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how organized labor works | workers participate in organized labor by joining a union that negotiates with their employer on their behalf because unions represent a large number of workers they are able to extract higher salaries and benefits than most workers could get by negotiating alone in most countries union formation is regulated by a government agency such as the national labor relations board nlrb in the united states employees who want to organize their workplace must first sign a union card granting the union the right to represent them once a workplace has enough signatures workers can file for a union election in that workplace if a majority of non management employees vote for the union it will be given the power to negotiate with management on behalf of all employees there are two types of unions the horizontal union in which all members share a common skill and the vertical union composed of workers from across the same industry the national education association nea is the largest labor union in the united states with nearly three million members its goal is to advocate for education professionals and unite its members to fulfill the promise of public education federal law prohibits employers from punishing or retaliating against any employee for union activities history of organized labororganized labor grew out of the industrial revolution as production shifted from agriculture to increasingly large factories the pursuit of higher profits led to strenuous working conditions and long hours in the early days of industrialization it was not uncommon for employees to be on the job seven days a week working shifts of twelve or even fourteen hours since workers could be easily replaced they could not demand better working conditions and were often fired if they were injured on the job child labor wage theft and other unfair practices were also common there were 14 million unionized workers in the united states in 2021 that s 10 3 of the total workforce the first successful unions in the united states organized skilled laborers such as railway workers the american federation of labor founded in 1881 sought to bring together the country s nascent trade unions under a single association at the same time radical unions like the industrial workers of the world sought to organize all workers regardless of their skill employers fiercely resisted unionization efforts often using strikebreakers and lockouts to prevent workers from organizing in some cases government and police authorities used violence to quell labor unrest ultimately organized labor was able to win significant improvements such as the eight hour day paid weekends and job security the wagner act signed by franklin roosevelt in 1935 enshrined the rights of workers to organize and form unions advantages and disadvantages of organized labororganized labor plays an important role in protecting workers rights advocates claim that workers in unionized industries typically enjoy higher salaries longer vacations and better benefits than those who are not represented by a union even workers who are not members of the union tend to have higher salaries as a result of union activity naturally companies are less enthusiastic about organized labor some say that the increased cost of a unionized workforce increases the price of their products ultimately making their companies less competitive on the world market many point to the decline of the u s auto industry as companies were unable to pivot effectively due to the cost of adhering to their union contracts some companies such as starbucks or amazon have each spent millions of dollars to defeat union organization efforts walmart for example claimed that the increased costs of a unionized workforce would require them to increase their prices other retailers used walmart s example as leverage to renegotiate with their unions claiming that they would have to cut salaries or eliminate jobs to remain competitive with walmart otherwise this is known as the walmart effect unions can negotiate higher salaries and benefits than most workers can negotiate on their own union negotiations can result in higher salaries even for those who are not union members high union salaries increase the cost of company products unionized companies may have to reduce employment numbers in order to remain competitive | |
what is the main purpose of organized labor | the main purpose of organized labor is to improve the conditions and economic power of the working class unions can negotiate on behalf of their members for higher wages better benefits or protection from termination in addition they also lobby for better labor laws with legislators and politicians was organized labor successful in the united states organized labor successfully improved the lives of millions of workers in the manufacturing and agricultural sectors by 1979 union membership was considered a fast ticket to the middle class and there were over 20 million union members in the united states | |
what caused the decline of organized labor | in the united states organized labor began to decline in the 1980s due to anti union government policies and increased competition from abroad one of the first acts of the reagan administration was to fire all 11 300 air traffic controllers who were on strike against the federal aviation administration in the following decades free trade agreements and globalization made it easier for companies to outsource their operations to foreign labor markets thereby reducing the bargaining power of domestic unions the bottom lineorganized labor represents a major political force for the working class by joining together to advocate for their shared goals unionized workers can negotiate for better wages and working conditions however the strength of organized labor has declined in recent decades largely due to increased competition from low wage workers abroad | |
what is original cost | original cost is the total price associated with the purchase of an asset the original cost of an asset takes into consideration all of the items that can be attributed to its purchase and to putting the asset to use these costs include the purchase price and such factors as commissions transportation appraisals warranties and installation and testing original cost can be used to value an asset type including equipment real estate and security instruments original cost is also known as an asset s cost basis for tax purposes understanding original costoriginal cost includes all quantifiable facets of a purchased asset for example a company purchases of a piece of equipment with a price tag of 20 000 the purchase also involves 1 000 in fees 700 in shipping and delivery costs and 3 000 for installation and warranty the original cost of this piece of equipment would be 20 000 1 000 700 3 000 24 700 also known as historical cost a common term in generally accepted accounting principles gaap this is the original cost recorded on the balance sheet the balance sheet and notes to financial statements will separate historical cost property plant and equipment pp e and accumulated depreciation of these long term assets the difference is known as carrying value original cost and depreciationdetermining an asset s original cost is important in calculating the asset s tax basis the original cost of an asset encompasses more than the asset s purchase price and the costs added together can reduce the potential taxable gain on the sale of the asset the tax basis can be calculated by taking the original cost and subtracting the accumulated depreciation of the asset for the piece of equipment above suppose accumulated depreciation is 14 700 the carrying value on the company s books would be 10 000 24 700 original cost less 14 700 accumulated depreciation if the company sells the asset for 15 000 it would record a gain on asset sale of 5 000 | |
what is an original equipment manufacturer oem | an original equipment manufacturer oem is a company whose goods are used as components in the products of another company known as a value added reseller var the var works closely with the oem which often customizes designs based on the var s needs and specifications julie bang investopediaunderstanding oemoems make parts to sell to vars although some oems make complete items for a var to market they usually don t determine the finished product an oem may manufacture electronic components for a company like samsung the var that makes high definition tvs an oem may sell customized fasteners to ralph lauren with the branded monogram rl traditionally oems focus on business to business sales while vars target the public or end users car parts such as exhaust systems or brake cylinders are manufactured by oems the oem parts are then sold to an auto manufacturer which assembles them into a car the completed car is then marketed to auto dealers to be sold to individual consumers however oems may also sell to the general public an individual can buy oem parts directly from the manufacturer or a retailer that stocks those parts to make car repairs oem vs aftermarketthe aftermarket is the market for replacement parts accessories and equipment for the care of the original product such as an automobile after it has been sold to a consumer the oem manufactured the original parts but the aftermarket equipment is made by another company that a consumer buys as a replacement aftermarket replacement parts are often reverse engineered to be manufactured close to the original specification of the oem part a ford car owner may need to replace a car thermostat manufactured by the oem abc thermostats the consumer may buy the oem part a duplicate of their original abc thermostat or an aftermarket or generic part made by another company consumers often choose an oem part over a generic one for consistency however some aftermarket equipment proves more successful than the oem replacement hurst performance a manufacturer of gear shifters for automobiles became known for their superior performance and car buyers preferred them to the original part 1 eventually hurst shifters were so trusted that manufacturers chose to install hurst shifters in their factory designs effectively turning hurst into an original equipment manufacturer 2original equipment manufacturer oem vs original design manufacturer odm an oem differs from an original design manufacturing odm a type of private labeling for manufactured parts an odm produces a product to meet a client s specifications the client labels and sells the product under a brand name an odm does not have as much flexibility as an oem since the client customizes a design however original design manufacturing has lower costs for research and development leading to lower prices for the end consumer odm products typically have a lower minimum order quantity making them more attractive to smaller clients 3technology and oemoem can sometimes be used as an adjective as in oem parts or as a verb such as when a manufacturer plans to oem a new product this evolution can be attributed to the computer hardware industry var companies such as dell and hewlett packard accepted branded parts from outside sources in their products over time in the tech industry oem became synonymous with companies that rebrand or openly use other manufacturers products for resale this reflected a shift in the manufacturing dynamics and defined which company was responsible for warranties customer support and other services as dell incorporated intel processors in its computers dell advertised that it had intel inside and marketing materials suggested that intel and dell were equal partners in the processor and computer design dell was considered the oem both in the minds of companies and the public | |
what does original equipment manufacturer oem mean in cars | in the auto repair industry oem parts are those products used by a car manufacturer aftermarket parts are made by a third party manufacturer but may be compatible with the same vehicles | |
what does original equipment manufacturer oem mean in software | in computer and electronics sales oem refers to the software or hardware pre installed on a new computer or device | |
is it worth paying for oem parts | oem parts tend to be more expensive than third party manufacturers but are made to a more exact set of specifications some third party products are considered as reliable as oem parts and others may be significantly cheaper when searching for replacements consumers should research different brands to determine which manufacturer offers the best combination of price and quality the bottom linean original equipment manufacturer oem provides components for the finished products of a value added reseller var oems manufacture for business to business sales while vars sell to the public or other end users oem parts often compete with aftermarket replacement parts after the product has been sold to the consumer | |
what is original face | original face is the par value of a mortgage backed security mbs at the time it is issued an mbs is an investment that contains a number of mortgage home loans from various banks in which investors earn income from those loans the original face is the total principal amount originally owed on all of the mortgage loans and represents how much the mbs is initially worth original face is also referred to as original face value the mortgage backed security s original face value is helpful since it tells investors the initial total of all of the loans within the mbs however the original face value does not provide investors with the value of the mbs in the future understanding original facemortgage backed securities mbss are home loans that are sold by their issuing banks to a government sponsored enterprise gse or financial company and then bundled together into a single investable security unlike most other types of bonds mortgage backed securities return both principal and interest to the holder in periodic payments usually on a monthly basis | |
when an mbs is initially structured the par value given to the pool is called the original face the total outstanding balance at the time of its inception over time this balance is reduced as borrowers make payments on their loans resulting in a lower actual value of the mbs versus the original face value | an mbs can be tailored for a specific need for instance if an institutional investor made a request for a particular face value in addition to other characteristics the issuer would do its best to match that request because mortgages don t always come in easily rounded numbers especially when investors are looking for a particular borrower profile the targeted original face and the actual original face will likely be a bit different this is referred to as variance usually the variance is fairly minimal such as a 1 million mbs coming in with a 1 010 000 original face original face vs current faceonce borrowers begin to make payments the total outstanding balance owed on the mbs decreases and this value is referred to as the current face value while the original face value remains fixed since it represents the initial value of the total loans outstanding within the mbs the current face value changes over time the mortgage backed security s current face value is in part driven by borrowers making loan payments or paying off their loans early original face and pool factorthe pool factor is a measure of how much of the original loan principal remains and can be calculated by taking the current face and dividing it by the original face value a newly issued mbs will have a pool factor of one at inception meaning the original face will equal the current face if 50 of the mortgages have been paid down the mbs would have a 0 50 pool factor investors monitor both the current face and the forecasted pool factor of an mbs to determine the predictability of the income stream from the security loans that are being paid down early called prepayments can accelerate the pool factor and reduce the current face value conversely borrowers who are behind on their payments also impact the pool factor and the current face value mortgage backed securities start life with an original face value and a pool factor of one which moves toward zero over time as payments are made on the underlying mortgages | |
when interest rates are low and it becomes cheaper to borrow homeowners are incentivized to refinance their mortgages resulting in higher levels of prepayment of the original loans within the mbs this increase will show in the pool factor as the outstanding principal balance current face shrinks faster than in previous months and the pool factor drops further than its normal monthly average | mbs investors generally do not want to see the pool factor dropping faster than planned because it results in a lower overall return for them when a loan s principal is paid off early future interest payments will not be paid on that part of the principal quicker repayments as a result of mortgage refinancing also leave investors suddenly finding themselves with money they need to reinvest if it s a declining interest rate environment investors are stuck with lower yielding assets that pay a lower return than the mbs they had initially purchased benefits of original facethe original face gives investors the option to choose how much money they potentially want to earn from an investment later on down the line the figure continues to be consulted as a key reference point enabling investors to establish how an mbs is doing now compared to when it first started out and determine its return on investment roi the original face is used by traders and investors in modeling and determining valuations of an mbs over its lifetime identifying the original face value of an mbs at its time of inception and then comparing the value to the current face should provide an idea of how reliable those valuation assumptions were at the onset looking at both original and current face values can reveal for example whether the assumed prepayment rate was accurate and if the valuation is higher or lower than it should be in light of the actual prepayment risk to date | |
what is an original issue discount oid | an original issue discount oid is the discount in price from a bond s face value at the time a bond or other debt instrument is first issued bonds can be issued at a price lower than their face value known as a discount the oid is the amount of discount or the difference between the original face value and the price paid for the bond original issue discounts are used by bond issuers to attract buyers to purchase their bonds so that the issuers can raise funds for their business many zero coupon bonds use large oids to entice buyers to their products | |
how an original issue discount oid works | once purchased the bond s issuer usually pays the bondholder an interest rate called a coupon while the investor holds the bond periodically the bondholder receives interest payments based on the rate of the bond when the bond reaches maturity the investor gets the return of the face value paid for the bond however some bonds sell for a price less than the face or par value of the note the oid is the difference between the price paid for a bond and its face value the oid may be considered interest since the buyer is paid the face value of the bond at maturity even though the purchase price was lower than the face value for example let s say that a bond has a 100 face value meaning the investor would receive 100 returned at the maturity date if the investor buys the bond for 95 and receives 100 at maturity the oid is 5 which is the return on the investment as opposed to traditional bonds the gain from the oid is only realized at maturity when the investor receives the return of the face value principal in other words the oid is paid as a total sum at maturity along with the original amount invested formula and calculation of oidthe oid is the difference between the stated redemption price and the issuance price the discounted offering price of the debt oid redemption price issuance pricelet s say that a company wants to raise 100 000 redemption price in the form of debt but is willing to accept 90 000 in capital issuance price therefore the oid equals 10 000 oid 100 000 90 000 10 000oids and interest ratesa company can have a bond that sells at a discount to its face value while it also pays periodic interest however the amount of oid tends to correlate with the interest rate on the bond inversely in other words the bigger the discount the lower the coupon rate offered on the bond the reason for the negative correlation is that companies might issue a bond at a discount to its face value so the company does not have to pay a regular and ongoing higher interest rate to investors although interest earned on a bond is income for investors it s an expense for companies conversely the higher the rate on a bond the less it is likely to sell at a discount and its oid if any would be smaller if a bond s rate is attractive to investors there will likely be many buyers and demand for the bond so it s not likely it will sell for much of a discount investors should understand that just because they are buying a bond at a discount it does not mean it is a bargain the return received for the oid may end up being less than the interest rate offered on a traditional fixed rate bond comparison is important as the original issue discount plus the total of regular coupon payments must be higher than alternative fixed rate products to make it a bargain oids and zero coupon bondsthe bonds with the highest original issue discounts are typically zero coupon bonds as the name indicates these debt instruments do not pay a coupon interest payment without this to entice buyers they must offer deeper discounts as compared to bonds that pay interest and sell at their face values the only way for investors to earn income from a zero coupon bond is from the difference between the bond s purchase price and its face value at maturity zero coupon bonds save the costs of interest payments for the issuer at the expense of the lower initial selling price once the bonds mature they are redeemed for full face value since they don t pay a coupon zero coupon bonds are not affected by interest rate fluctuations typically if interest rates rise significantly existing fixed rate bonds become less attractive and their prices fall as investors sell them for higher rate bonds elsewhere conversely if interest rates fall significantly existing fixed rate bonds become more attractive and their prices rise as investors rush to buy them without the impact of changes to the market interest rate some consider these investments low risk however zero coupon bonds are generally not as liquid so there will be limited buyers and sellers on the secondary bond market oids and default riskjust like you need to examine a sweater selling for a discount for flaws the same care must be taken with oid bonds one that is offering a large oid might be selling at a discount because the bond issuer is in financial distress also a bond selling at a discount might mean there s a lack of investors willing to buy it for some reason there may be an expectation the company might default on the bond a default is when an issuer can no longer make interest payments or repay the principal amount that bondholders had initially invested if corporate bonds default investors have little recourse although bondholders are paid before common stockholders in the event of a company s bankruptcy there is no guarantee that the investor will receive the return of the full amount of their investment if anything at all although investors are compensated somewhat for their risk by being able to buy the bond at a discounted price they should weigh the risks versus the rewards carefully advantages and disadvantages of oidinvestors pay less than the par value for an oid bond zero coupon bonds use large oids to entice investors oid bonds are less affected by fluctuations in interest rates discounted bonds can indicate an issuer is facing financial difficulty the oid may not offset rates offered by traditional fixed rate bonds investors could face an annual tax liability before the bond matures oids and tax liabilityit s important for investors to contact a tax professional or review the irs tax code before investing in bonds that are considered original issue discounts since the oid on a bond is a type of interest and will serve as a source of income when it reaches maturity the irs may expect you to pay taxes on that money the difference between the discounted purchase price and the face value also keep in mind that even though some oid bonds don t pay any interest until they reach maturity investors still may need to declare a portion of the income earned each year they hold the bond each year an oid bond s holder receives a form 1099 oid from the issuer of the bond if the interest accrued is 10 or more the form will show how much the bond has accrued that year that amount must be reported as income on the tax return since taxes are paid each year oid bond holders don t receive a tax bill for the whole amount when the bond reaches maturity real world example of an oidas an example in 2019 kushco holdings inc kshb sold or floated a senior unsecured note for over 21 3 million this 18 month note was issued as an original issue discount as stated by the company in its press release the note is being issued at an original issue discount and will not bear additional interest 1the issue was placed with a private placement firm and was not registered under the u s securities act and as such cannot be sold in the u s the company s stock currently trades over the counter | |
how is oid calculated | the oid is equal to the difference between the stated redemption price of a bond and the initial price when it was first issued it can be calculated by subtracting the issuance price from the redemption price | |
what is interest oid | oid is a form of interest on a debt instrument such as a bond or note issued at less than its face amount a debt instrument generally has a discount when it s issued for a price less than its stated redemption price at maturity for tax purposes this interest is considered income | |
how do i report oid on my tax return | taxpayers should use form 1099 oid original issue discount to report any interest that is taxable oid this type of interest is generally taxed as ordinary income however if a short term discount obligation is redeemed at maturity it will should be filed as form 1099 int brokers and middlemen will typically send the appropriate form to their clients for tax purposes 2the bottom linean original issue discount oid may be offered by companies when they sell their face value bonds or other debt instruments at a discount often bonds are sold at maturity for a sum less than their stated value the difference between the two prices is the oid which is considered additional interest income for the buyer the oid amount must be reported by the buyer as part of taxable income as it accrues over the remaining life of the bond regardless of any payments from the issuer during that time in addition the buyer may pay taxes on the actual interest income received | |
what is origination | origination is the multi step process that every individual must go through to obtain a mortgage or home loan the term also applies to other types of amortized personal loans origination is often a lengthy process that is overseen by the federal deposit insurance corporation fdic for compliance with title xiv of the dodd frank wall street reform and consumer protection act 12 a loan origination fee usually about 1 of the loan is intended to compensate the lender for the work involved in the process | |
how origination works | loans help consumers and businesses meet their financial goals and obligations they can be used to make large purchases pay off debt make investments or buy properties like homes in order to be approved the borrower must apply for financing borrowers must submit various types of financial information and documentation to the financial institution or other lender during the origination process some of the most common types of information and documents required include lenders then use this information to determine the type of loan and the interest rate for which the borrower is eligible lenders also rely on other information especially the borrower s credit report to determine loan eligibility it isn t uncommon for lenders in the u s to charge origination fees these are upfront charges that borrowers are required to pay the lender as compensation for the application underwriting and approval process normally ranging between 0 5 to 1 of the loan value the origination fee can be deducted from or added to the loan balance origination includes pre qualification of the borrower as well as underwriting and lenders typically charge an origination fee to cover the associated costs origination steps and requirementspre qualification is the first step of the process the loan officer meets with the borrower and obtains all basic data and information relating to income and the property that the loan is intended to cover at this point the lender determines the type of loan for which the individual qualifies such as a personal loan fixed rate loans have a continuous interest rate for the entire life of the loan while adjustable rate mortgages arms have an interest rate that fluctuates in relation to an index or a bond price such as treasury securities hybrid loans feature interest rate aspects of both fixed and adjustable loans they most often begin with a fixed rate and eventually convert to an arm the borrower receives a list of information needed to complete the loan application during this stage this extensive required documentation typically includes the purchase and sale contract w 2 forms profit and loss statements from those who are self employed and bank statements it will also include mortgage statements if the loan is to refinance an existing mortgage the borrower fills out an application for the loan and submits all necessary documentation the loan officer then completes the legally required paperwork to process the loan borrowers only pay origination fees if the loan is approved origination to approvalonce the application is complete and the documentation submitted the process is now out of the borrower s hands all paperwork submitted and signed until this point is filed and run through an automatic underwriting program to be approved some files might be sent to an underwriter for manual approval the loan officer then gets the appraisal requests insurance information schedules a closing and sends the loan file to the processor the processor may request additional information if necessary for reviewing the loan approval some mortgage borrowers might be eligible for government backed loans such as those insured by the federal housing administration fha or the u s department of veteran affairs va these loans are considered non conventional and are structured in a way that makes it easier for eligible individuals to purchase homes they often feature lower qualifying ratios and a smaller or no down payment and the origination process can be somewhat easier as a result 34example of originationlet s say a consumer wants to purchase their first home they put in an offer on a property and the seller accepts the two parties sign a contract and agree to a purchase price of 200 000 the buyer has a total of 50 000 saved up which means they need to borrow 150 000 to cover the remaining balance the buyer goes to their bank abc bank to see if they pre qualify when they do abc bank asks them to submit a formal application and furnish supporting documents including their proof of income tax returns bank statements and approval for a credit check the application and documents are sent to the underwriting department of abc bank to assess whether the borrower is a suitable candidate for the mortgage after four weeks the bank approves the loan contacts the borrower and arranges a time to sign the paperwork the borrower is notified of the interest rate and loan terms and also agrees to pay the loan origination fee of 1 or 1 500 this can either be deducted from the loan balance resulting in the disbursement of 148 500 pay it upfront or have the seller pay it for them | |
how does a loan origination work | loan origination is the process lenders use to assess and approve borrower applications for various forms of debt these include loans and mortgages originations go from the initial application for credit through underwriting and the approval process in order for the process to work borrowers need to submit an application and additional documentation such as tax returns and pay stubs lenders normally charge a fee which is a small percentage of the balance to compensate them for the work involved in reviewing and approving the application | |
do i have to pay an origination fee | most banks financial institutions and lenders charge an origination fee for any type of loan as a form of compensation for the loan process this includes personal loans debt consolidation loans mortgages home equity loans and others fees generally range from 0 5 to 1 of the loan balance so if you re asking for a 100 000 loan a 1 fee will be 1 000 some lenders may be willing to negotiate the fee which can be deducted from the loan disbursement or paid upfront keep in mind that you only pay the fee if you re approved | |
do you need to go through the origination process for a credit card | the application and approval process for a credit card isn t as thorough as it is for a loan in most cases the origination of a credit card involves filling out an application and getting a credit check done and you may be approved in a matter of a few days to a few weeks lenders don t charge an origination fee for credit cards but they may require a security deposit for anyone who is just establishing their credit or who has a bad credit rating the bottom lineit s a good idea to understand how the loan process works before you apply whether it s for a personal loan or a mortgage in the u s it s generally called origination this process sees borrowers go through pre qualification application underwriting and approval before any loan funds are disbursed keep in mind that many lenders charge an origination fee which is usually a small percentage of the loan value | |
what is an origination fee | a mortgage origination fee is an upfront fee charged by a lender to process a new loan application the fee is compensation for executing the loan loan origination fees are quoted as a percentage of the total loan and they are generally between 0 5 and 1 of a mortgage loan in the united states sometimes referred to as discount fees or points particularly when they equal 1 of the amount borrowed origination fees pay for services such as processing underwriting and funding understanding origination feesan origination fee is similar to any commission based payment a lender would make 1 000 on a 100 000 loan or 2 000 on a 200 000 loan if the lender charged a 1 fee for originating the loan the origination fee represents payment for the lender s initial services it sometimes represents a higher percentage of the loan amount on smaller loans because a 50 000 loan can require the same amount of work for the lender as a 500 000 loan total mortgage fees from lenders can be compared using a mortgage calculator these fees are typically set in advance and they should not suddenly increase at closing they should be listed on the closing disclosure 1history of origination feeslenders often earned exorbitant origination fees and yield spread premiums ysps during the late 1990s to mid 2000s for selling the borrower a higher interest rate borrowers with marginal credit or unverifiable income were particularly targeted by predatory subprime lenders these lenders often charged origination fees as high as 4 or 5 of the loan amount and they made thousands of additional dollars in ysps the government passed new laws following the 2007 2008 financial crisis these laws limited how lenders could be compensated 2 public pressure provided an incentive for lenders to rein in the practices that had made them rich during the housing boom origination fees shrunk to an average of 1 or less a borrower is often better off paying a higher origination fee in exchange for a lower interest rate because the interest savings over time will exceed the origination fee | |
how to save on origination fees | mortgage origination fees can be negotiable but a lender cannot and should not be expected to work for free obtaining a reduced origination fee usually involves conceding something to the lender the most common way to lower the fee is to accept a higher interest rate in return effectively the lender earns its commission from the ysp instead of the origination fee this is executed through something called lender credits they are calculated as negative points on a mortgage 3 as a general rule this is a good deal for borrowers only if they plan to sell or refinance within a few years on longer mortgages what you cumulatively pay in interest will generally outstrip what you would have paid in an origination fee if you plan to refinance consider working with one of the best mortgage refinance companies to ensure you re getting a good deal you can negotiate to have the home seller pay your origination fees this is most likely to happen if the seller needs to sell quickly or is having trouble selling the home you can also negotiate with the lender to have the origination fee reduced or waived this may not involve accepting a higher interest rate if for example you have shopped around and can present evidence of a better offer from a competing lender also if the mortgage is for a large amount and a long term and you have excellent credit and a safe source of income a lender may find your business attractive enough to go easy on fees finally always make sure to look at what exactly constitutes the origination fee some lenders bundle other fees such as application and processing fees into it if that is the case ask to have those bundled fees waived | |
how to pay loan origination fees | origination fees may represent just a small part of the closing costs and fees that must be paid when entering into a loan specific to a mortgage there may be a variety of ways to pay this small cost note that the ways to cover the origination fees below are not exhausted or listed in any particular order loan origination fees vs pointsdiscount points and loan origination fees are two prepaid finance charges associated with mortgages or home loans they represent different aspects of the loan process borrowers may come across both as part of their purchase and financing documents points are upfront fees paid to the lender at the time of closing the mortgage expressed as a percentage of the total loan amount there are two types of points discount points and origination points discount points are optional fees borrowers can pay to reduce the interest rate on the loan origination points are fees charged by the lender for processing the loan application and creating the loan essentially compensating it for its services loan origination fees are different they are specific charges imposed by the lender for processing the loan application and facilitating the mortgage process loan origination fees may be a flat fee usually expressed in dollars rather than a percentage of the loan amount these fees are meant to cover administrative costs paperwork and other services involved in evaluating the borrower s creditworthiness example of origination feelarry is purchasing his first home and has secured a mortgage through a local bank the loan amount is 250 000 and the lender charges a loan origination fee of 1 5 of the loan amount this means the origination fee would be 1 5 of 250 000 which equals 3 750 even though we discussed many more options above let s assume larry has only two options in this example assuming larry opted for a 30 year fixed rate mortgage with an interest rate of 4 larry s monthly payment for a 250 000 loan over 30 years is approximately 1 193 however with the increased loan amount of 253 750 the new monthly payment would be approximately 1 208 by rolling the 3 750 loan origination fee into the mortgage larry s monthly payment increases by 15 while this may not seem like a significant increase it s essential to consider the long term impact as he will be paying this additional amount over the entire loan term 360 months | |
are loan origination fees negotiable | yes loan origination fees are often negotiable borrowers can try to negotiate with lenders to reduce or waive some of the origination fees shopping around for multiple lenders and obtaining loan estimates can provide leverage during negotiations can i roll loan origination fees into my mortgage in some cases borrowers can include loan origination fees in the mortgage amount this means the fees will be spread out over the life of the loan but it also increases the total loan amount and the overall interest paid over time it s essential to discuss this option with the lender and understand the implications before proceeding | |
do loan origination fees vary depending on the type of loan | yes loan origination fees can vary depending on the type of loan and the lender s policies different loan programs such as conventional mortgages fha loans va loans or jumbo loans may have different origination fee structures | |
are loan origination fees tax deductible | in most cases loan origination fees are not tax deductible however some points paid as part of the loan origination process may be tax deductible if they meet certain conditions it s essential to consult with a tax advisor or tax professional to understand the tax implications specific to your situation the bottom lineorigination fees are upfront charges imposed by lenders when obtaining a loan such as a mortgage they cover the cost of processing the loan application underwriting and preparing necessary documents for closing origination fees can be expressed as a percentage of the loan amount or a flat fee impacting the borrower s upfront costs alternatively they may also be commonly rolled into the mortgage increasing the total loan amount and monthly payments | |
what are origination points | origination is a step by step process that every borrower must complete to obtain a mortgage or home loan meanwhile origination points represent the fees that borrowers pay to lenders or loan officers to compensate for evaluating processing and approving mortgage loans they represent a way to pay closing costs and these fees are negotiable among lenders unlike other types of points e g discount points origination points are not tax deductible 1discount vs origination pointsthere are two types of points discount points and origination points discount points represent interest that is prepaid on the loan and these are tax deductible 1 the interest rate will be lower depending on the number of points a borrower pays as the more points paid the lower the interest rate depending on how much a borrower wants to reduce their interest rate they can pay from zero to four points while discount points represent prepaid interest origination points are the costs that the borrower must pay the lender for extending the loan the cost of the points is tax deductible if it is used for the mortgage and not for closing costs according to the irs if the fee is for items that appear on a settlement statement such as inspection or notary fees the cost is not tax deductible 1origination points vary from lender to lender and a single origination point represents 1 of the mortgage loan for example if an individual is borrowing 150 000 and the bank is charging the individual 1 5 origination points they will pay 2 250 or 1 5 of 150 000 in origination points the fees charged by banks to create the loan are typically 1 origination point or 1 of the amount being borrowed 2example of discount points to reduce paymentwhether a borrower should pay discount points depends on factors such as how much they have to put down as a deposit at closing and how long the borrower intends to stay in the home if discount points are paid to lower the interest rate that s an advantage if the borrower plans to stay in the house for a long time because the mortgage payments will be lower however in many cases it is better to pay zero points and use the money for home furnishings or other investments instead let s consider a hypothetical example using a 30 year fixed rate mortgage from a hypothetical lender lender x as an example of how paying discount points lowers the interest rate it assumes that the rate for a 30 year frm is 4 125 if an individual borrows 300 000 for a new home the interest rate can be reduced to 3 875 by paying 1 524 discount points i e 4 572 or to 4 by paying 0 461 points 1 383 to the lender paying more points will reduce monthly mortgage payments and possibly increase the possibility of having the loan approved as for origination points borrowers should research lenders and inquire about closing costs because they might be able to negotiate the amount paid obviously a borrower wants to minimize the fees closing costs and origination points on the mortgage loan | |
how do origination points differ from discount points | discount points are upfront payments that buy down the interest rate on a mortgage lowering its monthly payments origination points are instead used to cover overhead costs for the loan origination and discount point fees are both paid at closing discount points may be tax deductible but origination points are not | |
how much are origination points usually | origination points on residential mortgages tend to be between 0 50 and 1 50 with 1 00 being the industry average | |
how can i avoid paying origination points | not all lenders charge origination points so be sure to shop around if this is a concern you have you might be able to negotiate points lower with your lender in order to close the deal or request the seller or one of the brokers involved in the deal to pay them on your behalf | |
what is an orphan block | in blockchain terms orphan blocks are blocks mined simultaneously as another block but not accepted by the blockchain most of the time this is because there are not enough blocks generated from that block for the network to recognize it as the longest fork the bitcoin blockchain discards orphan blocks however other blockchains may use them for different purposes technically orphan blocks are called stale blocks but because most people refer to them as orphans or uncles the name orphan and uncle block has stuck understanding orphan blocksa blockchain consists of a series of blocks which act as data storage units to store details of the various transactions occurring on the blockchain network during the standard mining process miners attempt to generate new blocks by solving the hash the hexadecimal number that stores the block s information the first miner who successfully opens a new block is entitled to the block reward and writes the first transaction on the new block the newly opened block stores information about the previous blocks and new transactions and is mined to open another block the series of blocks that create a blockchain are related in that they receive information from the blocks that preceded them when a block is closed its data is encoded and passed on to the next block these two blocks are a parent and child block if two blocks are opened from the same parent block simultaneously there are two child blocks only one of them can be integrated into the chain the network nodes which validate blocks decide which block to use by allowing a small fork between the two child blocks then the nodes determine what block they want to accept by reaching a validation consensus each block will have subsequent blocks created initiating a race to verify the most blocks the fork with more verified blocks through proof of work pow gets accepted into the blockchain any verified blocks within the shorter chain are discarded the discarded block is called an orphan block in technical documents it s called a stale block any blocks generated from the orphaned block go back to the memory pool to be validated and added to the new chain | |
how are orphan blocks different from stale blocks | as mentioned previously many people call blocks rejected by the network orphan blocks in a familial relationship this is not the correct term because blocks are referred to by ancestral relationships for easy reference an orphan block would technically be a block with unknown parent blocks the parent child relationship in a blockchain stems from its database roots where data from the parent are included in the child blocks so that values are linked 1a block without a parent block is one with an incomplete block hash the block hash is an encrypted number and a snapshot of the complete blockchain at the moment the block was created parent block information would be included in this hash so an orphan block would be a strange occurrence in a network that relies on validation and verification of all preceding blocks an actual orphan block without any parental block information is likely a block that has been tampered with however for simplicity an unaccepted block is called an orphan block | |
is a bitcoin a block | a block is an encrypted record of all transactions within that block bitcoin is the cryptocurrency rewarded for solving the hash the encrypted hexadecimal number that stores the previous block s information 2 | |
what happens to orphaned bitcoin | bitcoin is the cryptocurrency awarded for opening a new block in the blockchain blocks can become orphaned but a bitcoin cannot orphaned stale blocks are discarded | |
is there a reward for mining stale blocks | generally there is no reward for mining a stale block however some blockchains might allow for stale block rewards investing in cryptocurrencies and other initial coin offerings icos is highly risky and speculative and this article is not a recommendation by investopedia or the writer to invest in cryptocurrencies or other icos since each individual s situation is unique a qualified professional should always be consulted before making any financial decisions investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein | |
what is the orphan drug credit | the orphan drug credit is a federal tax credit that gives pharmaceutical companies incentives to develop medications and treatments for rare diseases that affect small populations the credit is designed to help pharmaceutical companies lower their developmental costs the credit is for 25 of qualified clinical testing expenses a rare disease is one that affects less than 200 000 people in the united states or one that affects more than 200 000 people but for which there is no reasonable expectation that a treatment can be profitably developed 1 understanding the orphan drug creditthe orphan drug credit can be claimed whether the pharmaceutical company performs clinical tests itself or contracts out to a third party in most cases testing must take place in the u s 1 orphan drugs are drugs developed to treat so called orphan diseases which is a term to describe extremely rare medical conditions such as gaucher s disease tourette s syndrome huntington s disease and many other disorders 3 despite being rare orphan diseases affect a large number of people an estimated 30 million people in the u s suffer from 7 000 rare diseases yet 95 of these diseases have no treatment or cure 4 the orphan drug tax credit is designed to encourage the development of treatments for these rare diseases without these tax credits pharmaceutical companies would be forced to charge high prices that affected patients could never afford history of the orphan drug creditin 1982 the u s food and drug administration fda recognized the lack of incentive for pharmaceutical companies to develop cures for rare diseases from this realization the orphan drug act of 1983 was born 3 before the orphan drug act was passed pharmaceutical companies and medical researchers were unable and unwilling to invest in treatments for extremely rare diseases there simply weren t enough patients for each orphan disease for pharmaceutical companies to recover their expenses let alone make a profit clinical trials cost thousands of dollars per patient even when researchers can find enough patients to run trials between 1983 and 2018 the orphan drug tax credit provided a 50 credit for qualified clinical testing costs for drugs tested under section 505 i of the federal food drug and cosmetic act 5 a 2017 overhaul of the tax code under the donald trump administration reduced the credit from 50 to 25 beginning in 2018 6 the national organization for rare disorders and many other advocacy groups campaigned against the move 7 | |
what is an oscillator | an oscillator is a technical analysis tool that constructs high and low bands between two extreme values and then builds a trend indicator that fluctuates within these bounds traders use the trend indicator to discover short term overbought or oversold conditions when the value of the oscillator approaches the upper extreme value technical analysts interpret that information to mean that the asset is overbought and as it approaches the lower extreme technicians consider the asset to be oversold | |
how oscillators work | oscillators are typically used in conjunction with other technical analysis indicators to make trading decisions analysts find oscillators most advantageous when they cannot find a clear trend in a company s stock price easily for example when a stock trades horizontally or sideways the most common oscillators are the in technical analysis investors find oscillators to be one of the most important technical tools to understand but there are also other technical tools that analysts find helpful in enhancing their trading such as chart reading skills and technical indicators if an investor uses an oscillator they first pick two values then placing the tool between the two the oscillator oscillates creating a trend indicator investors then use the trend indicator to read current market conditions for that particular asset when the investor sees that the oscillator moves toward a higher value the investor reads the asset as overbought in the opposite scenario when the oscillator trends towards the lower value the investors consider the asset oversold mechanics of an oscillatorin technical analysis an investor measures oscillators on a percentage scale from 0 to 100 where the closing price is relative to the total price range for a specified number of bars in a given bar chart in order to achieve this one deploys various techniques of manipulating and smoothing out multiple moving averages when the market trades in a specific range the oscillator follows the price fluctuations and indicates an overbought condition when it exceeds 70 to 80 of the specified total price range signifying a selling opportunity an oversold condition exists when the oscillator falls below 30 to 20 which signifies a buying opportunity the signals remain valid as long as the price of the underlying security remains in the established range however when a price breakout occurs the signals may be misleading analysts consider a price breakout either the resetting of the range by which the current sideways market is bound or the beginning of a new trend during the price breakout the oscillator may remain in the overbought or oversold range for an extended period of time technical analysts consider oscillators better suited for sideways markets and consider them more effective when used in conjunction with a technical indicator that identifies the market as being in a trend or range bound for example a moving average crossover indicator can be used to determine if a market is or is not in a trend once the analysts determine that the market is not in a trend the signals of an oscillator become much more useful and effective | |
what is an oscillator | an oscillator is a technical analysis tool that constructs high and low bands between two extreme values and then builds a trend indicator that fluctuates within these bounds traders use the trend indicator to discover short term overbought or oversold conditions when the value of the oscillator approaches the upper extreme value technical analysts interpret that information to mean that the asset is overbought and as it approaches the lower extreme technicians consider the asset to be oversold | |
how oscillators work | oscillators are typically used in conjunction with other technical analysis indicators to make trading decisions analysts find oscillators most advantageous when they cannot find a clear trend in a company s stock price easily for example when a stock trades horizontally or sideways the most common oscillators are the in technical analysis investors find oscillators to be one of the most important technical tools to understand but there are also other technical tools that analysts find helpful in enhancing their trading such as chart reading skills and technical indicators if an investor uses an oscillator they first pick two values then placing the tool between the two the oscillator oscillates creating a trend indicator investors then use the trend indicator to read current market conditions for that particular asset when the investor sees that the oscillator moves toward a higher value the investor reads the asset as overbought in the opposite scenario when the oscillator trends towards the lower value the investors consider the asset oversold mechanics of an oscillatorin technical analysis an investor measures oscillators on a percentage scale from 0 to 100 where the closing price is relative to the total price range for a specified number of bars in a given bar chart in order to achieve this one deploys various techniques of manipulating and smoothing out multiple moving averages when the market trades in a specific range the oscillator follows the price fluctuations and indicates an overbought condition when it exceeds 70 to 80 of the specified total price range signifying a selling opportunity an oversold condition exists when the oscillator falls below 30 to 20 which signifies a buying opportunity the signals remain valid as long as the price of the underlying security remains in the established range however when a price breakout occurs the signals may be misleading analysts consider a price breakout either the resetting of the range by which the current sideways market is bound or the beginning of a new trend during the price breakout the oscillator may remain in the overbought or oversold range for an extended period of time technical analysts consider oscillators better suited for sideways markets and consider them more effective when used in conjunction with a technical indicator that identifies the market as being in a trend or range bound for example a moving average crossover indicator can be used to determine if a market is or is not in a trend once the analysts determine that the market is not in a trend the signals of an oscillator become much more useful and effective | |
what is the oslo stock exchange osl | the oslo stock exchange osl is norway s premier stock exchange the exchange is located in the capital city of oslo and is the region s major regulated market for securities trading investors can trade different assets such as equities bonds and exchange traded products etps on the osl the exchange s market capitalization as of may 13 2022 was roughly 295 55 billion 1 founded in 1819 the exchange was acquired by euronext in 2019 the exchange is part of the norex alliance making it attractive to foreign investment understanding the oslo stock exchange osl the oslo stock exchange is the major stock market in norway it is commonly referred to as oslo b rs and is norway s only regulated securities exchange as noted above the osl is the country s premier exchange and is located in the capital city of oslo different financial products are traded on the exchange including equities bonds exchange traded funds etfs etps derivatives and certain funds 2 as of april 2024 332 companies listed equity shares on the exchange 3 these companies represent many sectors notably energy seafood and shipping 2 while a majority of the securities listed on the osl are norwegian public limited companies foreign companies also participate in the exchange investors have the opportunity to invest in the oslo obx index through the oslo stock exchange it is made up of the 25 most liquid securities on the exchange 4 the obx index is revised twice each year based on the market data on the first monday after the third friday each march and september 5the oslo stock exchange is fully electronic the automated trading system was established in 1999 6 trading takes place monday to friday between 9 00 a m and 4 20 p m local time 1 there are seven national holidays during which the exchange is closed along with one partial trading day each year 7trading on the oslo stock exchange takes place in norwegian kroner 1history of the oslo stock exchange osl the osl was established in 1819 as the christiana b rs it was designed to give merchants a place where they could meet and trade news and commercial goods such as lumber it wasn t until 1881 that it became an official stock exchange and began to list and trade securities the exchange changed its name to oslo b rs in the early 1900s 8as brokerage firms increased in popularity in norway in the late 1990s traders lost the need to meet in person to facilitate their transactions as a result the osl went private becoming a limited liability company llc in 2001 8 the oslo b rs vps holding asa which was established as a result of the merger of the oslo b rs and vps holding officially assumed ownership of the exchange in 2007 910as part of an effort for nordic exchanges to attract more international investment the oslo stock exchange joined the norex alliance in 2000 norex also includes the stock exchanges of stockholm copenhagen and iceland and provides a common trading platform and streamlined regulations for participants 11the nasdaq and euronext put in competing offers to assume control of the oslo stock exchange in a bid to expand their global footprint although the exchange s major shareholders supported the bid by nasdaq the offer was withdrawn in may 2019 after the country s finance ministry approved a competing bid by euronext 12 the acquisition was completed in june 2019 13companies must meet certain requirements and must disclose data regarding ownership and history shares and market value to list on the oslo stock exchange markets associated with the oslo stock exchange osl the oslo b rs vps holding asa facilitated trading on four other marketplaces in addition to the exchange these markets are called the oslo axess merkur market nordic abm and oslo connect 14oslo axess was established in 2007 as a regulated licensed market under the oslo exchange intended to promote the growth of small companies that do not yet meet the requirements for listing on the oslo stock exchange 15merkur market was launched in 2016 as a multilateral trading facility mtf for small and medium enterprises which provides the opportunity for privately held limited companies and equivalent foreign counterparts to be traded in oslo 15 boasting one of the fastest admission processes in europe merkur market indicates that a qualified applicant can be trading in their marketplace in as little as two weeks in 2005 the osl established nordic abm as an alternative bond market 16 while nordic abm is not a regulated market or multilateral trading facility oslo stock exchange sets the rules fees and registration process for bonds that request to be registered on the nordic abm oslo connect is an over the counter otc derivatives marketplace that is regulated as a multilateral trading facility participants in oslo connect must sign an agreement with oslo b rs and a cooperating clearinghouse | |
what is the oslo stock exchange called | the oslo stock exchange is the premier exchange in norway it is the country s only regulated securities exchange the osl is also called euronext oslo as it is owned by euronext and is known locally as oslo b rs | |
is the oslo stock exchange an eu regulated market | yes since the oslo stock exchange is owned by euronext and operates in the eu market the exchange is eu regulated however unlike euronext s other exchanges the oslo exchange is not a small or mid sized enterprise sme growth market smes are designed to give advantages to companies that otherwise do not meet the criteria for admission into euronext s regulated markets 17 | |
how many companies are on the oslo stock exchange | as of april 2024 there are 332 companies listed on the exchange 18 there are three norwegian companies listed on exchanges in the united states which are listed below | |
how do i buy norwegian stocks | the best way to buy norwegian stocks is if you are able to trade on the oslo stock exchange these shares will be the most liquid and your orders will fill the fastest however you can still trade norwegian stocks on markets in the united states by purchasing something called an american depositary receipt adr an adr is a certificate that you purchase on a u s exchange that represents a specified number of shares of a foreign company s stock as of may 12 2022 there are only three norwegian companies with adrs listed on u s exchanges equinor eqnr idex biometrics idba and opera opra | |
what is euronext oslo | euronext oslo is another name for the oslo stock exchange euronext and nasdaq entered into bidding for the oslo stock exchange but euronext was able to secure it in 2019 euronext is headquartered in amsterdam and is europe s largest stock exchange group the bottom linealthough norway is not an eu member nation the company that owns the oslo stock exchange euronext is headquartered in amsterdam the oslo stock exchange is a regulated eu market and is norway s only regulated exchange comprising around 340 companies and a number of other financial instruments | |
what is otc markets group inc | the otc markets group is the owner and operator of the most substantial u s inter dealer electronic quotation and trading system for over the counter otc securities it provides marketplaces for trading more than 11 500 otc securities 1understanding otc markets group inc otc markets group inc provides services in three core areas that are essential for better informed and more efficient financial markets the fields are trading services market data and corporate services through the trading services division otc markets group connects broker dealers together which provides the liquidity and infrastructure for executing trades on the otc market the market data division provides data and quote services for more than 11 500 otc securities the corporate services division helps companies go public and gain greater visibility through listing in one of otc markets group s three otc tiers 1the company was preceded by the national quotation bureau which was founded in 1904 prior to being called the otc markets group inc the national quotation bureau renamed itself pink sheets llc in 2000 and then pink otc markets inc in 2008 the change to the otc markets group name came in 2011 5the handling of most otc securities trading in the u s is on the company s otc link platform an alternative trading system registered with the securities and exchange commission sec as a broker dealer 6 otc markets group has its headquarters in new york city and is publicly traded on the otcqx marketplace under the symbol otcm 78as of march 7 2022 the dollar volume is 219 million and the share volume is 1 4 billion these stats are for all three tiers combined 9 the otc pink is the largest tier in terms of the number of companies listed within it 4otc markets group inc tier structurethe most visible aspect of the otc markets group s stewardship is the breakdown of the otc market into three tiers based on the quality and quantity of the listed companies information and disclosures this tiered structure provides different levels of transparency so investors know what type of information is available for each company they wish to trade 1otcqx is the top tier of the three marketplaces for the otc trading of stocks stocks that trade on this forum must meet more stringent qualification criteria compared to the other levels also called the otcqx best market it includes a large number of blue chip stocks from europe canada brazil and russia 10 these large foreign stocks are frequently global household names penny stocks shell companies and companies in bankruptcy cannot qualify for a listing on the otcqx 3the middle tier is called otcqb also known as the venture market which consists of early stage and developing u s and international companies that are not yet able to qualify for the otcqx the company must be current in its reporting undergo an annual verification management certification meet a 0 01 bid test and must not be in bankruptcy to meet eligibility standards 3the otc markets group has created many financial indexes such as the otcqx banks otcqx dividend and otcqx canada 11companies listed here report to a u s regulator such as the sec or federal deposit insurance corporation fdic the otcqb replaced the financial industry regulatory authority finra operated otc bulletin board otcbb as the main market for trading otc securities that report to a u s regulator 12 because it has no minimum financial standards the otcqb includes shell companies penny stocks and small foreign issuers 3otc pink or pink sheets is the lowest level and most speculative tier of the three marketplaces for the trading of over the counter stocks this marketplace offers trading in a wide range of equities and includes companies in default or financial distress 2because it has fewer disclosure requirements the categorization of otc pink companies is from information provided by the company note that as of sept 28 2021 otc pink as well as all other otc markets group lines will require companies on the platform to provide up to date disclosures pursuant to sec rule 15c2 11 2 | |
what does otcm stand for | otcm stands for over the counter market which is a market where parties transact the buying and selling of securities with one another without a centralized exchange facilitating the process otcm can also refer to otc markets group which owns and operates a trading system to facilitate otc trading who runs otcm otcm is run by itself it is a publicly traded company that is headquartered in new york the president and ceo is cromwell coulson 13 | |
what is the difference between stock exchanges and the otc market | the otc market facilitates the trading of financial securities between two parties without the oversight of an exchange a stock exchange is an exchange that oversees the buying and selling of stocks stock exchanges allow for more liquidity oversight and transparency than otc markets | |
is the otc market safe to trade | otc markets are safe to trade but there are some risks with the process such as less information available about the securities and less liquidity picking companies in the tiers that have stronger financial standards can help reduce the risks in otc trading | |
what is the process for listing a public company in the otc market | to be able to trade in the otc market a company must be sponsored by a market maker the market maker will sponsor the issue as market makers are the only ones allowed to apply to have a quote listed investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what are otc options | otc options are exotic options that trade in the over the counter market rather than on a formal exchange like exchange traded option contracts understanding otc optionsinvestors turn to otc options when the listed options do not quite meet their needs the flexibility of these options is attractive to many investors there is no standardization of strike prices and expiration dates so participants essentially define their own terms and there is no secondary market as with other otc markets these options transact directly between buyer and seller however brokers and market makers participating in otc option markets are usually regulated by some government agency like finra in the u s 1 2 with otc options both hedgers and speculators avoid the restrictions placed on listed options by their respective exchanges this flexibility allows participants to achieve their desired position more precisely and cost effectively 1 aside from the trading venue otc options differ from listed options because they are the result of a private transaction between the buyer and the seller on an exchange options must clear through the clearing house this clearing house step essentially places the exchange as the middleman the market also sets specific terms for strike prices such as every five points and expiration dates such as on a particular day of each month 1 because buyers and seller deal directly with each other for otc options they can set the combination of strike and expiration to meet their individual needs while not typical terms may include almost any condition including some from outside the realm of regular trading and markets there are no disclosure requirements which represents a risk that counterparties will not fulfill their obligations under the options contract also these trades do not enjoy the same protection given by an exchange or clearing house 1 finally since there is no secondary market the only way to close an otc options position is to create an offsetting transaction an offsetting transaction will effectively nullify the effects of the original trade this is in stark contrast to an exchange listed option where the holder of that option merely has to go back to the exchange to sell their position otc option default riskotc defaults can quickly propagate around the marketplace while risks of otc options did not originate during the financial crisis of 2008 the failure of investment bank lehman brothers provides an excellent example of the difficulty of assessing actual risk with otc options and other derivatives lehman was a counterparty to many otc transactions when the bank failed the counterparties to its transactions were left exposed to market conditions without hedges and could not in turn meet their obligations to their other counterparties therefore a chain reaction took place impacting counterparties further away from the lehman otc trade many of the affected secondary and tertiary counterparties had no direct dealings with the bank yet the cascading effect from the original event hurt them as well this is one of the major reasons that led to the severity of the crisis which ended up causing widespread damage to the global economy 3 | |
the otc pink now branded as the pink open market is the lowest and most speculative tier of the three marketplaces for the trading of over the counter otc stocks all three tiers are provided and operated by the otc markets group this marketplace offers to trade in a wide range of equities through any broker and includes companies in default or financial distress | since it has no disclosure requirements the categorization of otc pink companies is from information provided by the company otc markets group now markets otc pink as the pink open market but the historical name still persists 1understanding otc pinkthe over the counter otc market is a decentralized market where securities not listed on major exchanges are traded directly by a network of dealers instead of providing an order matchmaking service like the nyse these dealers carry inventories of securities to facilitate any buy or sell orders because information was initially printed on pink paper the otc pink is also referred to as the pink sheets 2the otc pink as well as its companion tiers otcqx and otcqb is run by otc link the link is an electronic inter dealer quotation and trading system developed by otc markets group registered with the sec as a broker dealer otc link is also an alternative trading system ats 3otc link allows broker dealers not only to post and disseminate their quotes but also to negotiate trades through the system s electronic messaging capability this feature enabled it to replace the over the counter bulletin board otcbb which was a quotation only system 4on november 8 2021 the financial industry regulatory authority finra chose to discontinue the otc bulletin board otcbb a quotation system it operates between dealers and remove all otcbb associated rules from its rulebook 5regulation of the otc pink marketplacebecause of the variable self reporting nature by otc pink companies they are classified based on the quality and quantity of information they provide to investors classification is as follows the pink open market previously had a category of no information securities which identified companies with the lowest level of disclosure those that had not filed any information with either the sec or the otc disclosure and news service in six months 6 such securities were considered highly risky for investors in 2021 following updated sec transparency rules securities that were once labeled no information moved to otc market group s expert market which is only available to broker dealers and other professional investors not to the general public 7 they are not promoted as investment options for average investors all broker dealers that trade on the otcqx otcqb and otc pink securities have to be financial industry regulatory authority finra members further they must register with the sec and are subject to state securities regulations in this way as with exchange traded securities investors trading otc securities are protected from an unethical broker dealer s illegal practices by the same sec and finra rules such as best execution limit order protection firm quotes and short position disclosure 8who should invest through otc pink otc pink provides for transparent trading and best execution although there are no financial standards or disclosure requirements the marketplace trades a wide range of domestic and foreign companies including penny stocks shell companies distressed companies and dark companies that cannot or will not provide company information to investors because of the lack of reporting requirements only professional and sophisticated investors with a high risk tolerance should trade here investors should perform all the proper due diligence by researching the companies they are considering and reviewing all business activities terminology updatesit should be noted that the terms pink sheets or otc pink are considered outdated in the context of today s financial markets the terminology that was once known as pink sheets has evolved into the otc markets group which operates regulated marketplaces for trading over the counter stocks these include the otcqx otcqb and pink markets each with varying levels of financial standards and regulatory oversight thus referring to these markets collectively as pink sheets or otc pink is no longer accurate however the terms pink or pink market are still in everyday language as seen in the 2022 market data annual review 9the pink market operates as an open marketplace with no obligatory financial standards or disclosure requirements companies in this tier are not mandated to register their stock with the sec depending on the quantity and promptness of information they share with investors these companies can be further divided into categories such as current limited or no public disclosure the regulatory structure of the pink market has changed over the past couple of years for instance components such as dark securities have been entirely shifted out of the market | |
what types of companies generally trade on pink markets | companies that trade on pink markets vary widely they can include smaller or newer companies that don t meet the listing requirements for major exchanges foreign entities that wish to trade in the u s or companies preferring less regulatory scrutiny | |
what are the investment risks associated with pink markets | investing in pink markets carries substantial risk due to the lack of stringent regulatory oversight risks include limited financial information high volatility low liquidity and potential for fraud or manipulation | |
have there been any recent developments in the pink markets | yes the regulatory structure of pink markets has been evolving for instance certain types of securities such as dark securities have been removed from the market entirely to increase transparency and reduce risk | |
are pink markets the same as major stock exchanges | no pink markets are not the same as major stock exchanges like the nyse or nasdaq they operate over the counter meaning trades occur directly between parties rather than through a centralized exchange and they typically involve stocks that do not meet the listing requirements of major exchanges the bottom linethe terminology of former otc pink or pink sheets has changed and so have certain regulatory developments pink markets or pink open market is an over the counter trading platform for stocks not listed on major exchanges often involving smaller companies foreign entities or those seeking less regulation while it provides opportunities for speculators and investors looking beyond traditional markets it carries significant risks including limited financial information high volatility and potential for fraudulent activity recent regulatory changes aim to increase transparency and reduce risk in this speculative market | |
what is the otcqb | the otcqb also called the venture market is the middle tier of the over the counter otc market for u s stocks it was created in 2010 and consists mainly of early stage and developing u s and international companies that are not yet able to qualify for the otcqx but are not as speculative as the lowest tier pink sheets 1the otcqb replaced the financial industry regulatory authority finra operated otc bulletin board otcbb as the main market for trading otc securities that report to a u s regulator 2 as it has no minimum financial standards the otcqb often includes shell companies penny stocks and small foreign issuers 3understanding the otcqbthe over the counter or otc market is a decentralized market where securities not listed on major exchanges are traded directly by a network of dealers instead of providing an order matchmaking service like the nyse these dealers carry inventories of securities in order to facilitate any buy and sell orders the otcqb marketplace is run through otc link an inter dealer quotation and trading system developed by otc markets group otc link is registered with the securities and exchange commission sec as a broker dealer and also as an alternative trading system ats 4otc link enables broker dealers to not only post and disseminate their quotes but also negotiate trades through the system s electronic messaging capability 5 this feature enabled it to effectively replace finra s otcbb which was a quotation only system all broker dealers that trade otcqb otcqx and otc pink securities have to be finra members and registered with the sec they are also subject to state securities regulations as with exchange traded securities investors trading otc securities are protected from an unethical broker dealer s illegal practices by the same sec finra rules such as best execution limit order protection firm quotes and short position disclosure 467rules of the otcqbto be eligible companies must be current in their reporting undergo annual verification and certification meet a 0 01 bid test not be in bankruptcy have at least 50 beneficial shareholders each owning at least 100 shares and a public float in excess of 10 of the total shares outstanding some flexibility is offered with regard to the latter requirement 3companies listed here report to a u s regulator such as the sec or fdic and must follow standards to improve transparency those who are most likely to be associated with stock promoters and other shady operators will be excluded 3 the fee for listing on otcqb markets is 15 600 per annum with a one time application fee of 5 000 8special considerationsstocks trading in the otcqb have many of the same protections as more established larger stocks however they are still mainly considered to be speculative penny stocks there is also no guarantee that stocks trading in the otc market are of higher quality than penny stocks trading on different otc tiers or even different otc marketplaces as such traders would be well served to implement strong due diligence before committing their capital investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is the otcqx | the otcqx is the top tier of the three marketplaces for the over the counter otc trading of stocks the otcqx is provided and operated by the otc markets group stocks that trade on this forum must meet more stringent qualification criteria compared to the other tiers which are the otcqb otcbb and the pink sheets understanding otcqxthe over the counter otc market is a decentralized market where securities not listed on major exchanges are traded directly by a network of dealers instead of providing an order matchmaking service as with the nyse these dealers carry inventories of securities to facilitate any buy or sell orders penny stocks shell companies and companies in bankruptcy cannot qualify for a listing on the otcqx the otcqx roster also called the otcqx best market includes a large number of blue chip stocks from europe canada brazil and russia these large foreign stocks are frequently global household names 1regulation of otcqxcompanies trading on the otcqx must follow standards to improve transparency the otcqx excludes companies that are most likely to be associated with stock promoters and other shady operations the otcqx sets standards that a company must meet for inclusion a company must meet high financial standards be current in its disclosure and have sponsorship from a professional third party advisor listed companies report to a u s regulator such as the securities and exchange committee sec or the federal deposit insurance corporation fdic the otcqx marketplace is run by otc link an electronic inter dealer quotation and trading system developed by otc markets group otc link is registered with the sec as a broker dealer and also as an alternative trading system ats otc link enables broker dealers to not only post and disseminate their quotes but to also negotiate trades through the system s electronic messaging capability this feature allows it to replace the over the counter bulletin board otcbb which was a quotation only system 2the otcqx marketplace provides some advantages to investors it separates out the superior companies from the numerous otc companies that are financially challenged those involved in questionable activities or both it enables investors to participate in the growth of foreign blue chips investors may view real time level 2 quotes with detailed market data and market depth 3all broker dealers that trade otcqx otcqb and otc pink securities have to be financial industry regulatory authority finra members further they must register with the sec and are subject to state securities regulations in this way as with exchange traded securities investors trading otc securities are protected from an unethical broker dealer s illegal practices by the same sec and finra rules such as best execution limit order protection firm quotes and short position disclosure otcqx tiersthe reason large and prestigious companies list on the otcqx rather than on a major exchange such as the nyse is mainly to avoid the high costs associated with listing shares another reason is to bypass the expenses incurred in meeting the stringent ongoing disclosure and legal requirements that come with maintaining their listings in contrast the application fee for international and u s companies that meet the otcqx requirements is much smaller to be eligible for a listing on the otcqx u s premier tier a u s company must meet specific and additional requirements requirements include a minimum bid price of 1 for the preceding 90 business days and meeting the financial criteria for continued listing on the nasdaq capital market 4the premier tier is designed to identify large high quality issuers that would qualify to list on a national stock exchange the comparable otcqx international premier tier is for foreign companies that meet specific qualifications of the nyse s worldwide standards while stocks trading on the otcqx have many of the same protections as more established larger stocks they are still considered to be speculative there is also no guarantee that any item trading here will be of higher quality than stocks trading on other over the counter tiers or even another otc marketplace as such traders would be well served to implement robust due diligence before committing their capital | |
what is other comprehensive basis of accounting | other comprehensive basis of accounting ocboa includes financial statements prepared using a system of accounting that differs from gaap the most common being tax basis and cash basis financial statements other comprehensive basis of accounting ocboa systems also includes a statutory basis of accounting such as that used by insurance companies to comply with the rules of a state insurance commission as well as financial statements prepared using defined criteria that are well supported in popular literature understanding ocboatwo major advantages of financial statements prepared under ocboa are they are easier to understand than statements prepared under gaap which can be quite complex and they may cost significantly less to prepare than gaap based statements a key difference between gaap basis financial statements and those prepared under ocboa is that the latter does not require a statement of cash flows one criticism of ocboa statements is that disclosures are not adequate as a result it is recommended that comprehensive disclosures be made by a company that has adopted ocboa including the basis of accounting used contingent liabilities and risks and uncertainties under the statement on auditing standards united states no 62 special reports an ocboa is any one of special considerationsin situations where gaap basis statements aren t necessary because of loan covenants regulatory requirements or similar circumstances an ocboa alternative may be the preferred format ocboa statements may be more useful for certain entities based on who the users are and what they are expecting to see they may be required by a regulatory agency or may be tied to budgets and management decisions in addition costs may be reduced since these audits may require less complex procedures and required disclosures although ocboa statements deviate from the far more common gaap standards they are not without a code of their own for instance | |
what are other current assets oca | other current assets oca is a category of things of value that a company owns benefits from or uses to generate income that can be converted into cash within one business cycle they are referred to as other because they are uncommon or insignificant unlike typical current asset items such as cash securities accounts receivable inventory and prepaid expenses the oca account is listed on the balance sheet and is a component of a firm s total assets understanding other current assets oca assets are broken down on the balance sheet as either fixed assets or current assets fixed assets are typically long term tangible pieces of property such as buildings computer equipment land and machinery that a firm owns and uses in its operations to generate income they have useful lives that span over a year and are not liquid current assets on the other hand are all the assets of a company that are expected to be conveniently sold consumed utilized or exhausted through standard business operations they can easily be liquidated for cash usually within one year and are considered when calculating a firm s ability to pay short term liabilities examples of current assets include cash and cash equivalents cce marketable securities accounts receivable inventory and prepaid expenses current assets that are uncommon will not fall into one of the defined categories listed above instead these assets will be lumped together into a generic other category and recognized as other current assets oca on the balance sheet sometimes one off situations explained in a company s 10 k filings will result in recognizing other current assets oca because these assets are rarely recorded or are insignificant the net balance in the oca account is typically quite small examples of other current assets oca include real world example of other current assets oca for the quarter ending march 31 2019 microsoft corp msft recorded total assets of 263 28 billion on its balance sheet of this total 61 were attributed to current assets as you can see in the table above other current assets oca made up a small proportion of the 159 89 billion of current assets they were listed at 7 05 billion meaning they accounted for just 4 of the company s liquid assets special considerationsmicrosoft did not provide a clearer breakdown of its other current assets oca in its latest 10 q and 10 k statements because they represent a limited source of liquidity for a company and may not have a significant impact on a business s overall financial situation not adding more detailed information on them is common | |
when other current assets oca are discussed information will be provided in the footnotes to the financial statements explanations may be necessary for example when there is a notable change in other current assets oca from one period to the next | other current assets oca are expected to be disposed within a year or to mature into another form thus the value of a company s other current assets oca may vary greatly from year to year depending on the health of the company and how it spends its money it is useful to determine how material these assets are as they may distort a firm s liquidity if the funds in oca grow to a material amount it may include one or more assets that would need to be reclassified into one or more of the major defined current assets accounts in effect when funds in oca grow to a significant level the account becomes important enough to be listed separately and added to one of the major current accounts on the balance sheet this provides insight for anyone reviewing the company s balance sheet since the nature of the recorded items will be better understood | |
what are other current liabilities | other current liabilities in financial accounting are categories of short term debt that are lumped together on the liabilities side of the balance sheet the term current liabilities refers to items of short term debt that a firm must pay within 12 months to that companies add the word other to describe those current liabilities that are not significant enough to identify separately on their own lines in financial statements so they are grouped together as other current liabilities other current liabilities may be contrasted with other current assets found on the assets side of the balance sheet understanding other current liabilitiesbefore you can understand the concept of other current liabilities you must know what the term current liabilities means other current liabilities are simply current liabilities that are not important enough to occupy their own lines on the balance sheet so they are grouped together the current liabilities section of the balance sheet lists the debt obligations that a company must pay within 12 months as opposed to long term liabilities which a company may pay down over time in addition to the popular accounts payable item examples of current liabilities consist of things like short term loans from banks including a line of credit notes payable dividends and interest payable bond maturity proceeds payable consumer deposits reserves for taxes and accrued benefits and payroll depending on the company and its industry you will see many kinds of items listed under other current liabilities usually you can find explanations of these other liabilities somewhere in the company s annual report or form 10 k they also may be detailed in the footnotes to the financial statements often you can discern the meaning of the other current liability entry by its name for example if a business lists commercial paper or bonds payable as a current liability you can be fairly confident that the amount listed is what will be paid to the company s bondholders in the short term the same is true for accrued benefits and payroll these categories are monies owed to employees as bonuses and salaries which the company has not yet paid but needs to pay within the year | |
why use other current liabilities | financial statements can become quite complex if every asset and liability account were listed by line item the balance sheet could balloon to many pages which would be less useful to readers so some companies aggregate their balance sheet accounts for the sake of simplicity citing other current liabilities on one line as a catch all for liabilities coming due within the next 12 months that do not fit neatly into any other descriptive line item accounts that require greater transparency often become a single line item and accounts that are not essential to a firm s core operations may be grouped together as other special considerationsalthough the footnotes to the balance sheet contain much detail concerning the other current liabilities these should not be confused with off balance sheet financing activities whose disclosures are also included in the footnotes because off balance sheet financing adds the potential for manipulating financial statements these entries in the footnotes are often subject to intense scrutiny by auditors and investors using other current liabilities as a category is standard practice and does not need the level of review often seen with off balance sheet items | |
what are other long term liabilities | other long term liabilities are a line item on a balance sheet that lumps together obligations that are not due within 12 months these debts that are less urgent to repay are a part of their total liabilities but are categorized as other when the company doesn t deem them important enough to warrant individual identification understanding other long term liabilitiesliabilities are debts that a company owes they appear on the balance sheet and are categorized as either current they must be paid back within a year or long term they are not due for at least 12 months or the length of a company s operating cycle then there are other liabilities in financial statements companies use the term other to refer to anything extra that is not significant enough to identify separately because they aren t deemed particularly noteworthy such items are grouped together rather than broken down one by one and ascribed an individual figure other long term liabilities can be defined as the rest of the debts that a company is required to pay back in a period of a year or more that are not separately accounted for and identified in the company s balance sheet some companies disclose the composition of these liabilities in their footnotes to the financial statements if they believe they are material in many cases it is just a matter of presentation preference whether or not to itemize these material liabilities on the balance sheet or aggregate them under other long term liabilities and break the entry down in the notes indeed it is often possible to determine what makes up the specifics of other long term liabilities on a balance sheet by consulting the footnotes within the company s 10 k filing or annual report however this isn t always strictly necessary meaning that not all companies will provide additional details of these particular obligations types of other long term liabilitiesother long term liabilities might include items such as pension liabilities capital leases deferred credits customer deposits and deferred tax liabilities in the case of holding companies it can also contain things such as intercompany borrowings loans made from one of the company s divisions or subsidiaries to another special considerationslumping together a group of debts without identifying the nature of the debt might sound like a potential red flag in reality this practice is normal and shouldn t raise concern provided that the obligations in question are relatively small compared to the company s total liabilities they should also be comparable to how the company has operated in the past sometimes year to year comparisons of other long term liabilities are provided in financial statement footnotes if the amount of other long term liabilities as a percentage of total liabilities as displayed on the balance sheet is high enough to merit investigation and there is no associated note the analyst could call the investor relations ir contact to ask questions example of other long term liabilitiesford motor co f reported approximately 28 4 billion of other long term liabilities on its balance sheet for fiscal year fy 2020 representing around 10 of total liabilities in the notes to the financial statements the main components were broken down into pension liabilities other post retirement employee benefits employee benefit plans dealers customer allowances and claims and others 1 | |
what are other post employment benefits opeb | other post employment benefits opeb are the benefits other than pension distributions that employees may begin to receive from their employer once they retire other post employment benefits can include life insurance health insurance and deferred compensation these benefits are also referred to as other post retirement benefits 1types of other post employment benefitsthe main types of other post employment benefits are generally health insurance life insurance and deferred compensation here are more details about those benefits you may receive from your employer retiree health insurance is generally provided as part of a group plan much as it probably was when the employee was still working the group plan may be the same one offered to current employees or it may be a separate plan just for retirees in many cases if the retiree has enrolled in medicare the retiree coverage will be secondary that is medicare will pay its portion of medical bills and the retiree coverage will pick up some part of the remainder but terms can vary widely from plan to plan so retirees should check their employer s summary plan description spd for details 2like health insurance the life insurance that employers may provide to retirees is typically part of a group plan and generally comes in the form of term life insurance typically your coverage ends when your employment ends such as if you leave retire or are terminated deferred compensation arrangements which are also considered a post employment benefit pay the employee a salary or lump sum at some predetermined time typically after they retire these plans come in two distinct types qualified and non qualified but serve the same basic purpose which is to defer taxes while the employee is still working and provide income in the future ideally when that person is in a lower marginal tax bracket 3in addition to those other post employment benefits some employers may provide their retirees with dental and vision care legal services and tuition reimbursement among other benefits | |
which businesses offer other post employment benefits | businesses and other organizations that may provide benefits to employees after they retire include private sector companies state county and municipal governments and religious and educational institutions although these benefits are mostly employer paid retired employees may have to share a portion of the costs through copayments and deductibles as well as making contributions to the plan back when they were still working labor unions may also provide other post employment benefits to their members | |
how are other post employment benefits taxed | whether retirees must pay income taxes on their opeb depends on the type of benefit health insurance coverage is generally not taxable employer paid life insurance premiums may be partially taxable if the death benefit exceeds 50 000 4deferred compensation arrangements come in many different permutations in part depending on whether the employer is a for profit business or a government or not for profit entity either way the income from such an arrangement is generally taxed in the year that the retiree receives it 3most employers require that people who are 65 or older and eligible for retiree health benefits enroll in both medicare part a and part b according to the centers for medicare medicaid services 5 | |
are other post employment benefits guaranteed | retirees who receive other post employment benefits should note that unless there is a clear and specific agreement in writing their employer can often change or eliminate those benefits at its discretion according to the u s department of labor dol 6for that reason it s worth checking the summary plan description spd the employer or plan administrator must provide to see exactly how it refers to other post employment benefits such as health coverage 7if in the spd your employer has reserved the right to change the terms of your health plan you may lose coverage at any time during your retirement according to the department of labor if your employer agreed to provide specific health care benefits for a definite period of time or for life and they did not reserve the right to change the plan in any formal written plan document you should be covered 6implications for employersother post retirement benefits can be expensive for employers to fund and administer as with many forms of retirement compensation they also involve stringent reporting requirements among other useful resources the rules governing how companies should report pension costs and other post employment obligations are covered by the financial accounting standards board in compensation retirement benefits defined benefit plans general subtopic 715 20 8the american society of pension professionals actuaries asppa also offers advice for actuaries and others on how to comply with the required disclosure process 9 | |
what is the biggest other post employment benefit | the most significant other post employment benefit opeb is generally medical insurance but life insurance and and other benefits are also included in this term 10 | |
how does deferred compensation work | with deferred compensation the plan withholds a portion of your pay until a specific date usually when you retire it is part of your salary that is not paid or taxed until the future deferred compensation is usually used as an incentive to hold onto key employees 3can employer cut your retiree health benefits if your employer provided you with health benefits in your retirement years be aware that they could potentially cut those benefits under some circumstances private sector employers are not required to provide health benefits in retirement years and if they do they may legally cut back on those benefits unless they promised in writing not to do so 6the bottom lineunderstanding your other post employment benefits can help you better prepare for your retirement years consider consulting with a professional financial advisor to review your overall retirement plan and how any post retirement benefits you receive from an employer will play a role | |
what are other post retirement benefits | other post retirement benefits are benefits other than pension distributions paid to employees during their retirement years post retirement benefits may include life insurance and medical plans or premiums for such benefits as well as deferred compensation arrangements although these benefits are mostly employer paid retired employees often share in the cost of these benefits through co payments payment of deductibles and making employee contributions to the plan when required other post retirement benefits may also be referred to as other post employment benefits opeb understanding other post retirement benefitsthe benefits that fall within this category are all of the non cash payment benefits available to employees including dental vision care legal services and tuition credits these additional benefits along with traditional pension benefits can be a large expenditure for companies offering these plans especially if the plans are fully funded by the company the costs of these plans can be found in a company s financial statements usually in the notes which will also disclose the size of the obligation along with how well funded the fund is post retirement benefits may be provided by local and federal government agencies private and public companies and nonprofit institutions such as charities religious groups colleges and universities such benefits may be paid for in full or in part by the employer the retiree or a combination of the two other post retirement benefits and costdirect contributions that pay for any post employment benefits can expose an employer to certain risks and liabilities for example take the example of a former worker who is granted health insurance coverage at the cost premium rates as current employees typically a retired worker will be older than the average current employee and will therefore be more likely to incur higher medical expenses with this in mind insurers may charge higher group rates to employers who intend to keep retired employees on the plan however with medicare kicking in at 65 they would likely only be covering younger retired employees for a relatively short timespan as with other forms of retirement compensation other post retirement benefits can come with stringent reporting requirements due to their costs to an organization as well as for the overall return on investment compared to the value of the work employees have performed before retirement other post retirement benefits and compliancethe rules governing how companies report pension costs and obligations as well as the disclosure of pension assets and obligations are covered under accounting standards codification section 715 asc 715 formerly called the statement of financial accounting standards nos 87 88 158 the american society of pension professionals actuaries asppa provides a guide on how to manage the asc 715 process which describes the disclosure information for a client s financial reports as well as lists the methodology used to complete the required actuarial calculations | |
what is other real estate owned oreo | other real estate owned oreo is a bank accounting term that refers to real estate property assets that a bank holds but that are not part of its business oftentimes these assets are acquired due to foreclosure proceedings a large quantity of oreo assets on a bank balance sheet may raise concerns about the overall health of the institution understanding other real estate owned | |
when a real estate property is deemed real estate owned it means that the property is now owned by a lender because the borrower defaulted on their mortgage and the property did not sell at foreclosure auction banks are not typically in the business of owning real estate and end up in that position when something goes wrong with their borrower usually foreclosure a former premise of a bank that has not yet sold would be another example of a bank s oreo assets since the property is no longer income producing since the real estate is not being held as an income producing asset it is treated differently in the bank s accounting records and reporting the office of the comptroller of the currency occ regulates banks holdings of oreo assets 1 | special considerationsmost oreo assets are available for sale by the banks who own them many states have laws that regulate the acquisition and maintenance of oreo properties banks are generally required to maintain keep insurance on pay taxes on and actively market them 2 increasing oreo on a bank s balance sheet may indicate that the institution s credit is deteriorating while its non earning assets are growing since real estate is not a liquid asset high levels of oreo can harm a bank s liquidity 1 | |
what are out of pocket expenses | out of pocket expenses are costs that an individual is responsible for paying that may or may not be reimbursed later the term is most often used to describe an employee s work related expenses that the company later reimburses it also is used to indicate a health insurance policyholder s nonreimbursable share of medical expenses such as deductibles copays and coinsurance understanding out of pocket expensesemployees often spend their own money on business related expenses especially if they travel on behalf of a company these out of pocket expenses are typically reimbursed by the employer using a company approved process common examples of work related out of pocket expenses include airfare car rentals taxis or ride sharing fares gas tolls parking lodging and meals as well as work related supplies and tools the term is also used in health insurance policies to refer to the portion of a medical cost that the insurance company doesn t cover out of pocket healthcare expenses include deductibles copays and coinsurance 1health insurance plans have out of pocket maximums that are set by federal law these are caps on the amount of money that a policyholder must spend each year on healthcare expenses the affordable care act aca requires all group and individual plans to stay within annually updated guidelines for out of pocket maximums 3for 2022 the out of pocket limits are 8 700 for individual coverage and 17 400 for family coverage for 2023 the out of pocket limits increase to 9 100 for an individual and 18 200 for a family 1 plans can t have out of pocket maximums that exceed these limits but many offer lower maximums out of pocket maximums vs deductiblesin health insurance the deductible is the amount you pay each year for covered costs before the insurance coverage kicks in when the deductible is met the policyholder shares the costs with the insurance plan through coinsurance with an 80 20 plan for example the policyholder pays 20 of the cost while the plan picks up the remaining 80 the amount you pay for coinsurance as well as your copays and deductible all count toward the out of pocket maximum for the year when you reach your out of pocket maximum the plan pays 100 of covered costs for the rest of the year some plans have higher deductibles than others typically the lower the premium you pay the higher the deductible and the higher the premium you pay the lower the deductible a high deductible health plan hdhp can save you money in the form of lower monthly premiums you also may get a tax break on medical expenses through a health savings account hsa according to internal revenue service irs rules for the 2022 tax year an hdhp is a health insurance plan with a deductible of at least 1 400 for an individual plan or at least 2 800 for a family plan 4 for 2023 the numbers rise to 1 500 for an individual plan and 3 000 for a family plan 5for 2022 out of pocket costs may not exceed 7 050 for an individual or 14 100 for a family 6 for 2023 the figures are 7 500 for an individual and 15 000 for a family 7an hdhp provides 100 coverage for preventive services from in network providers before you meet your deductible 8for individuals who don t anticipate many medical expenses for the upcoming year it makes sense to minimize premiums and choose an hdhp since you probably won t need enough healthcare to get past the high deductible if you anticipate significant medical expenses a plan with a lower deductible but a higher premium would be preferable so that the insurance reimbursement kicks in earlier an hdhp allows the holder to contribute to an hsa policyholders in the 24 federal tax bracket who incur 3 000 in medical expenses can use an hsa to pay for them with pretax dollars hsas have annual contribution limits as well 9for the 2022 tax year the maximum allowable contribution is 3 650 for an individual plan or 7 300 for a family plan people ages 55 and older can contribute an additional 1 000 a year for the 2023 tax year the maximum allowable contribution is 3 850 for an individual plan or 7 750 for a family the catch up provision still applies | |
when deciding whether to choose a plan with a high or low deductible estimate your likely medical expenses for the year and research the premiums deductibles and out of pocket maximums for the available plans | examples of out of pocket expenseshere s an example of work related out of pocket expenses assume an employee has a meeting with a potential client the employee spends 250 on airfare 50 on uber rides 100 on a hotel and 100 on meals all charged to their own credit card after the trip the employee submits an expense report for 500 for their out of pocket expenses the employer then issues a reimbursement check for 500 to the employee one example of out of pocket health expenses is prescription medications many health insurance plans cover prescriptions but the amount you pay depends on your deductible responsibilities if you have not met your deductible amount you will have to pay out of pocket for any prescription medications until you have however some health insurance plans allow generic drugs to be purchased at discounted rates regardless of whether the annual deductible has been met some medical plans have a combined medical and prescription deductible here s an example lisa has a 2 500 combined deductible she has already paid 2 350 in out of pocket expenses toward her deductible and now needs to purchase 150 worth of prescription medicine lisa s out of pocket cost will be 150 however her combined deductible will now be met for the year | |
when you have met your deductible you may still have to pay an amount for each prescription for example a plan might state that you must pay 10 for each refill of generic drugs or prescription medicine meaning your out of pocket cost will be 10 for each prescription | other types of out of pocket expensesin the real estate industry out of pocket expenses refer to any expenses above and beyond the mortgage itself that the buyer incurs during the sale process these costs vary depending on local property and real estate but they typically include the cost of a home inspection appraisal fees and escrow account deposits as well as closing costs which can include loan origination fees attorney fees and property taxes out of pocket expenses and tax returnssome out of pocket expenses can be deducted from your personal income taxes 2 for example income tax deductions are still available for expenses related to charitable donations and unreimbursed medical expenses since the passage of the tax cut and jobs act tcja of 2017 individuals can no longer deduct unreimbursed business expenses 1011though tax deductions don t represent a direct reimbursement there is an ancillary benefit to them because claiming these expenses as a deduction can lower your tax burden for the year moving expenses according to the irs are costs the taxpayer incurs as a result of relocating for a new job or transferring to a new location however the tcja eliminated the deduction of moving expenses for tax years 2018 through 2025 except for members of the military on active duty who move as the result of a military order 1012members of the armed forces can use irs form 3903 to claim the cost of moving expenses as federal income tax deductions 12active duty members of the u s military can deduct moving expenses if they incurred them in response to a military order that requires a permanent change of station the expenses that qualify include the cost of packing crating hauling in transit storage and insurance 13if the government provides and pays for any of your moving or storage expenses you should not claim these expenses as a deduction on your taxes 12 | |
what does out of pocket mean | an out of pocket expense is a payment you make with your own money whether or not it is reimbursed it could be a business expense such as paying for a flight that is reimbursed by your employer or a health expense that you pay before your total outlay reaches the insurance deductible | |
what is the difference between a deductible and an out of pocket expense | a health insurance plan s deductible and its out of pocket limit both represent points at which the insurance company pays for all or some of your subsequent health costs however they are two different things the deductible is the amount of money you have to pay on your own every year for your covered medical expenses before your insurance company starts picking up the bills the out of pocket limit is the maximum amount of your own money you will have to pay for all of your insured healthcare during the year the out of pocket limit is your total expenditure in the year including your deductible payments your coinsurance and your copayments if your plan has them up to a total dollar amount the out of pocket limit is set by federal law for the 2022 tax year your costs may not exceed 7 050 for an individual or 14 100 for a family 6 for 2023 the figures rise to 7 500 for an individual and 15 000 for a family 7 | |
what is not an example of an out of pocket expense | the monthly premium you pay for your healthcare plan does not count as an out of pocket expense out of pocket costs include deductibles coinsurance and copayments for covered services plus all costs for services that aren t covered | |
is it better to pay out of pocket or use health insurance | it is tempting to get a high deductible plan choosing to pay out of pocket for routine healthcare in return for lower monthly premiums that can work if you don t have considerable medical expenses it could get expensive if you unexpectedly need substantial medical care | |
when choosing a healthcare plan it is wise to estimate what your healthcare costs may be each year before deciding on a low deductible high premium or high deductible low premium plan | also consider that your healthcare needs will change as you age when you have a family and when your income changes all these factors will affect how much coverage you need and what level of out of pocket costs you can afford | |
what is an out of pocket maximum | an out of pocket maximum is the most you have to pay per year for covered healthcare services when you have spent this amount in your plan year on deductibles copayments and coinsurance for in network care and services your health insurer will pay for 100 of your healthcare services 1an out of pocket maximum helps you to control the cost of your healthcare because you know the maximum you will ever have to pay in a year the out of pocket maximum for marketplace plans can t be above a set amount each year for the 2022 plan year this amount is 8 700 for an individual and 17 400 for a family 1out of pocket maximums help individuals and families avoid major financial problems associated with high healthcare costs in years when they need a lot of treatment there are some exceptions though so make sure you understand what is and isn t covered otherwise you may end up with a nasty surprise understanding out of pocket maximumsin general an out of pocket maximum is the most you have to pay per year for covered healthcare services when you have spent up to this amount on your healthcare in a year your healthcare insurer will pay for 100 of your healthcare costs deductibles copayments and coinsurance all count toward your out of pocket maximum under the affordable care act in practice however it s a little more complicated than that for example there are some costs that aren t included in your out of pocket maximum these include these exceptions mean that even when you reach your out of pocket maximum for the year you will still have to pay your premiums to stay covered you should also be careful to use in network healthcare providers if you want to control the costs of your healthcare because out of network costs don t count toward your out of pocket maximum also costs that aren t considered covered expenses don t count toward the out of pocket maximum for example if the insured pays 2 000 for an elective surgery that isn t covered that amount will not count toward the maximum this means that you could end up paying more than the out of pocket limit in a given year the highest out of pocket maximum you will have to pay is controlled by federal law the government has set limits that control how much healthcare insurers can charge for covered services per year these are different healthcare plans have different out of pocket maximum limits so you may have a choice when it comes to your out of pocket maximum in general you should choose the plan with the lowest out of pocket maximum this will keep the maximum amount you spend per year as low as possible however insurance companies balance the out of pocket maximums they offer against the premiums they charge this means that plans with low out of pocket maximums have high premiums and vice versa for example health insurance marketplace bronze and silver health plans generally have lower monthly premiums and higher out of pocket limits the gold and platinum plans which have higher monthly premiums typically have lower out of pocket limits 3lower income individuals and families may qualify for reduced out of pocket maximums through cost sharing reduction discounts to be eligible you must meet income requirements and enroll in a health insurance marketplace plan in the silver category 4cost sharing reductions offer a range of benefits these are just examples though in order to see how cost sharing reductions can affect how much you pay for healthcare shop for silver plans in the marketplace 4there are also special cost sharing reduction rules for american indians and alaska natives out of pocket maximum vs deductiblean out of pocket maximum is different from a plan s deductible the money you pay for covered services goes toward your deductible first the deductible is the amount you must pay before your insurance kicks in then when you ve met the deductible you may be responsible for a percentage of covered costs this is called coinsurance these payments count toward your out of pocket maximum when you reach that amount the insurance plan pays 100 of covered expenses out of pocket maximum examplehere s an example of how out of pocket maximums work suppose your out of pocket maximum is 6 000 your deductible is 4 500 and your coinsurance is 40 if you have covered surgery that costs 10 000 you ll first pay your 4 500 deductible which then leaves a 5 500 bill because your coinsurance is 40 you would owe another 2 200 and the insurance company would cover the remaining 3 300 that is if you didn t have an out of pocket maximum however your annual expenses are capped at 6 000 you ve already paid 4 500 so you pay only 1 500 of the 5 500 balance the insurance company picks up the remaining 4 000 your total cost for the surgery is 6 000 and follow up visits with your in network doctor are paid by your insurance because you ve already met your out of pocket maximum for the year the bottom linean out of pocket maximum is in general the maximum you will pay for healthcare in a year however there are important exceptions so make sure you understand what is and isn t covered in your out of pocket maximum lower income individuals and families may qualify for reduced out of pocket maximums through cost sharing reduction discounts to be eligible you must meet income requirements and enroll in a health insurance marketplace plan in the silver category | |
what is out of the money otm | out of the money otm is an expression used to describe an option contract that only contains extrinsic value these options will have a delta of less than 0 50 an otm call option will have a strike price that is higher than the market price of the underlying asset alternatively an otm put option has a strike price that is lower than the market price of the underlying asset otm options may be contrasted with in the money itm options investopedia julie bangoption basicsfor a premium stock options give the purchaser the right but not the obligation to buy or sell the underlying stock at an agreed upon price before an agreed upon date this agreed upon price is referred to as the strike price and the agreed upon date is known as the expiration date an option to buy an underlying asset is a call option while an option to sell an underlying asset is called a put option a trader may purchase a call option if they expect the underlying asset s price to exceed the strike price before the expiration date conversely a put option enables the trader to profit on a decline in the asset s price because they derive their value from that of an underlying security options are derivatives an option can be otm itm or at the money atm an atm option is one in which the strike price and price of the underlying are equal or very close to equal out of the money optionsyou can tell if an option is otm by determining what the current price of the underlying is in relation to the strike price of that option for a call option if the underlying price is below the strike price that option is otm for a put option if the underlying price is above the strike price then that option is otm an out of the money option has no intrinsic value but only possesses extrinsic or time value being out of the money doesn t mean a trader can t make a profit on that option each option has a cost called the premium a trader could have bought a far out of the money option but now that option is moving closer to being in the money itm that option could end up being worth more than the trader paid for the option even though it is currently out of the money at expiration though an option is worthless if it is otm therefore if an option is otm the trader will need to sell it prior to expiration in order to recoup any extrinsic value that is possibly remaining consider a stock that is trading at 10 for such a stock call options with strike prices above 10 would be otm calls while put options with strike prices below 10 would be otm puts otm options are typically not worth exercising because the current market is offering a trade level more appealing than the option s strike price out of the money vs in the moneyan option is said to be in the money itm when the current market price of the underlying asset is above the strike price for a call option or below the strike price for a put option for example if the market price of a stock is 60 per share and the strike price of a call option is 50 per share then the option is itm because the holder of the option can exercise it and buy the stock at 50 per share which is below the current market price similarly if the market price of the stock is 40 per share and the strike price of a put option is 50 per share then the option is itm because the holder of the option can exercise it and sell the stock at 50 per share which is above the current market price an option is said to be out of the money otm when the current market price of the underlying asset is below the strike price for a call option or above the strike price for a put option for example if the market price of a stock is 40 per share and the strike price of a call option is 50 per share then the option is otm because the holder of the option cannot exercise it profitably at this time similarly if the market price of the stock is 60 per share and the strike price of a put option is 50 per share then the option is otm because the holder of the option cannot exercise it profitably at this time 1options that are itm generally have higher premium than options that are otm because they give the holder the right to buy or sell the underlying asset at a favorable price however it s important to note that the value of an option is also affected by other factors such as thedelta is a risk measure that estimates the change in an option s price given a 1 change in the underlying security otm options have deltas that are less than 0 50 in absolute value while itm options have deltas that are greater than 0 50 an option whose strike price is just at or very close to the underlying market price is said to be at the money atm atm options have a delta close to 0 50 2out of the money options examplea trader wants to buy a call option on vodafone stock they choose a call option with a 20 strike price the option expires in five months and costs 0 50 this gives them the right to buy 100 shares of the stock before the option expires the total cost of the option is 50 100 shares times 0 50 plus a trade commission the stock is currently trading at 18 50 upon buying the option there is no reason to exercise it because by exercising the option the trader has to pay 20 for the stock when they can currently buy it at a market price of 18 50 while this option is otm it isn t worthless yet as there s still potential to make a profit by selling the option rather than exercising for example the trader just paid 0 50 for the potential that the stock will appreciate above 20 within the next five months prior to expiration that option will still have some extrinsic value which is reflected in the premium or cost of the option the price of the underlying may never reach 20 but the premium of the option may increase to 0 75 or 1 if it gets close therefore the trader could still reap a profit on the otm option itself by selling it at a higher premium than they paid for it if the stock price moves to 22 the option is now itm it is worth exercising the option the option gives them the right to buy at 20 and the current market price is 22 the difference between the strike price and the current market price is known as intrinsic value which is 2 in this case our trader ends up with a net profit or benefit they paid 0 50 for the option and that option is now worth 2 they then net 1 50 in profit or advantage but what if the stock only rallied to 20 25 when the option expired in this case the option is still itm but the trader actually lost money they paid 0 50 for the option but the option only has 0 25 of value now resulting in a loss of 0 25 0 50 0 25 | |
what happens to an out of the money option at expiration | at expiration out of the money options expire worthless | |
why do out of the money options have value prior to expiration | out of the money options still have time extrinsic value this is because there is some probability that the option will finish in the money come expiration thus the longer until expiration the more valuable an out of the money will be all else equal since with more time there are more chances for the underlying to move favorably 3 | |
what is the most out of the money option | an option with a zero delta would be the most otm option since it has effectively zero chance of finishing in the money such an option would also probably be very close to worthless it will also have a delta very close to zero the bottom lineout of the money otm refers to options that do not have any intrinsic value they only have extrinsic or time value for a call option to by otm it will have a strike price that is above the current market level an otm put with have a strike price that is below the current market price at expiration if an option is out of the money it will expire worthless otm options can be contrasted with in the money itm or at the money atm options | |
what is outcome bias | outcome bias arises when a decision is based on the outcome of previous events without regard to how the past events developed outcome bias does not involve analysis of factors that lead to a previous event and instead de emphasizes the events preceding the outcomes and overemphasizes the outcome unlike hindsight bias outcome bias does not involve the distortion of past events understanding outcome biasoutcome bias can be more dangerous than hindsight bias in that it only evaluates actual outcomes for example an investor decides to invest in real estate after learning a colleague made a big return on an investment in real estate when interest rates were at a different level rather than look at other factors that could have resulted in the colleague s success such as the health of the overall economy or performance of real estate the investor is focusing on the money made by the colleague gamblers also fall prey to outcome bias while statistically casinos come out ahead far more regularly many gamblers use anecdotal evidence from friends and acquaintances to justify their continued playing this outcome bias that continuing to play could result in winning a large amount of money prevents the gambler from leaving the casino in business settings an overemphasis on performance is increasingly creating an outcome centric culture which often exacerbates people s fears by creating up a zero sum game in which people are either succeeding or losing and winners quickly get weeded out from losers as an example few would argue with the impressive growth of social media companies during this growth only a handful of individuals cautioned against the methods by which growth was generated upon learning personal and private user data was a significant driver of growth the outcome bias of social media is on full display in effect ethical lapses are generally overlooked during successful outcomes however bad outcomes are far more likely to produce active condemnation | |
what is an outlay cost | an outlay cost is a cost incurred in order to execute a strategy or acquire an asset outlay costs are also paid to vendors to acquire goods such as inventory or services such as consulting or software design they are concrete expenses that are actually incurred in order to achieve a goal | |
how outlay costs work | outlay costs are easy to recognize and measure because they have actually been paid to outside vendors as opposed to opportunity costs which are not actually incurred and paid to outside parties by the company for corporations outlay costs for new projects include start up production and asset acquisition costs they can also include hiring costs for strategies or projects that require an addition to the workforce in order to be carried out special considerationsoutlay costs include the expenses paid by a business in order to manufacture a product or provide a service and also include fees paid to outside parties to acquire assets or services in cash accounting outlay costs immediately reduce earnings in accrual accounting outlay costs are split across all the periods that the expense applies to and matched to related revenues outlay costs do not include foregone profits or benefits such costs are known as opportunity costs and are hidden but an important component of a business s profitability outlay cost vs total costoutlay costs sometimes referred to as explicit costs are direct expenses paid these expenses can be one time such as repair bills or recurring e g subscription services direct costs can also be predictable e g rent or vary such as utility bills meanwhile the total cost is both the outlay cost and opportunity cost so while outlay costs include direct payment total costs include any indirect losses or missed benefits that is opportunity costs are those benefits a business misses out on by choosing one option over another example of an outlay costfor example if xyz manufacturing company wants to purchase a new widget press they will not only have to pay for the widget press but for the fees associated with transporting the widget press to their facility as well as the costs for getting the widget press up and running and possibly expenses for training workers to use the new widget press all of these are outlay costs associated with acquiring a new widget press then there are the implied costs of choosing one widget press over another in addition the other opportunity costs include choosing the widget press over another type of equipment or method | |
what does outperform mean | in financial news media outperform is commonly used as a rating given by analysts who publicly research and recommend securities if they change their rating on a particular security to outperform from market perform or even underperform then something has changed in their analyses that makes them believe the security will produce higher returns for the foreseeable future than the major market indexes another common usage of this term is as a description of how the returns of one investment compare to another between two investment choices the one with better returns is said to outperform the other this is most commonly applied to a comparison between one investment and the market in general investment professionals almost always compare investment returns with a benchmark index such as the s p 500 index so the term is often used in reference to whether a particular investment has outperformed the s p 500 | |
what makes a company outperform | an index is composed of securities from the same industry or of companies that have a similar size in terms of market capitalization any factor that helps a company generate proportionally more revenue and more profit than its peers in an industry grouping will see its share price appreciate faster this outperforming appreciation can happen for a variety of reasons excellent management decisions market preferences network connections or even luck any decisions made by senior management that help a company grow revenue and earnings faster than its competitors are highlighted as a sign of excellence these characteristics help the company build a reputation for being more likely to bring a new product to market quickly and capture more market share analysts identify these conditions and use them to forecast price appreciation for high performing companies for example if an investment fund uses the standard poor s 500 index as a benchmark and if the portfolio manager of that fund analyzes stocks with a market capitalization similar to securities in the index and forecasts that 15 particular stocks will generate a higher rate of earnings per share eps than the average for the index based on this analysis the mutual fund increases its holdings in the 15 stocks that are expected to outperform the index examples of analyst ratingsa rating is an analyst s opinion on the rate of return for a particular company s stock which includes the stock s price appreciation and dividends paid to shareholders the investment industry does not have a standard method that is used by all analysts to rate stocks a higher rating means that the stock s price will outperform similar companies over a specified period the most common use of outperform is for a rating that is above a neutral or a hold rating and below a strong buy rating outperform means that the company will produce a better rate of return than similar companies but the stock may not be the best performer in the index an analyst s performance is evaluated based on how stocks actually perform after a rating is assigned | |
how portfolio managers are ranked | if a portfolio manager consistently picks stocks that outperform the benchmark the investment fund they work for will produce a higher rate of return and those in the financial media will take notice money managers are ranked based on the portfolio rate of return and how those returns compare to the benchmark financial sites such as morningstar group funds by benchmark and rank every fund in order according to its performance relative to the index financial sites also compare the return generated by a fund to the volatility of the portfolio over time | |
what is outplacement | outplacement is any service that assists a departing employee with obtaining a new job or transitioning to a new career access to outplacement services is offered by some employers as an employee benefit for their staff outplacement services can be beneficial for all parties monetarily professionally and emotionally and more often than not ensure a peaceful end to a working relationship understanding outplacementno one likes to be fired or laid off from a job or to deliver the news to someone else but going above and beyond a severance package by providing outplacement services can help both parties through an often rough transition sometimes services are offered in house by the company that s letting an employee go others hire a third party when it s necessary to keep expenses lower or if tensions or awkwardness are particularly high outplacement services were traditionally provided at an outplacement firm so that the former employee could have access to office tools such as a phone and computer that they needed in order to write resumes and cover letters and find new employment today many employees have home offices and may only need to visit an outplacement firm for career counseling if at all since counseling may also be done over the phone either way the services remain the same resume and cover letter writing coaching market analysis fine tuning interviewing skills salary negotiation and other services designed to give an ex employee the best opportunity for finding another job as quickly as possible benefits of outplacement servicesfrom an employee s perspective the outplacement certainly lightens the emotional load that comes with a job loss it s often overwhelming enough to find a pink slip on your desk outplacement services can often help with feelings of insecurity embarrassment anger or fear of the unknown which make a job search that much more difficult on the other hand employees should recognize that employer paid outplacement services will in the end be incorporated into the employer s total labor cost that means that any money the employer pays for outplacement could be made up by lowering total compensation in other ways some employees may prefer to have more cash so that they can self insure against the possibility of job loss or for other uses if they know that their job is secure from an employer s perspective providing outplacement services can show that the company truly cares about the person as a human being and could go a long way toward thwarting any revenge insurers who provide insurance against the risk of wrongful termination lawsuits look favorably at firms that have a solid outplacement plan as it can reduce the risk of costly legal problems compassionate outplacement may also reduce the risk of workplace violence and active shooter situations it s also a way to keep an ongoing relationship with an employee that s particularly important if it involves a layoff due to downsizing not poor performance or behavior or the person leaves on their own accord it s in a company s best interest to be encouraging and supportive if it has an eye on possibly rehiring the person at a future time if conditions change the other aspect of providing outplacement services that bodes well for companies is the possibility of saving money on unemployment claims while companies do not pay extra when a former employee files a claim that s approved the annual tax rate they pay to the state toward unemployment can be affected that s because that rate in some states is determined by the number of claims past employees make in a year on the cost side employers should consider the normal and expected rate of turnover in their labor force frequent or large layoffs can considerably increase the cost of providing outplacement service employers should plan ahead and budget the expected cost of outplacement into their total labor cost | |
what is an output gap | the term output gap refers to the difference between the actual output of an economy and the maximum potential output of an economy expressed as a percentage of gross domestic product gdp a country s output gap may be either positive or negative a negative output gap suggests that actual economic output is below the economy s full capacity for output while a positive output suggests an economy that is outperforming expectations because its actual output is higher than the economy s recognized maximum capacity output | |
how an output gap works | the output gap is a comparison between actual gdp and potential gdp or output and maximum efficiency output 1 this is difficult to calculate because you can t estimate an economy s optimal level of operating efficiency there is little consensus among economists about the best way to measure potential gdp but most agree that full employment is a key component of maximum output 2one method that can be used to project potential gdp is to run a trend line through actual gdp over several decades or enough time to limit the impact of short term peaks and valleys by following the trend line you can estimate where gdp currently sits or what it will be at a particular point in the near future 2determining the output gap is a simple calculation of dividing the difference between the actual and potential gdp by the potential gdp because potential output isn t observable it s often determined using historical data positive and negative output gapsan output gap is an unfavorable indicator of an economy s efficiency regardless of whether it s positive or negative a positive output gap indicates a high demand for goods and services in an economy which may be considered beneficial for an economy 1 but the effect of excessively high demand is that businesses and employees must work beyond their maximum efficiency level to meet the level of demand a positive output gap commonly spurs inflation in an economy because both labor costs and the prices of goods increase in response to the increased demand a negative output gap on the other hand indicates a lack of demand for goods and services in an economy and can lead to companies and employees operating below their maximum efficiency levels 1 this type of output gap points to a sluggish economy and portends a declining gdp growth rate and potential recession as wages and prices of goods typically fall when overall economic demand is low advantages and disadvantages of the output gapthe output gap is a very important economic indicator while there are distinct advantages to using this metric its use does come with certain drawbacks we ve listed some of the most common benefits and limitations to using the output gap below because the output gap relies on the gross domestic product in its calculation it helps provide a picture of how the economy is doing more specifically it can be used as a way to determine whether the economy is underperforming or is growing too quickly 1 that s because this gap can help determine the rate of inflation in an economy the output gap can help policymakers come up with solutions to move the economy in a more favorable direction therefore it plays a very key role in how they make their decisions about both fiscal and monetary policy 13 for instance the federal reserve will raise interest rates to curb inflation and vice versa because the output gap is used by both economists and analysts on the street the general public can also use it to make informed decisions about their finances and investments 4 for example a homeowner may decide to hold off on refinancing their mortgage if the output gap means there s a chance that interest rates will increase one of the main problems with the output gap is that it is hard to measure the level of actual output is easy to determine because we know what s happening but potential output isn t that easy to calculate because we can t determine it the latter is a figure that can only be predicted or estimated 1 | |
how the potential output is measured can be problematic in fact there isn t just one way to do so analysts and economists may use different filters or models to do so for instance some experts may compute the potential output as the trend output while others consider it as the trend growth 1 | another limitation to the output gap lies in how intertwined relationships are within the economy for example a less active workforce will lead to a drop in output similarly distressed small businesses and corporations and tighter lending standards during tough economic times can also have a big impact on the potential output 1it provides a picture of how the economy is doing policymakers are able to use output gap to help make decisions consumers and investors can make informed decisions about their finances and investments output gap is hard to measure because we can t observe potential output there is no uniform way to measure potential output potential output relies heavily on relationships that are intertwined in the economy real world example of an output gapthe actual gdp in the u s was 21 48 trillion through the fourth quarter of 2020 according to the bureau of economic analysis 5 according to the federal reserve bank of st louis the potential gdp for the u s in the fourth quarter of 2020 was 19 41 trillion meaning the u s had a positive output gap of about 10 7 projected gdp subtracted from actual gdp projected gdp 6keep in mind that this calculation is just one estimate of potential gdp in the u s other analysts may have different estimates but the consensus is that the u s was facing a positive output gap in 2020 not surprisingly the federal reserve bank in the u s has consistently been raising interest rates since 2016 in part in response to the positive gap rates were at less than 1 in 2016 and hit as high as 1 25 in the early part of 2020 the global financial crisis though forced the fed to drop rates back down below 1 in mid march 2020 7potential output faqspotential output is what an economy can produce if it operates at full employment gdp this is generally the highest level if and when the economy is doing very well unlike actual output which is what currently happens potential output cannot be measured and therefore relies on estimation an economy s output gap can deviate from its potential in one of two ways a positive output indicates the economy is performing well above expectations that s because the actual output is higher than its potential it may also be negative when the output is below full capacity governments may find that reducing government spending as well as cutting down transfer payments and their bond and security issues can help reduce an inflationary output gap | |
when an economy is in recession it means that its actual output gap is lower than the potential output gap | governments can move the economy back to its potential gdp by taking a number of steps including but not limited to reviewing tax rates and rebates making moves on interest rates and cutting or increasing government spending the direction they choose depends on whether the actual output is positive or negative | |
what is an outright forward | an outright forward or currency forward is a currency contract that locks in the exchange rate and a delivery date beyond the spot value date it is the simplest type of foreign exchange forward contract and protects an investor importer or exporter from exchange rate fluctuations understanding outright forwardsan outright forward contract defines the terms rate and delivery date of the exchange of one currency for another companies that buy sell or borrow from foreign businesses can use outright forward contracts to mitigate their exchange rate risk by locking in a rate that they deem to be favorable for example an american company that buys materials from a french supplier may be required to provide payment for half of the total value of the euro payment now and the other half in six months the first payment can be paid for with a spot trade but in order to reduce currency risk from the possible appreciation of the euro vs the u s dollar the american company can lock in the exchange rate with an outright forward purchase of euros the price of an outright forward is derived from the spot rate plus or minus the forward points calculated from the interest rate differential a point to note is that the forward rate is not a forecast of where the spot rate will be on the forward date a currency that is more expensive to purchase for a forward date than for spot date is considered to be trading at a forward premium while one that is cheaper is said to be trading at a forward discount the spot foreign exchange market generally settles in two business days with the exception of the usd cad which settles on the next business day any contract that has a delivery date that is longer than the spot date is termed a forward contract most currency forward contracts are for less than 12 months but longer contracts are possible in the most liquid currency pairs foreign exchange forward contracts can also be used to speculate in the currency market settlementan outright forward is a firm commitment to take delivery of the currency that was purchased and make delivery of the currency that was sold the counterparties must provide each other with instructions as to the specific accounts where they take delivery of currencies an outright forward can be closed out by entering into a new contract to do the opposite which can result in either a gain or loss versus the original deal depending on market movements if the close out is done with the same counterparty as the original contract the currency amounts are usually netted under an international swap dealers association agreement this reduces the settlement risk and the amount of money that needs to change hands |
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