Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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22 views

What happens in this scenario

Bank a lends to bank b. Then, bank b lends to bank a. Then, both banks become insolvent. How can the banks be dissolved if there is no solvent entity to be the bankruptcy trustee?
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Can someone please explain how personal savings and fiscal deficit are related in this context?

The lines which i have highlighted is what I want to be explained to me. This is with reference to indian economy
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2 Questions on this Article-Interview by Vanity Fair with the film-maker of the 'China Hustle' documentary

I recently watched the 'China Hustle' Documentary (you can get a quick synopsis look on the Wikipedia article if you're not acquainted with the documentary, but it may not be necessary to answer my ...
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Correcting high AR(1) coefficients in dynamic Gordon model

I have just finished my thesis on a heterogeneous dividend expectations model applied to the COVID-19 crisis. However after receiving some feedback there is one last issue I want to resolve. I'm using ...
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1answer
40 views

Proof that stochastic discount factor is positive in complete markets

I am looking for a reference (with a proof possibly) to understand why the completeness of markets implies that the stochastic discount factor is strictly positive in the context of intertemporal ...
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28 views

Is it easier to profit from selling, than buying, options?

Reasons 1-3 and 4-6 below look correct. Is the author's conclusion correct though? To make a profit on the buying side: You have to be directionally correct. The price must go up for calls, down for ...
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1answer
41 views

Nelson-Siegel-Svensson method

I am a college student and I have recently learned about Nelson-Siegel-Svensson method which is used by the German Federal Bank to determine the yield curve. I have to generate yield curves of ...
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1answer
85 views

What is the difference between conditional and unconditional risk premia?

This is an asset pricing question. What is the difference between conditional and unconditional risk premia? Here's the context: The fact that carry trade strategies typically earn positive average ...
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Does anybody knows where I should look for a proxy for consumption to estimate a two factor C-CAPM?

Has anybody seen, any textbook recommendation that refers to the proper proxy for consumption. I am trying to estimate a two factor consumption CAPM, namely we I add a second factor apart from ...
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Macroeconomics differences of 2008 financial crisis and 2020 economic crisis

How is 2020 financial crisis different from 2008 financial crisis? For example, why have stock market indices (e.g. S&P500, NASDAQ-100) recovered so quickly (about 3 months instead of longer than ...
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15 views

Free Cash Flow and stock prices

There is this concept of free cash flow. Now, I have heard is the amount of money left after you reduce from the net income all other expenses that relate to labor and investment and so on. That is ...
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Why would a lay investor care about a Leveraged ETF's Exposure Before and After Reset?

I don't understand the "Exposure Before Reset" and "Exposure After Reset" columns below. To wit, why multiply by $-2$ the: Index Level? The $-2X$ ETF Index Level? Doesn't the Leveraged ETF owner ...
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37 views

Transparent Fractional-reserve banking as an alternative to the current system

I come from a layman perspective, but I've been trying to understand macroeconomics and finance. Currently I'm struggling with the current topic. Here I'm not worried about the system transition just ...
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53 views

What determined the “cost of borrowing money” or the interest rate in a gold-based economy

In the modern economy, the central bank decides the cost of borrowing money using interest rates along with other several tools and technic. But I was wondering, in a gold-based economy (not the gold ...
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How does this graph show 3000 In the Money June 19 $130 puts traded?

Does this graph imply 3000 ITM 6/19 $130 puts traded? How? I don't see "3000" or "puts" or "6/19".
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1answer
42 views

Data analysis with GARCH modeling

I'm currently analyzing the relationship between stock, bonds, and real estate returns in Germany. I've gathered my data and am planning on estimating this equation: $\sigma_t = \beta_0 + \beta_1 R_{...
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Somers’D and Gini coefficient: differences

I would like to know what are the differences between somers’d value and the Gini coefficient. I have the following values for factors: ...
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2answers
5k views

How to calculate average buy price when you buy, sell and rebuy

I wanted to get my avaerage buy price for some stocks I bought and see if I made money. So far for just buying and then later selling I have been calculating the avaege buy price using this formula <...
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33 views

How is it cheaper to take on debt when taking on a project?

They mention that interest is tax deductible, so you pay lower taxes. But the tax is lower because your EBT is lower than your EBT if you didn't take on debt. I understand that taking on debt benefits ...
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1answer
19 views

Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?

According to investopedia.com in this definition A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell ...
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Calculation of theoretical futures value

we form a stock index by using only two stocks in the index. One of the stocks is the Stock-A. The current selling price of the stock-A is 103 dollars and the second stock is the stock-B. The current ...
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31 views

Why is it that when a bank provides loans to people, it is considered a 'liability' on the bank's balance sheet? (Khan Academy Video-Related)

I am watching the Khan Academy Banking Video Series: (https://youtu.be/On3c86V5A_E) . (https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/money-and-banking/banking-and-...
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68 views

Who has the unspent money?

I want to know why we don't talk about the money that people have saved because they are not going to restaurants, barbershops, flying, traveling, etc. I have heard the restaurant business is in the ...
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Is there a difference between settlement price vs market delivery price or are they the same thing?

I've been learning about Futures Contracts on Khan Academy (The finance related forum on there is quite old and no one has replied to my questions in the past) and the instructor has used the term "...
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Is there a definition for ROAS that is not dimensionless?

The most common definitions for ROAS are revenue/cost and (revenue - cost)/cost or ...
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1answer
123 views

Why will Australia increase its interest rate only after the US increases its interest rate?

According to this article, Australia will increase its interest rate only when the US increases its interest rate. The Aussie dollar (AUD) keeps going down, which is not very good for importing ...
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2answers
786 views

Who owns German debt?

I know that Germany has huge external debt. I don't know how to find out which entities own this and especially which country they belong to.
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208 views

International Capital Asset Pricing Model (CAPM)

I wanted to value a High-tech start-up of which I have the cash flows of the coming 6 years. I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate. For a High-...
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1answer
31 views

What data/factors/attributes do the professionals monitor in a top-down analysis on the macroeconomics?

I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me. ...
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1answer
54 views

Value of money (incomes) question - what is the “r” here?

I would like some help with a fairly basic "value of money" question. (I'm very much a beginner in this field so please bear with me.) I'm writing about income changes throughout a decade (2010-2019)....
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36 views

What is the difference between the discount window and Fed repos?

I'm wondering how the Fed's discount window differs from it's involvement in the repo market. To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, ...
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1answer
23 views

How do you read currency exchange rates in terms of domestic and foreign currency?

I am having some issues understanding how to read exchange rates. E is the exchange rate I read online that if we have for example E\$/€, then the base currency in this case is the dollar and the ...
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Black-Jensen-Scholes(1972): Why a portfolio alpha solve the problem of the cross-sectional non-independence?

In this paper:Black F, Jensen M C, Scholes M. The capital asset pricing model: Some empirical tests[J]. Studies in the theory of capital markets, 1972, 81(3): 79-121. It states that One procedure ...
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81 views

Forward rate discounts

I'm working with the following task: "You are convinced that the bond market is dominated by long-term investors. Hence, you have your own view on the liquidity premium/discount that forward rates ...
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51 views

Correlation between nominal bond returns and growth

I read the following passage and the bolded section has me confused: In theory, assets earn a low (or negative) risk premium if they tend to perform well when the economy is weak. When growth ...
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If a put seller shorted 7500 shares, and a put buyer exercised 49 contracts, why'd the put seller still be short 2600 shares?

I don't understand Wikipedia's example on Pin risk (options). As I colored in green, the put buyer exercises $\color{LimeGreen}{49}$ contracts. The bolded sentence presumes that the trader already ...
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1answer
45 views

Beginner wanting to learn about economics/finance to explore career options?

I want to explore the banking/financial industries more for potential career options, can you recommend any books/ free online courses and sources in general as a starting point to build on my ...
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What institutions are examples of “shadow banking”?

I often hear the term shadow banking tossed around when discussing the United States and Chinese economies. What exactly is shadow banking and could you give examples of some specific companies that ...
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How can I calculate returns for each three investment strategies?

Assume that the price of DF stock went from a price of $104 on March 2 to 146 on April 1. With a current stock price of 146, there is a call option available on the DF stock with an exercise price ...
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2answers
64 views

Clarification on amortization of constant payments

I have found this formula on wikipedia : $$P=C_k(1+i)^ {(n-k+1)}$$ which describe the constant payment that has to be paid every year ($C_k$ is the part of the initial loan that is extinguished with ...
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21 views

Risk neutral probability for each of 3 states

I need help to find the risk-neutral probability for states 1,2 and 3 I have two stocks: A and B. The price of A today is 180 and in a year it will be worth 288 (S1), 180 (S2) or 120 (S3); The ...
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34 views

Why does Samuelson say common stocks are better than bonds and preferred stocks during inflation?

I’m reading the first edition of Paul Samuelson’s Economics (1948). In Chapter 6, “Business Organization and Income,” after describing bonds, preferred stocks, and common stocks, he writes: To test ...
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342 views

Show that $W_t - \int_0^t \xi_s ds$ is forward-measure-Brownian

Definitions and stuff: Consider a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ where $$T > 0$$ $$\mathbb P = \tilde{\mathbb P}$$ This is risk-...
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248 views

Who invented these key notions in Finance?

We often give credit to the origins of academic achievements. The Black-Scholes equation or the Gibbons Ross Shanken (GRS) test etc. What about Net Present Value (NPV), Internal Rate of Return (IRR),...
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77 views

Can central bank interest rate hikes lead to a price gain in equities?

I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest ...
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1answer
33 views

Financial Economics and Corporate Finance

In pg 4 of Principles of Corporate finance (Allen et al, 2017), in the context of explaining financing decisions are less important that investment decisions, there is a line that says: "Financial ...
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Arbitrage checking (one step price tree)

I have a questions on arbitrage. These questions are from my lecture notes. And I don’t understand their some points. Ex1: there is a single step market as follows here, there are two securities ...
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29 views

What does it mean for a firm to have a 0.95% dividend?

Here's an Apple's dividend: What does this 0.95% mean? Is it 0.95% of share capital? If not, what does it mean?
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He, Krishnamurthy (2013)

How do you derive equation (10) on page 740 from He, Krishnamurthy (2013 AER)? They say that "Given the log objective function in equation (8), the risky asset household chooses $\alpha_t^h$ to solve ...
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Is there a relationship between stock market hedge fund leveraging and the repo market?

Lately there have been many articles attempting to link repo-market borrowing with equity market increases. 1 I can see a link if the hedge fund is buying treasuries or mbs and financing it by using ...

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