Abu Yahya's definitions
(FINANCE) a financial derivative whose underlying asset is a stock. The simplest kinds include the equity swap and the option.
As opposed to currency derivatives, interest rate derivatives, commodity derivatives, and so on. An equity swap typically involves an "equity side" of the transaction AND something else, like interest rates or oil prices.
Equity derivatives can be written on indices (e.g., the S&P 500, the FTSE-100, NASDAQ) as well as on stocks. In fact, they are often bought "out of the money" by mutual fund managers as insurance against a catastrophic decline in the fund value.
As opposed to currency derivatives, interest rate derivatives, commodity derivatives, and so on. An equity swap typically involves an "equity side" of the transaction AND something else, like interest rates or oil prices.
Equity derivatives can be written on indices (e.g., the S&P 500, the FTSE-100, NASDAQ) as well as on stocks. In fact, they are often bought "out of the money" by mutual fund managers as insurance against a catastrophic decline in the fund value.
One other reason that poison pills are back in favor is the growth of synthetic equity derivative swap transactions, where a “short party” agrees to pay a “long party” the cash flows from a particular amount of a target company’s stock. In exchange, the long party agrees to pay a fee and to cover any decrease in the market value of the stock ... Through such transactions, a long party can suddenly become a significant stockholder of a target company without warning.
--Dykema Gossett & Andrew H. Connor "The poison pill resurgence," Lexology (15 March 2010)
--Dykema Gossett & Andrew H. Connor "The poison pill resurgence," Lexology (15 March 2010)
by Abu Yahya April 15, 2010
Get the equity derivativemug. *noun*; prolonged economic crisis characterized by drastic (i.e., >20%) decline in output, reduction in employment, and deflation. Other technical conditions include a liquidity trap and "permanent" (i.e., persisting in many sectors for several quarters) failure to reach equilibrium.
Usually the word "depression" (when referring to economics) is used to refer to the Great Depression, although in fact there were eight incidents of a global depression between 1815 and 1922. These were
--- 1815-21
--- 1832-33
--- 1837-44
--- 1854-57
--- 1867-68
--- 1876-79
--- 1893-96
--- 1920-22
In addition, there have been many localized depressions, panics (e.g., the 1907 Panic {USA}, followed by the Mexican Depression of 1908), and recessions.
DIFFERENCE BETWEEN RECESSION & DEPRESSION
The technical distinction between a recession and depression can vary, although economists usually agree on which is which. In Keynesian economics, a depression is defined by the existence of a flat liquidity-money (LM) curve (which means that interest rates have no influence on people's determination to hold their wealth as cash); and/or a nearly vertical investment-savings (IS) curve (which means interest rates have no influence on the willingness of entrepreneurs to expand/continue operations).
In contrast, a recession is a much less drastic event. Interest rates still have influence on investment and liquidity, and there is no deflation. Conventional fiscal policy and monetary policy, combined and in moderate doses, can restore full employment.
Neoclassical economics/New Classical economics defines a recession as a shift in people's income/leisure preferences as the result of a technology shock. The technology shock sharply reduces the returns to labor, so workers are paid less and many withdraw their labor from the market. In a depression, the technology shocks are compounded and cause a permanent change in the production function; large numbers of enterprise are no longer viable.
More generally, a recession involves the downward phase of a routine business cycle; these typically occur every three-seven years. A depression represents a partial collapse of the industrial system, and a comprehensive collapse of the financial system.
Usually the word "depression" (when referring to economics) is used to refer to the Great Depression, although in fact there were eight incidents of a global depression between 1815 and 1922. These were
--- 1815-21
--- 1832-33
--- 1837-44
--- 1854-57
--- 1867-68
--- 1876-79
--- 1893-96
--- 1920-22
In addition, there have been many localized depressions, panics (e.g., the 1907 Panic {USA}, followed by the Mexican Depression of 1908), and recessions.
DIFFERENCE BETWEEN RECESSION & DEPRESSION
The technical distinction between a recession and depression can vary, although economists usually agree on which is which. In Keynesian economics, a depression is defined by the existence of a flat liquidity-money (LM) curve (which means that interest rates have no influence on people's determination to hold their wealth as cash); and/or a nearly vertical investment-savings (IS) curve (which means interest rates have no influence on the willingness of entrepreneurs to expand/continue operations).
In contrast, a recession is a much less drastic event. Interest rates still have influence on investment and liquidity, and there is no deflation. Conventional fiscal policy and monetary policy, combined and in moderate doses, can restore full employment.
Neoclassical economics/New Classical economics defines a recession as a shift in people's income/leisure preferences as the result of a technology shock. The technology shock sharply reduces the returns to labor, so workers are paid less and many withdraw their labor from the market. In a depression, the technology shocks are compounded and cause a permanent change in the production function; large numbers of enterprise are no longer viable.
More generally, a recession involves the downward phase of a routine business cycle; these typically occur every three-seven years. A depression represents a partial collapse of the industrial system, and a comprehensive collapse of the financial system.
From 1929 to 1933 the U.S. price level fell 25 percent. Many economists blame this deflation for the severity of the Great Depression. They argue that the deflation may have turned what in 1931 was a typical economic downturn into an unprecedented *sic* period of high unemployment and depressed income.
N. Gregory Mankiw, William M. Scarth, *Macroeconomics: Canadian Edition*, 2nd ed. (2003) p.318
N. Gregory Mankiw, William M. Scarth, *Macroeconomics: Canadian Edition*, 2nd ed. (2003) p.318
by Abu Yahya March 7, 2009
Get the depressionmug. (FINANCE) a situation in which an investor owns financial instruments (shares, bonds, financial derivatives, etc.) that will make the most money IF some other thing declines in value.
Therefore, one always has to take a short position on something in particular. A short position on gold means the investor expects gold to decline in value in the near future, and has bought various things to make money if it does.
Some ways to take a short position on X include:
(1) buying a put option on X
(2) writing a call option on X
(3) borrowing X and selling it (shorting a stock)
#3 is the classical way to take a short position. It was dangerous because a skillful trader could squeeze the shorts using a corner.
Therefore, one always has to take a short position on something in particular. A short position on gold means the investor expects gold to decline in value in the near future, and has bought various things to make money if it does.
Some ways to take a short position on X include:
(1) buying a put option on X
(2) writing a call option on X
(3) borrowing X and selling it (shorting a stock)
#3 is the classical way to take a short position. It was dangerous because a skillful trader could squeeze the shorts using a corner.
BILL: I guess you took a bath when the stock market tanked, huh?
ANA: Nope. I took a short position on all of the nine largest banks. Did rather well, thank you very much.
BIL: Sweet!
ANA: Nope. I took a short position on all of the nine largest banks. Did rather well, thank you very much.
BIL: Sweet!
by Abu Yahya April 5, 2010
Get the short positionmug. Capital investment in a foreign country that takes the form of purchases of securities (stocks, bonds, and commercial paper) in the companies of firms based in that country. Contrast to FDI.
by abu yahya September 28, 2008
Get the portfolio investmentmug. in economics, the net income from assets that are owned by foreigners. The citizens of a country will own assets that are physically located overseas (for example, real estate in another country, shares of foreign stock, or even labor performed while an expatriate), and those assets earn income. At the same time, foreigners likewise earn income on assets located in ones' own country.
If domestically-owned assets located abroad earn more income than domestic assets owned by foreigners, then there will be a net flow of income from overseas. This is a collateral benefit to running a trade surplus, especially over several years.
An example might be the United Kingdom (UK) during the 19th century. Prior to the 1880's, the UK exported far more than it imported. With the foreign money, it bought assets in the economies of other countries, such as the USA, Continental Europe, and the future Commonwealth of Nations. These assets naturally earned a lot of income, as they accumulated over many decades. The income from these assets was so large that, after the 1880's, the UK ran a trade deficit but still had a current account surplus.
In the case of the UK, the current account surplus from the NFFI was still large enough that the UK could continue to buy foreign assets that earned income, even as its trade deficit grew during the early 20th century.
If domestically-owned assets located abroad earn more income than domestic assets owned by foreigners, then there will be a net flow of income from overseas. This is a collateral benefit to running a trade surplus, especially over several years.
An example might be the United Kingdom (UK) during the 19th century. Prior to the 1880's, the UK exported far more than it imported. With the foreign money, it bought assets in the economies of other countries, such as the USA, Continental Europe, and the future Commonwealth of Nations. These assets naturally earned a lot of income, as they accumulated over many decades. The income from these assets was so large that, after the 1880's, the UK ran a trade deficit but still had a current account surplus.
In the case of the UK, the current account surplus from the NFFI was still large enough that the UK could continue to buy foreign assets that earned income, even as its trade deficit grew during the early 20th century.
by Abu Yahya February 14, 2009
Get the foreign factor incomemug. The idea that, if you mitigate the consequences of a particular type of accident, then that type of accident will necessarily occur much more frequently, more than negating the initial benefit.
The CF assumes that human nature is perverse and seeks to equalize consequences. Hence, improved automotive technologies such as air bags, ABS, space frames, etc. will be offset (or more than offset) by careless driving, leading to increased highway fatalities.
FALSIFICATION: Empirical evidence shows that, while reducing consequences increases risky behavior, overall safety/health outcomes are better. Insurance companies with a stake in reducing claims verify this.
More generally, the CF confuses all forms of risk-taking, such as faster highway speeds, with fecklessness. Increased speed and convenience (for motorists) has utility; and there is no principle in welfare economics that says risk-taking will increase by an amount sufficient to offset the safety measures.
The CF assumes that human nature is perverse and seeks to equalize consequences. Hence, improved automotive technologies such as air bags, ABS, space frames, etc. will be offset (or more than offset) by careless driving, leading to increased highway fatalities.
FALSIFICATION: Empirical evidence shows that, while reducing consequences increases risky behavior, overall safety/health outcomes are better. Insurance companies with a stake in reducing claims verify this.
More generally, the CF confuses all forms of risk-taking, such as faster highway speeds, with fecklessness. Increased speed and convenience (for motorists) has utility; and there is no principle in welfare economics that says risk-taking will increase by an amount sufficient to offset the safety measures.
The massively overrated book *Freakanomics* (Dubner & Leavitt) includes many examples of the curmudgeon's fallacy.
by Abu Yahya October 16, 2008
Get the curmudgeon's fallacymug. (ECONOMICS) the administrative committee of the Federal Reserve System that actually administers monetary policy. There are 12 members of the FOMC.
The 12 members include all seven governors of the Federal Reserve Board (FRB).
In addition, representatives of each Federal Reserve Bank are eligible to serve on the FOMC. The FOMC implements sales/purchases of treasury securities (open market operations) in order to create credit at member banks. This is the process by which banks with FRS membership can create money. The difficulty of open market operations lies in ensuring that rates for short term securities remain lower than those for long term securities. Otherwise, monetary tightening cannot succeed in curbing inflation.
The Federal Reserve Bank of New York (2nd FRB) is by far the most important of the 12 district banks. Historically, its president has often gone on to become either chairman of the Federal Reserve Board, or else Secretary of the Treasury (as, for example, Treasury Secretary Timothy Geithner). Nearly all bank holding companies have subsidiaries in the 2nd District, and the 2nd District is uniquely guaranteed a seat on the FOMC. The other 11 rotate, with 4 taking a turn of the FOMC at any given time.
The 12 members include all seven governors of the Federal Reserve Board (FRB).
In addition, representatives of each Federal Reserve Bank are eligible to serve on the FOMC. The FOMC implements sales/purchases of treasury securities (open market operations) in order to create credit at member banks. This is the process by which banks with FRS membership can create money. The difficulty of open market operations lies in ensuring that rates for short term securities remain lower than those for long term securities. Otherwise, monetary tightening cannot succeed in curbing inflation.
The Federal Reserve Bank of New York (2nd FRB) is by far the most important of the 12 district banks. Historically, its president has often gone on to become either chairman of the Federal Reserve Board, or else Secretary of the Treasury (as, for example, Treasury Secretary Timothy Geithner). Nearly all bank holding companies have subsidiaries in the 2nd District, and the 2nd District is uniquely guaranteed a seat on the FOMC. The other 11 rotate, with 4 taking a turn of the FOMC at any given time.
The Federal Open Market Committee conducts transactions in treasury securities at the Open Market Window.
by Abu Yahya May 5, 2010
Get the Federal Open Market Committeemug.