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Derivative (finance)

Derivative (finance)
Many money managers use derivatives for a variety of purposes, such as hedging — by taking a position in a derivative, losses on portfolio holdings may be minimized or offset by profits on the derivative. Likewise, derivatives can be used to gain quicker and more efficient access to markets; for example, it may be easier and quicker to purchase an S & P 500 futures contract than to invest in the underlying securities.[3] Derivatives are a contract between two parties that specify conditions (especially the dates, resulting values and definitions of the underlying variables, the parties' contractual obligations, and the notional amount) under which payments are to be made between the parties.[4][5] The most common underlying assets include commodities, stocks, bonds, interest rates and currencies, but they can also be other derivatives, which adds another layer of complexity to proper valuation. Still, even these scaled down figures represent huge amounts of money.

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In Climbing Income Ladder, Location Matters ATLANTA – Stacey Calvin spends almost as much time commuting to her job — on a bus, two trains and another bus — as she does working part-time at a day care center. She knows exactly where to board the train and which stairwells to use at the stations so that she has the best chance of getting to work on time in the morning and making it home to greet her three children after school. “It’s a science you just have to perfect over time,” said Ms. Calvin, 37. Her nearly four-hour round-trip stems largely from the economic geography of Atlanta, which is one of America’s most affluent metropolitan areas yet also one of the most physically divided by income. Stock For "capital stock" in the sense of the fixed input of a production function, see Physical capital. For the goods and materials that a business holds, see Inventory. Shares[edit] Shares represent a fraction of ownership in a business. A business may declare different types (classes) of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate.

Equity derivative Equity options[edit] Equity options are the most common type of equity derivative.[1] They provide the right, but not the obligation, to buy (call) or sell (put) a quantity of stock (1 contract = 100 shares of stock), at a set price (strike price), within a certain period of time (prior to the expiration date). Warrants[edit] Margin (finance) Margin buying refers to the buying of securities with cash borrowed from a broker, using other securities as collateral. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value—the difference between the value of the securities and the loan—is initially equal to the amount of one's own cash used. This difference has to stay above a minimum margin requirement, the purpose of which is to protect the broker against a fall in the value of the securities to the point that the investor can no longer cover the loan. The variation margin or mark to market is not collateral, but a daily payment of profits and losses.

The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans Economic expansions are supposed to be the good times, the periods in which incomes and living standards improve. And that’s still true, at least for some of us. But who benefits from rising incomes in an expansion has changed drastically over the last 60 years. Pavlina R. Futures contract While the futures contract specifies a trade taking place in the future, the purpose of the futures exchange institution is to act as intermediary and minimize the risk of default by either party. Thus the exchange requires both parties to put up an initial amount of cash (performance bond), the margin. Additionally, since the futures price will generally change daily, the difference in the prior agreed-upon price and the daily futures price is settled daily also (variation margin).

Rent Vs Buy Calculator The Rent vs. Buy Decision For a long time, the common wisdom was that buying a home was a far better financial choice than renting one. Cascading failure An animation demonstrating how a single failure may result in other failures throughout a network. A cascading failure is a failure in a system of interconnected parts in which the failure of a part can trigger the failure of successive parts. Such a failure may happen in many types of systems, including power transmission, computer networking, finance and bridges. Poor kids who do everything right don’t do better than rich kids who do everything wrong Source: Data from Richard Reeves and Isabel Sawhill Not a day seems to go by where we're not reminded that inequality is growing in America. But it's not just outcomes that matter; it's opportunity.

Debt A debt is an obligation owed by one party (the debtor) to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.[citation needed] A debt is created when a creditor agrees to lend a sum of assets to a debtor. Debt is usually granted with expected repayment; in modern society, in most cases, this includes repayment of the original sum, plus interest.[1]