DEBT---------- Views & Ideas

Debt is invariably a financial term frequently used and is created when a Creditor agrees with a Debtor to lend some money/ assets for some fixed tenure with an expected repayment and is usually borne with Interest attached with it. In Other terms we may say that debt refers to consuming or using future purchasing power in present. Standard of Deferred Repayment denotes the process and agreement on basis of which repayment shall be done having consent of both the parties.

There can be various Types of Debt depending upon the nature and characteristics:-

1) Secured

2) Unsecured

3) Private

4) Public

5) Syndicated

6) Bilateral

Apart from these there are some debts that have mixed features of the above mentioned.

Debt is often sought after and required for business purpose, investment strategies, purchasing goods and services at present with debt having used future purchasing power. However Debt has a long term effect on any country. Over volume debt has long term effect on National output and economic growth, infact there remains an impact with inflation as well as deflationary situation of a country.

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Pamela

Concept and Charges of credit card.

CREDIT CARD is often refereed to as plastic money and invariably has come up as one of the modern day variant of hard cash. It has developed a lot of convenience though it’s service does not come for free. There are a lot of charges and fees attached with it.

Let us sum up some important ones out of them.

FEES mainly include Annual fees. Annual fees depicts the charge which comes as a service charge a person pays to the credit card company. It varies anything between $15 and $ 60. Again there are exceptions to this feature since a lot of credit card companies don’t charge annual fees. It has also been seen that even after availing chargeable card, the charges have been waived off.

COST may include total annual cost which is quite important to ponder on. This follows a mathematical rule of fees (annual) plus the interest charges accrued plus any other charges. For a better usage of cards it is often said to understand the facts and figures.

RATES include Introductory Rate which is a charge applicable when a card is issued though nominal, is often variable. Talking about Annual Percentage Rate, it is an interest rate charged on any carry forwarded balance. There are two variety of APR and usually we see that fixed APR remains a bit higher than variable APR. But there always remain a problem with variable rate since it’s floating in nature, we don’t know what the rate can be.

Other fees will apply on your credit card varies due to various reasons. Late payment regularly draws late fines and charges. One should always remember the credit limit. ATM withdrawal service does not come for free and such charges have a different interest rate than a charged purchase.

However it all depend how a person realizes his strength and weaknesses and judicial approach to deal with their credit card.

Thanks

Pamela

Credit Card Reality

With high ride in market, debt has increased in leaps and bounds which had real acceleration from credit card companies and now the situation is completely different. They realize that the hard pressed Americans will not be able to pay their bills as the economy deteriorates.

The scenario is such that lenders and collectors are pushing themselves an extra yard to collect what ever they can before situations runs out of their hand. They are even forgoing parts of their money and debts due from the clients end. They are even stretching their time to extract what ever remains viable for them to recover from the debt ridden clients.

It is visible that big settlements have dried up. Banks and credit card companies are trying to gather their liquidity as much as they can. Data shows that Bank of America has constantly been waiving of debts, lowering interest rates, reducing loan balances, and this may provide much needed oxygen to the bank clients. Like wise several others like American Express, Chase Card are taking care of their clients who are on the verge of falling behind their bills and dues. It has been seen that several people are benefited with 20 to 70 percent waive off from their credit card bills. Thousands and billions of dollars are forgone with this ease out process. In past it has been seen that people are dishing out money from home equity, fetching money from retirement benefit funds / savings or by taking loans, going for help from known persons or from debt consolidation consultancy. While mortgage loans which are often big and complex, credit card issues are handled on individual basis. Also we see that credit score of the clients shooting down sharply.

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Pamela

Water

Data : Death of 1.6 million children per year.

Cause : Global water crisis.

Various arguments, meetings held for economic loss compounded by misuse of natural resources affecting economic development and crisis of water is no less significant.Europe uses an average of 200 litres of water per person, States consumes around 400 litres while developing nations consume around 10-12 litres of water though of inferior quality mostly contaminated water.

According to the Stockholm International Water Institute the degree of the crisis is at its peak. Statistics reveal that over 20 percent of global population faces acute shortage of water supply, hygiene and proper sanitation remains a day dream. In fact it acts as a accelerator for human degradation.

Passing through the phase of food crisis, economic slow down, environmental degradation sustainability of livelihood has become a real hardship for many. In fact global water consumption is doubly co-related with rise in population. With no substitute and rising cost, avoiding the burning matter shall aggravate the problem.According various apex bodies like Asian Development Bank, World Health Organization, UNO the task is quite uphill one with Sub Saharan Africa, various poor Asian countries will not witness the development in coming half a century. Economic Loss, degradation of humanity, loss of real man power if computed will account to incurring Credit Liability of Global Accounts.

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Pamela

Car Dealer : Thinking to buy?????????????????????
Person : Well well need to think over it!!!
Car Dealer : (After a long pause) OK......................!!

Recession in car sales

American car dealers are in real rough patch in this economic down turn.Will this recession eat up even more??? Will this recession be averted?? History says it is quite difficult. in fact down turn has began and car sales have taken the early hit.

The graphical representation makes it quite clear the percentage change in sales of new cars with time horizon of 1 year with 12 months before.

Adjusting it with inflation it is not positive, rather it 2% down. The down fall continued with figure slipping down to around 2.5 % by July.

A little introspection in this can help a lot. If we go back to mid 90’s

American Economy saw no happy feet in fact on contrary there has been several recessions.Even with several other indicators we cannot deny the hit of new car market. According to census bureau officials, revenue has been halved, keeping aside sales of parts, repair and services. Soaring gas prices, oil prices, liquidity crunch are just adding fuel to fire.

Thanks

Pamela

BOND MARKET


The bond market which is popularly known as Debt market, Credit or Fixed Income market is a platform where there are market participants in the form of buyer and seller buying and selling debt securities which usually are in the form of bonds. Bond market is often used as reference with respect to Interest rate or the Yield Curve graph since there is an inverse relationship between interest rate and bond valuation. Bond market usually means Government bond market & Government backed ones because of its size, nature of liquidity, absence of credit risk and hence response to change of interest rate.

Data shows that international bond market size has been around $ 50 trillion in 2006/07, while the USA bond market debt outstanding amount around $26-$27 trillion. Estimated data as of early 2007 shows that daily trading volume in USA hovers around $900 billion, transactions largely occurs around among broker – Dealer and Institutional Participants which is otherwise termed over the counter (OTC) market.
Bond/ Debt markets are mainly decentralized and absences of certain exchanges like cash, future and commodity markets. This has occurred as no two bond issues are exactly alike, and the number of different outstanding securities is far larger.

Market Structure
Market participants are essentially either Buyers (debt issuer) of funds or sellers (institution) of funds or often both.
Categorizing Participants:-
• Institutional investors
• Governments
• Traders
• Individuals

Investment in Bond market
Financial Institutions or Investment companies allow individual investors to participate in the bond markets through bond funds, funds of closed-end variant and unit-investment trusts.
To brush through Bond market often we come across Primary market, secondary market.
The Primary market deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funds through bond issuance. The Secondary market refers to the stage where previously issued financial tools like stocks, securities, bonds, futures and options transactions take place. Dealers out here in this market are often referred to as Satellite Dealers and here new investors can purchase from other investors in the secondary market or the aftermarket.


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Pamela

HEDGE FUNDS

While there can be numerous ways & tools of investment,let us take a snap shot of one financial product which has strong presence but not with too much fan following and it is hedge funds.
Hedge fund is an investment type of unique approach and can be said as financial tool with diversified activities quite different from any other fund type as well as it is accessed by limited number of investors as per regulation.
Considered as class investment taking into account shares, debt instruments, commodities, and various asset classes into its portfolio, hedge fund have its orientation quite different from each other visible from their objectives hence adheres to with different methodology in approaching investment.
Why Hedge??
These funds often seek to pacify potential losses in the markets they invest in by hedging their investments using a variety of methods, most notably short selling. Over the period of time, however, though said that hedging reduces risk but itself the process of hedging
actually increases risk with expectation of capital appreciation.
Hedge funds meant for certain elite society and provides them with an exemption in many jurisdictions from regulations over short selling, leverage, fee structures derivative contracts, and the liquidity of interests in the fund.
Structure of Hedge Fund
A hedge fund is a tool of investing where money is pooled. Other than fund asset portfolio and cash money there is no other asset holding for the fund investment while its investors are its clients.
Talking about the service providers they are:-
Broker: Service provided against prime brokerage includes money lending, standing as counter party for derivatives, transaction of securities for short selling, clearance and settlement. Brokers popularly termed prime brokers acted as prime functionary as that of bank.
Administrator: They function mainly as operational back bone of the fund by processing
Purchase, redemption requests, issuance of interest, computing NAV.
Distributor - They are responsible for marketing the fund to potential investors and mobilization of cash fund for investment. Frequently this role is taken by the hedge fund manager.

Impact of Oil Price

Oil is one of the most important accelerator for an economy to grow. In fact it’s one raw material for any sector which if faces supply bottleneck has a tremendous negative impact to stagnate the growth of an economy.
However according to various studies and even the reports of IMF shows that oil prices has witnessed a steady growth over a period of time. While the over all oil consumption has not reduced but the fluctuations in the oil market has definite impact on any country, be a first world nation or a third world country or emerging economy like China and India. We have witnessed that oil consumption has regular impact on GDP of any country. Russia witnessed a sharp decline in Gross Domestic Product in line with the decline in consumption of oil. There has been a rise in cost of production of goods and services along with rise in demand, profit margin has declined. It has also witnessed wage price ratio tilting towards lowering of real income.
First World Nations are witnessing several impacts depending upon the complexity of their respective economy. The inflationary impact and monetary policy response are most significant in the United States and European nations, reflecting a combination of relatively high energy consumption (which increases the inflationary impact in the United States), inertia in the inflation process (which is particularly important in the euro area, with its labor market rigidities), and differences in resistance to real income losses. However US has faced lesser negative trait on trade due their own capacity and supply of petroleum, European countries and Japan has taken a beating worse than USA.USA, European nations, Japan has faced inflationary impact out from the oil price shock which affected their respective GDP to some respect. But thanks to their resource availability and modernization and capital intensive approach towards production they have maintained resilience towards the price shock.
Developing nations and Transition Economies have faced a different scenario with respect to oil price hike over years. Two all together different aspects rounded up here, while the oil importing countries had huge dependency in importing oil. their terms of trade worsened with the hike in oil price, they benefited with certain fall in price but getting squared up with rise in domestic demand and no self reliance to improve their own production it hardly mattered, while oil exporting nations had direct impact even more to face with standing of their economy has only a base on petro dollar. It signifies their reliance on oil export heavily.
Resulting impact however has retaliated result for oil exporting countries. United Arab Emirates had a large current account surplus and that the oil price increase is expected to further increase that surplus by more than 5 percent of GDP.
Major emerging nations have been in rough with rising oil price. Asia experiences the largest negative impact on growth. Latin America, emerging Europe and Africa are less adversely affected by the oil shock owing the larger influence of net oil exporters in aggregate activity.
Oil Importing HIPC and CIS Countries have visualized tremendous pressure in the
rising oil price phase. Heavily Indebted Poor Countries (HIPC countries) have significant low world market share, their per capita income is also poor, hence their terms of trade declined and had huge current account deficit, a feature quite common with transition and emerging countries. Majority of the Commonwealth of Independent States (CIS) countries, are net oil importers and has faced similar problem of HIPC countries.
OPEC countries has improved their terms of trade, their GDP rose sharply approximately around 7% annual growth.

Impact in financial Status of the countries
In the Stock markets, an increase in oil prices would be expected to lead initially to a weakening in the earnings of firms producing energy intensive output and in their market valuations. Rise in cost of production, fall in profit margin and consequent decline in GDP. Oil price rise has been directly responsible for the recent turbulence in advanced country financial markets and movements in currency markets.

While the impact accounts a lot for any country, developed nations moving miles ahead, riding on technological accelerator, time has arrived to accept the over riding
impact on financial sector and slow but steady approach to plug in alternative energy.

Thanks
Pamela

Investment & Risk Appetite

Investment in general terms relates to putting in money in some variety of financial tools with an aim to appreciate the valuation of the capital invested. However a lot of factors are involved in the scenario. Every financial product has its own variety of risk attached with it, market risk being an inherent one. Talking about financial products under major parts it includes equity, bonds, mutual funds, debentures, government securities, municipal bonds, fixed deposits, insurances and lot more. Degree and nature of risk varies from product to product and it also shows the risk appetite and individual’s perception towards the product. 

Let us talk over some major investment products. While Equity is company issued shares and carries maximum risk, the risk return ratio of equities is also high. Capital loss risk being viable out here, it requires a lot of understanding and research. Difficult yet most important sought after component being understanding when to buy in and when to come out. However given the choice of convenience, liquidity, cost of investment and total opportunity of creating a tailor made equity portfolio, cash market witness maximum churning of money and forms the back bone of any country’s financial health. Equity market performance thus reflects the out come of equity investments both at micro and macro level. The most regularly quoted market indices are broad-base indices comprised of the stocks of large companies listed on a nation's largest stock exchanges, such as the British FTSE 100, the French CAC 40, the German DAX, the Japanese Nikkei 225, the American Dow Jones Industrial Average and S&P 500 Index, the Indian Sensex, the Australian All Ordinaries and the Hong Kong Hang Seng Index.

Here we can say that given time frame of a long horizon [> 1 year] equity returns are positive but obvious proposition lies beneath is the investment value of time associated with it: opportunity cost of investment.

Bonds are one of the safer bet among various instruments of investments being issued by financial institutions, government sector, corporate bonds, high yield bonds, mortgage bonds, public sector companies. Bond market closely relates to market movement quite similar to cash market, bonds carries a certain amount of promised return, however it carries it own variant of risk. Issuer default risk, bond market risk, interest rate risk (IRR). Even though less liquidity, longer time frame and more cost of investment, on risk return analysis bond is less risky, low income generating than equity investment. Mentionable US bonds can be Lehman U.S Aggregate, Saloman Big, Merrill lynch Domestic Master, CPMKTB- The capital market Markets Bond Index.. A few government bonds index like- Saloman Smith Barney World Government Bond Index, J.P Morgan Government Bond Index and lot more.

With lesser fluctuations compared to cash market or equity market, investment in bonds can be a well measured step.

Mutual Funds investment may be observed as good option with risk lover and averter simultaneously given the nature of fund to strike the investment. Carrying the variant of equity funds, debt funds, liquid funds, gilt funds and sub categorizing them even further gives a handsome amount of choice to deal with. While equity funds carries maximum risk compared to other category, income generation is also maximum. However other variants, market risk when taken into consideration, most variety of choices can be made in mutual funds, depending on the time horizon..

However when talking about risk, it actually refers to monetary loss, capital depreciation, opportunity cost of investment on a definite time frame. All said it remains a personal call to choose from, to invest in, time, risk appetite and an obvious introspection and analysis.



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