(FINANCE) a financial instrument whose value is tied to something else; for example,
* a futures contract (future)
* an option
* a swap
In each of these examples, the value of the derivative is related in some way to the price of something else. When the market price of (say) an ounce of gold goes from $1000/oz to $1050/oz, the return to the owner of 1 oz. of actual gold is 5%. But for the owner of a call option or a future, the return is much, much greater than that.
A derivative can be used to multiply risk AND potential profits to speculators; but it can be used for the counterparty to minimize risk by locking in prices, or by hedging against risk.
* a futures contract (future)
* an option
* a swap
In each of these examples, the value of the derivative is related in some way to the price of something else. When the market price of (say) an ounce of gold goes from $1000/oz to $1050/oz, the return to the owner of 1 oz. of actual gold is 5%. But for the owner of a call option or a future, the return is much, much greater than that.
A derivative can be used to multiply risk AND potential profits to speculators; but it can be used for the counterparty to minimize risk by locking in prices, or by hedging against risk.
by Abu Yahya April 05, 2010
(FINANCE) originally, a bond rated as not investment grade by a credit rating agency (e.g., Standard & Poor, Ernst & Young, or Moody's).
Later, a bond was a financial instrument deliberately created to have absurdly high levels of risk (of default), which was then priced in and "hedged" by a fund manager. Junk bonds are routinely used to finance leveraged buyouts.
Later, a bond was a financial instrument deliberately created to have absurdly high levels of risk (of default), which was then priced in and "hedged" by a fund manager. Junk bonds are routinely used to finance leveraged buyouts.
Michael Milken was the junk bond innovator who figured out how to make them an effective investment vehicle. Yes, he later went to jail for securities law violations.
by Abu Yahya September 01, 2010
In order of population, the Lusophonic countries are Brazil, Mozambique, Angola, Portugal, Guinea-Bissau, Timor-Leste, Macau S.A.R., and São Tomé e Príncipe.
by Abu Yahya May 17, 2010
(FINANCE) a financial derivative that consists of a contract to buy a fixed amount of a thing at a fixed price at a fixed time in the future,. For example, a commodity future may specify 1000 British barrels (bbl) of West Texas Intermediate (WTI) crude oil for $85.75/bbl, for delivery at Cushing, OK, on 31 November 2010.
Futures are "written" by the person with the commodity to sell, and sold to either a financial speculator or else to someone who wants the product--in this case, an oil refinery. Sellers/owners do this because they want to be assured of a fixed price for the thing they're selling. The official reason for buying a future is to get a fixed price for something. This allows businesses to plan ahead.
However, since futures contracts are traded on secondary markets, it's possible to make (or lose) a lot of money trading them.
Futures are "written" by the person with the commodity to sell, and sold to either a financial speculator or else to someone who wants the product--in this case, an oil refinery. Sellers/owners do this because they want to be assured of a fixed price for the thing they're selling. The official reason for buying a future is to get a fixed price for something. This allows businesses to plan ahead.
However, since futures contracts are traded on secondary markets, it's possible to make (or lose) a lot of money trading them.
SOMEBODY: A futures contract can be extremely valuable for doing business. One of the best examples was Southwest Airlines, which weathered the oil crisis of 2007-2008 with futures for aviation fuel. When the market price of fuel doubled, Southwest was able pay a low, low contract price.
SOMEBODY ELSE: Doesn't it ever backfire?
SOMEBODY: Yes, the market price could fall through the floor and you'd be stuck paying THAT instead of the new, lower price. But at least you know what your cash flow will be.
SOMEBODY ELSE: Doesn't it ever backfire?
SOMEBODY: Yes, the market price could fall through the floor and you'd be stuck paying THAT instead of the new, lower price. But at least you know what your cash flow will be.
by Abu Yahya April 05, 2010
(FINANCE) when somebody buys a corporation using borrowed money ("leverage"), with the expectation that the new owner will able to pay for it from the corporation's own profits.
Kohlberg Kravis and Roberts (KKR) developed the LBO back when Jerome Kohlberg, Jr. and Henry Kravis were still partners at Bear Stearns (1960's). The technique was refined by Michael Milken's methods of underwriting and trading junk bonds. At the same time, corporate raiders and takeover artists like T. Boone Pickens perfected greenmail as a way to make money from failed hostile takeovers.
Kohlberg Kravis and Roberts (KKR) developed the LBO back when Jerome Kohlberg, Jr. and Henry Kravis were still partners at Bear Stearns (1960's). The technique was refined by Michael Milken's methods of underwriting and trading junk bonds. At the same time, corporate raiders and takeover artists like T. Boone Pickens perfected greenmail as a way to make money from failed hostile takeovers.
In constant US dollars, the largest leveraged buyout deal in history was the KKR takeover of RJR Nabisbo for $31.1 billion (1989). In 2006, several deals of even larger size were planned or attempted, but adjusted for inflation, they were not as large.
by Abu Yahya September 04, 2010
(SOCIOLOGY) merchant class in a colony; usually dependent on exports of raw material from the colony (or former colony) in exchange for overpriced imports from the former colonial power.
As a class, the compradors are usually nationalistic--they usually want the trappings of independence. However, they are totally dependent on the global economy and its structure of hegemony. The rich nations benefit from excellent terms of trade, specialization in manufactured goods or intellectual property, etc.
After nominal independence, the comprador class usually become very powerful in the former colony; major powers like the USA or the EU ensure the comprador remain the de facto leaders of the colony. Anti-US rhetoric is usually just political theater or may reflect petty rivalry on the part of the compradors with their foreign masters.
As a class, the compradors are usually nationalistic--they usually want the trappings of independence. However, they are totally dependent on the global economy and its structure of hegemony. The rich nations benefit from excellent terms of trade, specialization in manufactured goods or intellectual property, etc.
After nominal independence, the comprador class usually become very powerful in the former colony; major powers like the USA or the EU ensure the comprador remain the de facto leaders of the colony. Anti-US rhetoric is usually just political theater or may reflect petty rivalry on the part of the compradors with their foreign masters.
Eventually, the terms of trade become so bad that the relationship breaks down and the country suffers a sovereign debt default, revolution, or permanent FUBAR status. At this point the comprador class has to share power with the local Junker class.
by Abu Yahya May 17, 2010
to introduce a thing as currency, e.g., silver, gold, copper. In nearly all cases, when something has been monetized, it is legal tender and debtors are legally obligated to accept it as payment for debt.
Debt can also be monetized. A government can either buy the debt of companies whose growth it favors as a matter of policy (as in pre-War Japan) or permit its own bonds to be be used as banking reserves (for the creation of money).
Debt can also be monetized. A government can either buy the debt of companies whose growth it favors as a matter of policy (as in pre-War Japan) or permit its own bonds to be be used as banking reserves (for the creation of money).
by Abu Yahya January 23, 2009