Author: John

Static Trade-Off Theory

A company’s capital structure defines the mix of equity and debt finance used to finance its activities. For every company, the capital structure will differ based on its needs and usage. This combination of equity and debt finance may also vary during a period or from one year to another. …

Interest Rate Swap Hedging Example

What is Hedging? Hedging is a process that investors use to protect their finances from any risks. In other words, hedging is the process that investors use to mitigate their risks. They do so to reduce the chances of losses or offset their assets against the losses. Hedging is also …

Convertible Bond Tax Treatment

A convertible bond is a type of bond that comes with the right to convert the debt into equity instruments. Investors that invest in these bonds get the benefits of other debt instruments while also getting the option to receive equity investments. Convertible debts come with interest payments and face …

Interest Rate Swap in Hedge Accounting

Risk represents the probability that the actual results differ from the expected results. Entities, including individuals, companies, organizations, and other bodies, face risk in their transactions. It also includes the possibility that losses occur for these entities. When transacting in financial markets, facing risks is inevitable. However, there are various …

Convertible Bond vs Warrant

Investing in a company’s equity instruments is straightforward. Investors pay to receive a company’s stock, which gives them the right to receive dividends and voting rights. However, there are some instruments that investors can convert into equity instruments in the future. Among these, the two common ones that investors usually …

Interest Rate Swap Tax Treatment

Interest rate swaps are a primary type of hedging methods used by participants to mitigate their risks. With these swap contracts, participants can exchange their interest payments with another party to receive favourable terms in the future. There are several types of interest rate swaps that participants can use for …

What Is A Convertible Bond Fund

Investors have many options when it comes to investing in bonds. Usually, investors can get bonds directly from the issuer. These issuers may include municipalities, government agencies, or companies. On the other hand, investors can also invest in funds that offer convertible bond investments. Among these investments, investors can choose …

The Bird in Hand Theory

What is the Bird in Hand Theory? The bird-in-hand theory suggests that investors would prefer dividends from stock investments over capital gains. This theory believes that investors are likely to favour returns that are certain rather than uncertain. Because of the uncertainty involved around capital gains, the bird-in-hand theory assumes …

High-Water Mark in Hedge Funds

Hedge funds represent alternative investments where investors pool funds and employ different strategies. The goal with hedge funds, as with any other investment, is to earn active returns. Hedge fund managers gather funds from investors and invest them according to a promised strategy. However, hedge funds are mostly available to …

Internal Credit Rating System

Default risk is a type of risk that accompanies all debt obligations. Default risk represents the uncertainty associated with repayments from borrowers. In case these risks realize, lenders can suffer a substantial amount of losses. Therefore, they need to protect against such occurrences. Usually, lenders check the borrower’s creditworthiness to …