Lesson 5 & 6 Flashcards
Limited Liability
- Limited liability is a legal principle that protects business owners from personal liability for the debts and liabilities of their company. It separates the personal assets of the owners from the company’s financial obligations.
- Can be divided into shares, and no shareholder is liable for more than he / she puts in
Indexing the value of debt to an index
- Better indexation method than indexing debt to a single commodity with a potentially unstable price evolution
- Protects investors from currency instability
- No private debt indexed
Inflation - indexed debt
- Inflation-indexed debt, also known as inflation-linked bonds, are a type of security that adjusts the interest paid and principal amount based on inflation or deflation
- The principal amount is adjusted regularly based on inflation, and interest payments are calculated using the adjusted principal.
- First known inflation-indexed bond was issued by the Massachusetts Bay Company in 1780.
Unidad de fomento
Unit of development
Functions of money
- Unit of account
- Store of value
- Medium of exchange
Function of UF
- Acted as a separate unit of account
- Allowed to be tied to consumer price index
Equity Protected Mortgages
The Home Ownership and Equity Protection Act states that if a mortgage or home equity loan meets the high-cost coverage tests, then the lender must provide the borrower with certain disclosures
Efficient Market Hypothesis
Efficient market hypothesis or EMH is an investment theory which suggests that the prices of financial instruments reflect all available market information. Hence, investors cannot have an edge over each other by analysing the stocks and adopting different market timing strategies.
President Obama 2016 proposed wage insurance
Protecting Workers with Wage Insurance: The President’s plan would ensure workers have access to wage insurance that would replace half of lost wages, up to $10,000 over two years. Displaced workers making less than $50,000 who were with their prior employer for at least three years would be able to leverage these resources to help them get back on their feet and on the way to a new career.
Strengthening Unemployment Insurance (UI): The President’s plan would address holes in our UI system – including by expanding coverage to part-time, many low-income, and intermittent workers, and workers who leave work for compelling family reasons. It would also ensure that states provide at minimum 26 weeks of coverage.
Making it Easier for Workers to Retool and Retrain: The President’s plan would make it easier for companies to avoid lay-offs through work-sharing, while incentivizing states to offer and allow retraining for workers on UI or to provide relocation vouchers or subsidized employment. In addition, it would expand intensive career counseling to the long-term unemployed, discouraged, and part-time workers.
Representativeness heuristic
a mental shortcut that people use to estimate the probability of something belonging to a category based on how similar it is to the category’s typical member
Random Walk Theory
Random walk theory suggests that changes in asset prices are random. This means that stock prices move unpredictably, so that past prices cannot be used to accurately predict future prices. Random walk theory also implies that the stock market is efficient and reflects all available information.
Random Walk Theory Formula
Sn = Sn−1 + Xn, n ≥ 1. (2.1) The quantities (Xn) are referred to as steps of the random walk. for each n ≥ 1. Note that while the steps X1, X2, . . . are independent as random variables, the actual positions of the walk S0, S1, . . . are not.
First-Order Autoregressive Model (AR-1 model)
The zero-mean AR(1) model xt = xt 1 + t is a linear regression of the current value of the time series on the previous value. For > 0 it generates positively auto-correlated time series, = 1 is a random walk, < 1 represents stationary time series.
Transactions tax on securities trade
The Securities Transaction Tax (STT) is a direct tax on the buying and selling of securities like stocks, mutual funds, and derivatives on recognised stock exchanges in India. It applies to both buyers and sellers and is calculated as a percentage of the transaction value.
Capital Gains Tax
Capital gains tax is levied on the profit earned from the sale of capital assets, such as real estate, stocks and bonds.
STCG: These are gains from the sale of assets which you hold for a short period, typically less than 24 months for real estate and less than 12 months for stocks and securities.
LTCG: These are gains from the sale of assets if you hold these for longer periods. For most assets, the holding period is more than 24 months, but for stocks and securities, it is more than 12 months.
