What is SubPrime Crisis? Part.2

Credit agencies specialize in subprime collapse and the financial world follows. What relationship there between the U.S. housing market and the global economy? The answer lies in the word "securitization" To summarize; securitization is to transform its debts or other financial assets into securities that can then discuss the financial markets.

To finance these loans, the specialized agencies transformed risk loans granted to their client’s financial products that would be traded on financial markets. Financial products created were classified as high-risk products and products like any risky potential gains are much greater than other products without risk. As the U.S. housing market had risen in real estate related products for more money but since the summer of 2007.


Anyone wishing to generate significant capital gains has to accept this kind of high risk. Excluding finance against certain products, most of financial products sold, were fairly opaque to the "fill" of various financial products without specifying its nature as subprime "securitized." Banks and institutional investors bought financial products without knowing that they contained subprime-related products.

     A large number of banks have in their portfolios of subprime-related products leading to the fall in the value of their portfolios following the sub prime crisis.  Unable to identify clearly the financial products purchased containing products related to subprime, no Bank, no investor is able to measure the real impact of the crisis on their portfolios. The defaults of subprime loans in the U.S. are at the early, early impairment placed by investors are only the beginning of the crisis.

   Banks do not assess their knowledge related to subprime losses, bankruptcies of several dozen organizations credit risk and market stress pushing banks to conduct extremely suspicious and dare them to lend more money for fear of not being reimbursed following a hypothetical bankruptcy of the borrower.

The crisis of summer 2007 caused many challenges and pointed out the following discrepancies.
     One of the key players in finance is singled out, these are the rating agencies that failed to anticipate the decline in U.S. housing market and lower the rating agencies to credit risk.
     Non-transparency of financial products linked to subprime mortgages and bad categorization are also challenged: Some products were produced in monetary corresponding to products of low risk.

What is SubPrime Crisis? Part.1

The subprime crisis hit the world of finance in August 2007. The consequences have been immediate and impacts on the economies of societies and countries are still not clearly known.  Before returning to the origin of the crisis and its ripple effect, Let us first understand what is subprime.
The subprime mortgages are subprime.  In simple words, the principle allows a person to purchase a property for a fixed interest rate particularly low the first 2 years (e.g. 1.45%) and then switch to a floating rate contains a risk premium (e.g. 8%). In return, the property is mortgaged.

In this case, credits are awarded after consideration of the desired value of the property contrary to practices where banks extend credit after the creditworthiness of the borrower. The monthly payments increase significantly after the second year, making it impossible for most buyers to repay their loans.
The latter sold their property with a capital gain (the U.S. housing market growing 10% per year) enabling them to repay the loan and interest. In 2007, Beneficiaries wishing to sell their subprime real estate at the end of second year was leading a face down in the U.S. housing market.
The property value has decreased since purchase and no longer allows the sale to repay the subprime credit. The borrower's credit subprime personal files for bankruptcy, the bank gets the house and put on sale. It will be sold with a significant loss may go beyond 20%.

At least, nearly 1.5 million procedures were personal bankruptcy during and after the U.S. Senate nearly 3 million households could lose their homes. Credit agencies are faced subprime loan defaults pile up and generate huge losses due to losses made on the sale of foreclosed homes. These significant losses have caused the bankruptcy of more than thirty credit agencies; they always present provisioning amounts of losses of hundreds of millions of dollars.

Leasing Advantages and Disadvantages

The principle of leasing is simple: the company who need a well-form application to a leasing company that buys the specified property and leases it for a given period. Leasing may involve equipment (equipment leasing), or property leasing.


The advantages of leasing for the company are numerous. First, it provides full funding of the property value without any input from the business, and enables companies to acquire property without incurring costly debt alleged purchase of the product. Rents paid by the company are also operating expenses deductible from income tax.
The use of leasing also allows the company to avoid cash flow problems generated by the VAT. Indeed, early activity, the input tax on purchases often exceeds the VAT collected on sales, and requires the company to meet this need cash.

However, the main obstacle to the use of leasing is cost. Indeed, it is superior to that of a conventional bank loan, since the leasing company is compensated by its margin on the rent of the lease. On the other hand, it is more difficult to rent property very specific (obsolescence of the property, equipment not resalable ...), the leasing companies were reluctant to acquire such property.

The second risk is default by the tenant. The leasing contract is in effect a final commitment to time-limited undertaking that requires the user to pay rents fixed date. Otherwise, the company will be forced to return the property but will also be required to pay all rent yet due until the end of the contract.

Car Loans Part.3

Long Term Rental:

The leasing allows the borrower to sign a lease with stable monthly payments without an option to purchase the vehicle at the end of the contract. In recent years this type of credit can be offered by banks. LLD can change the car but will not become the owner. This is a simple car rental.

Personal Loan:

Personal loan is the specialty of banks and credit institutions. It is rather for persons wishing to receive an immediate cash reserve, which can quickly become the vehicle owner, or make another use of money lent. It requires little or no personal contribution. The interest rate, duration and amount of stipends are known input. However, this type of auto loan has many disadvantages. First, the credit contract is not related to the purchase of the vehicle, so if the car purchase is not made, refunds of credit are required. Second, interest rates are excessively high (around 15%). This type of car loan remains a last resort in case of refusal of financial institutions or banks manufacturers.



And the last one often used by car manufacturers. It is to pay low monthly payments for several months and at the end of the credit if the borrower wishes to purchase the vehicle, it pays a higher amount.

* Before getting a Car Loan, consider your budget!

The need for a new car may be acute in many circumstances of life: birth of a child, moving, education, inheritance, changing jobs, etc.. But everyone must remain vigilant in its budget and its operating margins, particularly when the credits begin to accumulate. If you already have a mortgage, consumer credits, but you are thinking of buying a new car, a credit solution is not to give up your projects: the purchase of credit. The purchase of credit will allow you to keep your monthly payments at a reasonable level and keep control of your various loans.

Car Loans Part.2

How to choose car loan?

The acquisition of an automobile represents a considerable investment. For budgetary reasons, it is not always possible for the buyer to pay "cash" and leave with the car of his or her choice. Also, it is sometimes unavoidable and often relevant to carry out a car loan. Today the majority of vehicles purchases in the world are also financed through a vehicle loan. Like the mortgage, there are many forms according to the use made of the vehicle and the objective of the borrower. The borrower's interest is carefully consider while selecting the types of car loans and compare them to make the right choices according to their budget. There are 6 main types of car loan:

 The appropriation:

This is the classic car loan monthly payments that you can subscribe on-site sales. This credit is automatically canceled if the purchase does not occur. In case of dispute on the vehicle purchased, refunds of credit will be suspended. The overall effective rate (interest expense) of this appropriation is less than that of a personal loan. The term of the financing (12 to 60 months) is chosen by the borrower according to his budget. The appropriation is for the buyer who takes out a classic car loan with a maximum of security against repayment of credit. Note that it is for individuals and professionals alike.

 Exchange offer:

It combines classic credit Car loans and bridge loans. The bridge loan provides a "transition" between buying a new car and selling the old one. The sale reimburses the bridge loan and a portion of the purchase of the new car.

 Lease purchase option:

Credit Hire with Option to Purchase is distributed primarily by financial companies of auto manufacturers and some specialized agencies. Its principle is: the borrower leases a vehicle over a period defined by the contract, setting a monthly "rent". He holds the same time an option to purchase the vehicle at the end of the lease period at an acquisition price agreed when signing the contract. Only a guarantee deposit is required at the start of the loan representing between 0 and 15% of the value of the vehicle. The interest rate does not come into play in the lease-purchase. For professionals, this type of loan is called upon leasing.

Car Loans Part.1

The car loan is also known as vehicle loan. It is defined as a loan of money on certain condition, granted by a credit institution or a bank to buy a new car or used by the borrower. The credit is a financing solution designed for consumer goods.    Now days, the acquisition of a car is almost essential for the majority of the population, because of economic, geographic, but also for comfort and freedom offered by a car.

First, moving from home to workplace tends to lengthen. The car is often the only or the best mode of transportation available to active living far from the workplace, whether frontier workers, employees in industrial areas or employees downtown. In addition, many professions require almost constant use of the automobile sales reps, employees of various services etc...


Secondly, the possession of one or more automobiles in a household is even more crucial that the today’s population is increasingly being installed in the periphery or in the extension areas. However, in the absence of public transport in areas that are under-served, rural populations and urban cannot cope without a car for most of their trips: grocery shopping, driving children to school, leisure, weekends, transport equipment, etc... For the Upper class, the car is the mode of family transportation by excellence.

Finally, owning a car is also about fun, comfort, independence and speed. Freedom of movement in time and route that the car gives is unparalleled. In continuation let us see how to choose a Car loan in the next post.

Buy God The Ultimate Asset

The best and easiest way to invest in gold is undoubtedly the purchase of physical gold that is essentially the purchase of coins or gold bars. But many people may feel slightly bewildered at the idea of acquiring; accumulating and keep the metal in an optical savings habit from time immemorial have been lost over the generations. The following lines are intended to demystify the so-called complexity of an approach to investment in physical gold. First, although less active than some years ago, the gold market is still alive in our country and some investment products still liquid.



I have found an online site goldcoinsgain.com which has an ancient custom of responsible and reliable business live out confirmed high evaluation standards. They are having over fifty years of mutual practice in the precious metals industry. They are assisting us to buy and sell gold coins and gold bullion on conception an enduring tax deferred retirement plan, usually known as Gold IRA. Investing in gold IRA will not be affected by the negative economic growth, hence it is the ultimate asset in the planet. With your gold 401k you can buy gold coins and bars which is a true and safest form of investment. By setting up your 401k gold account here you can keep the crisis management commodity under your control within a click of your mouse. Here, we can able to handle your IRA transfer account in both the ways. We will get a perfect picture of assurance that they for all time giving us the correct investment for us. We can expect our orders get delivered to us at the earliest of purchase. It takes pride in bring into line with outstanding customer service, safety, ranking and data. I have suggested this online site to one of my friends who needed to buy gold. They are having a best team of customer service intended to serve us. We may just dial 1-800-940-7793 for further information.

Online Payments Security Part. III

Banks are not the only one to offer new payment solutions. Weneo, an adapted version of the online payment inherited "Moneo" offers a USB key that stores electronic money units, to make secure purchases of small amounts (below 30 €) on the internet without disclosing their bank details.

The market for trusted third party also whets the appetite. The historical actor PayPal (credit institution licensed in Luxembourg, for its European operations) is now challenged by Google Checkout (ELMI registered in the United Kingdom). In France there are also some establishments such as payment or Limonetik Cards-Off, which is also responsible for completing the transaction by credit card instead of the merchant site. The buyer did not then enter their bank details to the merchant site.

Also there are companies like Secuvad offering integrated solutions to secure payments (fraud detection real-time scoring and historical bases), but these solutions if they protect traders, does not protect the buyer himself.

The surprise could come from so many;  Buyst, authorized payment institution recently created by Orange,  SFR, Bouygues Telecom and Atos Origin, surfing the development of Smartphone and offering both secure payments m-commerce and e-commerce via the mobile phone.

It is unclear whether these new entrants will have hard time to major banks in the field of online payments. Still, they are laboratories of innovation than traditional banks must watch closely.

Online Payments Security Part. II

The strong authentication devices: 3D Secure e-Card ...

Thus, in order to identify the owners of cards, but also and especially to strengthen the security of online payments, some banks have introduced single-use maps (such as e-Carte Bleue) from 2002. Electronic clone a credit card, they provide a single use code generated by the user on the site of his bank card from her real. Once payment is made with this code, it is no longer usable for any other purchases. But this type of solution prolongs the act of buying and makes it less suitable for repeated payments of small amounts (news article, listening to the unit ...). It also represents a considerable cost both to the bank and for the user, and has been poorly received by the public.

Therefore, some banks have decided to implement the system in 2008 "3D Secure". Any buyer must take on a secure page on the bank a secret code known only to him, as well as authenticating the cardholder. The debate remains about the nature of this code. Used to launch 3DS, date of birth as the user PIN is gradually put aside in favor of an SMS sent by the bank, the most popular solution among Internet users, or a code transmitted by a "token “.  It remains to weigh the cost of these solutions, which can range from 0.5 to over 10 € per cardholder per year.

Unfortunately, this system proved to be confusing in practice much more than expected to the Internet. Very little communication was made to holders of cards, whether through banks or online shopping sites, most buyers were confused and even frightened at the appearance of a separate page asking them for such as their date of birth, and that at the most critical of the act of purchase: payment. Many of them have therefore preferred to abandon their purchases for fear of attempted fraud or phishing ... Consequently; a large number of sites selling online immediately contacted their banks to exit the 3D Secure system, after finding a reduction in sales volume up to 20%.

The challenge is therefore to secure adequate payments to deter fraudsters, without complicating the process of payment and impacting end of the chain volume of sales.

Online Payments Security Part. I

The credit card is by far the payment method preferred by two third of the people in the world by using the Internet regularly to access their purchases directly on the Internet. But it is also the use of the card that is increasingly threatened by fraud. Indeed, the total amount of fraudulent transactions on the Internet is growing much larger than the amount of fraud carried out by other channels (using a stolen use card number to purchase by mail order over the phone etc.).

This observation, which is not new, had led banks and systems vendors to offer more secure during the 2000s. The generalization of SSL (Secure Socket Layer) has limited the flight card numbers during data transfers between bank buyer, seller, and their respective banks. Adding a cipher text security "arbitrary" helped to stem the proliferation of generating fraudulent card numbers with valid 16 digits (which follow a very specific algorithm). Sellers have also limited the storage of this information in their databases, to prevent intrusion attempts in their massive e-commerce platforms. Finally, the payment terminal are masking a part of the card number on the invoice slips and allows the payer to introduce its own map without intervention by the cashier, which limits data retrieval via the retail channel. But other fraud techniques have over taken it.

The major risk lies in failure to identify the buyer as the rightful holder of the card that is a strong authentication. It leaves the door open to other techniques for recovering the coordinates, such as "phishing" (to believe that a cardholder is for an interlocutor trusted by mail or through a fake website) particularly popular in recent years.

Certainly, if the buyer is not the rightful holder, then the genuine holder may challenge the transaction as the law allows it and then be reimbursed free of transaction amount. But this leads to increasing costs for banks and continues to fuel some psychological barriers among potential users of e-commerce.

Heavy charges on the Credit Cards

The latest survey conducted in France points out the lack of transparency in the banking community regarding fees and charges levied by them on credit card transactions. Sense of opacity and injustice are the two main feelings expressed by the artisans and traders surveyed by the   on the commissions charged by banks on credit card transactions
According to the latest survey , commissions  weigh heavy for these entrepreneurs. Between 0.5% and 1% of their turnover for the three quarters of them, plus a set fee from the rental payment terminal at the telephone terminal via the contribution for those offering financial payments on credit.
 Over 40% prefer to limit their costs by denying the CB below a minimum purchase, while nearly half say they are aware that these practices adversely affect their turnover business.

The banker did not explain how the amount of commission or the default interest is arrived; entrepreneurs are forced to do their own calculations and analysis more over variation as a function of turnover for some of the industry for others, even the client's head for 28%!

For artisans and traders surveyed by the Team, the solution lies in greater transparency of bank with one hand, the average rate of release that would allow them to play competition and, secondly, the provision of summary of fees charged. In contrast, only 20% considering Government  intervention, with setting a maximum charge of credit card transaction or incremental costs of commission.

The term loans

Banks may grant loans to businesses in the short medium and long term which is called as term loans. When talking about the term loans they are defined according to the duration of the loan. The term of a loan is important; the conditions for long-term loan are not the same as that of the short term loan. In real estate, loans given out are most long-term loans that is the repayments spread over a period of more than 7 years. For the short-term credit, it is a credit whose duration does not exceed 2 years. Most of the short term loans are given out for the consumer products. Generally 70% of the maximum net amount of investment will be given as term loan and the additional 30% need to be raised by the borrower himself.

Though each bank shall fix their own lending rate of interest, the interest rates for the short term loans will be more than the long term loans. The duration for the short term will be less than two years. The term for the medium term loan is between 2 to 7 years and for the long term loan it is between 7 and 15 years which depend upon the nature of investment and the repayment capacity of the company.

The short-term loan is a loan whose term is less than 2 years. The medium-term loan is a loan whose duration is between 2 and 7 years. The long term loan is a loan whose duration is between 7 and 15 years (especially for commercial property). Depending on the nature of investments and the repayment ability of the company, a grace is possible. Apart from the interest, the borrower has to pay one time processing fee or the administrative fee and yearly recurring insurance premium against which the loan is raised.

Impact of the Japanese Earthquake on US Treasury Bills

Will  the natural disaster  bring Japanese to sell out  their holdings of U.S Treasury bills?  Which will  lead to higher interest rates and therefore a fall in housing markets?  Historically, the Japanese are major buyers of U.S. debt since the beginning of 2010 and they are the top most too. With a good earning population and a high level of savings, the Japanese bought lots of US Treasury bills through their pension funds and insurance in particular.
          The Treasury bonds of United States hold by Japan is around 768.8 billion dollars, and Japan  is ahead China(755.4 Billion dollars) in 2010.After the disaster, it is necessary to rebuild the nation which  will become a first and foremost  priority for Japanese.

     Following the massive damage that occurred in Japan due to the earthquake and tsunami, they will have to reconstruct their country. For the reconstruction they have to raise huge fund and The Japanese has to finance this reconstruction by selling the U.S. Treasury bonds they hold with them.  Selling Treasury bills could cause a financial collapse or at best to raise the rate at which the U.S. Treasury borrows.
     For he will return more attractive to buyers. By rising interest rates on treasury bills, the bank will raise the interest rates, subsequently it will make difficult for investors and companies wanting to make money, threatening to raise unemployment and reduce business investment in the European countries. Higher rate of interest will show a heavy impact on real estate market and the hence real-estate market will be in down trend throughout the world.

     If the withdrawal of Japanese investments in U.S.  would take place, that would entail a high risk of rising interest rates and therefore higher rates of real estate financing that might make it impossible for many European countries and the borrowing will be minimum to the real estate purchase.  Perhaps the rise of oil with petro-dollars will offset the withdrawal of Japanese assets in U.S.?

Financing needs of a Business Plan

The purpose of this part is essential to determine the amount of different funding requirements deemed necessary to ensure the successful completion of the project.
- Need to block funding
- Amount of funds sought
- Return on Investment

Financial documents (see below)
Financial documents in this section should show all the various assumptions and choices made in the development plan (market share, industry growth, costs, investments, sales, etc..), Without revealing to inconsistency.

Output modes investors
Are taken into account by investors as capital gains may be realized by the investor and the liquidity of the investment.

Schedules
Financial Summary

Shared vision and shared the business plan over several years (3 minimum), the synthesis is to transform the information collected and presented in numerical predictions articulated for each period:
- Income statement,
- Cash flow statement
- Balance Sheet

The income statement
Presented on 3 to 5 years it will be monthly or quarterly for the first year.

The cash flow statement
As for the results, it is monthly or quarterly for the first year, giving it a character of annual cash flow forecast and in subsequent years.

Stock
It follows from the operational forecasts (income) and changes in cash flows.
From a starting balance sheet, corresponding to the start of the project, it is proposed for the end of each period of one year of activity.
Thus, in summary, on the economic and financial process of building a business plan is presented as follows:

To form his company size and its financing needs, all entrepreneurs will take care to first identify clearly and precisely what it needs to pursue sustainable business, the resources to implement an outcome will be. Adjustments are being made by the following iterative search for the best balance. It will avoid the opposite approach would be to their needs according to size of capital available to it.

Finally and most importantly, the owner of an SME will never lose sight that beyond these elements 'mechanistic' specific business plan, its primary mission is to sell its business plan to its bankers, partners, teams and other partners. .. Perhaps the theme of another post!

Components of a business plan

Rapid synthesis of the development plan in a few dozen lines, the executive summary should present the key points of the project to enable donors (shareholders and banks) to prompt a general idea and make them want to know more.
This includes:
- Presentation of the offer
- Description of the contract
- Description of Team
- Financing

Presentation of the offer of products / services:
The fundamental purpose of this section is to reach out clearly the characteristics of products and / or services.
The highlighted are:
- The nature of the offer
- Advancement Project
- Key technologies, patents, trademarks
- Prices and rates charged or proposed

Market - Competitive Environment
The market is a delicate operation, especially in emerging markets.
- Market characteristics and actors involved
- Customers

Targets:
The development plan is a management tool that is needed to draw lessons from the past and allow some adjustment. As such, the plan should include objectives that steps the company will achieve.

Business strategies:
The purpose of this section is to outline the strategies adopted to achieve the objectives. The key elements of this offer are products, pricing, distribution and communication.

Management Team - Management - Human Resources:
It is present in this part of the project's key people in describing their role, their experiences and their complement  are  to reveal the correspondence between them and the project.

Legal Aspects:
The description of the legal structure and capital allocation, as well as policy changes in the capital, is needed to assess the degree of coherence of the legal structure chosen (with the possible obstacles or constraints) in relation to development considered the company.
- Form - Calendar
- Changes in share capital
- Industrial Protection.

The Business Plan Part. II

Starting a business is of three main stages, each having a dimension iterative

• The first step is, according to the objectives and motivations that have led to a project to refine its knowledge of the environment in which the company operates, with an approach also known as SWOT EMOFF (Environment / Strengths / Weaknesses / Threats / Opportunities) and requires gathering information about clients, competitors, suppliers, regulators, and the key skills and resources available to the company or must have.

• The second step is to refine the project in terms of Key Success Factors (CSF) and variables or fields of Strategic Actions (VAS).

• The third focuses on the means (technical, human and financial) necessary and action plans from which the Business Plan is the subject of a valuation, and financial economic quantification.

The document that materializes this research, this reflection, the choices that result, the main actions and associated resources is called Business Plan. It has 2 parts:

• The first part, called pitch, is devoted to the arguments needed to validate and sell his project. This part of nature "literary", must be rigorously prepared to highlight the economic consistency of the project.

• The second part corresponds to a financial overview of the measures and Covering the project's economic viability.

The business plan

Starting a business is not only starting a business alone,  it involves raising  funds, developing  an business activity, diversifying it, transmitting , merging, adjusting, developing, negotiating and  communicating your dream business. There are many reasons for embarking on the adventure of developing a business plan.

Creating a project is not only the record of business plan alone but it also includes a financial component and a pitch.

As for investment, in financial terms, it can be defined as "sacrifice resources in hopes to draw more in the future," which indicates three key concepts: duration, cost and risk. Aspects profitability and financial flexibility are at the heart of the case. They underlie substantive issues such as: How to appreciate and take into account the reversibility of a project? Is there a business model in the business plan?

The financial calculations do not remain a simple decision support, and that beyond the virtues and pitfalls, advice and methodology presented in the Business Plan has many facets. And above all the business is a script of a wonderful story and which should be directed by the creator himself. It is the expression of a chosen strategy to be shared more or less detail, among its shareholders, bankers, employees and other stakeholders of the company if necessary.

The medium-term loans

The duration of the medium-term loans is of 2 to 7 years for the financial investments, and they are granted either by a single bank or a bank in competition with a specialized. There must be an association between the period of funding and the life of the asset financed.  The financial borrowing duration should not be longer than the duration of its use as medium-term financing. If it is so it should be avoided in all cases. Hence it is applicable to investments such as average length of vehicles and technology, and more generally, to most goods and means of production of the business. The loan period must be taken into account to the financial possibilities of the business. That is, during this period, company must not only ensure the repayment of the loan, but also interest payments.

In all cases, financial backing by a medium-term loan does not cover the entire investment, it is logical that the business wants to equip them to make an effort for the flow of money. The percentage of the investment program financed by a medium-term credit is generally between 50% and 75% of total investment.

The granting of loan for a medium term from the merchant banker is subject to a broad study because the risk comes from the period and volume of the loan. The merchant banker must study the market impact of the introduction of this equipment and provide the financial situation of the business, given its new production and also because of its new charges. This require  to develop a further plan for the funding that will parallel the total expenses and resources of the borrower, and more over in order to identify future opportunities for the company to meet its debts and thereby ensure a good outcome of operation of credit

Financial planning

Any company needs to invest for its creation of its new development activity. That is to say, new development activity means of production. Besides the flow of funds of its own source, the use of bank loans is the most commonly used practice.

To production every firm need raw materials, labor, and  also a variety of equipment like Land, buildings, manufacturing equipment, etc.. ; All these devices are called the production tool.

Whether for the creation or for development needs every company needs to invest. Once established, they will allow the company to produce more or better conditions, which will enable it to generate additional profits.

A company can finance its investments from internal funds, without recourse to external capital. This solution has the advantage for the company to play independent, but it has the disadvantage of limiting the company in its investment opportunities and the expansion of the company.

Therefore, the use of bank loans is the most commonly used practice because it is  easy and possible way  for almost all small and medium enterprises. However, we must recognize that this funding has disadvantages for the business. It makes the company dependent on the varieties of the distribution of credit (i.e. amount, cost, time, etc.) And the policy adopted by its banker that is choice of risk guarantees, etc.  Among the solutions offered by banks, there is the classic credit medium or long term.

Constraints of financial investments

A company has a priority, to invest its own resources. If its own sources are insufficient, the company must raise its fund as equity. The conditions of funding of productive investment depend on specific characteristics to the financial situation of the company.


 Analysis on the financial investment has long been conducted in a theoretical framework defined by the Modigliani-Miller theorem (1958). According to this theorem, it is immaterial for a company to finance its investments through debt, issuance of shares, or retention of profits. This theorem is only valid under very restrictive conditions, which in practice are not checked: the hypothesis of perfect capital markets, lack of conflict between managers and shareholders, and the absence of distortions and taxation. The strict application conditions of this theorem led to his questioning, and guided the researchers to the idea of ​​an optimal capital structure of companies. Companies are advised to go into debt to take advantage of the leverage and the tax benefit associated with debt. But the growth of debt poses a risk of failure increased. The company must decide between the benefits of debt and the cost of default risk.


The borrowing capacity of a company depends much on its capacity that it can offer, and market conditions (level of interest rates). The level of profits and the level of indebtedness of the company are the two key indicators to assess the repayment capacity of the borrower. In this way, investment is determined by the level of profits and debt.


Economic research highlights the wide diversity of investment behavior of firms. This heterogeneity is largely explained by the different financing terms offered to them. The variable profit rate and debt ratio have explanatory power and real investment by small businesses, but not for the investment of large groups. Small firms have less collateral to offer banks, and therefore more difficult to finance their investments. The constraints are more strengthened in times of slower growth or recession.

The Long term credit

The long-term funding is a funding for a period of not less than seven years. The credit is generally used to finance the purchase or construction of property of significant value, for example, buildings or industrial buildings, large equipment whose useful life is more than seven years.  It is also the capital funding for businesses, but the amortization period exceeds seven years. So it's heavy capital.

 Thus, when a company or an individual looking for a competition to fund the construction of a road, a factory or a building, it is clear that the importance of investment capital is such that reimbursement may be considered in time similar to those of medium-term credit for the good reason that the tax depreciation of these investments may not be realized in the long term.  In fact, the newly built factory will bear fruit only after several years.  It leads inevitably to the concept of depreciation that occurs and determines the time of repayment.

 It is therefore imperative, like the medium term, to focus the profitability of the company and consider the elements on: the evolution of turnover in recent years and its prospects especially future, and the cash flow of past and future, net profit after tax also past and projected.
 
Unlike the medium term, the proportion of bank intervention that is 70% or less of the total project to incur the long term is limited to 50% maximum.  All the rest of the conditions and terms for this category of credit remains the same as the medium term.

 Finally, it is clear that the classification, whether it is long-term credit or the medium term credit is only according to their duration, which is, more than seven years and can reach 20 years and over, for the long term, and between two to seven years for the medium term. The fact remains that it is closely and directly from the purpose and its funded depreciation determines the time of repayment.

US debts and the Chinese pressure!!!

China one of the largest creditor of the United States recently urged Washington to take a precautionary measures to safe guard the investors. This was given after Standard and Poor, the debt rating agency of US gave the warning. On Monday Standard and Poor’s showed the negative views about the debt situation in US. Apart from budget deficits, the main reason was no clear policy to resolve the issue.

The US government has challenged the sensational negative announcement of Standard and Poor’s views, and said the agency had under estimated the government’s efficiency. The fact remains that this deterioration in the U.S. took effect on global trade, the Shanghai falling by 1.91% Tuesday.

 According to the US government, as on August 2010, China had a total of 868.4 billion dollars in U.S. Treasuries. Hence China fears that any explosion of US debt will further weaken the American dollar which will result in a de facto devaluation of Treasury bills held by China.

By posting a negative outlook, Standard & Poor's warning seems to Beijing on the inability of U.S. policy to contain the situation, context likely to impact significantly the value of Chinese investment in dollars or even encourage an overhaul of global financial system currently focused on the dollar.

Some analysts however said China appears to have little choice, its accumulation of foreign currency forcing it to invest more than $ 50 billion out of the territory each month. Indeed there are some more alternative markets of sufficient size as that of US market is there to accommodate the Chinese fund.

Gold extended its record-breaking rally

The gold reached the record of 1500 dollars an ounce, It has never been a similar rise in the financial markets. With this crisis and expressed fears about the U.S. deficit and debt in Europe, investors prefer to acquire more gold to slow the risks.

It is obvious that holding gold resources does not yield large monetary benefit, but may qualify its holder as a good asset. In times of financial instability, investors are constantly looking for safe way to invest. The gold is the best immediate alternative for them. Hence this is the reason for this recorded historic outbreak in gold rate.

Since most of the global market is unstable this trend may continue and hence more procurement by the investors will lead to more price rise. In our neighboring country China inflation was reached 5.4% as on March 2011and hence their banks are required to increase the reserve and hence there is no immediate down trend in the price of yellow metal. The current crisis and un rest in African and Middle East countries are another main reason for the price raise of the yellow metal.

In relative point of view; the prevailing price of Gold is not expensive compared with the price of 1980 considering the inflation in price in mind. Even the poor man’s gold also rose to certain extent and the metal traders highly praise this metal.


However, all metals are not aware of such enthusiasm from buyers. The platinum price has not changed while that of palladium was down 6%. Their courses have been affected by the earthquake and tsunami in Japan.

Saudi Arabia And The Present Oil Crisis

The impact of the current situation in Libya on oil prices offer some advantages to some of the OPEC countries. While oil prices soaring, driven in particular by fears of shortages, Saudi Arabia is trying to pull out of the game by offering his "help". Finally, Saudi Arabia is trying to utilize this opportunity to inflate its oil wealth to greater extent.

Last Sunday, the Saudi oil minister has said in his country, as a leading member of OPEC, Saudi Arabia is ready to meet any additional supply to full fill the international demand. More over Minister Al al Nuaimi told they have enough stock as reserve for the supply since the raise in demand of Asian countries are more. Moreover he said their offer would impact heavy on the oil markets. Saudi Arabia the world's biggest exporter had already lowered its production. It was 8.29 million barrels per day in March against 9.1 million barrels per day in February.

Most of the petroleum user countries urged the Organization of Petroleum Exporting countries to raise its production targets in an attempt to stop the current surge in oil prices. Here I wish to point out one thing, in late February, Tehran has called on member countries of OPEC, and in particular Saudi Arabia not to  unilaterally raise their crude production. Iranian Oil Minister Massoud Mir Kazemi, emphasized the OPEC members not to take hasty unilateral decisions in case of any shortage in Oil. And their argument is current production suffices to fill the gaps created by the Libyan internal crisis.

Gold hits another record

The gold price has again hit a record on Friday, getting closer every day just over a threshold of 1,480 dollars an ounce.

Main factors leading to this historical rise were; the worrying situation of some of the member countries of the European Union beset by serious difficulties with their internal debt and sustained rise in inflation.

The price of an ounce of gold has risen to its latest peak on Friday in the international market, by breaking the previous Monday record.

According to the Analysts the investors in Greece, Portugal remained concerned over the threat of default, a situation that encourages them to buy precious metals, which are the safe-haven assets.

 The debt restructuring in Greek, Ireland also raised the new concerns and hence the raise in the precious metals.

On Friday, ratings agency of France lowered the rating two notches in their country alone.

Another main reason for this rise is; the Investors are alarmed of the signs of runaway inflation. Many European countries afraid, that their local market gold price will be in raise compared with the expected price in China and India. The sovereign debt and the inflations of some of the countries are the main reason behind the rise.

Because of the market instability, threat of default in certain European countries and inflation kept the precious metal price on its present high. You have put eye on the market trend for few more days to predict the trend of the precious metal.

Stock Market Basics-4

The risks involved in investing Equities
The share prices are affected by factors that comes from within the company ( change of Management, change of policy of company, change of Human resources, fires and accidents in a company ), and the factors outside the company ( General Market condition, Economy, Sector demand and supply, Government Policies, International Wars, Foreign Policy, Demand in the International Markets, etc ).
So equities involves risk. But in a fixed deposit the risk is almost nil ( But it too have some risk. In case, if a Bank fails ). As we have seen earlier, Equities are riskier but they give good rewards. So while investing we should reduce our risk. How can one reduce the risk involved in equities.

Here comes diversification. One should not invest the entire amount at his disposal in a single share or sector. To reduce risk one should use basket of stocks. If one stock or one sector underperforms the market, the other sector or stocks which performs well will compensate the growth. Thus one can see good growth of his portfolio.

Impact of Tsunami on Japan’s Economy

Ever since Japanese Stock Index Nikkei touched 40,000 on January of 1990, it has been in decline. It touched a low of 7000 in 2008. For more than 18 years, Nikkei has been in decline. This says the sorry state of Japan’s Economy. Japan’s Economy was affected by the 2008 recession. Since then, it has been in a minor recovery path.

 

But the present Tsunami, has dashed the hope of full recovery of Jhttp://www.blogger.com/img/blank.gifapan’s Economy. It is being estimated that more than 200 billion of USD was lost in the Tsunami. World Bank has estimated that it may take another 5 years to repair the damages. It is surely a disaster for Japan Economy.

 

Constructing a Atomic power station is not a easy job. It needs lot of money and time. The damaged Atomic power station may need lot time and money to repair it. Since this devastation is caused not only by Tsunami, it is devastated by earth quake as well. Lot of buildings, roads and infrastructure has been damaged in the main land. Though financially, these loss can be manageable by any country, Japan at this stage, given their poor state of economy, cannot afford this disaster.

Aftermath of Japan’s Natural disaster in world Economy

Once again, Nature has demonstrated its vast devastating power on Earth and also it has been once again proved the instability of Human lives in this world. Even though, natural disaster are not new for the Japanese, the present devastation is caused by Earth Quake, Tsunami, and Atomic radiation. Japanese might not have imagined such a three frontal attack on them.

The only consoling thing is that only the coastal areas are affected by this devastation. The main land is not affected by Tsunami. This seems, that Japan will soon recover from this calamity. The resilience and discipline shown by these people shown by this people is astonishing . We have seen utter chaos in the streets of many Asian or European Or American countries whenever a disaster struck. But the Japanese kept their cool and they have moved on.

It is learnt the Tsunami might cost a lot for the insurers. So, it is bad time for Japanese Insurance companies. Japan is an Automobile Major. It may affect the production of these companies. Japan may need lot of money to be put into their economy. So this will surely dampen the export import balance of that country.  Already crude oil saw a mild sell off on the back of Japanese natural disaster fearing a lack of demand on crude.

Commodity prices may move on the back of fresh demand for reconstructing these regions. So metal prices may go up in the near future. The economic impact of this disaster most likely to affect Japan only. It is unlikely to impact other economies.

Stock Market Basics - 3

When you put your money in banks, the bank pays you an interest. The relation between you and your bank is, as it is between a borrower and lender. But in the case of buying shares, you are giving your money to the company to become a partner of that company.
Since you are a partner of that company, you are also a part of the profit and loss of the company. When the company is in profit, the profits will be shared to you according the number of shares you are holding. In case of loss, though they won’t ask you, the value of the share will go down accordingly.
In a bank deposit, the risk is almost nil, though there is some risk associated with it. But in case of equities, the entire capital you have invested is at risk. But the return you get in bank deposit, which is  the interest, is always fixed and small. But the return you get in equities is always high but at the same time, if the company doesn’t perform well, then you are likely to lose the entire capital invested.
So, by investing in equities, you expose your money to high appreciation and also to high depreciation. The risk involved in equities is very high and at the same time the return is also very high. Though the risk is very high, the reward ( here it is the return from equities ) is also very high when compared to bank deposits.
The return on equities is some times phenomenal. Equities appreciate by two times or three times or more than that in a short span of time. Your capital will be doubled in every eight years in Bank deposits. But in shares, in a bull market, your capital will be doubled within few months.

Stock Market basics-2

Every body should invest to financially  protect himself for the rainy day. Investment is different from business. Business is the source of your income. What ever you invest in the business in not your investment. But some spending like buying land for the business can be a investment. So basically business and investments are different.
Investment is for the rainy day. But business is for our regular income. There are different type of investments. It may be shares, Gold, Bond, or real estate. But what you save in banks as deposits are savings. There is a difference between savings and Investment.
Savings can be done in any form. It is saving the excess money in banks or in your locker itself. Savings would not grow as it is. When your savings turn into a investment, it is likely to grow. Properly saved money is a good investment. Savings are not associated with any risk. But investments are associated by with some risk. So investments are risk capital. Where as savings are not.
So Business, Savings and Investments are three different thing. If you could identify these three things, then you have passed your 10th standard in finance. Stock Market investment is an Investment. Stock Market Investment is a risk capital

Stock Market basics-1

Stock Market investments are long term investments that should not be funded by short term debt. Always invest the surplus in Stock Market. Investments in stock market can be done at any age. But as the age increases one should reduce the exposure in stock market to half of his portfolio.
In the long run, equities always offer the highest returns. The amount that can be invested in stock market depends on two criteria. The risk profile of the person and two, the liquidity requirements of the person.
Risk profile
Equity investments are not free of risk. Person who has debts should not invest in Stock Markets. Person who has good career with stable income can take lot of risks in Stock Market. Person who is retired and who is not earning now should take small risk in the stock market.

Liquidity
Liquidity means the need of cash to meet one’s repaying obligations. A person who has debt is in need of liquid cash to meet out his obligations. So he should not invest in Stock Market. A person who has excess money and who has little requirement of liquid cash, can invest a lot in market. A person who has retired from job also is in need of liquid cash to meet out his recurring obligations like rent, telephone bills etc.

Investments in Stock Markets should be done based on risk profile and liquidity requirement of a person.

Will there be a bull market in Real Estate Sector world over?

It is being mentioned in main stream media that there will be bull market in real estate sector. And there is a perception among the investors that real estate prices are going to move up. Will there be really a bull market in this sector?

Earlier, it was in 2008, there was a big bull market top. The top was followed by a big correction and as everybody knows, it has been a bull market since 2009. Now it is being projected, that the bull market will continue its trend in 2011-2012 period also.

If the present rally continues its uptrend for the next two years, then real estate market is growing after a brief correction. Is it possible for a back to back rally in this sector, that’s to in a span of 4 years. As for as speculative markets are concerned, markets after peaking for a long time takes five to 10 years to consolidate its position.

So back to back rally is not possible in this sector within this 4 years. My view is, the present rally in this sector is a temporary one and it is going to be followed by a big bear market which could last even for a decade. Investment in this sector can be avoided at current levels or you can postpone the decision of buying for another 1 year

Short term Outlook of Australian Stock Index

The  Australian Index AORD has been forming a expanding triangle since September of 2009 and also it is forming a expanding triangle since september 2010 in the final leg of the bigger expanding triangle. Expanding triangles normally retrace completely. So the present rally would terminate some where between 4900 and 5250 in levels in near future.

A correction from these levels is likely to terminate around 4600 initially. Break of 4600 could foretell a big correction for AORD. A rally past 5250 could only negate the present bearish scenario for this Index. Almost most of the Western Markets are trading in the same pattern. The bearish pattern is not only seen in AORD, but also in all World Markets.

And also, the rally after October 2009 has not moved above the all time high the AORD formed on 2007. The present rally would miss the previous high by a huge margin, if the present rally terminates around 5250. As of now selling the index when it moves towards 5250 will fetch some good returns from a traders point of view.

Short Term Outlook of FTSE

Since 2009 September, the United Kingdom stock Index FTSE has been trading in a expanding triangle pattern. Expanding Triangle is a reliable. But trading and projecting will be very tough for any Analyst or Trader. The price pattern suggests, the present rally from the low of 4800 from June 2010 seems to be the last leg of the Expanding Triangle.

The last upside rally in an Expanding Triangle would be followed by a last downside leg. If FTSE behaves as we project then it is likely to see a correction towards 4400 levels in coming weeks.  For the short term, the level 6000 seems to be a crucial level for the coming trading session. If it could sustain above that level, a short term rally towards 6300 is likely. If not a correction towards 5450 is likely


In the Long term, since it failed to clear the 2007 high, this Index seems to be in a bear market.