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what is the food and drug administration | the food and drug administration fda is a government agency established in 1906 with the passage of the federal food and drugs act 1 the agency is separated into divisions that oversee a majority of the organization s obligations involving food drugs cosmetics animal food dietary supplements medical devices biological goods and blood products understanding the food and drug administration fda the fda is known for its work in regulating the development of new drugs the fda has developed rules regarding the clinical trials that must be done on all new medications pharmaceutical companies must test drugs through four phases of clinical trials before they can be marketed to individuals in the european union the fda s equivalent organization is the european medicines agency ema according to the fda as of november 2020 the agency holds responsibility for monitoring the safe consumption of medical products food and tobacco items worth more than 2 8 trillion in fiscal 2020 the budget for the fda was approximately 5 9 billion 2the fda is relevant for investors specifically in regards to biotech and pharmaceutical companies fda approval can be crucial to companies that are heavily involved in developing new drugs without the agency s approval regulated products under the fda s purview cannot be released for sale in the united states the fda approves products in the biotech and pharmaceutical industries and its approval or rejection of a product can have a financial impact ways fda approvals influence industry and the marketcompanies that are focused on the development and sale of new drugs can be left without key products to drive their revenue if their products fail to receive approvals the influence the fda wields regarding drug testing can affect the stock market the release of test data might be seen by investors as a measure of future growth for companies that manufacture and market drugs the fda is responsible for inspecting and reviewing production facilities that make items that are regulated by the agency this includes but is not limited to vaccine and drug manufacturers blood banks food processing facilities dairy farms animal feed processors and compounding pharmacies the agency also inspects facilities where testing on animals and clinical trials are conducted inspections may be regularly scheduled visits to facilities already in use imported regulated products must also be inspected by the fda when they arrive at the border of the country the agency publishes announcements of product recalls in collaboration with companies and local partners the agency conducts preapproval inspections for companies that applied to market new products inspections may be launched for cause if there is an issue reported at a facility such recalls can be the result of undeclared ingredients in the contents which can pose risks for consumers with allergies the contamination of products or the failure to handle the product according to safety parameters can also be the cause for recalls | |
footnotes to the financial statements refer to additional information that helps explain how a company arrived at its financial statement figures they also help to explain any irregularities or perceived inconsistencies in year to year account methodologies it functions as a supplement providing clarity to those who require it without having the information placed in the body of the statement nevertheless the information included in the footnotes is often important and it may reveal underlying issues with a company s financial health | investopedia madelyn goodnightunderstanding footnotes to the financial statementsfootnotes to the financial statements serve as a way for a company to provide additional explanations for various portions of their financial statements footnotes to the financial statements thus report the details and additional information that is left out of the main financial statements such as the balance sheet income statement and cash flow statement this is done mainly for the sake of clarity because these notes can be quite long and if they were included in the main text they would cloud the data reported in the financial statement using footnotes allows the general flow of a document to remain appropriate by providing a way for the reader to access additional information if they feel it is necessary it allows an easily accessible place for complex definitions or calculations to be explained should a reader desire additional information it is important for analysts and investors to read the footnotes to the financial statements included in a company s interim and annual reports these notes contain important information on items such as the accounting methodologies used for recording and reporting transactions pension plan details and stock option compensation information all of which can have material effects on the bottom line return that a shareholder can expect from an investment in a company footnotes also explain in detail why any irregular or unusual activities such as a one time expense has occurred and what its impact may be on future profitability these are also sometimes called explanatory notes types of footnotes to the financial statementsfootnotes may provide additional information used to clarify various points this can include further details about items used as a reference clarification of any applicable policies a variety of required disclosures or adjustments made to certain figures while much of the information may be considered required in nature providing all the information within the body of the statement may overwhelm the document making it more difficult to read and interpret by those who receive them importantly a company will state the accounting methodology used if it has changed in any meaningful way from past practice and whether any items should be interpreted in any way other than what is conventional for example footnotes will explain how a company calculated its earnings per share eps how it counted diluted shares and how it counted shares outstanding often the footnotes will be used to explain how a particular value was assessed on a specific line item this can include issues such as depreciation or any incident where an estimate of future financial outcomes had to be determined footnotes may also include information regarding future activities that are anticipated to have a notable impact on the business or its activities often these will refer to large scale events both positive and negative for example descriptions of upcoming new product releases may be included as well as issues about a potential product recall | |
what is for sale by owner fsbo | for sale by owner fsbo indicates that a property is available for purchase directly from the owner rather than through a real estate agent or broker some sellers choose this option to avoid paying agent commissions those commissions usually total 5 to 6 of the sale price split between the seller s agent also known as a listing agent or broker and the buyer s agent if any fsbo sales while less expensive for the owner have their own set of costs as we explain here | |
how for sale by owner fsbo works | traditionally real estate agents have received commissions of up to 6 for their services those commissions are negotiable however and can vary depending on the real estate market and other factors in 2023 the average commission rate for real estate agents in the u s was 5 46 down from 5 7 in 2020 in return for their commissions real estate agents provide a variety of services those include in a fsbo often pronounced fizzbo the homeowner is responsible for setting the price advertising and showing the home negotiating the sale terms and preparing the various legal forms usually with the help of an attorney | |
what a fsbo costs | a fsbo can be less expensive than a conventional real estate transaction but it isn t free major costs can include attorney fees and buyer s agent commissions in a fsbo transaction purchase contracts can be drawn up in any of several ways some individuals use one of the blank contracts that can be found online companies like forsalebyowner com also offer packages of relevant documents for this purpose the seller can also find a local real estate attorney to write up and review the contracts according to the real estate site zillow com lawyers often charge a flat fee of 800 to 1 200 per transaction or an hourly rate of 150 to 350 depending on the market and how much work is involved in many states sellers are required by law to use an attorney even if they are selling the home on their own if the buyer is using an agent that agent may also provide a contract if the buyer brings their own real estate agent into the sale as is common the seller must pay that agent the commission in that case is typically 2 to 3 of the sales price according to forsalebyowner com it s not unheard of for fsbo sellers to decline to pay the commission for buyer s agents when this occurs buyers generally ask for a credit to be applied to the purchasing price to compensate their agent in other words the seller will end up having to pay it anyhow note that if the seller does not have a real estate agent their home will not normally be listed in any of the multiple listing services mls that buyer agents commonly use to find homes for their clients however there are brokerages that will for a flat fee arrange for a listing the percentage of home sales that were fsbos as of 2023 according to the national association of realtors fsbo alternativessellers who hope to avoid the roughly 6 they d pay to use a full service real estate agent but who aren t comfortable doing it all on their own have some other options some real estate agents offer a more limited set of services for a flat fee that might include for example an mls listing discount real estate brokers also offer a range of services often advertising commissions as low as 1 downsides of fsbossaving thousands of dollars in commissions can be tempting still it s important to remember that when a seller doesn t employ a real estate agent they assume all the responsibilities involved in completing the transaction if the seller is unfamiliar with the home buying and selling process a mistake can be costly if they set the listing price too high fewer buyers will consider the home and it may take much longer to sell on the flipside setting the price too low could prove more costly than hiring an agent in the first place selling a home via fsbo can pose legal risks if the documents are not drawn up properly or if the home has issues that aren t adequately disclosed in addition some real estate agents representing buyers avoid showing fsbo listings or even outright refuse to do so they may have been burned in the past by fsbo sellers who refused to pay their commission or otherwise proved difficult to deal with finally would be sellers need to consider the time commitment involved | |
how do real estate agents get paid | a real estate agent who represents a seller is paid a percentage commission based on the final sale price if another agent represents the buyer they are also paid a percentage commission based on that price both commissions are paid by the seller from the proceeds of the sale the commissions are paid at the closing and typically add up to an average of 5 to 6 of the sale price | |
what is a real estate agent vs a real estate broker | real estate agents and brokers can perform many of the same tasks for home sellers and buyers the prime difference between them is that while agents have met the necessary tests to become a licensed agent in their state brokers have taken additional training and passed the exam for a broker s license many brokers employ multiple agents in their offices | |
how much does an mls listing cost | if you want to forgo the full services of a listing agent and pay only to list your home on a multiple listing service mls that could cost about 100 to 500 some real estate agencies offer a mls listing alone for a flat fee with additional services available a la carte there are also online services that will simply provide an mls listing the bottom linea fsbo holds out the possibility of saving thousands of dollars in commissions however there are still costs involved before deciding sellers need to weigh their potential savings against the services that a qualified real estate agent would provide them they might also consider some alternatives such as delegating at least some of the work to a flat fee or discount broker | |
what is forbearance | the term forbearance refers to the temporary postponement of loan payments typically for a mortgage or student loan lenders and other creditors grant forbearance as an alternative to forcing a property into foreclosure or leaving the borrower to default the companies that hold loans and their insurers are often willing to negotiate forbearance agreements because the losses caused by foreclosures or defaults typically fall on them understanding forbearancealthough it is primarily used for student loans and mortgages forbearance is an option for any loan it gives the debtor extra time to repay what they owe this helps struggling borrowers and benefits the lender who frequently loses money on foreclosures and defaults after paying the fees loan servicers those that collect payments but do not own loans may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk the terms of a forbearance agreement are negotiated between borrowers and lenders the chances of getting an arrangement depend partly on the likelihood that the borrower can resume monthly payments once the forbearance period is over the lender may approve a total reduction of the borrower s payment or only a partial reduction depending on the extent of the borrower s need and the lender s confidence in the borrower s ability to catch up at a later date in some cases the lender may grant the borrower one of several options these include forbearance may be mandated by law for example the federal coronavirus aid relief and economic security cares act passed and signed into law in march 2020 to address the economic fallout from covid 19 included provisions for student loan forbearance the law also made provisions for mortgage payment forbearance for struggling homeowners during the pandemic 1receiving forbearance doesn t relieve you of your financial responsibility so you must still make up for the missed payments once your agreement ends | |
how to apply for forbearance | borrowers should contact their lenders or loan servicers to apply for a student loan or mortgage forbearance in most cases they must demonstrate a need to put off payments such as financial difficulties associated with a significant illness or job loss 2since forbearance agreements are negotiated lenders have a lot of discretion when it comes to deciding whether or not to offer help and to what extent they do borrowers with a consistent payment history are more likely to be successful for example a borrower who worked at the same company for ten years without ever missing a mortgage payment is a good candidate following a layoff this borrower would be particularly likely to receive forbearance if they are highly skilled and can land a comparable job within a reasonable period a lender is less likely to grant forbearance to a laid off borrower with a spotty employment history or a track record of missed payments another forbearance option is for the lender to temporarily reduce the borrower s interest rate forbearance for student loansstudent loan forbearance was mandated a part of the cares act passed in march 2020 that legislation suspended federal student loan payments set interest rates to 0 stopped collections on defaulted loans and also halted negative reports to credit agencies 1this forbearance relief came to an end in 2023 student loan interest began accruing again in september while the first student loan payments since the covid 19 pandemic were due in october 3forbearance should not be confused with forgiveness though both provide relief to borrowers forbearance is temporary relief while forgiveness is permanent relief for example the biden administration attempted to forgive up to 20 000 in student loan debt per borrower a student loan forgiveness plan that was blocked by the supreme court in june 2023 4in response the white house introduced the saving on a valuable education save plan a new income driven repayment option in which an estimated one million borrowers could qualify for 0 monthly repayments 5 while on the surface this looks like forbearance it is not because the loans are technically in repayment save sets monthly repayments at 5 of discretionary income for undergraduate borrowers it also raises the discretionary income threshold to 225 of the federal poverty line this means a single borrower earning 32 800 per year would have a monthly student loan payment of 0 because they have no discretionary income with which to repay their student loan for a family of four earning less than 67 500 per year would qualify you for a 0 monthly payment 6under save an income driven repayment plan unveiled by the white house an estimated one million student loan borrowers qualify for 0 monthly payments 5although private student loans do not qualify for forbearance under current laws or federal programs some private lenders may offer some form of forbearance on their own forbearance for mortgagesmortgage forbearance assistance was extended to consumers as part of the cares act covid 19 mortgage forbearance applied to all federally backed and federally sponsored mortgages this included loans backed by the following if your loan was backed by hud fha the usda or the va then the deadline for requesting an initial forbearance was extended until the covid 19 national emergency ended which occurred in april 2023 8the homeowner assistance fund established by the american rescue plan act of 2021 provided nearly 10 billion for states and territories to offer relief to struggling homeowners through their housing departments 9 mortgage forbearance periods through the homeowner assistance fund have generally concluded although there may still be lenders offering assistance 10 | |
what happens after forbearance ends | once the forbearance period is over the borrower is usually responsible for making up the delinquent payments the lender often works with the borrower to devise a plan to catch up on the debt homeowners who received a covid forbearance for their federally backed loan cannot be required to repay missed payments in a lump sum once the forbearance ends keep in mind that this may not be the case with other lenders 7again depending on the terms negotiated with the lender the borrower may owe interest accrued during the forbearance period and possibly late fees will forbearance affect your credit rating forbearance doesn t adversely affect your credit rating however missing payments before contacting the lender and setting up the forbearance terms will most likely have a negative impact forbearance assistance offered to mortgage borrowers affected by covid 19 is reported by lenders to credit bureaus as required by the cares act however in certain situations lenders are required to report your mortgage account as current thus protecting your credit score 11will forbearance affect refinancing yes if you are in forbearance you are not allowed to refinance the specific point is that any missed mortgage payments will prevent you from being eligible for refinancing with most institutions each individual however has different circumstances and each mortgage provider has different rules it is important to check with mortgage providers what your situation would be | |
how do i get out of forbearance | once your forbearance period ends you owe the amount of money that you missed there are different options that you can choose from reinstatement means that you will owe the entire amount all at once repayment allows you to bring your mortgage up to date over time usually 12 months this is a repayment plan that you have agreed to with your mortgage servicer the bottom lineforbearance is a temporary suspension of loan payments that normally lasts for a set period typically in reference to student loans or mortgages it does not mean that you stop paying your loan entirely but rather it delays your payments it is important to know that being granted a reprieve from paying a mortgage will not erase all of your debt you may still need to pay the amount that was past due at the time of the grant of the reprieve and any interest that may have accrued during the suspension depending on the issuer in addition at the end of the grace period you will again have to pay the full amount due on your mortgage when you started the suspension if you cannot pay your loan after this temporary suspension it will likely only worsen your situation in the future it may be beneficial to contact your lender to discuss your options | |
what is force majeure | force majeure is a clause included in contracts to remove liability for unforeseeable and unavoidable catastrophes interrupting the expected timeline and preventing participants from fulfilling obligations these clauses generally cover natural disasters like hurricanes tornadoes and earthquakes and human actions such as armed conflict and human made diseases nez riaz investopediaelements of the clauseinvoking force majeurefor events to constitute the use of force majeure they must be unforeseeable external to contract parties and unavoidable force majeure means greater force and is related to an act of god an event for which no party can be held accountable these concepts are defined and applied differently depending on the jurisdiction suppose an avalanche destroys a supplier s factory in the french alps causing long shipment delays and leading the client to sue for damages the supplier might employ a force majeure defense arguing that the avalanche was an unforeseeable external and unavoidable event the three tests applied by french law 1 unless the contract specifically named an avalanche as removing the supplier s liability the court may decide that the supplier owes damages the concept of force majeure originated in french civil law and is an accepted standard in many jurisdictions that derive their legal systems from the napoleonic code in common law systems such as those of the united states and the united kingdom force majeure clauses are acceptable but must be more explicit about the events that would trigger the clause 2force majeure vs pacta sunt servandaforce majeure conflicts with the concept of pacta sunt servanda latin for agreements must be kept a key concept in civil and international law with analogs in common law 3 it is not supposed to be easy to escape contractual liability and proving that events were unforeseeable for example is difficult human threats like cyber nuclear and biological warfare capabilities or natural disasters have raised questions about what is and is not foreseeable in a legal sense if a natural or other disaster repeats or reoccurs it may not be considered unforeseeable | |
is force majeure always recognized and upheld | the international chamber of commerce has attempted to clarify the meaning of force majeure by applying a standard of impracticability meaning that it would be unreasonably burdensome and expensive if not impossible to carry out the terms of the contract 4it can be difficult to prove that an event is unforeseeable and serious enough to void a contract in any jurisdiction contracts containing specific definitions that constitute force majeure ideally ones that respond to local threats hold up better under scrutiny | |
what are examples of force majeure | events that could trigger a force majeure clause include war terrorist attacks a pandemic or natural disasters that fall under the act of god category such as a flood earthquake or hurricane | |
does a pandemic like covid 19 qualify for force majeure | the 2020 pandemic opened new litigations regarding force majeure clauses in virginia regal cinemas theaters ceased operations because of the pandemic the united states district court for the western district of virginia ruled that the force majeure clause in the lease executed between the parties only applied if the complex or other improvements on the property or any part thereof are damaged or destroyed by fire flood natural causes or other casualties the covid 19 pandemic did not excuse regal cinemas from its performance under its contract a ruling in favor of the university of vermont also found that because its closure was due to the covid 19 pandemic and not another catastrophe the university did not have to issue refunds for housing or meal plans 5the bottom lineforce majeure clauses enable parties to better manage risk and protect themselves if something unthinkable happens to implement the clause and abandon provisions of a contract or actions under the contract an event must be unforeseeable external to the contract parties and serious enough to render it impossible for the party to perform contractual obligations | |
forecasting is a technique that uses historical data to make informed decisions about future events or conditions it isn t simply guessing a tool for businesses and investors alike forecasting takes expert analysis and applies complex models to allocate portfolios and budgets | but just how reliable are these crystal ball like predictions after all economists investors and financial planners frequently display a striking talent for mordant humor about the art of economic prediction the only function of economic forecasting the famed 20th century economist john kenneth galbraith said is to make astrology look respectable 1 or as an equally influential economist paul a samuelson put it wall street models predicted nine of the last five recessions 2yet forecasting is central to modern investing and business practices businesses hire and expand based on predicting sales figures market demand or economic indicators investors trade stocks invest in funds or rashly exit the market based on predictions about stock prices interest rates or broader market moves however the work of forecasting applies far beyond boardrooms and trading floors consumer spending patterns job market trends and even geopolitical events all fall under the purview of forecasters keep in mind economist john maynard keynes s dictum that the inevitable never happens it is the unexpected always we detail below the different forecasting methods and how they share a common goal to reduce uncertainty and provide a basis for the planning we can do today we also provide 12 principles you can apply when forecasting to get better results theresa chiechi investopedia | |
how forecasting works | today forecasting blends data analysis machine learning statistical modeling and expert judgment forecasting provides benchmarks for firms which need a long term perspective of operations for example much of the derivatives market in options and futures trading is an outgrowth of business and investor forecasting all to hedge or insure businesses against adverse market changes that could hurt their firms equity analysts use forecasting to predict how trends such as gross domestic product gdp or unemployment will change in the coming quarter or year statisticians employ forecasting to analyze the potential impact of a change in business operations analysts then derive earnings estimates that are often aggregated into a consensus number if actual earnings announcements miss the estimates it can have a large impact on a company s stock price 3in business management forecasting serves as a cornerstone of strategic decisions influencing almost every aspect of an organization s operations by attempting to predict trends and conditions through qualitative and quantitative measures discussed below companies aim to position themselves advantageously in the marketplace these predictions guide critical choices ranging from market entry strategies and product development to supply chain management and workforce planning and so the task is often to move from forecasts to planning the consequences of getting a forecast wrong can be far reaching correct predictions allow businesses to improve how they divide their resources whether they can capitalize on emerging prospects and mitigate risks conversely inaccurate forecasts can lead to misaligned strategies inefficient use of resources missed opportunities and risks that weren t managed or insured for here are the ripple effects of forecasting on various business functions 4the consequences of poor forecasting are often severe 5 companies may find themselves overextended in declining markets struggling with excess inventory or unable to meet unexpected surges in demand this is a good point to pause and review with this table below the differences between the two forecasting techniqueswe can now explore the main methods used in forecasting each with specific strengths and times when they re best applied quantitative forecasting techniques rely on numerical data and statistical models to predict future outcomes these methods are particularly useful for short to medium term forecasts where historical data is available and patterns can be discerned the further out the forecast the greater the likelihood that the forecast will be wrong time series analysisthis method analyzes historical data points such as sales figures or stock prices to identify patterns or trends over time these statistical relationships are then extrapolated into the future to generate forecasts with confidence intervals to understand the likelihood of specific outcomes as with all forecasting methods success is not guaranteed 6techniques like moving averages and exponential smoothing help level out fluctuations to highlight underlying trends making it easier to predict future values this is at the heart of technical analysis in investing 7 in addition time series forecasts often involve trend and cyclical fluctuation analysis 8regression analysisregression models assess the relationship between a dependent variable and one or more independent variables 9 for example a company might use regression analysis to understand how their spending on marketing or economic conditions affects their sales by establishing these relationships businesses can know how to plan when marketing budgets are needed or as economic conditions change econometric modelseconometrics is a specialized field that bridges economics mathematics and statistics it focuses on using statistical methods to analyze economic data and test economic theories econometricians develop models that quantify relationships between economic variables such as how changes in interest rates affect investment or how government spending impacts economic growth analysts use these models to predict gdp growth inflation rates and unemployment levels econometric models are particularly valuable for long term planning and policymaking 10quantitative models tend to share these aspects qualitative forecasting methods rely on expert opinions and market insights rather than purely numerical data researchers also call this area judgmental forecasting 11 examples of qualitative forecasting models include interviews on site visits market research polls and surveys that apply the delphi method which relies on aggregated expert opinions gathering data for qualitative analysis can sometimes be difficult or time consuming the ceos of large companies aren t going to take a phone call from a retail investor or show them around a facility however you can still sift through news reports and the text included in companies filings to get a sense of managers records strategies and philosophies these techniques are especially valuable in situations where historical data is limited or in a period where previous data is unreliable since the market is changing delphi methodthis structured technique involves a panel of experts who provide their forecasts and assumptions anonymously their responses are aggregated and shared with the group followed by rounds of discussion and revision until a consensus is reached the delphi method is often used in all kinds of studies where expertise is needed but it s especially worthwhile for long term strategic planning and for forecasting in uncertain or rapidly changing environments 4market researchsurveys focus groups and interviews are common tools used to gather qualitative data from customers industry experts and other stakeholders this information can reveal emerging trends shifts in consumer preferences and other factors that might not yet be seen in numerical data scenario analysisthis technique involves developing multiple plausible scenarios based on different assumptions about future conditions 12 businesses can then assess how each scenario might impact their operations and plan accordingly this is a crucial tool in risk management researchers have long been interested in which kind of methods work best and in which circumstances of course different parts of finance and other disciplines tend to side toward quantitative or qualitative methods e g quants are unlikely to yield studies on the gains of market research or other judgmental methods but researchers have often found that determining which method to use depends on a variety of factors for instance a company might use time series analysis to identify historical trends and supplement this with insights from market research to account for recent changes in consumer behavior given this it s no surprise that researchers have demonstrated empirically that combined or hybrid approaches often do best by pulling in the best of both worlds for more informed predictions 1311 neither human judgment nor quantitative methods are universally superior 14 instead their strengths are often complementary flawed forecasts are commonly a central part of the story when businesses fail quantitative methods do best in processing large data sets and identifying patterns in them especially when augmented with ai and machine learning while human judgment is best in interpreting ambiguous situations and incorporating contextual knowledge that may not be captured by data alone 15 reviewing recent work in this area we culled these key points about combining qualitative and quantitative approaches choosing the right forecasting methodthe correct forecasting method depends on the type and scope of the forecast qualitative methods are more time consuming and costly but can make very accurate forecasts given a limited scope for instance they might be used to predict how well a company s new product launch might be received by the public for quicker analyses that can encompass a larger scope quantitative methods are often more useful looking at big data sets statistical software packages today can crunch the numbers in a matter of minutes or seconds however the larger the data set and the more complex the analysis the pricier it can be thus forecasters often perform a quick cost benefit analysis a mini forecast to determine which method will increase their chances of accurate predictions for the least cost in time and money budgeting and forecasting what s the difference while often mentioned in the same breath budgeting and forecasting serve separate yet complementary roles in financial planning investing and business management budgeting is primarily a planning tool so it has some of the elements seen above when we covered planning as opposed to forecasting budgeting is a detailed estimate of future income and expenses so you have a road map for allocating resources and setting performance targets budgets are often more static documents representing management s commitments and expectations for the period 17 here are the main characteristics of budgeting meanwhile forecasting is about predicting financial outcomes based on present and historical data so when you forecast you aren t setting targets instead you anticipate what will happen in the future and why you do it helping organizations and investors adjust strategies and respond to changing conditions here are the main characteristics of forecasting purpose and focus budgeting sets financial targets and allocates resourcestime horizon typically covers a fixed period usually one year specificity highly detailed with specific line itemsapplication used for setting goals controlling costs and measuring performancefrequency of review and adjustment reviewed and adjusted annually relatively staticpurpose and focus forecasting predicts future financial outcomes and trendstime horizon can be short term monthly quarterly or long termspecificity less detailed focusing on broader financial trendsapplication used for strategic planning and decisionsfrequency of review and adjustment reviewed and adjusted regularly monthly quarterly 12 principles of effective forecastingeffective forecasting is a critical skill in business and finance providing a basis for the decisions that can make or break a business or portfolio while no forecast is perfect companies and investors with dependable forecasts are better equipped to navigate uncertainties seize prospects and maintain a competitive edge the following principles drawn from expert insights and those with practical experience form the core of effective forecasting in addition to these rules you ll want to practice the number one principle for what to do after you put a forecast into action through planning and budgets regularly reassess the forecast accuracy using appropriate measures and adjust your models as needed to improve performance over time | |
what are some limits of forecasting | a major constraint on forecasting is that it involves the future which is fundamentally unknowable as a result forecasts can only be educated conjectures while there are several methods of improving the reliability of forecasts the assumptions or data that go into the models have to be correct otherwise the result will be garbage in garbage out even if the data is good forecasting often relies on historical data which is not guaranteed to be valid in the future as things can and do change over time it s also impossible to correctly factor in unusual or one off events like a crisis or disaster can forecasting be used to predict the stock market perfectly predicting the market s ups and downs is impossible however investors can use forecasts to analyze company valuations identify growth sectors and manage risk within their portfolios that said unforeseeable events always impact the market so forecasts should be just one piece of the investment puzzle | |
what s a major economic prediction that went wrong | the 2007 08 financial crisis stands out as a major event that seemed to most to occur out of nowhere more recently one of the most notable economic predictions that went wrong was the underestimated impact of the covid 19 pandemic on the global economy in early 2020 many experts and financial institutions including the international monetary fund imf and various central banks initially predicted a relatively swift economic recovery following short term disruptions however the prolonged nature of the pandemic with multiple waves of infection and varying responses by different countries led to far more severe and long lasting economic consequences than anticipated then the imf failed to predict the surge in inflation that arrived afterward 1920the bottom lineforecasts help managers analysts and investors make informed decisions about the future without good forecasts many of us would be in the dark and would resort to guesses or speculation by using qualitative and quantitative data analysis forecasters can better understand what lies ahead businesses use forecasts and projections to inform managerial decisions and capital allocations analysts use forecasts to estimate corporate earnings for subsequent periods economists may make more macro level forecasts as well such as predicting gdp growth or changes to employment however since we cannot definitively know the future and since forecasts often rely on historical data their accuracy will always come with some room for error and in some cases may end up being way off | |
what is foreclosure | foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it typically default is triggered when a borrower misses a specific number of monthly payments but it can also happen when the borrower fails to meet other terms in the mortgage document understanding foreclosurethe foreclosure process derives its legal basis from a mortgage or deed of trust contract which gives the lender the right to use a property as collateral in case the borrower fails to uphold the terms of the mortgage document although the process varies by state the foreclosure process generally begins when a borrower defaults or misses at least one mortgage payment the lender then sends a missed payment notice that indicates that month s payment hasn t been received if the borrower misses two payments the lender sends a demand letter this is more serious than a missed payment notice but the lender still may be willing to make arrangements for the borrower to catch up on the missed payments the lender sends a notice of default after 90 days of missed payments the loan is handed over to the lender s foreclosure department and the borrower typically has another 30 days to settle the payments and reinstate the loan this is called the reinstatement period at the end of the reinstatement period the lender will begin to foreclose if the homeowner has not made up the missed payments 2a foreclosure appears on the borrower s credit report within a month or two and stays there for seven years from the date of the first missed payment after that the foreclosure is deleted from the borrower s credit report 3the foreclosure process varies by stateeach state has laws that govern foreclosures including the notices that a lender must post publicly the homeowner s options for bringing the loan current and avoiding foreclosure and the timeline and process for selling the property a foreclosure the actual act of a lender seizing a property is typically the final step after a lengthy pre foreclosure process before foreclosure the lender may offer several alternatives to avoid foreclosure many of which can mediate a foreclosure s negative consequences for both the buyer and the seller in 22 states including florida illinois and new york judicial foreclosure is the norm 4 this is where the lender must go through the courts to get permission to foreclose by proving the borrower is delinquent if the foreclosure is approved the local sheriff auctions the property to the highest bidder to try to recoup what the bank is owed or the bank becomes the owner and sells the property through the traditional route to recoup its losses the other 28 states including arizona california georgia and texas primarily use nonjudicial foreclosure also called power of sale 4 this type of foreclosure tends to be faster than a judicial foreclosure and it does not go through the courts unless the homeowner sues the lender | |
how long does foreclosure take | properties foreclosed in the second quarter of 2021 had spent an average of 922 days in the foreclosure process according to the u s foreclosure market report from attom data solutions a property data provider this is down slightly from the previous quarter s average of 930 days and up 34 5 from 685 days in the second quarter of 2020 15the average number of days varies by state because of differing laws and foreclosure timelines the states with the longest average number of days for properties foreclosed in the second quarter of 2021 were 5states with the shortest average times to foreclose during the same period were the graph below shows the quarterly average days to foreclosure since the first quarter of 2007 6can you avoid foreclosure even if a borrower has missed a payment or two there still may be ways to avoid foreclosure some alternatives include mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report with the consumer financial protection bureau cfpb or the u s department of housing and urban development hud 78consequences of foreclosureif a property fails to sell at a foreclosure auction or if it otherwise never went through one then lenders often banks typically take ownership of the property and may add it to an accumulated portfolio of foreclosed properties also called real estate owned reo foreclosed properties are typically easily accessible on banks websites such properties can be attractive to real estate investors because in some cases banks sell them at a discount to their market value which in turn negatively affects the lender for the borrower a foreclosure appears on a credit report within a month or two and it stays there for seven years from the date of the first missed payment after seven years the foreclosure is deleted from the borrower s credit report 9 | |
what are foregone earnings | foregone earnings represent the difference between earnings actually achieved and the earnings that could have been achieved with the absence of fees expenses or lost time as such a large portion of foregone is represented by the amount that the investor spent on investment fees which often make up a sizable percentage of investment earnings the assumption is that if the investor had been exposed to lower fees they would have automatically earned a better return the concept of foregone earnings is typically used when referring to sales charges management fees or total expenses paid to funds understanding foregone earningsforegone earnings as they relate to investment performance can cause a big drag on the long term growth of assets and investments fees are usually charged to investors for access to mutual funds exchange traded funds etfs and other pooled investment vehicles mutual funds are actively managed funds meaning they re a collection of securities bought and sold by a portfolio manager etfs are passively managed funds meaning they typically track an index such as the s p 500 and therefore have lower fees than mutual funds something as seemingly innocent as a front end load or a 1 management fee can cost thousands of dollars as the years pile up thanks to the wonders of compound returns investors must research the costs associated with each investment to limit foregone earnings foregone earnings are a type of opportunity cost or the cost of missing out on a better choice or opportunity thus leaving money on the table examples of foregone earnings mutual fundssales charges can be a significant expense for investors the financial industry regulatory authority finra provides the following schedule which outlines potential front end load sales charges for investing in mutual funds 1 the table below shows the hypothetical breakpoints as examples where mutual fund sales charges might be reduced based on the amount of funds invested sales charges can occur at various points in the investment process sales charges are commissions charged by distributors that compensate the broker for sales below are three examples of the types of sales charges and when they occur 1individual investors are typically charged lower fees when trading with a discount broker and many platforms may not require any sales charges to be paid sales charges can also often be bypassed by investing through the fund company directly sales charges for transactions through intermediaries are determined by the mutual fund some mutual funds provide investors with a breakdown of returns with and without sales charges for example the clearbridge aggressive growth fund reports returns with and without sales charges as of august 31 2022 the fund s average one year return without sales charges was 25 33 with sales charges the return was 29 62 whereby the difference of 4 29 represents foregone earnings due to sales charges 2the above example shows how much foregone earnings can impact the return on an investment breakpoint discounts can significantly reduce sales charges and fees allowing more of the investment s gains to be reinvested or compounded leading to better long term returns it s important for investors to research and perform due diligence on a mutual fund s breakpoint discounts to determine if you qualify and if so determine the requirements investors will also experience foregone earnings from mutual fund operating fees mutual fund operating fees typically encompass management fees distribution fees transaction fees and administrative costs a mutual fund may report a gross expense ratio and a net expense ratio that includes these fees if a net expense ratio is quoted then the fund has waivers and reimbursement agreements in place over time the fund s expense ratio typically increases to its gross expense ratio when the discounts expire investors can consider management fees and gross versus net expense ratios when comparing funds for foregone earnings passively managed funds typically have lower expense ratios than actively managed funds actively managed funds require higher management fees and transactions costs for example let s say you have 10 000 to invest and one fund charges 0 5 while the other fund charges 2 both funds offer exposure to a similar segment of the market if you invested in the 2 fund your investment return would decrease by 200 annually investing in the 0 5 fund only charges 50 if you chose to invest in the 2 fund your foregone earnings from fund fees would be 150 in total redemption fees may also be charged by mutual funds to prevent investors from short term trading these fees are determined by the fund company their timeframes for payment can range from 30 to more than a year after the initial purchase depending on the issuer redemption fees are paid back to the fund for trading and operational costs avoiding redemption fees can also be a factor helping to reduce the potential for foregone earnings | |
what is fatca | the foreign account tax compliance act fatca is a law that requires foreign financial institutions to report on the assets held by u s account holders it also requires u s citizens and residents living at home or abroad to file annual reports on any foreign account holdings they have the main goal of fatca is to stop tax evasion the fatca was passed in 2010 as part of the hiring incentives to restore employment hire act which is designed to promote transparency in the global financial services sector form 8938 is used to report any foreign account holdings and there are serious penalties for not reporting them 1understanding fatcathe foreign account tax compliance act fatca was signed into law by president barack obama in 2010 as part of the hiring incentives to restore employment hire act hire was largely designed to incentivize businesses to hire unemployed workers unemployment rates had skyrocketed during the 2008 financial crisis 1one of the incentives offered to employers through the hire act was an increase in the business tax credit for each new employee hired and retained for at least 52 weeks other incentives included payroll tax holiday benefits and an increase in the expense deduction limit for new equipment purchased in 2010 3fatca seeks to eliminate tax evasion by american individuals and businesses that are investing operating and earning taxable income abroad while it is not illegal to maintain an offshore account failure to disclose the account to the internal revenue service irs is illegal since the u s taxes all income and assets of its citizens on a global scale in fact the fatca was at least in part created to fund the costs of the business incentives offered in hire fatca provisions require u s taxpayers to report all financial assets held outside of the country annually and pay any taxes due on them the revenue stream produced by fatca goes toward the costs of the hiring incentives offered in the hire act penalties are imposed on u s residents who do not report foreign account holdings and financial assets that exceed 50 000 in value in any given year 2who needs to comply with fatca form 8938 needs to be filed by any american taxpayer with financial assets totaling 50 000 or more those assets may be in a bank account or may be in stocks bonds and other financial instruments there are certain exceptions one major one is an exception for assets held in a foreign branch of a u s institution or a u s branch of a foreign institution 4foreign financial institutions ffi and non financial foreign entities nffe are required to comply with this law by disclosing the identities of u s citizens with accounts and the value of the assets in those accounts to the irs or the fatca intergovernmental agreement iga ffis that do not comply with the irs will be excluded from the u s market and have 30 of the amount of any withholdable payment withheld from them as a tax penalty withholdable payments may include income generated from the u s financial assets held by these banks such as interest dividends and periodic profits ffis and nffes that agree to the law must annually report the name address and tax identification number tin of each account holder that meets the criteria of a u s citizen as well as the account number the account balance and any deposits and withdrawals on the account for the year 561the irs requires form 8938 for taxpayers living abroad under the following circumstances the reporting thresholds for foreign assets vary based on whether you file a joint income tax return and whether you live abroad according to the irs the irs requires form 8938 for taxpayers living in the united states under the following circumstances who is a u s person under fatca the fatca guidelines refer to the term united states person or usp a usp can be any of the following penalties for non compliancethere are penalties for failing to file form 8938 the irs can impose a 10 000 failure to file penalty an additional penalty of up to 50 000 if the guilty party continues to not file after notification by the irs and a 40 penalty for understating taxes attributable to non disclosed assets the statute of limitations is extended to six years after an entity files its return for income over 5 000 that is not reported and is attributable to a specified foreign financial asset also if a party fails to file or properly report an asset on form 8938 the statute of limitations for the tax year is extended to three years beyond the time when the party provides the required information if there is a reasonable cause for the failure the statute of limitations is extended only with regard to the item or items related to such failure and not for the entire tax return no penalty is imposed if the failure to disclose is found to be reasonable although this is decided on a case by case basis 4the cost of compliancealthough the price to pay for not complying with fatca is high the compliance costs for foreign financial institutions are also high nigel green ceo of devere group and co founder of the campaign to repeal fatca estimated in 20217 that 250 000 foreign financial institutions were being impacted by fatca s reporting requirements one spanish bank stated that compliance could cost one of its local bank branches 8 5 million and a global financial institution 850 million estimates of the costs to u k financial institutions ranged from 1 1 billion to 1 9 billion 8criticism of fatcaof course there are always critics of new tax laws the reuters news agency reported that fatca drew the ire of banks and business people who termed it imperialist financial institutions objected to the fact that they were expected to report on their u s clients or withhold 30 of the interest dividend and investment payments due to those clients and send the money to the irs 9tax lawyers at the swiss american chamber of commerce in zurich denounced fatca as the neutron bomb of the global economic system and said it would deter foreign investment in u s markets 9some critics argued that the cost of implementing fatca was too great a burden on foreign financial institutions and could even cause them to divest their u s assets 10foreign banks objected to the fatca on the grounds that it is burdensome to their operations american citizens abroad proclaimed that americans residing overseas need to have assets and bank accounts in their country of residence if these americans are subject to form 8938 this amounts to discrimination against americans residing overseas because americans residing in the united states are not required to report their assets for tax purposes only their income needs to be reported since federal taxes are levied only on income and capital gains overall american citizens abroad was of the opinion that fatca risked a potential loss of trillions of dollars of investment in the united states the opportunity for american companies and financial institutions to compete in a global environment and american citizens ability to reside and thrive overseas 11 | |
what is the difference between fatca and fbar | the fbar and fatca reporting requirements are similar but there are several significant differences some assets should be disclosed on one form but not the other and some must be disclosed on both the report of foreign bank and financial accounts or fbar is a form required by the irs for expatriates and other citizens with certain foreign bank accounts fbars also must be filed on behalf of trusts estates and domestic entities with interests in foreign financial accounts fatca applies to individual citizens residents and non resident aliens residents and entities in u s territories must file fbars but don t need to file fatca forms the fatca requires disclosure of foreign stocks and securities partnership interests hedge funds and other private equity funds fbars are required for assets held in foreign branches of u s banks accounts where the owner has signatory authority and indirect ownership interests or beneficial interests 124 | |
is fatca only for u s citizens | fatca impacts all u s taxpayers who have assets held abroad that includes citizens and green card holders as well as businesses owned by u s citizens and anyone that spends a certain number of days per year in the u s and has foreign accounts all banks worldwide are affected by fatca if they hold the assets of u s taxpayers 46 | |
how can i avoid fatca | there is no way to avoid fatca if you are an american taxpayer and have assets that are held in foreign financial institutions moreover the penalties for trying to avoid it are harsh the bottom linefatca requires foreign financial institutions to report on the assets held by u s account holders it also requires u s citizens and residents to file annual reports on any foreign account holdings they have filing is done by completing and sending in form 8938 depending on whether individuals live in the u s or live abroad there are different filing requirements and holding thresholds if you hold assets abroad it s important to check if you need to file as there are high penalties for not doing so | |
what is foreign aid | the term foreign aid refers to any type of assistance that one country voluntarily transfers to another which can take the form of a gift grant or loan most people tend to think of foreign aid as capital but it can also be food supplies and services such as humanitarian aid and military assistance broader definitions of aid include any assistance transferred across borders by religious organizations non governmental organizations ngos and foundations u s foreign aid usually refers to military and economic assistance provided by the federal government provides to other countries understanding foreign aidforeign aid is any type of assistance that one country s government provides to another nation usually from developed to developing nations governments may issue aid in the following forms governments may make agreements with the countries to which they provide assistance for instance a developed nation may agree to provide grants to those in need after a natural disaster or during times of conflict whether they provide any type of capital or humanitarian aid alternatively a government may agree to issue loans to an allied nation that experiences economic uncertainty with special repayment provisions concerned about where foreign aid goes only a small portion of american assistance goes to federal governments while the rest is assigned to non profits ngos and other organizations according to the organisation for economic co operation and development oecd an intergovernmental organisation with 38 member countries aimed at promoting sustainable economic growth member countries contributed a record 223 7 billion in international aid in 2023 the united states is the most generous according to the oecd providing 66 04 billion in foreign aid in 2023 the remaining countries that were among the top five donors included the united nations un calls for economically advanced countries to spend at least 0 7 of their gross national income gni on international aid norway luxembourg sweden germany and denmark are the only countries that met or exceeded this level the total contribution of member countries though averaged 0 37 much lower than the un target the countries that received the most foreign aid from the u s for 2023 include ukraine israel ethiopia jordan and egypt special considerationsforeign aid estimates tend to vary given the different agencies funding methods and aid categories associated with u s foreign assistance efforts for instance the congressional research service crs a nonpartisan arm of congress the country spent 69 01 billion in foreign assistance during the 2023 fiscal year that figure amounted to 1 to 1 5 of the total federal budget authority aid can be provided by governments directly or through special federal agencies for instance the united states agency for international development usaid was created in 1961 to provide civilian aid it provides assistance with education environment climate change global health crises and conflicts food and agriculture water and human rights history of foreign aidforeign aid also commonly referred to as international aid and economic aid isn t a new concept the colonies were recipients of foreign military aid particularly from france during the american revolution during world war i the u s government loaned the committee for relief in belgium 387 million much of which it later forgave u s foreign aid began in earnest during world war ii before entering the war the government began funneling funds and materials to the allied nations under the lend lease program which totaled 50 1 billion by august 1945 the united states also contributed 2 7 billion through the united nations relief and rehabilitation administration unrra beginning in late 1943 for the four years following 1948 the u s gave 13 billion in aid to countries affected by the war such as the united kingdom france and west germany through the marshall plan the mutual security act of 1951 authorized around 7 5 billion in foreign aid per year until 1961 the amount of aid authorized by the mutual security act in 1951 was approximately 2 2 of the country s gross domestic product gdp | |
what country gives the most foreign aid | as mentioned above the united states was the world s top donors of government aid in 2023 however as a percentage of national income norway was the highest donor contributing 1 09 of its gni to foreign aid in 2023 | |
what are different forms of foreign aid | per the oecd foreign can take two primary forms bilateral aid is financial support that flows from one government to another multilateral aid is more complex and it involves contributions from multiple government sources to multilateral organizations such as agencies of the united nations which then use the funding to develop aid programming and projects | |
is foreign aid an ethical issue | foreign aid can sometimes be a controversial topic and has drawn opposition from a range of critics proponents of foreign aid argue that it helps nations develop and that it can pursue humanitarian ends such as relieving poverty or improving public health however some have raised issues related to the disbursement of foreign aid arguing that it can be costly for donor nations that it s difficult to oversee and that it risks fostering dependence over agency the bottom lineforeign aid refers to any resource that one country transfers to another aid can take the form of money military assistance or humanitarian resources such as food medicine and shelter foreign aid can be distributed directly from one government to another or it may be multilateral channeled through organizations such as the united nations | |
what is the foreign corrupt practices act fcpa | the foreign corrupt practices act fcpa the act is a united states law that prohibits u s firms and individuals from paying bribes to foreign officials to further business deals the fcpa contains two main articles the fcpa applies to prohibited conduct anywhere in the world and extends to both u s publicly traded companies and privately held companies understanding the foreign corrupt practices actthe foreign corrupt practices act targets corruption and bribery internationally paying foreign officials for expediting legal processes or obtaining contracts was a common business practice around the world well into the 1970s in some countries in fact corporations routinely wrote off bribes as normal business expenses when filing their tax returns being common however does not make this behavior desirable or ethical 1 | |
when the act was passed in 1977 it received substantial backing from american businesses because they could not compete fairly in overseas markets where bribery was accepted the fcpa s anti bribery regime along with the adoption of treaties like the organisation for economic co operation and development s oecd which required signatory countries to outlaw all financial crime has helped to level the playing field abroad for u s businesses 2 | anti bribery provisionsthe act prohibits bribery of foreign officials and intends to deter corruption and abuses of power worldwide the fcpa contains policies for governing the actions of publicly traded companies their directors officers shareholders agents and employees this includes working through third parties such as consultants and partners in a joint venture jv with the company meaning that the use of proxies to execute a bribe will not shield the company or individual from culpability 3books records and internal control provisionsthis section of the act outlines the accounting transparency guidelines that are meant to operate in tandem with the anti bribery provisions the fcpa requires companies whose securities are listed in the u s to meet its accounting provisions which cite ways of recording assets that make it difficult to mask corrupt payments 4corporations covered by the act also must devise and maintain internal controls to assure regulators that their business transactions are accounted for properly 1violating the foreign corrupt practices actthe securities and exchange commission sec and the department of justice doj are jointly responsible for enforcing the foreign corrupt practices act for its part the sec created a special unit within its enforcement division to focus on matters that fall under the auspices of the fcpa violators of the act can face substantial sanctions and penalties and both criminal and civil actions may be charged punishments include fines as much as twice the amount of the benefit expected to be received from the bribery corporate entities found guilty of breaching the act may be forced to accept the oversight of an independent auditor to ensure future compliance individuals involved in breaking this law can face imprisonment for as many as five years 156sec sample rulings in the fcpathe sec publishes current violations of the act along with its enforcement actions on the sec website in press release format the agency also redacts a summary list organized by calendar year of individuals and firms that violated the tenets of the act for example in 2019 some of the sec s rulings included actions against 7 | |
what is a foreign currency convertible bond | a foreign currency convertible bond fccb is a type of convertible bond issued in a currency different than the issuer s domestic currency in other words the money being raised by the issuing company is in the form of foreign currency a convertible bond is a mix between a debt and equity instrument it acts like a bond by making regular coupon and principal payments but these bonds also give the bondholder the option to convert the bond into stock understanding foreign currency convertible bonds fccb a bond is a debt instrument that provides income to investors in the form of regularly scheduled interest payments called coupons at the maturity date of the bond the investors are repaid the full face value of the bond some corporate entities issue a type of bond known as convertible bonds a bondholder with a convertible bond has the option of converting the bond into a specified number of shares of the issuing company convertible bonds have a conversion rate at which the bonds will be converted to equity however if the stock price stays below the conversion price the bond will not be converted thus convertible bonds allow bondholders to participate in the appreciation of the issuer s underlying shares there are various types of convertible bonds one of which is the foreign currency convertible bond a company may choose to issue fccbs in the currency of a country with lower interest rates or a more stable economy than the issuer s home country | |
how foreign currency convertible bonds work | a foreign currency convertible bond fccb is a convertible bond that is issued in a foreign currency which means the principal repayment and periodic coupon payments will be made in a foreign currency for example an american listed company that issues a bond in india in rupees has in effect issued an fccb foreign currency convertible bonds are typically issued by multinational companies operating in a global space and looking to raise capital in foreign currencies fccb investors are usually hedge fund arbitrators and foreign nationals these bonds can be issued along with a call option whereby the right of redemption lies with the bond issuer or put options whereby the right of redemption lies with bondholder special considerationsa company may decide to raise money outside its home country to gain access to new markets for new or expansionary projects fccbs are generally issued by companies in the currency of those countries where interest rates are usually lower than the home country or foreign country economy is more stable than the home country economy due to the equity side of the bond which adds value the coupon payments on the bond are lower for the issuer than a straight coupon bearing plain vanilla bond thereby reducing its debt financing costs in addition a favorable move in the exchange rates can reduce the issuer s cost of debt which is the interest payment made on bonds since the principal has to be repaid at maturity an adverse movement in exchange rates in which the local currency weakens can cause cash outflows on repayment to be higher than any savings in interest rates resulting in losses for the issuer in addition issuing bonds in a foreign currency exposes the issuer to any political economic and legal risks prevalent in the country furthermore if the issuer s stock price declines below the conversion price fccb investors will not convert their bonds to equity which means the issuer will have to make the principal repayments at maturity an fccb investor can purchase these bonds at a stock exchange and has the option to convert the bond into equity or a depositary receipt after a certain period of time investors can participate in any price appreciation of the issuer s stock by converting the bond to equity bondholders take advantage of this appreciation by means of warrants attached to the bonds which are activated when the price of the stock reaches a certain point | |
what is a foreign currency swap | a foreign currency swap is an agreement between two foreign parties to swap interest payments on a loan made in one currency for interest payments on a loan made in another currency a foreign currency swap can involve exchanging principal as well this would be exchanged back when the agreement ends usually though a swap involves notional principal that s just used to calculate interest and isn t actually exchanged understanding foreign currency swapsone purpose of engaging in a currency swap is to procure loans in foreign currency at more favorable interest rates than might be available borrowing directly in a foreign market during the financial crisis in 2008 the federal reserve allowed several developing countries that faced liquidity problems the option of a currency swap for borrowing purposes 1in a transaction arranged by investment banking firm salomon brothers the world bank entered into the very first currency swap in 1981 with ibm ibm swapped german deutsche marks and swiss francs to the world bank for u s dollars 2foreign currency swaps can be arranged for loans with maturities as long as 10 years currency swaps differ from interest rate swaps in that they can also involve principal exchanges in a foreign currency swap each party to the agreement pays interest on the the other s loan principal amounts throughout the length of the agreement when the swap is over if principal amounts were exchanged they are exchanged once more at the agreed upon rate which would avoid transaction risk or the spot rate currency swaps have been tied to the london interbank offered rate libor libor is the average interest rate that international banks use when borrowing from one another it has been used as a benchmark for other international borrowers however in 2023 the secured overnight financing rate sofr will officially replace libor for benchmarking purposes in fact as of the end of 2021 no new transactions in u s dollars use libor although it will continue to quote rates for the benefit of already existing agreements 3types of swapsthere are two main types of currency swaps the fixed for fixed rate currency swap involves exchanging fixed interest payments in one currency for fixed interest payments in another in the fixed for floating rate swap fixed interest payments in one currency are exchanged for floating interest payments in another in this type of swap the principal amount of the underlying loan is not exchanged foreign currency swaps are a way of getting capital where it needs to go so that economic activity can thrive theses swaps provide governments and businesses access to potentially lower cost borrowing they also can help them protect their investments from the effects of exchange rate risk reasons for using currency swapsa common reason to employ a currency swap is to secure cheaper debt for example say that european company a borrows 120 million from u s company b concurrently u s company a borrows 100 million euros from european company a the exchange between them is based on a 1 2 spot rate indexed to libor the two companies make the deal because it allows them to borrow the respective currencies at a favorable rate if a currency swap deal involves the exchange of principal that principal will be exchanged again at the maturity of the agreement in addition some institutions use currency swaps to reduce exposure to anticipated fluctuations in exchange rates for instance companies are exposed to exchange rate risks when they conduct business internationally therefore it can behoove them to hedge those risks by essentially taking opposite and simultaneous positions in the currency u s company a and swiss company b can take a position in each other s currencies swiss francs and usd respectively via a currency swap for hedging purposes then they can unfold the swap later when the hedge is no longer needed if they suffered a loss due to fluctuating exchange rates affecting their business activity the profit on the swap can offset that | |
why do companies do foreign currency swaps | foreign currency swaps serve two essential purposes they offer a company access to a loan in a foreign currency that can be less expensive than when obtained through a local bank they also provide a way for a company to hedge or protect against risks it may face due to fluctuations in foreign exchange | |
what are the different types of foreign currency swaps | foreign currency swaps can involve the exchange of fixed rate interest payments on currencies or one party to the agreement may exchange a fixed rate interest payment for the floating rate interest payment of the other party a swap agreement may also involve the exchange of the floating rate interest payments of both parties | |
when did the first foreign currency swap occur | the first foreign currency swap is purported to have taken place in 1981 between the world bank and ibm corporation | |
what is a foreign direct investment fdi | the term foreign direct investment fdi refers to an ownership stake in a foreign company or project made by an investor company or government from another country fdi is generally used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand operations to a new region the term is usually not used to describe a stock investment in a foreign company alone fdi is a key element in international economic integration because it creates stable and long lasting links between economies 1lara antal investopedia | |
how does foreign direct investment fdi work | as noted above foreign direct investment is a stake in a company or project by a foreign entity companies or governments considering an fdi generally consider target firms or projects in open economies that offer a skilled workforce and above average growth prospects for the investor light government regulation also tends to be prized fdi frequently goes beyond mere capital investment it may also include the provision of management technology and equipment a key feature of fdi is that it establishes effective control of the foreign business or at least substantial influence over its decision making the net amounts of money involved with fdi are substantial with roughly 1 28 trillion of foreign direct investments made in 2022 2 in that year the united states was the top fdi destination worldwide followed by china brazil australia and canada in terms of fdi outflows the u s was also the leader followed by japan china germany and the united kingdom 3fdi inflows as a percentage of gross domestic product gdp are a good indicator of a nation s appeal as a long term investment destination china s economy is currently smaller than the u s economy in nominal terms fdi as a percentage of gdp in 2022 was 1 0 for china compared with 1 5 for the u s 4 for smaller dynamic economies fdi as a percentage of gdp is often significantly higher for instance it represented 359 2 for the cayman islands and 33 6 for hong kong in 2022 5in 2020 foreign direct investment tanked globally due to the covid 19 pandemic according to the united nations conference on trade and development the total 859 billion global investment that year compared with 1 5 trillion the previous year 6 and china dislodged the u s in 2020 as the top draw for total investment attracting 163 billion compared with investment in the u s of 134 billion 7 in 2021 global fdi bounced back by 88 8special considerationsforeign direct investments can be made in a variety of ways including opening a subsidiary or associate company in a foreign country acquiring a controlling interest in an existing foreign company or by means of a merger or joint venture with a foreign company the threshold for an fdi that establishes a controlling interest per guidelines established by the organisation for economic co operation and development oecd is a minimum 10 ownership stake in a foreign based company that definition is flexible there are instances in which effective controlling interest in a firm can be established by acquiring less than 10 of the company s voting shares 1china s economy has been fueled by an influx of fdi targeting the nation s high tech manufacturing and services 9 more recently relaxed fdi regulations in india now allow 100 foreign direct investment in single brand retail without government approval 10types of foreign direct investmentforeign direct investments are commonly categorized as horizontal vertical or conglomerate examples of foreign direct investmentforeign direct investments may involve mergers acquisitions or partnerships in retail services logistics or manufacturing they indicate a multinational strategy for company growth they also can run into regulatory concerns for instance in 2020 u s company nvidia announced its planned acquisition of arm a u k based chip designer in august 2021 the u k s competition watchdog announced an investigation into whether the 40 billion deal would reduce competition in industries reliant on semiconductor chips 11 the deal was called off in february 2022 12 | |
what is the difference between foreign direct investment and foreign portfolio investment | foreign portfolio investment is the addition of international assets to the portfolio of a company an institutional investor such as a pension fund or an individual investor it is a form of portfolio diversification achieved by purchasing the stocks or bonds of a foreign company foreign direct investment instead requires a substantial and direct investment in or the outright acquisition of a company based in another country and not just their securities fdi is generally a larger commitment made to enhance the growth of a company but both fpi and fdi are generally welcome particularly in emerging nations notably fdi involves a greater responsibility to meet the regulations of the country that hosts the company receiving the investment | |
what are the advantages and disadvantages of foreign direct investment | fdi can foster and maintain economic growth in both the recipient country and the country making the investment on one hand developing countries have encouraged fdi as a means of financing the construction of new infrastructure and the creation of jobs for their local workers on the other hand multinational companies benefit from fdi as a means of expanding their footprints into international markets a disadvantage of fdi however is that it involves the regulation and oversight of multiple governments leading to a higher level of political risk | |
what are some examples of foreign direct investment | one of the most sweeping examples of fdi in the world today is the chinese initiative known as one belt one road obor this program sometimes referred to as the belt and road initiative involves a commitment by china to substantial fdi in a range of infrastructure programs throughout africa asia and even parts of europe the program is typically funded by chinese state owned enterprises and organizations with deep ties to the chinese government similar programs are undertaken by other nations and international bodies including japan the united states and the european union the bottom linefdi involves the direct investment by companies or governments into foreign firms or projects this accounts for trillions in cash flows around the world with the u s and china leading in the fdi inflow statistics for smaller and developing countries fdi funds can be a substantial part of overall gdp foreign portfolio investment fpi is related to fdi but instead involves owning the securities issued by firms such as stock in foreign companies rather than direct capital investments | |
what is the foreign earned income exclusion | the foreign earned income exclusion is intended to prevent double taxation by excluding income taxed in another country from u s taxation the u s internal revenue service irs will tax your income earned worldwide however if you are an american expat this means you are taxed twice on this income the income you receive overseas is taxed in the foreign country and can be taxed again by the irs 1understanding foreign earned income exclusionthe foreign earned income exclusion is elected on irs tax form 2555 furthermore taxpayers who claim this exclusion make domestic retirement plan contributions of any kind that are based on this income or claim the foreign tax credit or deduction for any taxes paid to a foreign government on this income 34you must meet specific qualifications to claim the foreign earned income exclusion foreign housing amountthere is a statutory maximum exclusion amount plus a foreign housing amount which limits the exclusion it is prorated if the number of qualifying days in a foreign country is less than a full tax year the foreign housing amount is the housing costs you paid with foreign earned income that exceeds 16 of the maximum exclusion or base amount this amount has a cap of 30 of the maximum exclusion amount the foreign housing amount is taken as an exclusion by employees and as a deduction by self employed individuals 29for the 2022 tax year the maximum exclusion amount is 112 000 and it goes up to 120 000 in 2023 10example of foreign earned income exclusionlet s see how the foreign earned income exclusion works mp is an american working in vietnam they lived in hanoi for 345 days of the tax year and were absent for 10 days on a trip home for thanksgiving they earned a salary of 225 000 and paid 30 596 of it to lease a flat for the year mp paid 75 000 in vietnamese income tax and owed 81 000 in u s income tax on this income the upshot is that their foreign earned income is being taxed twice since mp is a u s citizen who paid foreign taxes on income they earned during 335 qualifying days in a foreign country they may elect to exclude the foreign earned income from their u s taxable income mp s 2022 exclusion is 112 000 and mp s 2022 foreign housing amount is 15 040 33 600 in housing costs 16 944 base amount since 13 652 is less than the 31 770 cap amount no further reduction is necessary 117the foreign earned income exclusion allows mp to exclude 111 000 from their taxable income but 114 000 remains included and since they have paid foreign taxes of 37 000 and still owe u s taxes of 36 000 it remains double taxed mp should take a 37 000 nonrefundable foreign tax credit against the 36 000 u s taxes they owe as long as they timely file form 2555 to elect the foreign earned income exclusion and form 1116 claiming the foreign tax credit they will not owe u s taxes on the foreign income 12who qualifies for the foreign earned income exclusion a u s citizen or u s resident alien who is physically present in another country for 330 days or more during 12 consecutive months a u s citizen who is a legal resident of a foreign country for an uninterrupted period that includes an entire tax year or a u s resident alien who is a citizen or national of a country with which the united states has an income tax treaty in effect who is a legal resident of a foreign country for an uninterrupted period that includes an entire tax year qualify for the foreign earned income exclusion 1 | |
what is the foreign earned income exclusion for 2022 | for 2022 the foreign earned income exclusion is 112 000 for 2023 the amount is 120 000 any earned income below these amounts for an individual will not be taxed 10 | |
do i have to pay u s taxes on foreign income | yes as a u s citizen or u s resident alien you must pay taxes on all foreign earned income regardless of your place of residency however you may qualify for foreign earned income exclusions or foreign income tax credits 13 | |
what is the forex or fx | the foreign exchange market commonly referred to as the forex or fx is the global marketplace for the trading of one nation s currency for another the forex market is the largest most liquid market in the world with trillions of dollars changing hands every day it has no centralized location and no government authority oversees it rather the forex is an electronic network of banks brokerages institutional investors and individual traders mostly trading through brokerages or banks investopedia paige mclaughlinunderstanding the forexthe forex market determines the day to day value or the exchange rate of most of the world s currencies if a traveler exchanges dollars for euros at an exchange kiosk or a bank the number of euros will be based on the current forex rate if imported french cheese suddenly costs more at the grocery it may well mean that euros have increased in value against the u s dollar in forex trading forex traders seek to profit from the continual fluctuations of currency values for example a trader may anticipate that the british pound will strengthen in value the trader will exchange u s dollars for british pounds if the pound then strengthens the trader can do the transaction in reverse getting more dollars for the pounds in forex trading currencies are listed in pairs such as usd cad eur usd or usd jpy these represent the u s dollar usd versus the canadian dollar cad the euro eur versus the usd and the usd versus the japanese yen jpy there will also be a price associated with each pair such as 1 2569 if this is the usd cad pair it means that it costs 1 2569 cad to buy one usd if the price increases to 1 3336 then it now costs 1 3336 cad to buy one usd the usd has increased in value against the cad so it now costs more cad to buy one usd in the forex market currencies trade in lots called micro mini and standard lots a micro lot is 1 000 worth of a given currency a mini lot is 10 000 and a standard lot is 100 000 trades take place in set blocks of currency for example a trader can exchange seven micro lots 7 000 three mini lots 30 000 or 75 standard lots 7 500 000 trading volume in the forex market is generally very large trading in the foreign exchange markets averaged 7 5 trillion worth per day in april 2022 according to the bank for international settlements 1the largest trading centers are london new york singapore hong kong and tokyo trading in the foreign exchange marketthe forex market is open 24 hours a day five days a week around the globe historically foreign exchange market participation was for governments large companies and hedge funds in today s world trading currencies is as easy as a click of a mouse and accessibility is not an issue many investment companies allow individuals to open accounts and trade currencies through their platforms this is not like a trip to a foreign exchange kiosk the process is entirely electronic with no physical exchange of money from one hand to another rather traders are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they re buying or weakness if they re selling so that they can make a profit forex market vs other marketsthere are some fundamental differences between foreign exchange and other markets first of all there are fewer rules which means investors aren t held to strict standards or regulations like those in the stock futures and options markets there are no clearing houses and no central bodies that oversee the forex market second since trades don t take place on a traditional exchange there are fewer fees or commissions like those on other markets next there s no cutoff as to when you can and cannot trade because the market is open 24 hours a day you can trade at any time finally because it s such a liquid market you can get in and out whenever you want and you can buy as much currency as you can afford types of forex transactionsforex traders transact in one of three distinct marketplaces the spot the forward or the futures market to find the best entry and exit point for a trade they will use a variety of analysis techniques the spot market is the most straightforward of the forex markets the spot rate is the current exchange rate a transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate spot transactions for most currencies are finalized in two business days the major exception is the u s dollar versus the canadian dollar which settles on the next business day the price is established on the trade date but money is exchanged on the value date the u s dollar is the most actively traded currency 2 the most common pairs are the usd versus the euro japanese yen british pound and australian dollar 3trading pairs that do not include the dollar are referred to as crosses the most common crosses are the euro versus the pound and the euro versus the yen the spot market can be very volatile movement in the short term is dominated by technical trading which bases trading decisions on a currency s direction and speed of movement longer term changes in a currency s value are driven by fundamental factors such as a nation s interest rates and economic growth a forward trade is any trade that settles further in the future than a spot transaction the forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies most forward trades have a maturity of less than a year in the future but a longer term is possible as in the spot market the price is set on the transaction date but money is exchanged on the maturity date a forward contract is tailor made to the requirements of the counterparties they can be for any amount and settle on any date that is not a weekend or holiday in one of the countries unlike the rest of the foreign exchange market forex futures are traded on an established exchange primarily the chicago mercantile exchange forex futures are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price this type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations it also is subject to speculative trading example of a forex tradea trader thinks that the european central bank ecb will be easing its monetary policy in the coming months as the eurozone s economy slows as a result the trader bets that the euro will fall against the u s dollar and sells short 100 000 at an exchange rate of 1 15 over the next several weeks the ecb signals that it may indeed ease its monetary policy that causes the exchange rate for the euro to fall to 1 10 versus the dollar this creates a profit for the trader of 5 000 by shorting 100 000 the trader took in 115 000 for the short sale when the euro fell and the trader covered the short it cost the trader only 110 000 to repurchase the currency the difference between the money received on the short sale and the buy to cover it is the profit had the euro strengthened versus the dollar it would have resulted in a loss pros and cons of forexthe forex was once the exclusive province of banks and other financial institutions the internet has blasted the doors wide open entry costs are low and the marketplace is open around the clock there are many choices of forex trading platforms including some that cater to beginners there also are online forex trading courses that teach the basics those financial institutions and the traders who work for them are still there alongside the neophytes working from home they have deep pockets sophisticated software that tracks currency price movements and teams of analysts to examine the economic factors that make currency rates move currency trading is a fast moving volatile arena quickly impacted by changes in global events it s a risky business and can be made riskier by the use of leverage to increase the size of bets it s an easy way to lose money fast anyone willing to jump into forex should get the necessary training in advance and start slowly with a minimal stake accessible to individual investors through online trading platforms open 24 hours a day world wide relatively light regulation or oversight dominated by professionals and institutions with deep pockets volatile prices subject to sudden swings based on news relatively steep learning curve for newcomers forex termsthere are a number of terms that are used by forex traders here are some of the basics going long buying a currency on the belief that its value will increase in a matter of hours then it can be sold for a profit going short selling a currency on the belief that its value will decrease it can then be repurchased at a lower price currency pair every forex transaction is an exchange of one currency for another a currency pair quote looks like this usd gbp 1 15 in this example the u s dollar is the base currency and the british pound is the quote currency a trader who wishes to buy british pounds will pay 1 15 for each the ask the price the trader will pay to buy a currency pair the bid the price the trader will pay to sell a currency pair the spread the difference between the buying price and the selling price just seven currency pairs represent the majority of trades on the forex they are eur usd euro u s dollar usd jpy u s dollar japanese yen gbp usd british pound u s dollar aud usd australian dollar u s dollar usd cad u s dollar canadian dollar usd chf u s dollar swiss franc nzd usd new zealand dollar u s dollar | |
how big is the forex market | the daily trading volume on the forex market dwarfs that of the stock and bond markets according to the latest triennial survey conducted by the bank for international settlements bis trading in foreign exchange markets averaged 7 5 trillion per day in april 2022 1 by contrast the total notional value of u s equity markets on dec 31 2021 was approximately 393 billion 4 | |
when you re making trades in the forex market you re buying the currency of one nation and simultaneously selling the currency of another nation | there s no physical exchange of money traders are taking a position in a specific currency with the hope that it will gain in value relative to the other currency | |
how does the forex market differ from other markets | the forex is a decentralized market it has no physical existence and no owner or management there are no clearing houses or central bodies to oversee the forex that means traders aren t held to strict standards or regulations as are seen in the stock futures or options markets it also means there are fewer fees and commissions to pay the bottom linethe forex or fx is the global marketplace for the exchange of currencies as such it determines the value of one currency against another in the real world forex prices determine the amount of money a traveler gets when exchanging one currency for another forex prices also influence global trade as companies buying or selling across borders must take currency fluctuations into account when determining their costs inevitably the forex has an impact on consumer prices as global exchange rates increase or lower the prices of imported components | |
what are foreign exchange reserves | foreign exchange reserves are assets held on reserve by a central bank in foreign currencies these reserves are used to back liabilities and influence monetary policy it includes any foreign money held by a central bank such as the u s federal reserve bank | |
how foreign exchange reserves work | foreign exchange reserves can include banknotes deposits bonds treasury bills and other government securities 1 these assets serve many purposes but are most significantly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes entirely insolvent 2it is a common practice in countries around the world for a central bank to hold a significant amount of reserves in its foreign exchange most of these reserves are held in the u s dollar since it is the most traded currency in the world it is not uncommon for the foreign exchange reserves to be made up of the british pound gbp the euro eur the chinese yuan cny or the japanese yen jpy as well 3economists theorize that it is better to hold the foreign exchange reserves in a currency that is not directly connected to the country s own currency in order to provide a barrier should there be a market shock 3 however this practice has become more difficult as currencies have become increasingly intertwined as global trading has become easier foreign exchange reserves are not only used to back liabilities but also influence monetary policy example of foreign exchange reservesthe world s largest current foreign exchange reserve holder is china a country holding more than 3 trillion of its assets in a foreign currency 4 most of their reserves are held in the u s dollar one of the reasons for this is that it makes international trade easier to execute since most of the trading takes place using the u s dollar 5saudi arabia also holds considerable foreign exchange reserves as the country relies mainly on the export of its vast oil reserves if oil prices begin to rapidly drop the country s economy could suffer it keeps large amounts of foreign funds in reserves to act as a cushion should this happen even if it s only a temporary fix 6u s foreign exchange reserves totaled 247 billion as of march 25 2022 compared to china s over 3 trillion 47russia s foreign exchange reserves are held mostly in u s dollars much like the rest of the world but the country also keeps some of its reserves in gold since gold is a commodity with an underlying value the risk in relying on gold in the event of a russian economic decline is that the value of gold will not be significant enough to support the country s needs as of february 2022 russia s foreign exchange reserves totaled some 630 billion 8 however sanctions imposed by the european union eu the u s and other nations in response to russia s invasion of ukraine in february 2022 rendered most of those reserves inaccessible to the central bank 9another danger of using gold as a reserve is that the asset is only worth what someone else is willing to pay for it during an economic crash that would put the power of determining the value of the gold reserve and therefore russia s financial fallback into the hands of the entity willing to purchase it | |
what is foreign exchange risk | foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations also known as currency risk fx risk and exchange rate risk it describes the possibility that an investment s value may decrease due to changes in the relative value of the involved currencies investors may experience jurisdiction risk in the form of foreign exchange risk investopedia julie bangunderstanding foreign exchange riskforeign exchange risk arises when a company engages in financial transactions denominated in a currency other than the currency where that company is based any appreciation depreciation of the base currency or the depreciation appreciation of the denominated currency will affect the cash flows emanating from that transaction foreign exchange risk can also affect investors who trade in international markets and businesses engaged in the import export of products or services to multiple countries the proceeds of a closed trade whether it is a profit or loss will be denominated in the foreign currency and will need to be converted back to the investor s base currency fluctuations in the exchange rate could adversely affect this conversion resulting in a lower than expected amount an import export business exposes itself to foreign exchange risk by having account payables and receivables affected by currency exchange rates this risk originates when a contract between two parties specifies exact prices for goods or services as well as delivery dates if a currency s value fluctuates between when the contract is signed and the delivery date it could cause a loss for one of the parties there are three types of foreign exchange risk companies that are subject to fx risk can implement hedging strategies to mitigate that risk this usually involves forward contracts options and other exotic financial products and if done properly can protect the company from unwanted foreign exchange moves foreign exchange risk examplean american liquor company signs a contract to buy 100 cases of wine from a french retailer for 50 per case or 5 000 total with payment due at the time of delivery the american company agrees to this contract at a time when the euro and the us dollar are of equal value so 1 1 thus the american company expects that when they accept delivery of the wine they will be obligated to pay the agreed upon amount of 5 000 which at the time of the sale was 5 000 however it will take a few months for delivery of the wine in the meantime due to unforeseen circumstances the value of the us dollar depreciates versus the euro to where at the time of delivery 1 1 10 the contracted price is still 5 000 but now the us dollar amount is 5 500 which is the amount that the american liquor company will have to pay | |
what is a foreign institutional investor fii | a foreign institutional investor fii is an investor or investment fund investing in a country outside of the one in which it is registered or headquartered the term foreign institutional investor is probably most commonly used in india where it refers to outside entities investing in the nation s financial markets the term is also used officially in china understanding foreign institutional investors fiis fiis can include hedge funds insurance companies pension funds investment banks and mutual funds fiis can be important sources of capital in developing economies yet many developing nations such as india have placed limits on the total value of assets an fii can purchase and the number of equity shares it can buy particularly in a single company 1this helps limit the influence of fiis on individual companies and the nation s financial markets and the potential damage that might occur if fiis fled en masse during a crisis foreign institutional investors in indiasome of the countries with the highest volume of foreign institutional investments are those with developing economies which generally provide investors with higher growth potential than mature economies this is one reason fiis are commonly found in india which has a high growth economy and attractive individual corporations to invest in all fiis in india must register with the securities and exchange board of india sebi to participate in the market 2fiis are allowed to invest in india s primary and secondary capital markets only through the country s portfolio investment scheme this scheme allows fiis to purchase shares and debentures of indian companies on the nation s public exchanges 3however there are many regulations for example fiis are generally limited to a maximum investment of 24 of the paid up capital of the indian company receiving the investment however fiis can invest more than 24 if the investment is approved by the company s board and a special resolution is passed the ceiling on fiis investments in indian public sector banks is only 20 of banks paid up capital 1the reserve bank of india monitors compliance with these limits daily by implementing cutoff points 2 below the maximum investment this gives it a chance to caution the indian company receiving the investment before allowing the final 2 to be purchased 1foreign institutional investors in chinachina is also a popular destination for foreign institutions seeking to invest in high growth capital markets in 2019 china decided to scrap quotas on the amount of the nation s stocks and bonds fiis can purchase the decision was part of efforts to attract more foreign capital as its economy slowed and it fought a trade war with the u s 4example of a foreign institutional investor fii if a mutual fund in the united states sees a high growth investment opportunity in an india listed company it can take a long position by purchasing shares in an indian stock market this type of arrangement also benefits private u s investors who may not be able to buy indian stocks directly instead they can invest in the mutual fund and take part in the high growth potential the mutual fund which would be an fii would have to ensure that it meets all of the requirements of an fii in the nation that which it is investing most nations that allow fiis to invest require them to follow strict rules | |
what is the difference between fdi and fii | fdi refers to foreign direct investment which is the investment made into a foreign country usually an investment in a foreign company fii refers to foreign institutional investor which is a person or institution that invests in a foreign market usually the stock market of another country | |
which companies are fiis | companies in india that have many fiis are cartrade tech hdfc pb fintech axis bank kiri industries itc icici bank and standard industries 5 | |
what are the benefits of fiis | the benefits of fiis to countries are that fiis bring in foreign capital which boosts the economy of a nation this spurs growth and shores up foreign reserves it also helps the fiis as it allows for greater diversity and exposure to foreign markets the bottom lineforeign institutional investor fii is a designation used by certain countries for international investors in their stock markets the term is typically associated with fast developing economies like india and china that have strict rules regarding foreign investors fiis must ensure they are compliant with all of the rules laid out by these countries to be able to invest as well as abide by the limits and securities they are allowed to invest in gaining access to these markets for foreigners is a way to diversify their holdings as well as gain exposure to fast growing economies | |
what is foreign investment | foreign investment involves capital flows from one country to another granting the foreign investors extensive ownership stakes in domestic companies and assets foreign investment denotes that foreigners have an active role in management as a part of their investment or an equity stake large enough to enable the foreign investor to influence business strategy a modern trend leans toward globalization where multinational firms have investments in a variety of countries | |
how foreign investment works | foreign investment is largely seen as a catalyst for economic growth in the future foreign investments can be made by individuals but are most often endeavors pursued by companies and corporations with substantial assets looking to expand their reach as globalization increases more and more companies have branches in countries around the world for some multinational corporations opening new manufacturing and production plants in a different country is attractive because of the opportunities for cheaper production and labor costs additionally these large corporations frequently look to do business with those countries where they will pay the least amount of taxes they may do this by relocating their home office or parts of their business to a country that is a tax haven or has favorable tax laws aimed at attracting foreign investors some of the more popular tax haven countries that attract foreign investors include the bahamas bermuda monaco luxembourg mauritius and the cayman islands direct vs indirect foreign investmentsforeign investments can be classified in one of two ways direct and indirect foreign direct investments fdis are the physical investments and purchases made by a company in a foreign country typically by opening plants and buying buildings machines factories and other equipment in the foreign country these types of investments find a far greater deal of favor as they are generally considered long term investments and help bolster the foreign country s economy foreign indirect investments involve corporations financial institutions and private investors buying stakes or positions in foreign companies that trade on a foreign stock exchange in general this form of foreign investment is less favorable as the domestic company can easily sell off their investment very quickly sometimes within days of the purchase this type of investment is also sometimes referred to as a foreign portfolio investment fpi indirect investments include not only equity instruments such as stocks but also debt instruments such as bonds other types of foreign investmentthere are two additional types of foreign investments to be considered commercial loans and official flows commercial loans are typically in the form of bank loans that are issued by a domestic bank to businesses in foreign countries or the governments of those countries official flows is a general term that refers to different forms of developmental assistance that developed or developing nations are given by a domestic country commercial loans up until the 1980s were the largest source of foreign investment throughout developing countries and emerging markets following this period commercial loan investments plateaued and direct investments and portfolio investments increased significantly around the globe multilateral development banksa different kind of foreign investor is the multilateral development bank mdb which is an international financial institution that invests in developing countries in an effort to encourage economic stability unlike commercial lenders who have an investment objective to maximize profit mdbs use their foreign investments to fund projects that support a country s economic and social development the investments which typically take the form of low or no interest loans with favorable terms might fund the building of an infrastructure project or provide the country with the capital needed to create new industries and jobs examples of multilateral development banks include the world bank and the inter american development bank idb | |
what is foreign portfolio investment fpi | foreign portfolio investment fpi consists of securities and other financial assets held by investors in another country it does not provide the investor with direct ownership of a company s assets and is relatively liquid depending on the volatility of the market along with foreign direct investment fdi fpi is one of the common ways to invest in an overseas economy fdi and fpi are both important sources of funding for most economies understanding foreign portfolio investment fpi portfolio investment involves the making and holding of a hands off or passive investment of securities done with the expectation of earning a return in foreign portfolio investment these securities can include stocks american depositary receipts adrs or global depositary receipts of companies headquartered outside the investor s nation holding also includes bonds or other debt issued by these companies or foreign governments mutual funds or exchange traded funds etfs that invest in assets abroad or overseas an individual investor interested in opportunities outside their own country is most likely to invest through an fpi on a more macro level foreign portfolio investment is part of a country s capital account and shown on its balance of payments bop the bop measures the amount of money flowing from one country to other countries over one monetary year fpi vs foreign direct investment fdi with fpi as with portfolio investment in general an investor does not actively manage the investments or the companies that issue the investments they do not have direct control over the assets or the businesses in contrast foreign direct investment fdi lets an investor purchase a direct business interest in a foreign country for example say an investor based in new york city purchases a warehouse in berlin to lease to a german company that needs space to expand its operations the investor s goal is to create a long term income stream while helping the company increase its profits this fdi investor controls their monetary investments and often actively manages the company into which they put money the investor helps to build the business and waits to see their return on investment roi however because the investor s money is tied up in a company they face less liquidity and more risk when trying to sell this interest the investor also faces currency exchange risk which may decrease the value of the investment when converted from the country s currency to the home currency or u s dollars an additional risk is with political risk which may make the foreign economy and his investment shaky feasible for retail investorsquicker return on investmenthighly liquidno direct control management of investmentsvolatilecause of economic disruption if withdrawn although some of these risks affect foreign portfolio investments as well it is to a lesser degree than with foreign direct investments since the fpi investments are financial assets not the property or a direct stake in a company they are inherently more marketable so fpi is more liquid than fdi and offers the investor a chance for a quicker return on his money or a quicker exit however as with most investments offering a short term horizon fpi assets can suffer from volatility fpi money often departs the country of investment whenever there is uncertainty or negative news in a foreign land which can further aggravate economic problems there foreign portfolio investments are more suited to the average retail investor while fdi is more the province of institutional investors ultra high net worth individuals and companies however these large investors may also use foreign portfolio investments example of foreign portfolio investment fpi the year 2018 was a good one for india in terms of fpi more than 600 new investment funds registered with the securities and exchange board of india sebi bringing the total to 9 246 an easier regulatory climate and a strong performance by indian equities over the last few years were among the factors sparking foreign investors interest | |
what is the foreign tax credit | the foreign tax credit is a u s tax credit used to offset income tax paid abroad u s citizens and resident aliens who pay income taxes imposed by a foreign country or u s possession can claim the credit the credit can reduce your u s tax liability and help ensure you aren t taxed twice on the same income | |
how the foreign tax credit works | if you paid taxes to a foreign country or u s possession and are subject to u s tax on the same income you can take an itemized deduction or a credit for those taxes reported as a deduction on schedule a of your 1040 or 1040 sr the foreign income tax reduces your u s taxable income conversely the foreign income directly reduces your u s tax liability if you take the credit if you opt for the tax credit you must complete form 1116 and attach it to your u s tax return 1you must take a credit or a deduction for all qualified foreign taxes you can t take the credit for some of your foreign taxes and a deduction for others and you can t claim both a credit and a deduction for the same tax 1taking the credit usually makes financial sense because the amount reduces your actual tax bill instead of just lowering your taxable income the tax break reduces the double tax burden that would otherwise arise if you were taxed on the same income twice generally only income war profits and excess profits taxes are eligible for the credit foreign taxes on wages dividends interest and royalties also qualify the irs specifies that the tax must be a levy that is not payment for a specific economic benefit and it must be similar to a u s income tax you can also claim the credit on foreign taxes that aren t imposed under a foreign income tax law if the tax is in lieu of income war profits or excess profits tax in this situation the tax must be imposed in place of an income tax the country otherwise imposes 2foreign tax is typically imposed in a foreign currency use the exchange rate in effect on the date you paid the foreign tax the tax was withheld or you made estimated tax payments 3other foreign taxes such as foreign real and personal property taxes do not qualify for the foreign tax credit but you may be able to deduct these other taxes on schedule a of your income tax return even if you also claim the foreign tax credit you can deduct foreign real property taxes unrelated to your trade or business however other taxes must be expenses you incur in a trade or business individuals estates and trusts can use the foreign tax credit to reduce their income tax liability additionally taxpayers can carry any unused foreign tax back for one year and then forward up to 10 years 4 | |
do i qualify for a foreign tax credit | not all taxes paid to a foreign government can be claimed as a credit against the u s federal income tax for the foreign tax to qualify for the credit there is a limit on the amount of credit you can claim which you calculate on form 1116 you can claim the smaller of the foreign tax you paid or your calculated limit unless you qualify for one of these exemptions if you qualify for an exemption claim the tax credit directly on form 1040 6if you claim the foreign earned income exclusion and or the foreign housing exclusion you can t take a foreign tax credit for taxes on the income you excluded or could have excluded if you do the irs could revoke one or both of your choices 7refundable vs non refundable tax creditstax credits can be either refundable or non refundable a refundable tax credit is a refund if the tax credit is more than your tax bill if you apply a 3 400 tax credit to a 3 000 tax bill you will receive a 400 refund a non refundable tax credit won t provide a refund because it only reduces the tax owed to zero if the 3 400 tax credit was non refundable you would owe nothing to the government however you would also forfeit the 400 that remained after the credit was applied 8 most tax credits including the foreign tax credit are non refundable | |
what is the difference between tax credits and tax deductions | tax credits reduce the tax you owe while tax deductions lower your taxable income while both save you money credits are more valuable because they reduce your tax bill 9 a 1 000 tax credit reduces your tax bill by 1 000 conversely a 1 000 tax deduction lowers your taxable income if you re in the 22 tax bracket a 1 000 deduction saves 220 on your tax bill | |
how do the foreign tax credit and foreign earned income exclusion differ | two ways to avoid double taxation on the income you earn while living abroad are the foreign tax credit and the foreign earned income exclusion a key difference is the income to which each applies the foreign tax credit applies to earned and unearned income such as dividends and interest conversely the foreign earned income exclusion applies only to earned income 27who can claim the foreign tax credit if you are a u s citizen the u s taxes your worldwide income no matter where you live to avoid double taxation the u s lets you tax credit for foreign taxes you pay or accrue u s citizens and resident aliens who paid foreign income tax and are subject to u s tax on that same income can take the foreign tax credit a nonresident alien can take the credit if they were a bona fide resident of puerto rico for the entire tax year or paid foreign income taxes connected to a trade or business in the u s 10the bottom linethe foreign tax credit is a u s tax break that offsets income tax paid to other countries to qualify the tax must be imposed on you by a foreign country or u s possession and you must have paid the tax taxes on income wages dividends interest and royalties generally qualify for the foreign tax credit | |
what is forensic accounting | forensic accounting utilizes accounting auditing and investigative skills to examine the finances of an individual or business forensic accountants are cpas that look for evidence of crimes and commonly work for insurance companies financial institutions and law enforcement agencies forensic accountants analyze financial records and accounts that may be used as legal evidence and often testify in court cases as expert witnesses they may work on cases such as fraud and embezzlement and explain the nature of a financial crime in court career as a forensic accountantforensic accountants analyze interpret and summarize complex financial data they compile financial evidence develop computer applications to manage the information collected and communicate their findings in the form of reports or presentations the accountant s tasks include tracing funds asset identification asset recovery and due diligence reviews forensic accountants may also train in alternative dispute resolution adr due to their high level of involvement in legal issues and familiarity with the judicial system forensic accounting is utilized in litigation when quantification of damages is needed parties involved in legal disputes use the findings of a forensic accountant to resolve disputes via settlements or court decisions such as compensation or benefit disputes the forensic accountant may be utilized as an expert witness if the dispute escalates to a court decision forensic accountants analyze whether a crime occurred and assess the likelihood of criminal intent such crimes may include employee theft securities fraud falsification of financial statement information identity theft or insurance fraud the scope and mechanics of bernie madoff s ponzi scheme are understood today because forensic accountants dissected the scheme and made it understandable for the court case forensic accountants search for hidden assets in divorce cases and investigate breaches of contracts tort or disagreements relating to company acquisitions like breaches of warranty or business valuation disputes forensic accountants may investigate construction claims expropriations product liability claims or trademark or patent infringements or determine the economic results of the breach of a nondisclosure agreement forensic accounting is routinely used by the insurance industry a forensic accountant may be asked to quantify the economic damages arising from a vehicle accident or a case of medical malpractice or other claims one of the concerns about taking a forensic accounting approach to insurance claims as opposed to an adjuster approach is that forensic accounting is mainly concerned with historical data and may miss relevant current information that changes the assumptions around the claim | |
what is a forensic audit | a forensic audit examines and evaluates a firm s or individual s financial records to derive evidence used in a court of law or legal proceeding forensic auditing is a specialization within accounting and most large accounting firms have a forensic auditing department forensic audits require accounting and auditing procedures and expert knowledge about the legal framework of such an audit forensic audits cover a wide range of investigative activities a forensic audit is often conducted to prosecute a party for fraud embezzlement or other financial crimes in the process of a forensic audit the auditor may be called to serve as an expert witness during trial proceedings forensic audits could also involve situations that do not include financial fraud such as disputes related to bankruptcy filings business closures and divorces forensic audit investigations can uncover or confirm various types of illegal activities usually a forensic audit is chosen instead of a regular audit if there s a chance that the evidence collected would be used in court | |
how forensic audits work | the process of a forensic audit is similar to a regular financial audit planning collecting evidence writing a report with the additional step of a potential court appearance the attorneys for both sides offer evidence that either uncovers or disproves the fraud and determines the damages suffered they present their findings to the client and the court should the case go to trial if you ve ever padded an expense report or even thought about it know that that is an example of fraud and could be uncovered easily via a forensic audit during the planning stage the forensic auditor and team will plan their investigation to achieve objectives such asthe evidence collected should be adequate to prove the fraudster s identity s in court reveal the fraud scheme s details and document the financial loss suffered and the parties affected by the fraud a logical flow of evidence will help the court in understanding the fraud and the evidence presented forensic auditors are required to take precautions to ensure that documents and other evidence collected are not damaged or altered by anyone a forensic audit requires a written report about the fraud to be presented to the client to proceed to file a legal case if they so desire at a minimum the report should includethe forensic auditor must be present during court proceedings to explain the evidence collected and how the team identified the suspect s they should simplify any complex accounting issues and explain the case in a layperson s language so that people who have no understanding of legal or accounting terms can understand the fraud clearly | |
what necessitates a forensic audit | in a forensic audit an auditor would be on the lookout forasset misappropriation is the most prevalent form of fraud examples include misappropriating cash submitting falsified invoices making payments to non existent suppliers or employees misusing assets like company equipment and stealing company inventory a company can get into this type of fraud to try to show that its financial performance is better than it is the goal of presenting fraudulent numbers may be to improve liquidity ensure that c level executives continue to receive bonuses or cope with the pressure to perform example of a forensic audit caselet s say that a fictional computer manufacturer wysikids on the recommendation of its chief financial officer cfo entered into a contract with smart chips inc to supply wysikids with processors however when the contract was signed smart chips was not authorized to conduct business because its license had been indefinitely revoked based on certain irregularities in a recent internal revenue service irs filing wysikids cfo knew that smart chips license was suspended yet still suggested that their company sign on with smart chips as they were secretly receiving compensation from smart chips for doing so the fictional example of fraud depicted above could be uncovered by investigating the interpersonal relationships involved and exposing a conflict of interest | |
what is forex fx | forex fx refers to the global electronic marketplace for trading international currencies and currency derivatives it has no central physical location yet the forex market is the largest most liquid market in the world by trading volume with trillions of dollars changing hands every day most of the trading is done through banks brokers and financial institutions the forex market is open 24 hours a day five days a week except for holidays the forex market is open on many holidays on which stock markets are closed though the trading volume may be lower its name forex is a portmanteau of foreign and exchange it s often abbreviated as fx investopedia mira norianunderstanding forex fx forex traders use various analysis techniques to find the best entry and exit points for their trades forex exists so that large amounts of one currency can be exchanged for the equivalent value in another currency at the current market rate some of these trades occur because financial institutions companies or individuals have a business need to exchange one currency for another for example an american company may trade u s dollars for japanese yen in order to pay for merchandise that has been ordered from japan and is payable in yen a great deal of forex trade exists to accommodate speculation on the direction of currency values traders profit from the price movement of a particular pair of currencies currencies being traded are listed in pairs such as usd cad eur usd or usd jpy these represent the u s dollar usd versus the canadian dollar cad the euro eur versus the usd and the usd versus the japanese yen jpy respectively 1there will also be a price associated with each pair such as 1 2569 if this price was associated with the usd cad pair it means that it costs 1 2569 cad to buy one usd if the price increases to 1 3336 it now costs 1 3336 cad to buy one usd the usd has increased in value the cad has decreased as it now costs more cad to buy one usd in the forex market currencies trade in lots called micro mini and standard lots a micro lot is 1 000 units of a given currency a mini lot is 10 000 and a standard lot is 100 000 this is obviously exchanging money on a larger scale than going to a bank to exchange 500 to take on a trip when trading in the electronic forex market trades take place in blocks of currency and they can be traded in any volume desired within the limits allowed by the individual trading account balance for example you can trade seven micro lots 7 000 or three mini lots 30 000 or 75 standard lots 7 500 000 the forex market is unique for several reasons the main one being its size trading volume is generally very large the forex market trades over 5 trillion per day compared to 200 billion for the equities market 2the largest foreign exchange markets are located in major global financial centers including london new york singapore tokyo frankfurt hong kong and sydney 3the forex market is open 24 hours a day five days a week in major financial centers across the globe this means that you can buy or sell currencies at virtually any hour in the past forex trading was largely limited to governments large companies and hedge funds now anyone can trade on forex many investment firms banks and retail brokers allow individuals to open accounts and trade currencies | |
when trading in the forex market you re buying or selling the currency of a particular country relative to another currency but there s no physical exchange of money from one party to another as at a foreign exchange kiosk | in the world of electronic markets traders usually take a position in a specific currency with the hope that there will be some upward movement and strength in the currency they re buying or weakness if they re selling so that they can make a profit a currency is always traded relative to another currency if you sell a currency you are buying another and if you buy a currency you are selling another the profit is made on the difference between your transaction prices a spot market deal is for immediate delivery which is defined as two business days for most currency pairs the major exception is the purchase or sale of usd cad which is settled in one business day the business day excludes saturdays sundays and legal holidays in either currency of the traded pair during the christmas and easter seasons some spot trades can take as long as six days to settle funds are exchanged on the settlement date not the transaction date the u s dollar is the most actively traded currency the euro is the most actively traded counter currency followed by the japanese yen british pound and chinese renminbi 4market moves are driven by a combination of speculation economic strength and growth and interest rate differentials retail traders don t typically want to take delivery of the currencies they buy they are only interested in profiting from the difference between their transaction prices because of this most retail brokers will automatically roll over their currency positions at 5 p m est each day the broker basically resets the positions and provides either a credit or debit for the interest rate differential between the two currencies in the pairs being held the trade carries on and the trader doesn t need to deliver or settle the transaction | |
when the trade is closed the trader realizes a profit or loss based on the original transaction price and the price at which the trade was closed the rollover credits or debits could either add to this gain or detract from it | since the forex market is closed on saturday and sunday the interest rate credit or debit from these days is applied on wednesday therefore holding a position at 5 p m on wednesday will result in being credited or debited triple the usual amount any forex transaction that settles for a date later than spot is considered a forward the price is calculated by adjusting the spot rate to account for the difference in interest rates between the two currencies the amount of adjustment is called forward points the forward points reflect only the interest rate differential between two markets they are not a forecast of how the spot market will trade at a date in the future a forward is a tailor made contract it can be for any amount of money and can settle on any date that s not a weekend or holiday as in a spot transaction funds are exchanged on the settlement date a forex or currency futures contract is an agreement between two parties to deliver a set amount of currency at a set date called the expiry in the future futures contracts are traded on an exchange for set values of currency and with set expiry dates unlike a forward the terms of a futures contract are non negotiable a profit is made on the difference between the prices the contract was bought and sold at most speculators don t hold futures contracts until expiration as that would require they deliver settle the currency the contract represents instead speculators buy and sell the contracts prior to expiration realizing their profits or losses on their transactions | |
how forex differs from other markets | there are some major differences between the way the forex operates and other markets such as the u s stock market this means investors aren t held to as strict standards or regulations as those in the stock futures or options markets there are no clearinghouses and no central bodies that oversee the entire forex market you can short sell at any time because in forex you aren t ever actually shorting if you sell one currency you are buying another since the market is unregulated fees and commissions vary widely among brokers most forex brokers make money by marking up the spread on currency pairs others make money by charging a commission which fluctuates based on the amount of currency traded some brokers use both there s no cut off as to when you can and cannot trade because the market is open 24 hours a day you can trade at any time of day the exception is weekends or when no global financial center is open due to a holiday the forex market allows for leverage up to 1 50 in the u s and even higher in some parts of the world that means a trader can open an account for 1 000 and buy or sell as much as 50 000 in currency leverage is a double edged sword it magnifies both profits and losses 5example of forex transactionsassume a trader believes that the eur will appreciate against the usd another way of thinking of it is that the usd will fall relative to the eur the trader buys the eur usd at 1 2500 and purchases 5 000 worth of currency later that day the price has increased to 1 2550 the trader is up 25 5000 0 0050 if the price dropped to 1 2430 the trader would be losing 35 5000 0 0070 currency prices move constantly so the trader may decide to hold the position overnight the broker will roll over the position resulting in a credit or debit based on the interest rate differential between the eurozone and the u s if the eurozone has an interest rate of 4 and the u s has an interest rate of 3 the trader owns the higher interest rate currency in this example therefore at rollover the trader should receive a small credit if the eur interest rate was lower than the usd rate the trader would be debited at rollover rollover can affect a trading decision especially if the trade can be held for the long term large differences in interest rates can result in significant credits or debits each day which can greatly enhance or erode profits or increase or reduce losses of the trade most brokers provide leverage many u s brokers leverage up to 1 50 let s assume our trader uses 1 10 leverage on this transaction if using 10 1 leverage the trader is not required to have 5 000 in an account even while trading 5 000 worth of currency only 500 is needed in this example a profit of 25 can be made quite quickly considering the trader only needs 500 or 250 of trading capital or even less if using more leverage that shows the power of leverage the flip side is that the trader could lose the capital just as quickly | |
is forex trading for beginners | forex trading can be risky and complex involving quick decisions due to how fast exchange rates change it is likely not suited for beginner traders however traders can spend time learning forex trading with test trading or with low levels of capital | |
how much do you need to start trading forex | you can start trading forex with around 100 this will be enough to get you started in buying and selling currencies it is also a good level for beginners as it isn t a very large amount of capital to lose | |
what are the risks of forex trading | there are many risks to forex trading exchange rates are very volatile changing often which could quickly impact a trade there is also a significant amount of leverage involved in fx meaning small movements can result in large losses in addition there is transaction risk interest rate risk and global or country risk the bottom lineforex is foreign exchange which refers to the global trading of currencies and currency derivatives it is the largest financial market in the world involving the buying and selling of currencies in pairs taking advantage of changing rates | |
what is forex fx | forex fx refers to the global electronic marketplace for trading international currencies and currency derivatives it has no central physical location yet the forex market is the largest most liquid market in the world by trading volume with trillions of dollars changing hands every day most of the trading is done through banks brokers and financial institutions the forex market is open 24 hours a day five days a week except for holidays the forex market is open on many holidays on which stock markets are closed though the trading volume may be lower its name forex is a portmanteau of foreign and exchange it s often abbreviated as fx investopedia mira norianunderstanding forex fx forex traders use various analysis techniques to find the best entry and exit points for their trades forex exists so that large amounts of one currency can be exchanged for the equivalent value in another currency at the current market rate some of these trades occur because financial institutions companies or individuals have a business need to exchange one currency for another for example an american company may trade u s dollars for japanese yen in order to pay for merchandise that has been ordered from japan and is payable in yen a great deal of forex trade exists to accommodate speculation on the direction of currency values traders profit from the price movement of a particular pair of currencies currencies being traded are listed in pairs such as usd cad eur usd or usd jpy these represent the u s dollar usd versus the canadian dollar cad the euro eur versus the usd and the usd versus the japanese yen jpy respectively 1there will also be a price associated with each pair such as 1 2569 if this price was associated with the usd cad pair it means that it costs 1 2569 cad to buy one usd if the price increases to 1 3336 it now costs 1 3336 cad to buy one usd the usd has increased in value the cad has decreased as it now costs more cad to buy one usd in the forex market currencies trade in lots called micro mini and standard lots a micro lot is 1 000 units of a given currency a mini lot is 10 000 and a standard lot is 100 000 this is obviously exchanging money on a larger scale than going to a bank to exchange 500 to take on a trip when trading in the electronic forex market trades take place in blocks of currency and they can be traded in any volume desired within the limits allowed by the individual trading account balance for example you can trade seven micro lots 7 000 or three mini lots 30 000 or 75 standard lots 7 500 000 the forex market is unique for several reasons the main one being its size trading volume is generally very large the forex market trades over 5 trillion per day compared to 200 billion for the equities market 2the largest foreign exchange markets are located in major global financial centers including london new york singapore tokyo frankfurt hong kong and sydney 3the forex market is open 24 hours a day five days a week in major financial centers across the globe this means that you can buy or sell currencies at virtually any hour in the past forex trading was largely limited to governments large companies and hedge funds now anyone can trade on forex many investment firms banks and retail brokers allow individuals to open accounts and trade currencies | |
when trading in the forex market you re buying or selling the currency of a particular country relative to another currency but there s no physical exchange of money from one party to another as at a foreign exchange kiosk | in the world of electronic markets traders usually take a position in a specific currency with the hope that there will be some upward movement and strength in the currency they re buying or weakness if they re selling so that they can make a profit a currency is always traded relative to another currency if you sell a currency you are buying another and if you buy a currency you are selling another the profit is made on the difference between your transaction prices a spot market deal is for immediate delivery which is defined as two business days for most currency pairs the major exception is the purchase or sale of usd cad which is settled in one business day the business day excludes saturdays sundays and legal holidays in either currency of the traded pair during the christmas and easter seasons some spot trades can take as long as six days to settle funds are exchanged on the settlement date not the transaction date the u s dollar is the most actively traded currency the euro is the most actively traded counter currency followed by the japanese yen british pound and chinese renminbi 4market moves are driven by a combination of speculation economic strength and growth and interest rate differentials retail traders don t typically want to take delivery of the currencies they buy they are only interested in profiting from the difference between their transaction prices because of this most retail brokers will automatically roll over their currency positions at 5 p m est each day the broker basically resets the positions and provides either a credit or debit for the interest rate differential between the two currencies in the pairs being held the trade carries on and the trader doesn t need to deliver or settle the transaction | |
when the trade is closed the trader realizes a profit or loss based on the original transaction price and the price at which the trade was closed the rollover credits or debits could either add to this gain or detract from it | since the forex market is closed on saturday and sunday the interest rate credit or debit from these days is applied on wednesday therefore holding a position at 5 p m on wednesday will result in being credited or debited triple the usual amount any forex transaction that settles for a date later than spot is considered a forward the price is calculated by adjusting the spot rate to account for the difference in interest rates between the two currencies the amount of adjustment is called forward points the forward points reflect only the interest rate differential between two markets they are not a forecast of how the spot market will trade at a date in the future a forward is a tailor made contract it can be for any amount of money and can settle on any date that s not a weekend or holiday as in a spot transaction funds are exchanged on the settlement date a forex or currency futures contract is an agreement between two parties to deliver a set amount of currency at a set date called the expiry in the future futures contracts are traded on an exchange for set values of currency and with set expiry dates unlike a forward the terms of a futures contract are non negotiable a profit is made on the difference between the prices the contract was bought and sold at most speculators don t hold futures contracts until expiration as that would require they deliver settle the currency the contract represents instead speculators buy and sell the contracts prior to expiration realizing their profits or losses on their transactions | |
how forex differs from other markets | there are some major differences between the way the forex operates and other markets such as the u s stock market this means investors aren t held to as strict standards or regulations as those in the stock futures or options markets there are no clearinghouses and no central bodies that oversee the entire forex market you can short sell at any time because in forex you aren t ever actually shorting if you sell one currency you are buying another since the market is unregulated fees and commissions vary widely among brokers most forex brokers make money by marking up the spread on currency pairs others make money by charging a commission which fluctuates based on the amount of currency traded some brokers use both there s no cut off as to when you can and cannot trade because the market is open 24 hours a day you can trade at any time of day the exception is weekends or when no global financial center is open due to a holiday the forex market allows for leverage up to 1 50 in the u s and even higher in some parts of the world that means a trader can open an account for 1 000 and buy or sell as much as 50 000 in currency leverage is a double edged sword it magnifies both profits and losses 5example of forex transactionsassume a trader believes that the eur will appreciate against the usd another way of thinking of it is that the usd will fall relative to the eur the trader buys the eur usd at 1 2500 and purchases 5 000 worth of currency later that day the price has increased to 1 2550 the trader is up 25 5000 0 0050 if the price dropped to 1 2430 the trader would be losing 35 5000 0 0070 currency prices move constantly so the trader may decide to hold the position overnight the broker will roll over the position resulting in a credit or debit based on the interest rate differential between the eurozone and the u s if the eurozone has an interest rate of 4 and the u s has an interest rate of 3 the trader owns the higher interest rate currency in this example therefore at rollover the trader should receive a small credit if the eur interest rate was lower than the usd rate the trader would be debited at rollover rollover can affect a trading decision especially if the trade can be held for the long term large differences in interest rates can result in significant credits or debits each day which can greatly enhance or erode profits or increase or reduce losses of the trade most brokers provide leverage many u s brokers leverage up to 1 50 let s assume our trader uses 1 10 leverage on this transaction if using 10 1 leverage the trader is not required to have 5 000 in an account even while trading 5 000 worth of currency only 500 is needed in this example a profit of 25 can be made quite quickly considering the trader only needs 500 or 250 of trading capital or even less if using more leverage that shows the power of leverage the flip side is that the trader could lose the capital just as quickly | |
is forex trading for beginners | forex trading can be risky and complex involving quick decisions due to how fast exchange rates change it is likely not suited for beginner traders however traders can spend time learning forex trading with test trading or with low levels of capital | |
how much do you need to start trading forex | you can start trading forex with around 100 this will be enough to get you started in buying and selling currencies it is also a good level for beginners as it isn t a very large amount of capital to lose | |
what are the risks of forex trading | there are many risks to forex trading exchange rates are very volatile changing often which could quickly impact a trade there is also a significant amount of leverage involved in fx meaning small movements can result in large losses in addition there is transaction risk interest rate risk and global or country risk the bottom lineforex is foreign exchange which refers to the global trading of currencies and currency derivatives it is the largest financial market in the world involving the buying and selling of currencies in pairs taking advantage of changing rates | |
what is a forfeited share | a forfeited share is a share in a publicly traded company that the owner loses or forfeits by neglecting to live up to any number of purchase requirements for example a forfeiture may occur if a shareholder fails to pay an owed allotment call money or if he sells or transfers his shares during a restricted period | |
how forfeited shares work | suppose an investor named david agrees to buy 5 000 shares of a company with a 25 initial payment requirement followed by three subsequent annual 25 installments that are due according to a schedule dictated by the company if david is derelict on a scheduled installment the company may choose to seize his entire 5 000 shares and david sadly would lose any money he previously paid corporations are not required to seize shares from delinquent shareholders and can instead offer investors grace periods in which to pay the money that is owed employee share forfeiturein certain cases companies offer employee stock purchase plans where employees may allocate a portion of their salaries toward purchasing discounted shares of a company s stock however these programs often come with restrictions in many cases a stock cannot be sold or transferred within a defined period of time after the initial purchase furthermore if an employee quits the company before a certain mandatory waiting period he may be obligated to forfeit any shares he purchased contrarily if an employee remains with the company for a stated duration of time he becomes fully vested in those shares and may cash them in at will once an employee forfeits shares of stock purchased through an employee stock purchase plan he may not ever receive those shares again should the company reissue them example of forfeited sharescompanies use stock purchase plans to inspire employee loyalty in the same vein companies offer employees bonuses in the form of restricted stock units which they incrementally distribute over time for example an employee might receive 80 restricted stock units as part of an annual bonus but in order to entice this valued employee to linger longer the stock vests the first 20 units in the second year after the bonus 20 in year three 20 in year four and 20 in year five if the employee quits after year two only 20 units of stocks would be vested and the other 60 would be forfeited reissue of forfeited sharesforfeited shares become the property of the issuing company which is entitled to either reissue the shares at par at a premium or a discount at a price below their nominal value this decision rests in the hands of a company s board of directors which usually reissues forfeited shares at a discount but if the shares were initially issued at par the maximum discount for the reissued stock is equal to the amount forfeited on the shares furthermore if a company s articles of association permits the board may reissue forfeited shares to a third party but may not reissue those shares back to the defaulting shareholder | |
what is sec form 3 | sec form 3 initial statement of beneficial ownership of securities is a document filed by a company insider or major shareholder with the securities and exchange commission sec it is an important step to help regulate insider trading which is an individual s buying or selling of a security based on material nonpublic information filing form 3 helps disclose who these insiders are and track any suspicious behaviors according to the sec disclosure is mandatory the information provided on the form is meant to disclose the holdings of directors officers and beneficial owners of registered companies this information becomes public record and is therefore available for public inspection understanding sec form 3the company insider must file form 3 with the sec no later than 10 days after becoming affiliated with a company 1the sec lists the following who are required to file form 3 the form must be filed for each company in which a person is an insider regardless of whether or not the insider has an equity position in the company at that time the filer is required to input their name address relationship to the reporting person security name and its ticker symbol 2there are two tables that also need to be filled out table i is for non derivative securities that are beneficially owned while table ii is for derivative securities beneficially owned including puts calls warrants options and convertible securities 2other related sec formsform 3 is also affiliated with sec forms 4 and 5 along with the securities exchange act of 1934 sea the sea was created to govern securities transactions on the secondary market following their initial issue to ensure greater financial transparency and less fraud form 4 is for changes in ownership these changes must be reported to the sec within two business days although limited transactional categories are not subject to this reporting requirement insiders must file form 5 to report any transactions that should have been reported earlier on form 4 or were eligible for deferred reporting 3the sec adopted new rules and amendments to section 16 of the securities exchange act in august 2002 in accordance with the provisions of sarbanes oxley which accelerated the deadline for filing many reports of insider ownership 4in addition to forms 3 4 and 5 several other important sec forms exist for example companies must file form 10 k an annual report that contains a comprehensive summary of their performance a 10 k generally includes five distinct sections together all sec filings are important sources of information for anyone considering an investment in a company | |
what triggers a form 3 filing | the necessity for a form 3 filing with the sec arises when an individual becomes an insider in a firm the individual must disclose their ownership of the company s securities form 3 has specific qualifications on what constitutes an insider and the purpose of the form is to prevent insider trading | |
what is the difference between sec form 3 and sec form 4 | sec form 3 is required to be filled out when an individual becomes an insider in a firm according to specific sec rules the individual will need to disclose their ownership of company shares sec form 4 needs to be filled out when there is any change in the ownership of a company s stock | |
what is sec form 4 statement of changes in beneficial ownership | sec form 4 statement of changes in beneficial ownership is a document that must be filed with the securities and exchange commission sec whenever there is a material change in the holdings of company insiders insiders consist of directors and officers of the company as well as any shareholders owning 10 or more of the company s outstanding stock the forms ask about the reporting person s relationship to the company and about purchases and sales of such equity shares the filing of form 4 relates to sections 16 a and 23 a of the securities exchange act of 1934 as well as sections 30 h and 38 of the investment company act of 1940 disclosure of information required on form 4 is mandatory and becomes public record upon filing 1understanding sec form 4 statement of changes in beneficial ownershipthere are multiple sec forms that are associated with the ownership of stocks or securities for publicly traded companies sec form 4 is one of three forms that is usually required by the sec 2individuals file form 3 when they first acquire a stock and are registering the securities for the first time the form must be filed within 10 days of the individual becoming an officer director or beneficial owner at the company 3form 4 is required to be filed by a company or the individual at the company when there is a change in the holdings of company insiders form 4 must be filed with the sec within two days of the transaction form 4 is a two page document which covers any buy and sell orders as well as the exercise of company stock options 4options are contracts that give the holder the right but not the obligation to buy or sell a stock at a certain price and by a specific date options are often awarded to executives and directors of companies as part of the employee incentive plan typically the options can be cashed out or redeemed after a predetermined holding period has expired form 5 is filed if a person conducted a trade of the company s stock but failed to report it via form 4 form 5 allows the individual 45 days following the close of the company s fiscal year 5the sec is able to use the information in sec form 4 when referring a case to other governmental authorities and self regulatory organizations sros if a party fails to disclose the required information on form 4 civil or criminal actions could result 1forms related to sec form 4several other forms are critical to maintaining transparency and recording the actions of public company executives officers and directors these include the company s annual financial report which is filed via a 10 k and the quarterly financial report filed via a 10 q if a company is issuing stock for the first time they must file form s 1 and if any amendments must be made they file form s 1a the 8 k is filed when there are unscheduled material events or corporate changes 6 schedule 13d informs the sec when an entity acquires more than 5 of the stock of a public company the sec has the capacity to use information disclosed on form 4 in investigations or litigation involving federal securities laws in addition to other civil criminal or regulatory statutes or provisions | |
how to file sec form 4 statement of changes in beneficial ownership | in general a party must file form 4 electronically via the commission s electronic data gathering analysis and retrieval system edgar exceptions can occur during hardship it is mandatory within two business days starting from the end of the day the material transaction occurred 7here is a link to a downloadable sec form 4 statement of changes in beneficial ownership real world example of sec form 4in february 2020 elon musk the chief executive officer ceo of the publicly traded company tesla inc tsla filed sec form 4 as an individual below is a copy of the form 4 as well as the details of the transaction which was obtained via the sec s edgar system 8the sec form 4 shows that elon musk purchased 13 037 shares at a price of 767 which left mr musk with a total number of shares owned of 34 098 597 following the purchase section 5 | |
what is sec form 144 notice of proposed sale of securities | form 144 notice of proposed sale of securities is a document issued by the securities and exchange commission sec it must be filed with the sec by an executive officer director or the affiliate of a company when placing an order to sell that company s stock during any three month period in which the sale exceeds 5 000 shares or units or has an aggregate sales price greater than 50 000 this is also known as rule 144 of the securities act of 1933 1understanding form 144 notice of proposed sale of securitiesanyone who sells restricted unregistered and control securities in the united states must follow rule 144 of the securities act of 1933 1 which was passed as a way to protect investors after the stock market crashed in 1929 selling these types of securities can often be complicated so rule 144 helps make the process a little easier under this rule sellers can be exempt from registering the sale of securities as long as they meet several conditions which are noted below sellers can be anyone including the issuer of a security a broker dealer or even underwriters since sales covered under form 144 are often very close to the interests of the issuing company filers must register the securities under section 5 of the securities act 1 if the correct conditions are met rule 144 can provide the necessary exemption and permit the resale to take place still all parties must obtain a transfer agent to remove the securities legend prior to sale form 144 must be filed with the sec by an affiliate as a notice of the proposed sale of securities when the amount to be sold under rule 144 during any three month period exceeds 5 000 shares or units or has an aggregate sales price in excess of 50 000 1 an entity filing a form 144 must have a bona fide intention to sell the securities referred to in the form within a reasonable time after the filing of the form while the sec does not require the form to be sent electronically to the sec s edgar database some filers choose to do so others may choose to do so in print form sec form 144 may be filed in print or electronically 3additional information on form 144 for individuals may include a physical address an internal revenue service irs number the nature of the payment and additional similar sales in the preceding several months special considerationsthere are certain conditions that must be met under rule 144 for these securities to be sold they are underwriters will have company executives managers employees and venture capitalists sign lock up agreements surrounding a company s initial public offering ipo to encourage an element of stability in the stock s price in the first few months of trading a lock up agreement is a legally binding contract between company underwriters and insiders that prohibits inside individuals from selling any shares of stock for a specified period of time lock up periods typically last 180 days but can on occasion last for as little as 120 days or as long as 365 days in addition to from 144 critical sec filing forms include keep in mind this isn t an exhaustive list of related forms a full list along with descriptions and downloadable forms can be found on the sec s website 4example of form 144 notice of proposed sale of securitiesexamples of form 144 can be found by looking up a company on edgar on april 26 2018 lee kirk a director of guaranty bancshares filed to sell 20 891 shares of company stock for an aggregate market value of 686 896 08 on the nasdaq the approximate date of the sale was set for the period between april 7 2018 and june 12 2018 5 | |
what is form 1040 x amended u s individual income tax return | the 1040 x amended u s individual u s income tax return is a form used by taxpayers who need to correct an error in a previously filed federal tax return common mistakes corrected with this form include errors in the taxpayer s filing status or number of dependents or omissions of credits or deductions form 1040 x should not be used to correct simple mathematical errors in a tax return as the internal revenue service irs routinely corrects such mistakes while processing returns who can file form 1040 x a 1040 x form should be filed by anyone who has already filed a tax return and needs to amend it for any of the following reasons 1all pages of form 1040 x can be found on the irs webpage | |
how to file form 1040 x | this form is an itemized line by line description of all possible adjustments so the taxpayer can clearly record the exact type and amount of each amendment and enter a brief description of what is being amended and why 2the filer must include not only the 1040 x but a revised version of the entire 1040 or 1040 sr including any attached forms and schedules even if they were not amended 3 taxpayers can e file a form 1040 x or send it to the irs by mail form 1040 x can only be filed after an annual return is filed be sure to include the following documents with your amended return 1in order to receive a credit taxpayers must file a 1040 x form within three years after the original return was filed or within two years after the tax was paid whichever is later 1the irs provides the following tips to taxpayers about form 1040 x 41you can electronically file up to three accepted amended returns after the third all others will be rejected 3 | |
when you file 1040 x be sure you look out for anything that you missed such as exemptions deductions and credits it may seem daunting and you may feel as though you ll be penalized for having to correct any errors but there are advantages that come with amending your income tax return including | keep in mind that you may also have to report additional income that you didn t include on your original return if this happens your taxable income will increase and you may have a balance owing this means you are responsible for paying the outstanding amount plus any fees and penalties that may apply 4 | |
what is a 1040 x form used for | the 1040 x allows a taxpayer to amend or correct a previously filed tax return if you forgot to claim a credit or record a deduction this is the form to use if you made a mathematical error forget about it the irs always runs the numbers and corrects that kind of error 1 | |
do you have to file form 1040 x with form 1040 | you have to file form 1040 x after filing your 1040 1040 sr or 1040 nr you re amending your earlier tax return with the correct information 1 | |
where do you send form 1040 x | if you e filed your annual return you can now e file a 1040 x using commercial tax preparation software that s the fastest way to get your money back if you re owed any you can send it in the mail if you prefer the irs lists four separate addresses for use by residents of different regions and for americans living abroad 1can form 1040 x refunds be direct deposited yes beginning in processing year 2023 direct deposit can be requested for electronically filed amended returns for tax year 2021 and later the bank account information should be entered on the electronically filed form 1040 x 3 | |
when should i receive my amended tax return | the irs says it can take up to 16 weeks to process an amended return the irs specifically notes that you should generally allow 8 to 12 weeks for your form 1040 x to be processed about three weeks after you file the 1040 x you can start checking the status of your filing on the irs website on the where s my amended return page 15the bottom lineform 1040 x is used by taxpayers to amend their previously filed tax returns form 1040 in order to correct errors or update information the form requires taxpayers to provide details about the changes being made along with an explanation for the amendments | |
what is form 1045 application for tentative refund | form 1045 application for tentative refund is an internal revenue service irs form used by individuals estates and trusts to apply for a quick tax refund 1according to the instructions for form 1045 the basis for the refund request must be for one of four reasons the instructions for form 1045 spell out what qualifies as a loss who can file form 1045 application for tentative refund individuals estates and trusts can file form 1045 application for tentative refund instead of using form 1040 x for individuals or using form 1041 for estates or trusts 3form 1045 is used to file for a quick tax refund while forms 1040x and 1041 are not processed as quickly form 1045 is required to be processed by the irs within 90 days and can only be filed by the taxpayer or taxpaying entity within one year of the nol occurring in contrast both form 1040x for individuals or form 1041 for estates and trusts can be filed up to three years from the time the nol occurs however the irs will not process either form 1040x or form 1041 within 90 days and has up to six months to process either of these refunds 4form 1045 can be disputed by the irs or the taxpaying entity after the refund is processed which is why it is labeled as a tentative refund in contrast the information and claims made on forms 1040x and 1041 are assumed by all parties to be correct and final a party that wants a fast refund but isn t concerned about having the refund corrected later will file form 1045 while a party that wants accuracy and can wait for the correct refund will file either form 1040x individuals or form 1041 estate or trust 3form 1045 is available on the irs website 3form 1045 application for tentative refund is not attached to an income tax return but filed separately or mailed in a separate envelope |
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