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finance

Dynasty Trusts

Dynasty Trusts A dynasty trust (aka perpetual trust , descendants trust ) is a trust that does not have a defined termination date or event, which is only allowable in those states that have eliminated the rule against perpetuities. The mai...

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Charitable Trusts

Charitable Trusts The charitable trust is a trust that serves a charitable purpose. Charitable purposes , as defined by common law and Uniform Trust Code (UTC ) §405, are for poverty relief, or for the promotion of education or religion, h...

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finance

Intentionally Defective Grantor Trusts

Intentionally Defective Grantor Trusts How would you like to pay taxes on income that you never receive, earned from property that you do not own? Most people wouldn't. But some wealthy people are willing to do so. Why? Ironically, to save...

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finance

Marital Deduction

Marital Deduction The unlimited marital deduction allows a spouse to give an unlimited amount of property to the other spouse, either as an inter vivos gift or as a transfer from a deceased spouse's estate to the surviving spouse, free of f...

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finance

Dividend Discount Model (DDM)

Dividend Discount Model (DDM) A security with a greater risk must potentially pay a greater rate of return to induce investors to buy the security. The required rate of return (aka capitalization rate ) is the rate of return required by inv...

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finance

Investment Risks and the Risk-Return Tradeoff

Investment Risks People invest money to earn a return on their money, but often they receive less than expected indeed, sometimes the return can be negative, when the investor receives less than the initial investment. With some investments...

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finance

Efficient Frontier of Portfolios

Efficient Frontier of Portfolios Investors prefer greater returns over lesser returns, and lower risk over greater risk. If 2 portfolios have the same risk, but one has a higher expected return, then any investor would obviously choose the...

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finance

Single-Index Model for Security Returns

Single-Index Model for Security Returns To minimize firm-specific risk, a portfolio should consist of securities that have no, or preferably, negative covariances. But to calculate covariances for large portfolios requires large amounts of...

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finance

Arbitrage Pricing Theory (APT); Law Of One Price

Arbitrage Pricing Theory (APT) The fundamental foundation for the arbitrage pricing theory ( APT ) is the law of one price , which states that 2 identical items will sell for the same price, for if they do not, then a riskless profit could...

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finance

Value at Risk (VaR)

Value at Risk (VaR) Value at risk (VaR ) is the maximum potential loss expected on a portfolio over a given time period, using statistical methods to calculate a confidence level. (VaR is capitalized differently to distinguish it from VAR,...

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finance

RanExecutem Walk and Efficient Impresset Hypotheses

The Random Walk and the Efficient Market Hypotheses Early in the past century, statisticians noticed that changes in stock prices seem to follow a fair-game pattern. This has led to the random walk hypothesis , 1 st espoused by French mathe...

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finance

Impresset Anomalies

Market Anomalies The efficient market hypothesis ( EMH ) states that all stocks are properly priced, and that abnormal returns cannot be earned by searching for mispriced stocks. Furthermore, because future stock prices follow a random walk...

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finance

Behavioral Finance

Behavioral Finance Behavioral finance is a new area of financial research that explores the psychological factors affecting investment decisions. It attempts to explain market anomalies and other market activity that is not explained by the...

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finance

Investment Funds

thisMatter.com Money Investment Funds Investment Funds Most individuals lack the time and expertise for picking the right securities at the right time, so many investors turn to investment funds, sometimes referred to as professionally mana...

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finance

Mutual Funds, Including Formulas and Examples

Mutual Funds An investment in knowledge always pays the best interest. Benjamin Franklin A mutual fund company is an investment company that receives money from investors for the sole purpose to invest in stocks, bonds, and other securities...

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finance

Mutual Fund Fees and Expenses; Expense Ratio

Mutual Fund Fees and Expenses A mutual fund is a business that incurs costs, such as: shareholder transaction costs, often referred to as loads , which are imposed when buying or selling shares; investment advisory fees, marketing and distr...

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finance

Types of Mutual Funds

An Overview of the Different Types of Mutual Fund Mutual funds can be characterized by investment objective, types of securities, and by geographic coverage. Money Market Mutual Funds Money market funds are all no-load funds that pay divide...

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finance

Closed-End Mutual Funds

Closed-End Mutual Funds A closed-end mutual fund , also known simply as a closed-end fund ( CEF ), sells shares of the fund in an initial public offering ( IPO ). After the offering, no more shares are created or redeemed. Therefore, less m...

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finance

Unit Investment Trusts (UITs)

Unit Investment Trusts (UITs) Unit investment trusts ( UITs ) are fixed portfolios of a particular asset class that were created to effect some particular investment strategy. The trust indenture is the legal agreement specifying the terms...

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finance

Index Funds

Index Funds Index funds are mutual funds or exchange-traded funds (ETF) that are composed of stocks or other assets that are tracked by a particular index, such as the SP 500, and the percentage of each asset in the fund is usually proporti...

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finance

Private Equity Funds

Private Equity Funds Medium-sized and large corporations can generally turn to the financial markets for financing and loans. They can also borrow readily from banks. Small businesses, on the other hand, have greater difficulty in obtaining...

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finance

Hedge Funds and Funds of Hedge Funds

Hedge Funds and Funds of Hedge Funds A hedge fund is much like a mutual fund in that it tries to profit with money pooled from a number of investors. Its main distinction is that it can pursue investment strategies riskier strategies that a...

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finance

Some Fascinating Statistics On Hedge Funds

Some Interesting Statistics on Hedge Funds Hedge funds lost on average 18.7% in 2008 according to Hedge Fund Research, Inc., which, along with increased redemptions, decreased total assets managed by hedge funds from $1.9 trillion at the be...

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finance

Managed Futures

thisMatter.com Money Investment Funds Managed Futures Managed futures are a type of professionally managed asset offered by broker-dealers. Managed futures are funds that trade futures contracts for the benefit of the investors of the fund....

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finance

Exchange-Traded Funds (ETFs)

Exchange-Traded Funds Exchange-traded funds ( ETFs ) are investment companies that create and sell shares in a fund that represents a beneficial interest in the holdings of the fund, which can include stocks, bonds, and other securities, an...

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finance

Master Limited Partnerships

Master Limited Partnerships A master limited partnership ( MLP ) is a publicly traded partnership ( PTP ) or limited liability company that elected to be taxed as a partnership that combines the tax benefits of the limited partnership with...

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finance

Limited Partnerships

Limited Partnerships 2020-01-08 Most limited partnerships are formed for a specific business venture for a predetermined length of time. Their limited lifetime is the distinguishing feature of limited partnerships, since otherwise, other co...

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finance

Tax Advantages Of Limited Partnerships

The Tax Advantages of Limited Partnerships 2020-01-08 The main tax advantage of a limited partnership is that it is a flow-through entity all profits and losses flow directly to the individual limited partners. The business itself pays no t...

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finance

Seigniorage: The Profit of Creating Money

Seigniorage - The Profit of Creating Money Since the cost of producing fiat money is low, the face value of the currency can be much larger than its production cost. For instance, it costs 6 to print a United States (US ) Federal Reserve no...

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finance

Financial System

Financial System People have virtually unlimited wants, but the economic resources to produce those wants are limited. Therefore, the greatest benefit of an economy is to provide the most desirable consumer goods and services in the most de...

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finance

Financial Instruments

Financial Instruments Financial instruments are legal agreements that require one party to pay money or something else of value or to promise to pay under stipulated conditions to a counterparty in exchange for the payment of interest, for...

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finance

Financial Impressets

Financial Markets Financial markets are where financial securities are bought and sold. They include the organized exchanges for stocks and futures, and the over-the-counter (OTC ) market for bonds, foreign exchange, and derivatives. Financ...

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finance

Financial Institutions

Financial Institutions Financial institutions are the businesses and organizations involved in the collection and distribution of money. They develop the methods and procedures that allow them to collect money from depositors and lend it ou...

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finance

Consumer Price Index (CPI)

Consumer Price Index (CPI) As stated in the previous article, the inflation rate , which is the rate at which prices of goods and services change, is determined by the economy's need for money and by the supply of money. While it is not too...

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finance

Financial Intermediation

Financial Intermediation Financial intermediaries are firms that pool the savings or investments of many people and lend or invest the money to other companies or people to earn a return. Financial intermediaries include banks, investment c...

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finance

Depository Institutions (aka Banks)

Depository Institutions (Banks) Depository institutions (aka banks ), which includes commercial banks, savings and loans, and credit unions, receive money from depositors to lend out to borrowers. Nondepository institutions , such as financ...

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finance

Bank Profitability

Bank Profitability Like all businesses, banks profit by earning more money than what they pay in expenses. The major portion of a bank's profit comes from the fees that it charges for its services and the interest that it earns on its asset...

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finance

Bank Risks

Bank Risks A bank has many risks that must be managed carefully, especially since a bank uses a large amount of leverage. Without effective management of its risks, it could very easily become insolvent. If a bank is perceived to be in a fi...

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finance

Bank Regulations and Supervision

Bank Regulations and Supervision Banks are an essential component of any modern economy. They provide an easy way for people to save and they provide payment services, primarily in the form of checks, electronic funds transfers, and credit...

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finance

Bank Regulatory Capital

Bank Regulatory Capital Banks are necessary for any modern economy. However, they pose risks to the economy that could propagate globally. As major sources of credit, they control the availability of money for consumers and businesses, who...

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finance

Central Banks

Central Banks Central banks are crucial to the functioning of any economy. Virtually every country has one. In 1900, there were 18, but today there are more than 170 central banks throughout the world. Central banks are the most powerful fi...

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finance

Central Bank Design

Central Bank Design Before the 21th century, money was usually based on the gold standard, because for money to work as money, people had to have confidence in it, that it could not be manipulated by the will of politicians or banks. By usi...

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finance

Central Bank Transactions

Central Bank Transactions Transactions by the central bank can have a significant effect on the economy. These transactions always change the central bank's balance sheet and will often change the supply of money. In the previous article, w...

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finance

Money Supply and the Central Bank's Balance Sheet

Money Supply and the Central Bank's Balance Sheet Traditionally, money was created by either minting coins or printing currency. Nowadays, most money is stored electronically as account information , so money can be created or destroyed sim...

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finance

Money Supply and the Money Multiplier

Money Supply and the Money Multiplier Money, either in the form of currency or as bank reserves, is a liability of the central bank. The central bank controls the monetary base, expanding or contracting it at will, according to the needs of...

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finance

Monetary Policy

Monetary Policy The economy generally moves in cycles, from high to low, then to high again. When the economy is optimal, then the economic output is also optimal, with unemployment at a stable, low rate. When the economy overheats, then in...

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finance

European Central Bank Monetary Policy

European Central Bank Monetary Policy The prime objective of the European Central Bank ( ECB ) is to maintain price stability over a medium-term, which the ECB's Governing Council defined as a year-on-year increase in the Harmonised Index o...

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finance

Quantitative Easing

Quantitative Easing An economy needs a certain amount of money to operate efficiently. As it grows, an economy needs more money; otherwise, deflation will ensue as more products and services must be bought with the same quantity of money, w...

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finance

Money Growth, Money Velocity, and Inflation

Money Growth, Money Velocity, and Inflation Because low, stable inflation is necessary for optimal economic growth, it is one of the main economic objectives of central banks, which they try to control by using their tools of monetary polic...

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finance

Money Demand and Money Velocity

Money Demand and Money Velocity An economy works best when inflation is low and predictable, but to control inflation, one needs to understand what causes it. Over the long run, inflation is largely determined by how much the money supply i...

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finance

Inflation and Employment

Inflation and Employment Unemployment rates increase in the short run when monetary policy is used to reduce inflation. This is the short term trade-off between unemployment and inflation. In 1958, economist A. W. Philips published an artic...

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finance

Economics of Foreign Exchange Rates

Economics of Foreign Exchange Rates The foreign exchange rate is the price of one currency in terms of another. Because the foreign exchange rate compares the currencies of 2 countries, the rate depends on the value of each currency and, th...

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