Credit risk refers to the uncertainty associated with repayments from borrowers. When a lender provides a loan to a borrower, they expect future interest and principal repayments. However, borrowers may not fulfill their end of the bargain. For every debt transaction, credit risk will exist. Therefore, lenders always have to …

What is the Law of One Price? The Law of One Price (LOOP) is an economic theory that suggests that after accounting for the difference in currency exchange rates, the prices of identical goods in various markets will be the same. This law applies to financial markets and the securities …

What is a Swap Rate? A swap rate is a fixed rate that comes with swaps. The rate differs based on the parties involved in the contract and the market in which they transact. There are various types of swap rates, such as the interest rate swap or currency swap. …

Forward rate and spot rate are two terms used to describe different aspects of interest rates. These are common in various markets. However, they have different meanings according to the market where they are prevalent. These are most common in bond markets but may also apply to other contracts or …

Determining the value of a public company is relatively straightforward. That is primarily due to the vast amount of publicly available information. Some analysts may provide these valuations for free to the general public. However, the same does not apply to private companies. Determining the value of a private company …

What are Generally Accepted Accounting Principles? Generally Accepted Accounting Principles (GAAP) represent a set of accounting standards, rules, and principles issued by the Financial Accounting Standard Board (FASB). GAAP is one of the two prevalent accounting standards used throughout the world, the other being IFRS. While IFRS has a worldwide …

What is an Interest Rate Swap? An interest rate swap is a type of financial derivatives that allows participants to exchange their interest payments. With interest rate swaps, two parties can enter a forward contract to pay off each other’s interest payments. Usually, both parties agree on the terms of …

The price-to-earnings ratio is among the most prominent metrics that investors use when making investment decisions. It is straightforward to calculate and also provides a tool for investors to compare various stocks. Another reason why investors prefer the P/E ratio is that they can use it in other useful ratios. …

The Price-To-Earnings ratio is an essential ratio for investors and measures a stock’s price in relation to the underlying company’s earnings. Other names for it are price or earnings multiple. P/E ratios are a critical comparison tool used by investors to evaluate various investments. There are different types of P/E …

Businesses and companies follow various accounting standards to prepare and present their financial statements. These standards regulate how companies account for transactions. Some countries may have their specific standards. However, most of these companies use variations of international standards already developed by standardized bodies. When it comes to international accounting …