Found 96 Articles for Academic Content

A derivative is a financial instrument which measures the value of an underlying assets. The value is depending on market conditions. Most common derivatives are forwards, futures, options and swaps.Derivatives provide leverages.Derivatives makes profit.Derivatives mitigate risk.Derivatives create option ability.Hedgers, speculators, margin traders and arbitrageurs participates in derivatives market.Derivative categories are as follows −Forward commitments.Contingent claims.Some of the advantages of derivatives are as follows −Decrease the risk.Market efficiency.Diversification of portfolio.Price lock.Choice of leverage.Some of the disadvantages of derivatives are as follows −High risks.More speculations.More complicated.Hard to value.Sensitive to supply and demand factors.Derivatives used in India are as follows −Forward contracts − ... Read More

Foreign direct investment (FDI) is the investment made by a company (one country) with another company/corporation in another country, either to buy a company in specified country or to expand business in the specified country.If an investor obtains a 10 voting power in a firm is called lasting interest. If a firm has to be considered, its investment as FDI is established its lasting interest. FDI is important for developing countries and emerging markets, as they need funding and expand their sales internationally.Methods of FDI are as follows −Mergers and acquisitions.Joint ventures.Types of FDIs are mentioned below −Horizontal − A ... Read More

The types of factoring are explained below −Recourse factoring − In this, client had to buy back unpaid bills receivables from factor.Non – recourse factoring − In this, client in which there is no absorb for unpaid invoices.Domestic factoring − When the customer, the client and the factor are in same country.Export factoring − It involves four parties, the exporter, the export factor, the import factor and the importer. It is also called as cross border factoring.Disclosed factoring − If factor name is represented on the invoice of the goods or services and asks customer to pay the factor.Undisclosed factoring ... Read More

In international factoring, the exporter will hire the factor who works for a factoring firm. The factor is responsible for all the cash flows. The factor is the guarantee for the import price of goods to the exporter.Functions of international factoring are as follows −Factor hire a local person to deal with the importer.Factor will look into financial aspects between exporter and importer.Factor will look for strong financially potential importer in the market.Factor collect their requirement from importer and he will pay if importer fails.Types of international factoring are as follows −Two factor system.Single factor system.Direct export factoring.Direct import factoring.Some ... Read More

Non – recourse factoring is an agreement made between factor and the client in which, there is no absorb for unpaid invoices.Higher fees.Lower liability.Unpaid invoices are not covered.Rate ranges from 3-5 %.A non – recourse factoring does not offer you protection, if there exists any of the below mentioned conditions −Customer is not satisfied with your service/products.There is delay in payments.There are disputes between invoices and pay.If there are any credit issues or any insolvency, they will make payments.Benefits of Non- recourse financing are as follows −Transfer of insolvency.Strong capital.Administrative costs decreases.Assessment of risk profile is done by factor.Client reliability ... Read More

Recourse factoring is an agreement between client and factor in which, client had to buy back unpaid bills receivables from factor. In case of default payers factor can claim their money, agreement will specify in how many days the payment should refund in advance. Whether money will refund or not, we have to still pay interest and fee.Replace with goods invoice with same value as of unpaid invoice.Pay with the help of withheld fees.Pay in instalments.Uses of recourse factoring are as follows −Creditworthy invoice clients.Need not pay high fees.Access to capital.Access to capital.Regular cash flows.Improves payment flows.Improves competitiveness.Some of the ... Read More

Factoring is a financial arrangement between the company and financial institute, in which company get money in form of advance in return for receivables from financial institution. In this, company is called client and financial institution is called factor. Factoring agreements involves the factor, the client and a customer.Functions of a factor are as follows −Maintain accounts.Providing advisory services.Providing short-term finance.Providing credit protection.Providing collection facilities.Features of factoring are as follows −Clients credit is covered through advances.Cash advances.Collection services.Provide advice.Steps involved in factoring are as follows −Customer places an order to seller.Agreement is made between the factor and seller.Sale contract is ... Read More

Leverage lease is an agreement between lessor and lender. This agreement tell that lessor purchases the asset from the lender by acquiring funds from third part or from taking loan from financial institutions.In this, the lessor transfers lease rents to financial institution or to the third party. The financial institutions or third party charges loan instalments and balance amount (if any) will be transferred to lessor.Characteristics of leverage ratio are mentioned below −Transfer ownership to the lessor at the end of lease.Lessee can buy the asset below fair value.Lease terms is for about 3/4th of asset economic life.Minimum lease payments ... Read More

Operating leverage is ratio between company’s fixed costs to its variable cost. It tells about how company is using its fixed cost to regenerates its revenue. If the fixed costs are high, company generates high leverage ratio which leads to high profits.If the fixed costs are low, company will generate low leverage ratio and leads to low profits. Operating leverage calculates company’s breakeven point and tells about the effectiveness of pricing structure.Scenarios of leverage ratio are as follows −High operating cost − Company will earn larger profit, when it attains sufficient sale volume to cover its fixed cost.Low operating cost ... Read More

The main objective of leverage is the maximisation of wealth of the shareholders. Financial leverage refers to buying the additional assets which company uses as its debt. The more the debt, more the leverage of that company.However, more leverage will increase risk of failure. It is also called as trading on equity. Financial leverage represents left hand side of balance sheet.Increase value of asset shows gain in owner’s cash.Decrease value of asset shows loss in owner’s cash.Measure of financial ratios are as follows −Debt ratio = (debt/total assets)Debt ratio = (debt/total assets)Interest coverage ratio = (profits/interest)Degree of financial leverageDegree of ... Read More