These are some of the terms and concepts that are expected to be known by every member. Some terms are added because its concept itself is genuinely interesting. I hope these info will get you more interested in to finance.
-Hedge
- People use hedging to reduce losses during bear markets (when the total market is decreasing).
- Hedging encompasses various fields, including options, swaps, futures, and forward contracts.
- Options
- The buyer has the option to sell or buy at a certain time and price, serving as a risk prevention measure.
- Options can be applied to different fields and are considered financial instruments.
- Future and Forward Contracts
- Forward contracts are similar to options trades, but the price is fixed upon the promise date, and they are conducted through private brokers.
- Future contracts involve trading on a specific day without knowing the price beforehand, and they cannot be changed once agreed upon.
- Future contracts are considered safer due to the Commodity Futures Trading Commission's involvement.
- Liquidating
- A common way to prevent bankruptcy is by selling a company's assets to pay off debts before closure.
- Liquidating, also known as winding up, is a last resort for companies either forced or voluntarily undertaken.
- Debt Restructuring
- This strategy helps companies avoid bankruptcy by renegotiating debt terms, such as extending the due date or lowering interest rates.
- Debt restructuring benefits both the lender and the company, providing the company with a second chance to recover.
- In some cases, corporations opt for equity swaps, exchanging part of the debt for ownership in the company when other solutions are not viable.
- Callable Bonds
- Callable bonds are similar to regular bonds, but the issuer has the option to end them prematurely.
- They offer higher returns but involve higher risk due to their callable nature.
- Indemnity Agreement (Indemnity Contract)
- It is a contract between two or more parties, similar to insurance, where Party A compensates Party B for financial losses.
- Party B pays regular premiums to Party A during the period of indemnity (insurance coverage).
- An LOI (Letter of Indemnity) is often included, specifying the terms of the agreement without prejudice.
- Various types of indemnity insurance exist, such as E&O insurance or malpractice insurance, commonly used in the medical field.
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