If your broker decided to give you a grade on your trading tactics, based on whether the trades you were making added any value to your portfoliowhat kind of marks would you receive? It may seem like an outlandish concept, but one online brokerage did just that—and the results are somewhat surprising. The investors who…
What Is a Strip? A strip is a bond coupon that has been removed from the bond so that the two parts can be sold separately, as an interest-paying coupon bond and as a zero-coupon bond. This process is handled by the brokerage or other financial institution that sells the products. A strip is also…
What Is the Zero-Volatility Spread (Z-Spread)? The Zero-volatility spread (Z-spread) is the constant spread that makes the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where cash flow is received. In other words, each cash flow…
A Standard & Poor’s Depositary Receipt, or SPDR, is a type of exchange traded fund that began trading on the American Stock Exchange (AMEX) in 1993 when State Street Global Advisors’ investment management group first issued shares of the SPDR 500 Trust (SPY). Sometimes called “spiders,” SPY is an ETF based on the S&P 500…
What Is an Overhead Ratio? An overhead ratio is a measurement of the operating costs of doing business compared to the company’s income. A low overhead ratio indicates that a company is minimizing business expenses that are not directly related to production. The Formula for the Overhead Ratio Is The overhead ratio is arrived at…
What is a Constant Dollar? A constant dollar is an adjusted value of currency used to compare dollar values from one period to another. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal…
The Federal Reserve, as well other other central banks around the world, change interest rates in an effort to keep the economy stable and inflation in check. When the economy is growing, interest rates may rise to clamp down rising prices – and interest rates may be cut when the economy slows and recessions loom….
What Is an International Banking Facility (IBF)? An International Banking Facility allows depository institutions in the U.S. to offer deposit, loan, and other banking services to foreign residents and institutions while being exempted from the Federal Reserve’s reserve requirements as well as some state and local income taxes. Key Takeaways International banking facilities (IBFs) allow depository institutions…
What Is an Interest Rate Derivative? An interest rate derivative is a financial instrument with a value that is linked to the movements of an interest rate or rates. These may include futures, options, or swaps contracts. Interest rate derivatives are often used as hedges by institutional investors, banks, companies, and individuals to protect themselves…