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Basic knowledge for the members.

Updated: Aug 29, 2023

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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