit scores which can affect for example the interest rate that they ll have to pay to borrow money or whether they can qualify for a loan at all the year the fair credit reporting act fcra public law no 91 508 was passed by the u s congress to promote the accuracy fairness and privacy of personal information collected in credit reports it has been amended a number of times in the years since | |
what credit bureaus can and can t do under the law | the fair credit reporting act describes the kind of data that credit bureaus are allowed to collect that includes the person s bill payment history past loans and current debts it may also include employment information present and previous addresses whether they have ever filed for bankruptcy or owe child support and any arrest record the fcra also limits who is allowed to see a credit report and under what circumstances for example lenders may request a report when someone applies for a mortgage car loan or another type of credit insurance companies may also view consumers credit reports when they apply for a policy the government may request it in response to a court order or federal grand jury subpoena or if the person is applying for certain types of government issued licenses 2in some but not all instances consumers must have initiated a transaction or agreed in writing before the credit bureau can release their report for example employers can request a job applicant s credit report but only with the applicant s permission however some potential lenders and insurers can access portions of your credit report without your permission in order to decide whether to send you unsolicited offers for credit or insurance this process is called prescreening and the law allows you to opt out of it 2the fair credit reporting act fcra mandates that when a business pulls a credit report on someone they must specify the reason for example the reason could be in conjunction with a loan request for employment purposes or part of a credit check by a landlord | |
what is the fair debt collection practices act fdcpa | the fair debt collection practices act fdcpa is a federal law that limits the actions of third party debt collectors who are attempting to collect debts on behalf of another person or entity the law restricts the ways that collectors can contact debtors as well as the time of day and number of times that contact can be made if the fdcpa is violated the debtor can sue the debt collection company as well as the individual debt collector for damages and attorney fees the consumer financial protection bureau s cfpb s debt collection rule clarifies the fdcpa s rules about how debt collectors can communicate with debtors 1 | |
how the fair debt collection practices act fdcpa works | the fdcpa creates a structure within which debt collectors are allowed to work in an attempt to make debt collection a fair and nonaggressive process the law limits the time of day when collectors may call the type of language they may use and how they represent themselves essentially the law makes it illegal for them to threaten or harass you when they are trying to collect a debt if a debt collector violates the parameters of the law debtors may submit a complaint with the consumer financial protection bureau cfpb or take the debt collector to court the fdcpa does not protect debtors from those who are attempting to collect a personal debt if you owe money to the local hardware store for example and the owner of the store calls you to collect that debt that person is not a debt collector under the terms of the law the fdcpa only applies to third party debt collectors such as those who work for a debt collection agency credit card debt medical bills student loans mortgages and other kinds of household debt are covered by the law example of fair debt collection practices act fdcpa protectionthe fair debt collection practices act specifies that debt collectors cannot contact debtors at inconvenient times that means they should not call before 8 a m or after 9 p m unless the debtor and the collector have made an arrangement for a call outside of the permitted hours if a debtor tells a collector that they want to talk after work at 10 p m for instance the collector is allowed to call then without an invitation or agreement however the debtor cannot legally call at that time debt collectors may also send letters emails or text messages to collect a debt 56debt collectors can attempt to reach debtors at their homes or offices however if a debtor tells a bill collector either verbally or in writing to stop calling their place of employment the fdcpa says a collector must not call that number again debt collectors may now also contact debtors through social media although there are stipulations in place they may only contact debtors in a private manner that is hidden from other friends or connections they must also identify themselves as a debt collector even while requesting to connect with you in every exchange they must offer you a way to opt out of their communications as well 1the cfpb s debt collection rule also limits how many times a debt collector may call they may not call more than seven times in a seven day period however they may message text or email you more frequently within five days of contacting a debtor the debt collector must send a written validation notice that includes 1the fdcpa makes it illegal for debt collectors to use abusive unfair or deceptive practices when they attempt to collect debts 7other fair debt collection practices act fdcpa rulesdebtors can also stop collectors from calling their home phones but they must put the request in a letter and send it to the debt collector it s a good idea to send the letter by certified mail and pay for a return receipt so that you have proof that the debt collector received the request if a collector does not have contact information for a debtor they can call relatives neighbors or associates of the debtor to try to find the debtor s phone number but they cannot reveal any information about the debt including the fact that they are calling from a debt collection agency the collector may only discuss the debt with the debtor or their spouse additionally collectors can only call third parties one time each the law makes it illegal for debt collectors to harass debtors in other ways including threats of bodily harm or arrest they also cannot lie or use profane or obscene language additionally debt collectors cannot threaten to sue a debtor unless they truly intend to take that debtor to court can a debt collector physically come to my place of business a debt collector is not allowed to physically come to your place of employment the fair debt collection practices act fdcpa considers a physical visit to your workplace publicizing your debt they may call you at work but if you tell them to stop they must comply | |
what can i do if i m being harassed by a debt collector | if you feel that a debt collector has violated the fdcpa you may contact the consumer financial protection bureau cfpb or your state s attorney general 8 | |
what is considered harassment under the fair debt collection practices act fdcpa | harassment can include repetitive phone calls calling very early or very late obscene or threatening language publicizing the debt and calling without identifying themselves as a debt collector 8the bottom linedebtors are responsible for paying off money they ve borrowed but they also have rights including to be free from threats or harassment if they cannot pay debt collectors must follow certain rules with how they try to collect the money you owe if you know your rights you can better manage these situations and avoid stress and more financial turmoil | |
how the flsa works | the flsa specifies when workers are on the clock and when times are not paid hours there are also detailed rules concerning whether employees are exempt from the flsa overtime regulations the law requires that overtime be paid at one and a half times the regular hourly rate time and a half for all hours worked more than 40 during a seven day workweek 3the flsa applies to workers who have an employee engaged in interstate commerce on the production of goods for commerce it also applies to workers who are employed by an enterprise engaged in commerce or the production of goods for commerce the flsa also applies to domestic service workers housekeepers cooks full time babysitters and employees of hospitals educational institutions at any level and public agencies the nominal amount in annual gross sales or other business that makes an employer subject to the full requirements of the flsa however employees of firms that are not covered enterprises may still be subject to its minimum wage overtime pay record keeping and child labor provisions if they are engaged in interstate commerce or producing goods for interstate commerce 4 and interstate commerce has a broad interpretation companies that regularly use the u s mail telephones or the internet to contact other states are considered engaged in interstate commerce the flsa and workersthe flsa applies only to employers whose annual sales total 500 000 or more or are engaged in interstate commerce which can mean receiving letters phone calls or internet orders from another state nonexempt employees are entitled to overtime pay while exempt employees are not most flsa covered employees are nonexempt some hourly workers are not covered by the flsa but are subject instead to other regulations 3farmworkers may be considered jointly employed by a labor contractor who recruits organizes transports and pays them and a farmer who needs their services and pays the labor contractor for their services 5 in such situations employers falsely categorize workers as volunteers when they meet the definition of employee under the flsa the flsa also sets out how to treat jobs that are primarily compensated by way of tipping in such a case an employer must pay the minimum wage to the employee unless they regularly receive more than 30 per month from gratuities if that employee s pay tips included does not equal minimum wage then the employer must make up the difference such workers must either receive all their tips or be included in a tip pool for which the flsa sets guidelines bussers are meant to be included in a tip pool under flsa rules because of the customer visible nature of their work 6here is a summary of the most important protections in the flsa the flsa is also known as the wages and hours bill flsa exemptionsthe flsa has a broad reach but does not apply to all workers and workplaces exemptions exist both for employers and those they employ and it is often easier to understand who is covered by the act by looking at who isn t the flsa does not apply to the following there are circumstances in which independent contractors who typically are hired to work on specific projects can be deemed employees who fall under flsa jurisdiction if the relationship appears to be permanent if the worker lacks bargaining power concerning the terms of their employment and if the worker is economically dependent on one employer that is almost all their income comes from one company a court would likely rule that they are an employee of that company for purposes of the flsa violations of the fair labor standards act flsa here are some of the most common violations that occur under the act 10history of the flsapresident franklin d roosevelt signed the fair labor standards act into law on june 25 1938 even though it applied to industries whose combined employment represented only about one fifth of the labor force at the time the bill had a bumpy ride in the house of representatives and the senate 15drafted mainly by the secretary of labor frances perkins the act banned all labor for children under 14 and hazardous labor for ages 14 18 set a minimum hourly wage of 25 cents and a maximum workweek of 44 hours to be adjusted to 40 hours by oct 23 1940 and guaranteed time and a half for certain jobs 15already a complex law the flsa has been amended many times most revisions have expanded the law s coverage or adjusted the minimum wage to reflect inflation here are some of the major changes to the flsa if the flsa does not apply here are some other laws and regulations that mightif the flsa does not cover you some other laws and regulations could apply | |
what pay or benefits does the flsa not require | the flsa does not require the following | |
does the flsa cover part time and full time employees differently | the flsa s minimum wage and record keeping sections apply to both part time and full time employees however the sections on overtime pay primarily affect full time employees those working over 40 hours per week are more likely to be full time employees not part time workers | |
what is the fair labor standards board | the fair labor standards board is the administrative body responsible for enforcing the flsa the board s primary duties include overseeing minimum wage overtime pay record keeping and child labor laws in the u s the wage and hour division of the u s department of labor carries out the actual enforcement work and administration of the flsa this board instead has the authority to interpret the act s provisions handle complaints and conduct investigations into whether employers are following the law the bottom linethe flsa remains important for protecting workers rights across the u s it establishes a federal minimum wage mandates overtime pay for employees working over 40 hours per week forbids different types of child labor and has been amended to provide crucial protections against discrimination while app based jobs and the increased use of the label independent contractor to cover more and more workers have meant the protections cover fewer workers than otherwise collectively these measures still underscore the flsa s role in the labor standards behind much of the modern workplace | |
what is fair market value | fair market value is the price that an asset would sell for under current market conditions assuming that both the buyer and the seller are seeking the best possible price the term is widely used in legal settings where it may be difficult to set an objective value for some assets fair market value fmv is similar to market value the price that the asset would trade for in the open market under current conditions however fair market value has the following additional assumptions given these conditions an asset s fair market value should represent an accurate valuation or assessment of its worth in contrast to its current price these assumptions might make an asset s value higher or lower than its market value this definition of the term is commonly accepted in accounting tax law bankruptcy law divorces and the real estate market investopedia mira norianunderstanding fair market value fmv fair market value is intentionally distinct from similar terms such as market value or appraised value because it considers the economic principles of free and open market activity in contrast the term market value refers to the price of an asset in the marketplace 1 therefore while a home s market value can easily be found on a listing its fair market value is more difficult to determine similarly the term appraised value refers to an asset s value in the opinion of a single appraiser thus not immediately qualifying the appraisal as fair market value 2 however in cases where a fair market value is needed an appraisal will usually suffice due to the thorough considerations used in determining fair market value it s often used in legal settings for example fair market value in real estate is commonly used in divorce settlements and to calculate compensation related to the government s use of eminent domain 34fair market values are also often utilized in taxation such as when determining the fair market value of a property for a tax deduction after a casualty loss 5it s essential to assess the fair market value of an item you buy or sell as it can significantly impact your finances practical uses of fair market valuemunicipal property taxes are often assessed based on the fmv of the owner s property 6 depending on how long the owner has owned the home the difference between the purchase price and the residence s fmv can be substantial professional appraisers use standards guidelines and national and local regulations to determine a home s fmv fmv is also often used in the insurance industry for example when an insurance claim is made due to a car accident the insurance company covering the damage to the owner s vehicle usually covers damages up to the vehicle s fmv 7fair market value and taxationtax authorities nearly always ensure that transactions are realized at fmv at least for tax purposes for example a father who is retiring may sell the shares of his business to his daughter for 1 so that she can carry on as the owner of the family business however suppose the fmv of the shares is higher in that case tax authorities such as the internal revenue service irs may well recharacterize the transaction for tax purposes the father will need to pay taxes on the disposition of the shares as though he had sold them at fmv to a third party 8another field of taxation where fmv regularly comes into play is donating property such as artwork to charities in these cases the donor usually receives a tax credit for the value of the donation tax authorities need to ensure that the credit given is for the actual fmv of the object and often ask donors to provide independent valuations for their donations 9 correctly applying fair market value to taxes ensures there won t be adverse monetary implications later on or any claims of fraud by authorities | |
how do you calculate fair market value | you can assess rather than calculate fair market value in a few different ways first by the price the item cost the seller via a list of sales for objects similar to the asset being sold or an expert s opinion for example a diamond appraiser would likely be able to identify and calculate a diamond ring based on their experience 10 | |
how do i know the fair market value of my home | real estate property is assessed by professional appraisers who can tell you its fair market value using standards guidelines and national and local regulations to determine it 11 | |
how are assets valued in a divorce | each state has its own rules for the division of marital assets liquid assets such as stocks and bonds are typically valued according to current market prices electronics household items and vehicles are priced according to their fair market value which is typically lower than their original purchase price real estate jewelry artworks professional degrees and businesses are harder to value and may require expert appraisal or testimony to determine a fair price 12 | |
how can i learn the fair market value of my car | the kelley blue book is an online guide that can help you determine the fair market value of your car by analyzing data such as trade in value private party value and other areas of research 13the bottom linefair market value is an assessment of the price an asset could sell for based on several assumptions this valuation method differs from market value in that market value is the current price for the asset market value may be less or more than fair market value it s believed to be a more accurate reflection of value which is why fair market value is used by businesses and governments rather than market value | |
what is fair value | fair value is the estimated price at which an asset is bought or sold when both the buyer and seller freely agree on a price to determine the fair value of a product or financial investment an individual or business may look at actual market transactions for similar assets estimate the expected earnings of the asset and determine the cost to replace the asset investopedia nez riazunderstanding fair valuea common way to determine a stock s fair value is to list it on a publicly traded stock exchange as shares trade investor demand creates the appropriate bid and ask prices or market value and influences an investor s fair value estimate an investor can compare their fair value estimate with the market value to decide to buy or sell the fair value is often the price that an investor pays that will generate their desired growth and rate of return 1if the fair value of a stock share is 100 and the market price is 95 an investor may consider the stock undervalued and buy the stock if the market price is 120 the investor will likely forego the purchase as the market value does not align with their idea of fair value 2the fair value of a derivative is determined by the value of an underlying asset when an investor buys a 50 call option they are buying the right to purchase 100 shares of stock at 50 per share for a specific period if the stock s market price increases the value of the option on the stock also increases in the futures market fair value is the equilibrium price for a futures contract or the point where the supply of goods matches demand this is equal to the spot price and accounts for compounded interest and lost dividends resulting from the futures contract ownership versus a physical stock purchase fair value cash 1 r x360 dividendswhere cash current value of securityr interest rate charged by brokerx number of days remaining in contractdividends number of dividends investor wouldreceive before expiration date begin aligned text fair value text cash times big 1 r times big frac x 360 big big text dividends textbf where text cash text current value of security r text interest rate charged by broker x text number of days remaining in contract text dividends text number of dividends investor would text receive before expiration date end aligned fair value cash 1 r 360x dividendswhere cash current value of securityr interest rate charged by brokerx number of days remaining in contractdividends number of dividends investor wouldreceive before expiration date the international accounting standards board recognizes the fair value of certain assets and liabilities as the price at which an asset can be sold or a liability settled fair value accounting or mark to market accounting is the practice of calculating the value of a company s assets and liabilities based on the current market value in some instances companies who hedge their assets might use hedge accounting where the value of the asset and its hedge are accounted as a single entry to do this you will need to consider if a construction business acquired a truck worth 20 000 in 2019 and decided to sell the truck in 2022 comparable sale listings of the same used truck may include two trucks priced at 12 000 and 14 000 the estimated fair value of the truck may be determined as the average current market value or 13 000 it is difficult to determine a fair value for an asset if there is not an active market for it accountants will use discounted cash flows will determine a fair value by determining the cash outflow to purchase the equipment and the cash inflows generated by using the equipment over its useful life fair value is also used in a consolidation when a subsidiary company s financial statements are combined or consolidated with those of a parent company the parent company buys an interest in a subsidiary and the subsidiary s assets and liabilities are presented at fair market value for each account benefits of fair valuefair value measures the real or estimated value of an asset or liability fair value accounting is widely used in business and investing because of its benefits these include fair value vs market valuefair value is a broad measure of an asset s intrinsic worth it requires determining the right price between two parties depending on their interests risk factors and future goals for the asset fair value is most often used to gauge the true worth of an asset by looking at factors like its potential for growth or the cost to replace it market value is the observed and actual value for which an asset or liability is exchanged it reflects the current value of the investment as determined by actual market transactions it can fluctuate more frequently than fair value market value is also highly dependent on supply and demand for example housing prices are often dependent on the number of houses for sale in an area supply and how many buyers are currently looking demand as much as the intrinsic value of the house changes slowlyinfluenced by growth potential and replacement costreflects the intrinsic valuechanges frequentlyinfluenced by supply and demanddetermined by current market transactionsfor example a stock s market value can move up and down quickly depending on a variety of external factors but the fair value of a company changes much more slowly investors who know a company s fair value can use that to decide whether the market value of a stock is high which means it s a good time to sell or low which means its a good time to buy | |
what is the intrinsic value of a stock | fair value is the price an investor pays for a stock and may be considered the present value of the stock when the stock s intrinsic value is considered and the stock s growth potential the intrinsic value is calculated by dividing the value of the next year s dividend by the rate of return minus the growth rate p d1r gwhere p current stock priced1 value of next year s dividendg constant growth rate expectedr required rate of return begin aligned p frac d1 r g textbf where p text current stock price d1 text value of next year s dividend g text constant growth rate expected r text required rate of return end aligned p rd1 gwhere p current stock priced1 value of next year s dividendg constant growth rate expectedr required rate of return | |
how is fair value considered in the accounting of financial assets | generally accepted accounting principles and international financial reporting standards use fair value in accounts comprised of derivatives and hedges employee stock options and financial assets and accept that financial markets are efficient and their prevailing prices are reliable measures of fair value 3 | |
how does the securities and exchange commission regulate fair value | in 2020 the sec implemented rule 2a 5 under the investment company act of 1940 requiring funds to value their portfolio investments using the market value of their portfolio securities when market quotations are readily available if data is not readily available or if the investment is not a security the act requires the fund to use the investment s fair value the fair value is determined in good faith by the fund s board who are required to establish fair value methodologies and oversee pricing services 4 | |
what is historical cost accounting | fair value accounting measures assets and liabilities at estimates of their current value whereas historical cost accounting measures the value of an asset based on the original cost of an asset | |
what methods are used to determine fair value | a market approach uses the prices associated with actual market transactions for similar assets to derive a fair value an income approach uses estimated future cash flows or earnings to determine the present value fair value a cost approach uses the estimated cost to replace an asset to help find an item s fair value 5the bottom linefair value is the estimated price at which an asset is bought or sold when both the buyer and seller freely agree on a price individuals and businesses may compare current market value growth potential and replacement cost to determine the fair value of an asset fair value calculations help investors make financial choices and fair value accounting practices determine the value of assets and liabilities based on current market value | |
what is a fallen angel | a fallen angel in the investing world is a bond that was initially given an investment grade rating but has since been reduced to junk bond status the downgrade is caused by a deterioration in the financial condition of the issuer the term is also sometimes used to describe a stock that has fallen precipitously from its all time highs fallen angel explainedfallen angel bonds have been downgraded by one of the major rating services which include standard poor s fitch and moody s investors service they may be corporate municipal or sovereign debt the primary reason for a downgrade is a decline in revenues which jeopardizes the ability of the issuers to pay the interest due on their bonds if the declining revenues are combined with increasing levels of debt the potential for a downgrade increases dramatically fallen angel securities are often attractive to contrarian investors seeking to capitalize on the potential for a company to recover from a temporary setback under these circumstances the downgrade process usually starts with the company s debt being placed on a negative credit watch that alone forces many portfolio managers to sell their positions as their governing rules may forbid holding them the actual downgrade to junk status drives more selling pressure particularly from funds that are restricted to holding investment grade debt exclusively as a result fallen angel bonds can present value within the high yield category but only if the issuer appears to have a reasonable chance of recovering from the conditions that caused the downgrade there are even fallen angel bond funds for investors who spot opportunity at a fire sale the vaneck vectors fallen angel high yield bond etf invests only in bonds that have been downgraded as of september 2021 its holdings included bonds from sprint capital corp vodafone group plc and freeport mcmoran among others 1 there also is the ishares fallen angels usd bond etf which as its name suggests invests only in dollar denominated fallen angels 2an oil company that has reported sustained losses over several quarters due to falling oil prices may see its investment grade bonds downgraded to junk status due to the company s increased risk of default as a result of the downgrade the prices of the company s bonds will decline and its yields will increase that makes them attractive to contrarian investors who see low oil prices as a temporary condition municipal bonds from troubled cities with declining tax revenues are in danger of being downgraded some fallen angels don t come back for example a company will experience declining revenues if a better product than theirs appears on the market if the company fails to innovate it won t come back the progression from vcr tapes to dvds to streaming video is an example municipal and sovereign debt issuers may also see their investment grade bonds downgraded to junk status due to a combination of stagnant or declining tax revenues and increasing levels of debt these conditions can create a downward spiral toward default as debt repayments eat into declining revenues and yet more bonds are issued to cover the shortfall sooner or later that municipal or national government is going to miss a payment | |
what is a falling knife | falling knife is a colloquial term for a rapid drop in the price or value of a security the term is commonly used in phrases like don t try to catch a falling knife it can be translated to mean wait for the price to bottom out before buying it a falling knife can quickly rebound in what s known as a whipsaw or the security may lose all its value as in the case of bankruptcy | |
what a falling knife tells you | the term falling knife suggests that buying into a market with a lot of downward momentum can be dangerous just like trying to catch an actual falling knife in practice however there are many profit points with a falling knife a trader who buys at the bottom of a downtrend can realize a significant profit as the price recovers if it s timed perfectly likewise it can be profitable to pile into a short position as the price falls and get out before a rebound even buy and hold investors can use a falling knife as a buying opportunity if they have a fundamental case for owning the stock but many traders still pay lip service to the falling knife adage because there s a very real risk that the timing will be off and there could be significant losses before any gains are realized traders should look for confirmation of a trend reversal using other technical indicators and chart patterns instead of trying to catch the falling knife an example of confirmation could be as simple as waiting for several days of upward momentum after the fall or looking at the relative strength index rsi for signs of a stronger uptrend before buying into the new trend | |
how to use a falling knife | there are several ways to profit from a falling knife many of the trading approaches are time sensitive and require more tools than simply identifying a stock that s seeing a sharp drop a fundamental case for catching a falling knife can be made depending on the reason for the drop there are many potential causes for a falling knife to occur including a falling knife could be a buying opportunity if the circumstances that led to it are temporary or if they don t alter a buy and hold investor s case for investing it s difficult for traders and those with a shorter timeframe to time bullish trades correctly example of a falling knifethe following chart shows an example of a falling knife and demonstrates the danger of trying to predict a bottom the stock became a falling knife after moving off of its 50 day moving average traders trying to catch the falling knife may have bought in at around 8 50 when there was a brief reprieve from the selling pressure but they would have lost money as the stock moved to a low of around 6 00 before finally bottoming out traders who waited for confirmation could have benefited from the move from 6 00 to 10 00 in the ensuing month falling knife vs a spikea falling knife is a sharp drop a similar type of trading slang is a spike which refers to a sharp movement in price action either up or down but a spike is most often associated with an upward movement in practice limitations of a falling knifethere are many cases in which a sharp fall can provide an opportunity many of these require some form of confirmation such as a moving average convergence divergence macd indicator showing positive divergence a falling knife is an ill defined chart formation at best it s not the most significant part of a trade playing off a breach of support or a true reversal | |
what is a whipsaw in trading | a whipsaw occurs when an extreme movement in price is directly followed by a sudden and equally extreme reversal it s the result of a highly volatile market when signals can be misleading 2 | |
what is the relative strength index | the relative strength index measures the size and speed of changes in the market it ranges from zero to 100 and the score is an indicator as to whether the index is overbought or oversold it s considered to be overbought at 70 or above or oversold below 30 3 | |
what is moving average | moving average is an indicator of the average price of a security over a predetermined period it s a lagging indicator because it looks at fluctuations that have already occurred but it can identify trends and momentum 4the bottom linea falling knife describes the process of a security rapidly and significantly plunging in price or value it s not defined by exact measurements or spreads but is rather a warning to pause and take a deep breath before jumping into a stock it s possible to make money with a falling knife but buying into a market that s plunging can be dangerous and result in wounds so proceed with care the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info | |
what is the fama and french three factor model | the fama and french three factor model or the fama french model for short is an asset pricing model developed in 1992 that expands on the capital asset pricing model capm by adding size risk and value risk factors to the market risk factor in capm this model considers the fact that value and small cap stocks outperform markets on a regular basis by including these two additional factors the model adjusts for this outperforming tendency which is thought to make it a better tool for evaluating manager performance investopedia joules garciaunderstanding the fama and french three factor modelnobel laureate eugene fama and researcher kenneth french former professors at the university of chicago booth school of business attempted to better measure market returns and through research found that value stocks outperform growth stocks 1 similarly small cap stocks tend to outperform large cap stocks as an evaluation tool the performance of portfolios with a large number of small cap or value stocks would be lower than the capm result as the three factor model adjusts downward for observed small cap and value stock outperformance the fama and french model has three factors the size of firms book to market values and excess return on the market in other words the three factors used are small minus big smb high minus low hml and the portfolio s return less the risk free rate of return smb accounts for publicly traded companies with small market caps that generate higher returns while hml accounts for value stocks with high book to market ratios that generate higher returns in comparison to the market 2there is a lot of debate about whether the outperformance tendency is due to market efficiency or market inefficiency in support of market efficiency the outperformance is generally explained by the excess risk that value and small cap stocks face as a result of their higher cost of capital and greater business risk in support of market inefficiency the outperformance is explained by market participants incorrectly pricing the value of these companies which provides the excess return in the long run as the value adjusts investors who subscribe to the body of evidence provided by the efficient markets hypothesis emh are more likely to agree with the efficiency side the formula is rit rft it 1 rmt rft 2smbt 3hmlt itwhere rit total return of a stock or portfolio i at time trft risk free rate of return at time trmt total market portfolio return at time trit rft expected excess returnrmt rft excess return on the market portfolio index smbt size premium small minus big hmlt value premium high minus low 1 2 3 factor coefficients begin aligned r it r ft alpha it beta 1 r mt r ft beta 2smb t beta 3hml t epsilon it textbf where r it text total return of a stock or portfolio i text at time t r ft text risk free rate of return at time t r mt text total market portfolio return at time t r it r ft text expected excess return r mt r ft text excess return on the market portfolio index smb t text size premium small minus big hml t text value premium high minus low beta 1 2 3 text factor coefficients end aligned rit rft it 1 rmt rft 2 smbt 3 hmlt it where rit total return of a stock or portfolio i at time trft risk free rate of return at time trmt total market portfolio return at time trit rft expected excess returnrmt rft excess return on the market portfolio index smbt size premium small minus big hmlt value premium high minus low 1 2 3 factor coefficients fama and french highlighted that investors must be able to ride out the extra volatility and periodic underperformance that could occur in a short time investors with a long term time horizon of 15 years or more will be rewarded for losses suffered in the short term using thousands of random stock portfolios fama and french conducted studies to test their model and found that when size and value factors are combined with the beta factor they could then explain as much as 95 of the return in a diversified stock portfolio given the ability to explain 95 of a portfolio s return versus the market as a whole investors can construct a portfolio in which they receive an average expected return according to the relative risks they assume in their portfolios the main factors driving expected returns are sensitivity to the market sensitivity to size and sensitivity to value stocks as measured by the book to market ratio any additional average expected return may be attributed to unpriced or unsystematic risk fama and french s five factor modelresearchers have expanded the three factor model in recent years to include other factors these include momentum quality and low volatility among others in 2014 fama and french adapted their model to include five factors along with the original three factors the new model adds the concept that companies reporting higher future earnings have higher returns in the stock market a factor referred to as profitability the fifth factor referred to as investment relates the concept of internal investment and returns suggesting that companies directing profit towards major growth projects are likely to experience losses in the stock market 3 | |
what does fama and french three factor model mean for investors | the fama and french three factor model highlighted that investors must be able to ride out the extra volatility and periodic underperformance that could occur in the short term investors with a long term time horizon of 15 years or more will be rewarded for losses suffered in the short term given that the model could explain as much as 95 of the return in a diversified stock portfolio investors can tailor their portfolios to receive an average expected return according to the relative risks they assume | |
what is the family and medical leave act fmla | the family and medical leave act fmla is a labor law requiring employers of a certain size to provide employees with unpaid time off for serious family health issues or situations qualified reasons may include adoption pregnancy foster care placement family or personal illness or military leave it also provides for the continuation of insurance coverage and job protection while the employee is on leave the fmla is intended to provide families with the time and resources to deal with family emergencies while also guiding employers the u s department of labor s wage and hour division dol whd is in charge of the fmla program understanding the family and medical leave act fmla the fmla was signed into law on feb 5 1993 by president bill clinton 2 its passage was an acknowledgment by the federal government of changes in u s families the workplace and the labor force for example the proliferation of single parent households or households in which both parents work and the expectations of both employees and employers the law guarantees that a qualified employee may take up to 12 weeks off for reasons such as pregnancy childbirth adoption personal illness or the illness of a family member the types of qualified medical and family situations also include foster care or military leave for instance if the eligible employee is a service member s spouse son daughter parent or next of kin military caregiver leave they are entitled to 26 weeks of leave 3the fmla mandated time off is an unpaid leave furthermore an employee who takes unpaid leave that falls under the fmla is job protected that is the employee can return to the same position held before the leave began if the same position is unavailable the employer must provide a position that is substantially equal in pay benefits and responsibility 4the purpose of the family and medical leave act fmla the fmla seeks to remove the need for workers to choose between their jobs and their families enabling them to balance employment security and caring for their children parents or other members of their extended family it impacts women in particular by recognizing the outsized roles they play in caregiving and the fact that their familial role as default caregiver has a significant effect on their working lives and careers for instance it allows them to take a leave to care for a newborn or an adopted child with the assurance that they can return to their job afterward but it also acknowledges the importance of men in serving a role in their families beyond that of the breadwinner the fmla s intentions are indicated in the stated intentions of the bill itself in 2020 the families first coronavirus response act ffcra expanded the fmla s provisions to include leaves for covid 19 related purposes the american rescue plan act arpa expanded that program and extended it to sept 30 2021 6special considerationsnot every employee is covered by the family and medical leave act companies have to be of a certain size and the worker has to have met certain conditions specifically to qualify for time off under the fmla a worker | |
what is a family limited partnership flp | a family limited partnership flp is an arrangement in which family members pool money to run a business project each family member buys units or shares of the business profits are shared in proportion to the number of shares each member owns which is outlined in the partnership operating agreement understanding a family limited partnership flp family limited partnerships have two types of partners flps vary depending on the nature of the business for example suppose an individual wants to start a luxury apartment venture they expect the project to cost 1 million including working capital and take in about 200 000 in cash each year before interest on mortgage payments and taxes they calculate that they ll need at least a 50 down payment of 500 000 and decide to work with family members to fund the business the family members agree to establish an flp that will issue 5 000 limited partnership shares at 100 each for a total of 500 000 the limited partnership agreement states that units cannot be sold for at least six years and the flp will pay 70 of cash earnings in the form of dividends as the general partner the original individual who made the calls buys 500 shares by contributing 50 000 to the flp family members buy the remaining shares now each family member owns a stake in an flp and the business has 500 000 available to begin operations the general partner can get a first mortgage loan for the rest of the 500 000 to start the 1 million luxury housing project the flp then leases these apartments to tenants and begins taking income from rent as the mortgage is paid off profits and dividends are distributed and each family member profits benefits of family limited partnershipsthere are some estate and gift tax advantages of forming a family limited partnership these allow families that form an flp to more easily pass the wealth they are building onto their children and grandchildren increasing their family s generational wealth individuals can gift flp interests tax free to other individuals every year up to the annual gift tax exclusion for calendar year 2022 the gift exclusion is 18 000 for individuals or 36 000 per married couple this is an increase from 17 000 for calendar year 2023 or 34 000 per married couple 2suppose a couple amassed savings worth 5 million they have three children and nine grandchildren the couple decides to transfer the entire amount to the flp they established if the gift tax exclusion remains at 2024 levels the couple can gift 36 000 to each of their 12 kids or grandkids each year this means the couple can transfer 432 000 worth of flp interests gift tax free every year however since the gift tax exclusion is generally adjusted annually for inflation this amount will likely increase each year assets in an flp effectively leave the partners estates as far as the irs is concerned this means that any future returns would be excluded from estate taxes the couple s children and grandchildren would benefit from any interest dividends or profits generated from the flp this further preserves wealth for future generations partners can set stipulations in the partnership agreement to protect these gifts from being squandered or mismanaged for example they can develop a rule stating that gifted shares can t be transferred or sold until the beneficiaries reach a certain age if any beneficiaries are minors the shares can be transferred through a uniform transfers to minors act utma account because the structure of flps and the tax laws that govern them are complex families should consult qualified accountants and tax professionals before establishing an flp drawbacks of family limited partnershipsthere are downsides to creating an flp first it can be expensive to set up and maintain because of its complexity most often setting up an flp will call for a tax specialist and estate planning attorney and you may need to call on other professionals associated with helping to support an flp for tax purposes an flp has to run as a business this can expose the partners to liabilities and debts if the business is mishandled by the general partners other drawbacks include capital gains liability and the difficulty transfering ownership interest to minors estate and gift tax advantagesbuild generational wealthset up and maintainence expensestransfers to minors can be difficultrisk of members incurring debt | |
what are family limited partnerships | a family limited partnership is an arrangement in which family members pool money to run some sort of business like a real estate venture this structure provides tax benefits to partners which can help families build generational wealth | |
is it expensive to run a family limited partnership | it can be expensive to set up and run a family limited partnership members will need to work with a tax specialist and or estate lawyers to establish the partnership members may also need professional tax advice throughout the life of the flp to properly manage their taxes as participants | |
how many people do you need to set up a family limited partnership | a family limited partnership like a holding company or business must have at least two members these members must be related to each other and both enter into the business together at least one partner must be a general partner who is responsible for the management and operation of the business the bottom linea family limited partnership flp is a structure for a business or holding company in which two or more family members can buy shares in the venture family members then become either general partners or limited partners in the business and share profits based on the percentage of shares that they own general partners are responsible for the management and operation of the business family limited partnerships provide gift and estate tax advantages these advantages allow members to more easily pass profits from the business to their heirs increasing the family s generational wealth however as with any business there is a chance of the venture failing members can lose their investments or even incur debt is the business doesn t succeed or is poorly managed | |
what is a family office | a family office is a private wealth management advisory firm that serves ultra high net worth individuals hnwi family offices are different from traditional wealth management shops in that they offer a total solution to managing the financial and investment needs of an affluent individual or family for example in addition to financial planning and investment management many family offices offer budgeting insurance charitable giving wealth transfer planning tax services and more understanding family officesa family office provides a wide range of services tailored to meet the needs of hnwis from investment management to charitable giving advice family offices may offer a dedicated team of specialists to service these clients family run businesses may require structures for succession planning such as trusts or a foundation for the family assets given the complexity of these situations clients may utilize a family office to help manage the assets and align interests the family office can also handle non financial issues such as private schooling travel arrangements and miscellaneous household arrangements family offices are typically defined as either single family offices or multi family offices mfos single family offices serve just one ultra affluent family mfos are more closely related to traditional private wealth management practices they seek to build their business by serving many clients 1mfos are more prevalent due to economies of scale that allow for cost sharing among the clientele importantly what a family office does can differ widely while one client may need a family office for high caliber advice from a range of experts another may need a family office to organize their lifestyle needs the responsibilities of a family officeproviding advice and services for ultra wealthy families under a comprehensive wealth management plan is far beyond the capacity of any one professional advisor it requires a well coordinated collaborative effort by a team of professionals from the legal insurance investment estate business and tax disciplines often a family office provides high level financial planning through an integrative approach combining asset management cash management risk management financial planning lifestyle management and other services family offices help clients navigate the complex world of wealth management after a lifetime of accumulating wealth high net worth families can be confronted with several obstacles when trying to maximize their legacy these obstacles can include confiscatory estate taxes estate laws and family or business issues given this complexity a comprehensive wealth transfer plan must take into account all facets of the family s wealth including the management or transfer of business interests the disposition of the estate management of family trusts support for philanthropic desires and family governance to ensure the family s wealth transfer plan is well coordinated and optimized for its legacy family offices work collaboratively with a team of advisors from each of the necessary disciplines many family offices also serve as a concierge for families handling their personal affairs and seeing to their lifestyle needs this service could include conducting background checks on personal and business staff providing personal security for home and travel aircraft and yacht management travel planning and fulfillment and the streamlining of business affairs for a single family a family office may be responsible for investment portfolio management commercial real estate purchase sale and property management private equity deals hedge fund investments and venture capital investments a family office is responsible for educating younger members of the family in the proper handling of wealth and how it can or should be used based on the family s values the family office can help instill in next generations an appreciation for their wealth and its demands with the right education a family office can help maintain family unity and prevent discord over money issues between the generations john d rockefeller is thought to have established the first full service single family office in the u s in 1882 in 1937 when he died he was worth 1 4 billion that s equivalent to approximately 255 billion as of 2019 the rockefeller family office exists to this day 2types of family officesa traditional family office is an entity established by a wealthy individual to manage the family s wealth it usually has a staff of experts who protect and grow the wealth the staff might include a financial advisor tax specialist estate planner accountant and more all are employed by the family so there aren t the conflicts of interest with products and services that might be found if they worked for other financial institutions the overarching objective is to serve the family s demanding financial interests a multi family office is a firm that manages the wealth of more than one family it offers the same types of services that a traditional family office offers its variety of experts tailor wealth related solutions for each family s financial and household needs beyond investment management these might involve bill paying transfer of wealth plans philanthropic advice wealth education and more multi family offices usually charge a percentage of investment portfolio assets under management for their services they can be less expensive than traditional family offices because they work for more than one family however a family has less control over these providers as a result an outsourced family office is a network of appropriate service providers financial advisor lawyer accountant etc who collaborate on behalf of a client typically one of the professionals is appointed to coordinate all communication and efforts the fact that they re authorized to consult with each other about one family s financial business is what separates them from other professionals who provide the same services an outsourced family office can handle many of the same matters that traditional and multi family offices handle these might include philanthropic planning and family wealth education this type of family office is usually less expensive than a traditional family office however the family also has far less control over the professionals | |
do you need a family office | whether or not someone needs a family office depends on the extent and complexity of their wealth as well as the demands that wealth puts on their family certain situations may require a variety or teams of specialists with access to high value resources that can address a long list of important issues broadly speaking those with a net worth of 200 million might consider establishing a traditional family office 3 | |
what s a family office | a family office is a private wealth management firm established by an ultra high net worth family that provides that family with a selection of personalized services that include investment management financial planning estate and tax planning philanthropic investing concierge services and more | |
is a family office the same as a wealth advisory firm | not really wealth advisory firms can offer some of the services that a family office offers such as portfolio management and investment management however wealth advisory firms typically have many different clients while a family office focuses on one or several if it s a multi family office what s more family offices offer a much larger range of services to address the complete list of wealth related needs an ultra high net worth family has the bottom linea family office is established by ultra high net worth individuals for a variety of reasons first and foremost a family office needs to manage and grow wealth it also has to provide a wide variety of other services that can help a family manage the complexities and demands associated with that wealth while a family office may be appropriate for some extremely wealthy individuals and families most highly affluent people should be well served by the professionals at a wealth advisory firm | |
what are fang stocks | in finance the acronym fang refers to the stocks of four prominent american technology companies meta meta formerly facebook amazon amzn netflix nflx and alphabet google goog fang stocks are famous for the impressive growth they have experienced with each member s stock price more than doubling at times since 2018 in 2017 the company apple aapl was also added by some analysts resulting in the new acronym faang apple s stock price increased more than 113 between august 2018 and august 2023 understanding fang stocksthe term fang stocks was initially coined by the street s bob lang and later popularized by jim cramer on his cnbc tv show mad money it is now widely used by market commentators and analysts the stocks referred to by the acronym are all well known and richly valued technology companies that trade on the nasdaq exchange a collection of approximately 5 000 american companies many other companies traded on the nasdaq exchange are also considered growth investments although very few have matched the impressive growth of the fang stocks despite their common reputation as successful growth companies the business models of the fang stocks are distinct facebook for example is the world s preeminent social networking platform with a monthly active user base of more than 3 88 billion people as of june 30 2023 meta can claim over 50 of the world s population as its customers to monetize this extraordinary user base facebook sells ads targeted based on users personal preferences and usage patterns amazon meanwhile is a leading business to consumer b2c e commerce platform that uses leading edge cloud computing and data analytics technologies to sell a retail catalog although amazon initially pioneered the sale of books online books now represent much less of its overall product catalog than when it started netflix is also known for its impressive customer growth an online entertainment streaming service specializing in movies and television shows the company s subscriber base has grown exponentially in recent years from 22 million in 2011 to more than 238 million in 2022 to compete with new entrants to the streaming market netflix has also begun aggressively producing exclusive content moving beyond its traditional role as a content aggregator to a major content producer in its own right alphabet has leveraged its core expertise as the world s foremost search engine developing a highly profitable online advertising business while driving user retention through popular web applications such as youtube google docs and google maps fang stock performancewith these impressive facts in mind it is no wonder investors have been enthusiastic about the fang stocks business prospects in recent years this enthusiasm has been supported by the companies financial performance which has caused substantial increases in their respective stock prices in the trailing twelve months ttm as of august 2023 for example meta has reported revenues of over 116 6 billion and a net income of more than 23 billion meanwhile amazon showed an astounding 544 billion in revenue but produced a net income of 2 7 billion over the past five years these two company s stock prices increased by roughly 62 3 and 41 3 respectively netflix and google have also shown strong ttm performance with netflix posting revenues of over 31 6 billion and a net income of 4 5 billion google generated 280 billion in revenues and nearly 60 billion in net income buoyed by these earnings netflix s stock rose by 26 8 in the past five years while google s rose by about 113 2 over the same timeframe | |
how to invest in the fang stocks | since there are only a handful of stocks in the fang universe it is relatively easy for investors to trade these names directly with their broker especially now that many brokers offer zero commission trading currently no funds hold only fang or faang stocks instead investors looking for etfs that have heavy weightings of these could look to tech heavy etfs such as those that track the nasdaq 100 | |
what does the acronym fang stand for | the acronym fang was coined by the street s bob lang and popularized by jim cramer on his cnbc tv show mad money this acronym refers to the stocks of four prominent american technology companies meta meta formerly facebook amazon amzn netflix nflx and alphabet goog by adding apple aapl in 2017 fang became faang | |
why are fang stocks popular | fang stocks are famous for their impressive growth and popularity with each member more than doubling its stock price at times over the past five years however despite exhibiting growth stock behavior fang stocks are not too volatile this stability along with delivering superior rates of return has made these quite attractive to investors | |
what businesses are fangs in | although they each share the use of advanced technologies to acquire and retain users fangs have distinct business models facebook is the world s preeminent social networking platform amazon is a leading business to consumer b2c e commerce platform netflix is an online entertainment streaming service that has also begun aggressively producing its own exclusive content alphabet google has leveraged its core expertise as the world s foremost search engine to develop a highly profitable online advertising business the bottom linemeta facebook amazon netflix and alphabet google make up the acronym fang a group of companies popular with investors due to their phenomenal growth over their life times | |
what is the farmers home administration | the farmers home administration fmha is a former u s department of agriculture usda agency created to finance and insure loans for rural families and farmers the fmha provided credit and technical assistance through housing utility business and community development programs fmha loansin 1946 congress authorized the farmers home administration to provide families with financing tools such as loans and grants aimed at helping them re establish self sufficient farming efforts following the great depression in 1961 congress authorized the fmha to broaden its bandwidth and finance general water projects and housing for non farmers in rural municipalities 1fmha has since been renamed multiple times and is currently known as usda rural development the amount of usda rural development s portfolio for its loan programs in 2021 2historical problems with fmhaby the 1990s some members of congress were becoming increasingly concerned with the large number of defaults on fmha loans and the substantial losses the agency was accruing as a result of weak lending practices in 1992 congress directed the u s government accountability office gao to conduct a study which uncovered numerous problems with the fmha 3most notably the report found that nearly 14 billion 70 of the fmha direct loan portfolio was at risk of default because the loans were held by delinquent borrowers or by individuals whose debts were rescheduled in the wake of repayment difficulties in that year fmha estimated potential losses of 1 2 billion or about 28 of its guaranteed loan program 3the gao also discovered that many field lending officials failed to comply with the loan making and loan servicing standards that the fmha established to safeguard federal financial interests 3furthermore the gao found that by sept 30 1991 the fmha acquired an estimated 3 100 farms from borrowers who had not repaid their loans overall the gao concluded that fmha management weaknesses contributed to the long standing loan management problems including inferior information systems and weak financial controls 3termination of the farmers home administrationunder the agriculture reorganization act of 1994 in october 1995 the fmha was abolished its functions were transferred to the farm service agency at the usda in later years following other reorganizations these functions were ultimately transferred to usda rural development as it is known today 14 | |
what did the farmers home administration fmha do | the farmers home administration fmha was created in 1946 to provide and guarantee loans for rural families and farmers it managed housing utility business and community development programs that provided credit and technical assistance these functions are currently performed by usda rural development | |
why was the farmers home administration fmha terminated | members of congress became concerned when a significant number of fmha loans defaulted and in 1992 directed the u s government accountability office gao to conduct a study it found a multitude of problems related to weak lending practices in 1994 the fmha was terminated and its functions transferred to the farm service agency at the usda and in the years that followed to usda rural development | |
what is fast fashion | fast fashion describes low priced but stylish clothing that moves quickly from design to retail stores to meet and capitalize on trends collections are often based on styles presented at fashion week runway shows or worn by celebrities fast fashion allows mainstream consumers to purchase a new look at an affordable price fast fashion resulted from cheaper speedier manufacturing and shipping methods the consumer s appetite for up to the minute styles and increasing purchasing power especially that of young people fast fashion challenges the established clothing labels tradition of introducing new collections and lines on an orderly seasonal basis understanding fast fashionshopping for clothing was once considered an event for which consumers would save over time to buy new clothes periodically the style conscious could get a preview of the styles to come by reading fashion magazines and seeing fashion shows that displayed new collections and clothing lines several months before their appearance in stores in the late 1990s as shopping increasingly became a form of entertainment discretionary spending on clothing increased fast fashion emerged offering cheap trendy knock off garments mass produced at low cost consumers could wear something similar to what they saw on the runway fast fashion was boosted by innovations in supply chain management scm among fashion retailers the assumption is that consumers want high fashion at a low cost fast fashion follows the concept of category management linking the manufacturer with the consumer in a mutually beneficial relationship the size of the fast fashion market is projected to reach 197 billion by 2028 1fast fashion leadersmajor players in the fast fashion market include uniqlo gap forever 21 topshop esprit primark fashion nova and new look two of the leaders are zara spanish retail chain zara the flagship brand of textile giant inditex is synonymous with fast fashion due to its short supply chain zara s designers can have a finished piece appear on store racks in as little as four weeks or can modify existing items in as little as two weeks over half of its factories are located near its corporate headquarters in a coru a spain it produces more than 11 000 pieces annually versus an industry average of 2 000 to 4 000 pieces 2h m founded in 1947 sweden based h m group short for hennes mauritz is one of the oldest fast fashion companies as of 2024 h m group operated in 76 countries and had over 4 200 stores 3h m group functions like a department store selling clothing cosmetics and home furnishings it does not own any factories but relies on independent suppliers for its products h m production offices oversee suppliers with state of the art it systems that track inventory and communicate with corporate hq the factories that it works with are based all over europe asia and north america 4the traditional clothing industry model operates seasonally with fall fashion week and spring fashion week showcasing looks for the four traditional seasons fast fashion labels produce about 52 micro seasons a year or one new collection of clothes a week meant to be worn immediately 5advantages and disadvantagesprofitable for manufacturers and retailersoffers fast efficient deliverymakes clothes affordabledecline in domestic manufacturingencourages throwaway consumer mentalitynegatively impacts the environmentunregulated labor practicesimpact on the environmentconsumers may find it difficult to avoid products manufactured by companies that practice fast fashion however they can investigate fast fashion brands to see if they use sustainable processes and support fair labor practices they can determine for themselves the impact that fast fashion may have on the environment and people who work in the industry shopping for clothes at secondhand stores helps to reduce the amount of garment waste and to extend usage according to statistics from the united nations environment programme and the ellen macarthur foundation | |
what is slow fashion | slow fashion a concept first introduced in 2008 by fashion and sustainability consultant kate fletcher uses environmentally friendly processes and materials through mindful manufacturing focusing on quality rather than quantity 910 mindful manufacturing an idea championed by 3d printing company stratasys is the concept of developing more efficient production sound chemical and solid waste disposal practices reusable materials and recycled packaging | |
what are some fast fashion examples | some examples of companies in fast fashion are stradivarius victoria s secret urban outfitters and zara who benefits from fast fashion consumers who enjoy the latest fashion with the advantage of low prices benefit but the primary beneficiaries are investors owners and other stakeholders who profit from the practice the bottom linefast fashion increases consumer spending and profits it satisfies the consumer s need to participate in a fashion trend however critics say the industry contributes to climate change pesticide pollution and waste the debate around fast fashion and its alternatives will continue as long as consumers seek to buy the latest styles at low prices and rapid replenishment rates | |
what are fast moving consumer goods fmcg | fast moving consumer goods fmcgs are products that sell quickly at relatively low cost fmcgs have a short shelf life because of high consumer demand e g soft drinks and confections or because they are perishable e g meat dairy products and baked goods they are bought often consumed rapidly priced low and sold in large quantities they also have a high turnover on store shelves the largest fmcg companies by revenue are among the best known such as nestle sa nsrgy 99 32 billion in 2023 earnings and pepsico inc pep 91 47 billion from the 1980s up to the early 2010s the fmcg sector was a paradigm of stable and impressive growth annual revenue was consistently around 9 in the first decade of this century with returns on invested capital roic at 22 1the industry s success has been attributed to its tried and true formula of building strong brands expanding into and with new markets and consumer channels and avidly managing costs while cultivating worldwide brands the past few years have seen the first declines in memory in the sector s sales growth a contraction blamed depending on the source on post pandemic supply chain issues inflation competitive pressures including online retail the rise of private labels and perhaps most long term changes in consumer tastes in 2023 for example american consumers spent 10 more on groceries but bought 4 fewer items that said the industry still posted a remarkable 27 average roic 234 below we take you through this most recognizable of industries how it works and who the big players are investopedia nez riazunderstanding fast moving consumer goods fmcg to understand fmcgs it s worth setting out terms that can be confusing to those from outside these industries fmcg s are products with relatively low cost and high turnover rate they are within the category of consumer packaged goods durable and nondurable which is a part of all consumer goods consumer nondurable goods are fmcgs plus gasoline clothing shoes etc here s a table differentiating terms commonly heard when discussing fmcgs heads up there is some overlap among these classifications durable goods have a shelf life of three years or more while nondurable goods have a shelf life of less than three years 56 fast moving consumer goods are the largest segment of consumer goods they fall into the nondurable category as they are consumed immediately and have a short shelf life everyone uses fmcgs daily they are the small scale consumer purchases we make at the produce stand grocery store supermarket or the local cvs on the way home examples include milk gum fruit and vegetables toilet paper soda beer and over the counter medications like aspirin nondurable goods including fmcgs account for more than half of all consumer spending but tend to be low involvement purchases 7 consumers are more likely to show off a durable good such as a new car or beautifully designed smartphone than a new energy drink they picked up for 2 50 at the convenience store types of fast moving consumer goodsfmcgs include several subcategories slow moving consumer goods which have a longer shelf life and are purchased over time include items like furniture and appliances 10 largest fast moving consumer goods companies by revenuethe 10 largest fmcg companies in the world are the following all figures in u s dollars as of mid 2024 fmcgs ecommerce and changing consumer habitsin the past popular goods for online purchase were related to travel entertainment or durable goods such as fashion and electronics however the online market for groceries and other consumable products is growing as companies redefine delivery logistics efficiency and shorten delivery times thus the fmcg industry has been significantly influenced by the rapid growth of ecommerce and evolving consumer habits 4 the widespread adoption of online shopping has transformed how consumers buy their daily necessities leading to a shift in the traditional retail landscape 2 ecommerce platforms have supplied consumers with the convenience of 24 7 shopping vast product choices and competitive prices forcing fmcg companies to adapt their strategies 17while nonconsumable categories will likely continue to lead consumable products in sheer volume for online shopping efficiency gains in logistics have increased the use of ecommerce channels to buy fmcgs 1 the continuing rise in online shopping has prompted fmcg companies to invest heavily in their digital presence including developing user friendly websites mobile apps and partnerships with leading ecommerce platforms fmcg companies have also had to rethink their supply chain and logistics networks to ensure prompt delivery of products to consumers via the main online retailers in addition changing consumer habits have driven fmcg companies to diversify their products today s consumers are increasingly health conscious environmentally aware and socially responsible leading to a growing demand for organic natural and sustainable products in response fmcg companies have launched new product lines that cater to these preferences such as plant based alternatives and eco friendly packaging as ecommerce continues to grow and consumer habits evolve fmcg companies must remain agile to stay competitive in the market 3 this involves investing in digital technologies such as ai and big data analytics so that companies can dig deeper into consumer behavior and preferences further companies are at least advertising how they prioritize sustainability and social responsibility to align with the values of their customers here are some other challenges in this area of the economy | |
what are consumer packaged goods | consumer packaged goods are the same as fast moving consumer goods they are items with high turnover rates low prices or short shelf lives fast moving consumer goods are characterized by low profit margins and large sales quantities some products that fall within this group include soft drinks toilet paper and dairy products 18 | |
what are 3 types of consumer goods | the three main consumer goods categories are durable goods nondurable goods and services durable goods such as furniture or cars last at least three years often economists watch durable goods spending to track the economy s health nondurable goods are items with a shelf life of under three years and are consumed rapidly fast moving consumer goods fall within this category finally services include intangible services or products such as haircuts or car washes | |
what is return on invested capital roic | it s a financial metric used to assess how effectively a company uses its funds to generate profits it measures the returns earned on the total capital invested in the business which includes both equity and debt a high roic indicates that the company is efficiently using its resources to produce profits which can signal strong management and a potentially profitable investment meanwhile a low roic may suggest inefficiencies and a weaker ability to create value the bottom linefmcg are products that are sold quickly consumed regularly and typically have a short shelf life these products are the staples of our daily lives including food beverages toiletries over the counter drugs and cleaning products fmcg are generally low cost high volume products sold through various retail channels such as supermarkets convenience stores and online platforms the fmcg industry is characterized by fierce competition companies in this sector invest heavily in marketing and product development to build strong brand recognition and foster customer loyalty the sector has faced challenges in recent years because of shifting consumer preferences market consolidation and pandemic era disruptions the industry s traditional recipe for success building strong brands expanding with growing markets and managing costs has been tested by slowing population growth changing consumer behaviors and inflation yet it maintains standout roic which is why the industry has long been an investor favorite | |
what is an fdic insured account | an fdic insured account is a bank or thrift account covered by the federal deposit insurance corporation fdic an independent federal agency responsible for safeguarding customer deposits in the event of bank failures the maximum insurable amount in a qualified account is 250 000 per depositor per fdic insured bank and per ownership category 1understanding an fdic insured accountan fdic insured account means if you have up to 250 000 in a bank account and the bank fails the fdic reimburses any losses you suffered for individuals any sum that exceeds 250 000 for a single account type e g individual joint etc may need to be spread among multiple fdic insured banks to understand how and why the fdic functions it is critical to understand how the modern savings and loan system works modern bank accounts are not like safe deposit boxes depositor money does not go into an individualized vault drawer to wait idly until future withdrawal instead banks funnel money from depositor accounts to make new loans in order to generate revenue from the interest the federal government requires most banks to keep only 10 of all deposits on hand meaning the other 90 can be used to make loans in other words if you made a 1 000 bank deposit your bank can actually take 900 from that deposit and use it to finance a car loan or a home mortgage this kind of banking is called fractional reserve banking since only a small fraction of the total deposits are kept as reserves at the bank fractional reserve banking creates extra liquidity in the capital markets and helps keep interest rates low but it can also create an unstable banking environment it is possible the bank s customers could simultaneously request more than 10 of their money back at any one time when too many depositors ask for their money back a so called bank run the bank must turn away some customers empty handed other depositors might lose confidence and ask for their money back too fearing they will not be able to recoup their savings often this can create a contagion like effect that spreads to other banks triggering systemic bank panics fdic insured account requirementsif an fdic insured bank cannot meet deposit obligations the fdic steps in and pays insurance to depositors on their accounts once declared failed the bank itself is assumed by the fdic which sells the bank s assets and pays off any debts owed when a bank fails account holders get their funds back almost immediately up to the insured amount if their deposits exceed that limit they will have to wait until the fdic sells off the bank s assets to recoup any excess a qualified account has to be held in a bank that is a participant in the fdic program participating banks are required to display an official sign at each teller window or station where deposits are regularly received depositors can verify whether a bank is an fdic member through a search at fdic gov 2membership in the fdic is voluntary with member banks funding the insurance coverage through premium payments basically all demand deposit accounts that become general obligations of the bank are covered by the fdic the type of accounts that can be fdic insured include negotiable orders of withdrawal now checking savings and money market deposit accounts in addition to certificates of deposit cds credit union accounts may also be insured for up to 250 000 if the credit union is a member of the national credit union administration ncua accounts that do not qualify for fdic coverage include safe deposit boxes investment accounts containing stocks bonds etc mutual funds and life insurance policies individual retirement accounts iras are insured up to 250 000 as are revocable trust accounts although coverage on a revocable trust extends to each eligible beneficiary examples of fdic insured accountsfdic guarantees deposits up to 250 000 per account per person for joint accounts each co owner receives the full 250 000 of protection along with the many other benefits of a joint account a couple or partners with a joint account with 500 000 on deposit would be fully protected multiple accounts held in the same bank under the same account holder s name are added together for purposes of determining the amount of insured deposits so a person with two accounts at the same bank totaling 300 000 would have 50 000 unprotected however deposit limits are separate for each different bank even for the same owner say someone has 200 000 at bank a and an additional 150 000 at bank b even though their total deposits exceed 250 000 they are considered fully covered as long as both banks are fdic insured if this individual transfers the 150 000 to bank a they lose coverage on 100 000 since their total deposit at bank a is now 350 000 such insurance over deposits benefits savers in that they need only worry about finding the best interest rate on a savings account rather than whether their money is safe history of fdic insured accountsthe fdic was created as part of the banking act of 1933 after a four year period that saw nearly 10 000 u s banks fail or suspend operations most of these closures resulted from a run on the bank banks did not possess enough money in their vaults to meet depositors withdrawal demands so they had to close their doors leaving many families without their savings the purpose of the fdic was to restore the faith of panicked americans following the stock market crash of 1929 and the onset of the great depression conceptually the fdic serves as a bulwark against future banking panics the fdic insures or guarantees the value of all bank demand deposits up to a certain amount with the total figure covered steadily growing since its inception in october of 2008 congress increased the amount covered by fdic deposit insurance from 100 000 to the current 250 000 prior to 2006 the fdic financed itself through the bank insurance fund bif and the savings association insurance fund saif these were basically composed of insurance premiums the fdic charged to member banks for housing and safekeeping their funds in 2005 president george w bush signed the federal deposit insurance reform act to merge the competing funds since then all premiums are left in the deposit insurance fund dif from which all fdic insured deposits are covered special considerationsthe fdic reserve fund has never been fully funded in fact the fdic is normally short of its total insurance exposure by more than 99 congress granted the fdic the power to borrow up to 500 billion from the department of the treasury making the system effectively backed by the federal reserve in other words if the fdic exhausts its other options the government will step in to provide further financial backing the fdic can also borrow money from the treasury in the form of short term loans this occurred during the savings and loan s l crisis in 1991 when the fdic was forced to borrow several billion dollars to cover the failing thrifts accounts advantages and disadvantages of fdic insured accountsaccording to the fdic no depositor has lost a cent of insured funds as a result of bank failure since its insurance debuted on jan 1 1934 measured on the merits of preventing bank panics the fdic has been a resounding success the u s economy has not suffered a legitimate banking panic in the 80 plus years of the fdic the fdic isn t loved by everyone though detractors believe forced deposit insurance creates moral hazard in the banking system and encourages depositors and banks to engage in riskier behavior they argue that customers do not need to care which bank makes safer loans if the fdic is going to bail them all out anyway | |
why is it important to choose a bank account that is fdic insured | perhaps the most significant benefit of having a fdic insured deposit account is that the deposit insurance ensures up to 250 000 500 000 for a joint account for each account ownership category in the event of a bank failure 1 | |
what are 3 things not insured by fdic | three of the biggest things that the fdic doesn t insure are stock investments bond investments and mutual funds life insurance policies annuities municipal securities safe deposit boxes and their contents u s treasury bills bonds and notes and crypto assets are also not covered by fdic deposit insurance 3 | |
is it good to have all your money in one bank | it can be safe to have all of your money in one bank but this is not without risk if your account balances at one bank exceed 250 000 or 500 000 for a joint account then that excess amount won t be covered by fdic deposit insurance in the event of a bank failure in this scenario you would be better off keeping some of your funds in a different financial institution 1the bottom linebank failures although somewhat uncommon still happen from 2001 to 2022 561 banks failed with four failing at the onset of the pandemic back in 2020 4 an fdic insured account offers the peace of mind that your deposited funds will be safe should the worst happen to your bank of choice | |
what is the fear greed index | the fear greed index is a measure developed by cnn business to gauge investor sentiment it indicates how emotions influence the amount investors are willing to pay for stocks which in turn provides a window into whether stocks are fairly priced at any given point in time the index is based on the logic that excessive fear will drive share prices down whereas excessive greed will drive prices up 1 | |
how the fear greed index works | the aim of the fear greed index is to assess market sentiment 1 because investing is often emotional and reactionary mood can influence an investor s decision to buy or sell stock the influence of 24 hour news and information networks can create strong reactions from investors known as the cnn effect the fear greed index attempts to gauge market trends based on the premise that fear results in stocks trading below their intrinsic value and that greed causes upward trends the index can be seen as both a legitimate investment research tool and a barometer for market timing 1while the fear greed index is a useful indicator it is not the only available tool to make investment decisions if you decide to use the index make sure you do your research and compile information from other sources before you make any important moves the fear greed index indicatorsthe index is based on seven underlying indicators1 the index is scored by taking an equal weighted average of the indicators 1 a reading of 50 is deemed neutral higher numbers signal greater greed lower numbers signal greater fear past fear greed index readingshistorically the index has been a reliable indicator of turns in equity markets the index sank to a low of 12 in september 2008 when the s p 500 fell to a three year low in the aftermath of the lehman brothers bankruptcy and the near demise of insurance giant aig 2 by contrast it traded over 90 in september 2012 as global equities rallied following the federal reserve s third round of quantitative easing on march 12 2020 during the rise of the covid 19 pandemic the index fell to an annual low of 2 when stocks plunged 10 and entered a bear market by november 2020 the index registered at 69 in the extreme greed category territory when optimism grew about a coronavirus vaccine 3the fear greed index vs the cryptocurrency indexa similar index based on fear and greed and tailored to the cryptocurrency market was introduced by alternative me a software recommendation website this adapted version of the index was developed from various online sources to create a sentiment measure for bitcoin and other cryptocurrencies according to the index developers crypto market behavior can be as emotional as traditional markets 4the crypto fear and greed index from alternative uses the following inputs | |
what is a fear greed index | the fear greed index helps gauge stock market movements and whether stocks are priced fairly the index is based on the logic that excessive fear drives down share prices and too much greed has the opposite effect 1 alternative me created a similar index to gauge cryptocurrency market sentiment 4 | |
how is cnn business fear greed index calculated | seven factors are graded to establish how much fear and greed there is in the market and an equal weighted average is taken across them indicators include stock price momentum stock price strength stock price breadth put and call options junk bond demand market volatility and safe haven demand 1 | |
how do fear and greed affect the decisions of investors | many investors are emotional and reactionary with fear and greed being the two predominant emotions affecting investors the bottom lineinvestor sentiment is often characterized by two emotions fear and greed the cnn business fear greed index quantifies this facet of market psychology on a scale of 0 as the most fearful to 100 as the most greedy the company alternative me created a crypto specific index that follows sentiment for bitcoin and major cryptocurrencies | |
what is the fed balance sheet | the fed balance sheet is a statement listing the assets and liabilities of the federal reserve system details of the fed s balance sheet are disclosed by the fed in a weekly report called factors affecting reserve balances 1understanding the fed balance sheetthe fed is the central bank of the united states founded by congress in 1913 to ensure the stability of the nation s financial and banking systems in times of crisis 2for much of its history the fed s balance sheet was a sleepy topic issued every thursday the weekly balance sheet report counts the assets and liabilities of the federal reserve by type just as a corporate balance sheet does providing a consolidated statement of the condition of all 12 regional federal reserve banks 1the fed s assets consist primarily of government securities it has bought and credit extended to banks and other financial institutions 1 its liabilities meanwhile include bank and treasury reserve balances on deposit with the fed as well as u s currency in circulation 3the weekly balance sheet report became more important as a financial and economic indicator after the 2008 financial crisis when the fed initiated a policy of quantitative easing qe 4 the fed balance sheet gave analysts added insight into the scope and scale of fed market operations in particular it allowed analysts to monitor the pace of asset purchases the fed balance sheet and quantitative easing qe qe is a monetary policy in which a central bank purchases large quantities of government bonds or other securities on the open market in order to hold down long term interest rates and signal loose monetary policy the fed and other central banks have used quantitative easing also known as large scale asset purchases to support economic growth beyond what could be achieved by lowering short term interest rates to zero the policy has drawn political criticism but has become an increasingly common response to economic and credit crises used effectively by the european central bank and the bank of japan alongside the fed special considerationsthe fed s balance sheet may look somewhat like a corporate one but central banks are unique in their unlimited supply of currency in contrast to a corporation the fed and other central banks exist not to make money but to ensure economic and financial stability the fed s role is akin to that of the bank in the board game monopoly its goal is not to win but to supply enough money to keep the game going the right amount of assets for the fed is that which best enables it meet its mandate | |
what is a federal agency | federal agencies are special government organizations set up for a specific purpose such as the management of resources financial oversight of industries or national security issues these organizations are typically created by legislative action but may initially be set up by presidential order as well the directors of these agencies are typically selected by presidential appointment understanding federal agenciesfederal agencies are created by the government to regulate industries or practices that require close oversight or specialized expertise some organizations such as the federal deposit insurance corporation fdic and the government national mortgage association gnma have their operations explicitly backed by the u s treasury 12 other organizations such as fannie mae freddie mac and sallie mae are only provided with an implicit guarantee from the u s treasury a number of the organizations which are an actual part of the government issue securities such as stocks and bonds these have been historically popular with investors federal agency bonds which are bonds that are backed by the full faith and credit of the united states government are examples of federal agency securities investors expect to receive regular interest payments from holding an agency bond at maturity the full face value of the agency bond is repaid to the bondholder because federal agency bonds are less liquid than treasury bonds they offer a slightly higher rate of interest than treasury bonds examples of federal agencies that guarantee certain bonds or securities include the federal housing administration fha small business administration sba and government national mortgage association gnma or ginnie mae other types of government bondsanother type of bond issued by government agencies is the government sponsored enterprise gse bond these bonds are issued by corporations that are not quite part of the government but are set up by congress to work for the common good of the country these enterprises mostly operate on their own and are publicly held on the major exchanges gses include the federal national mortgage association fannie mae federal home loan mortgage freddie mac federal farm credit banks funding corporation and the federal home loan bank fhlb the government guarantee that applies to agency bonds does not apply to gse bonds which therefore have credit risk and default risk 3 for this reason the yield on these bonds is typically higher than the yield on treasury bonds mortgage loans are backed by federal agency securities issued by ginnie mae fannie mae freddie mac or the fhlb and hold a very high credit rating agency securities are also used as collateral for the supply of money released by the federal reserve 4 sold by a nationwide group of banks and dealers these securities raise money to fund public needs such as road building low cost housing urban renewal and also to provide low interest rate loans to farmers small business owners and veterans | |
what is the federal communications commission fcc | the term federal communications commission fcc refers to an independent u s government agency that oversees all interstate and international communications the fcc maintains standards and consistency among types of media and methods of communication while protecting the interests of consumers and businesses it allocates cellular and wireless access regulates media company mergers and acquisitions m a protects intellectual property rights and regulates standards of content and distribution for all media companies operating in the united states the agency is accountable to u s congress and its actions are monitored closely by investors understanding the federal communications commission fcc as noted above the federal communications commission is an independent agency that answers to the u s government it was established in 1934 as part of the communications act which is a law regulating domestic and foreign wire and radio communications 1 the law was further expanded to include satellite television and broadband communications 2 the agency s reach extends across the 50 states the district of columbia and every u s territory 3the fcc is considered the key authority in the united states that oversees communications law regulation and innovation in the technology sector its mission is to help advance the global communications industry through the agency is headed by a chair who is one of five commissioners appointed by the president each commissioner is confirmed by the senate and serves a five year term nearly 1 500 employees work collectively work the commissioners they are divided into numerous bureaus and offices that focus on different aspects of the commission s duties 3the fcc s actions affect public and private companies that engage in communications because of this its decisions are closely monitored by stock market investors that s because the regulations and resolutions adopted by the agency have a direct impact on corporate business lines and therefore people s investments commissioners cannot have a financial interest in any business regulated by the fcc in order to prevent conflicts of interest fcc regulationsthe agency s regulatory powers include the setting of manufacturing standards for communications equipment decency standards in radio and television broadcasts and ensuring competition 4 the commission includes an office of administrative law judges that hear disputes and issues decisions interpreting the agency s regulations tasked with enforcement of the communications act and fcc regulations the commission s enforcement bureau conducts investigations levies fines and initiates administrative judgments against violators fcc fines can tally as high as the tens of millions of dollars for some violations which can affect the value of some companies 4fcc approvalsthe fcc s rulemaking and regulation process is established through what s called the notice and comment process the agency provides the general public with notice allowing people to submit comments before any rules are established amended or developed 5 these procedures may have wide ranging effects on the competitive balance in the communication market m a activity of communications companies requires fcc approval while this approval process is designed to protect consumers and prevent monopolies it occasionally creates uncertainty for companies and investors while fcc approval is under review some don t actually receive approval which can result in uncertainty for these companies 5the fcc has long wielded significant regulatory powers with radio television and telephone providers in 2015 the commission extended its reach to include broadband internet service providers isps by classifying the companies as common carriers under title ii of the communications act 3the commission s decision to list broadband providers as common carriers occurred via a 3 2 vote that was along party lines this vote highlights the potential effect the political affiliation of appointed commissioners can have on the regulatory interpretation of the commission 3the fcc under president bidenthe agency is headed up by acting chair jessica rosenworcel who was appointed by president joe biden on jan 21 2021 6 prior to her appointment rosenworcel worked in communications policy and public service she worked as the united states senate committee on commerce science and transportation as senior communications counsel and practiced communications law 7under her leadership the commission is expected to undertake several key initiatives there is a great expectation the agency will take a different direction under the biden administration than it did when donald trump was president this includes issues surrounding broadband privacy the agency s transparency industry mergers and ownership and enforcement of penalties and regulations may also be addressed 8this is one of the major issues that the administration is expected to explore the framework for the nation s net neutrality policies was laid out by the obama administration in effect isps were required to give equal and non discriminatory access to content that is available online put simply the policies prohibited corporations from slowing down and blocking content from users these policies were eliminated under the trump administration in 2017 6biden hinted that the agency could penalize providers who go against these policies by blocking or prioritizing content to create artificial scarcity and raise consumer prices there is a possibility that the commission may also ban data caps fees and rates through its rulemaking process 6the commission remained deadlocked following the resignation of ajit pai who served as chair under then president donald trump two republicans and two democrats serve as commissioners gigi sohn was nominated by president joe biden to fill the remaining open seat on the fcc sohn is a distinguished fellow at the georgetown law institute for technology law policy and a benton senior fellow and public advocate known as a long time advocate for free and reduced cost access to broadband internet unsurprisingly sohn s fcc confirmation was opposed along party lines in march 2022 the senate commerce committee voted to advance sohn s nomination which will be voted on by the senate 13 | |
why was the fcc created | the federal communications commission was established in order to regulate interstate and international wire and radio communications this mandate was expanded to include satellite television wireless and broadband communications the fcc governs in all 50 states the district of columbia and every u s territory | |
when was the fcc created | the fcc was created in 1934 as part of the communications act of 1934 |
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