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Financial Instruments (financial + instruments)
Selected AbstractsCONVERTIBLE SECURITIES: A TOLLBOX OF FLEXIBLE FINANCIAL INSTRUMENTS FOR CORPORATE ISSUERSJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2000Trevor Ganshaw During the 1990s, convertible and equity-linked securities emerged as a major source of financing for U.S. corporate issuers. Issuance volume grew steadily throughout the decade and the secondary market value of U.S. convertible securities now exceeds $200 billion. In this overview of the market, the authors discuss the following: (1) the growth of issuance volume in the U.S. equity-linked market; (2) the basic characteristics of convertible securities; (3) convertible debt alternatives; and (4) convertible preferred alternatives. As a result of the proliferation of new convertible structures, corporate issuers are now able to adjust coupon/dividend, conversion premium, and call protection in order to meet their tax, accounting, rating agency, and cost-of-capital objectives. Historically, the convertible new issue market has had a broad variety of issuers, spanning all industry sectors as well as both investment grade and high yield credits. But in the last two years, the most aggressive issuers have been technology-oriented companies, including telecommunications, Internet, hardware, software, and biotechnology concerns. Such technology-related issuers, which are often rated below investment grade and unable to secure straight debt capital, are generally in heavy-spending phases and view convertible bonds as a source of inexpensive financing. At the same time, investment-grade, "old-economy" issuers have continued to use convertible securities selectively, in most cases as cheap "quasi-equity" in the context of mergers and acquisitions, or as a tax-deferred strategy for selling cross-holdings of stock. [source] Financial Integration in the EU: the First Phase of EU Endorsement of International Accounting Standards,JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2 2008IAN DEWING In 2002 the EU adopted the Regulation which required European listed companies to prepare their consolidated accounts in accordance with international accounting standards from 2005 onwards. A novel set of structures for the endorsement of international accounting standards for use in the EU was put in place. This article examines the first phase of endorsement of international accounting standards in the context of the novel endorsement structures. The article concludes that problems over the endorsement of IAS 39 Financial Instruments: Recognition and Measurement reveals a number of significant policy implications for the EU including the difficulty of forming a European view, the role of private actors in EU regulation, and the issue that international standards largely reflect Anglo-Saxon accounting practices rather than continental European practices. [source] ,Fair Value' for Financial Instruments: How Erasing Theory is Leading to Unworkable Global Accounting Standards for Performance ReportingAUSTRALIAN ACCOUNTING REVIEW, Issue 21 2000JOANNE HORTON The LASC is pursuing proposals for accounting for financial instruments that are conceptually flawed and unworkable in practice. "Fair value" has been elevated to a catch-all concept to resolve measurement issues objectively. Adoption of fair value, as cuwently interpreted by standard-setters (eg, by the FASB in Concepts Statement No. 7, issued in February 2000), threatens to drive out a long-understood, theory-based approach to the rationales for cuwent value accounting , founded on "deprival value" , that has recently been comprehensively restated in Accounting Theory Monograph 10, issued by the Australian Accounting Research Foundation in 1998, and reaffirmed in the UK Accounting Standards Board's Statement of Principles for Financial Repovting, issued in December 1999. [source] Financial markets can go mad: evidence of irrational behaviour during the South Sea Bubble1ECONOMIC HISTORY REVIEW, Issue 2 2005RICHARD S. DALE This paper explores investor behaviour during the South Sea Bubble,the first major speculative boom and bust on the stock markets. Previous literature debates whether investors during this episode acted rationally. Newly acquired data involving parallel markets for the South Sea Company's stock and subscription receipts are analysed, and widening valuation gaps are observed between these substitutable financial instruments. Rational explanations do not prove adequate, and the anomalies are explained by the biased decision-making of investors, and their tendency to view financial markets as wagering markets. The implications of these findings for the current debate on rationality in financial markets are identified. [source] A Comparative Literature Survey of Islamic Finance and BankingFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 4 2001Tarek S. Zaher There has been large-scale growth in Islamic finance and banking in Muslim countries and around the world during the last twenty years. This growth is influenced by factors including the introduction of broad macroeconomic and structural reforms in financial systems, the liberalization of capital movements, privatization, the global integration of financial markets, and the introduction of innovative and new Islamic products. Islamic finance is now reaching new levels of sophistication. However, a complete Islamic financial system with its identifiable instruments and markets is still very much at an early stage of evolution. Many problems and challenges relating to Islamic instruments, financial markets, and regulations must be addressed and resolved. In this paper, we provide a comprehensive comparative review of the literature on the Islamic financial system. Specifically, we discuss the basic features of the Islamic finance and banking. We also introduce Islamic financial instruments in order to compare them to existing Western financial instruments and discuss the legal problems that investors in these instruments may encounter. The paper also gives a preliminary empirical assessment of the performance of Islamic banking and finance, and highlights the regulations, challenges and problems in the Islamic banking market. [source] Fair Value Accounting and the Financial Crisis: Messenger or Contributor?,ACCOUNTING PERSPECTIVES, Issue 3 2009Michel L. Magnan ABSTRACT This commentary discusses how fair value accounting (FVA) affects the nature of financial reporting, especially for financial institutions that were deeply affected by the 2007-9 financial crisis. Toward that end, I address four questions. First, I review FVA's role in financial reporting, emphasizing its development over time. While the commentary's focus is on the interface between financial instruments and FVA, its reach extends well beyond financial instruments. Thereafter, I discuss the measurement and valuation challenges that arise from the use of FVA in financial reporting. Then, I analyze the evidence, analytical and empirical, on the role that FVA may have played in the financial crisis of 2007-9. Since, to some extent, the crisis is still unfolding, there is limited yet very insightful empirical evidence on this issue. The evidence does suggest that FVA, in combination with its use by regulators, may have severely undermined the financial condition of some institutions. The effect was amplified for institutions holding assets in markets that saw their liquidity dry up during the crisis. In other words, FVA may have amplified the crisis. Finally, I discuss some implications that we can draw from the crisis about the merits and risks underlying FVA. For instance, I conclude that, in a search for relevance, the use of FVA in financial reporting may accelerate its disconnection from a firm's business reality. [source] Managerial Opportunism and Capital Structure Adjustments: Equity,for,debt Swap and Convertible DebtINTERNATIONAL REVIEW OF FINANCE, Issue 1 2002Nobuyuki IsagawaArticle first published online: 16 MAY 200 This paper shows how capital structure adjustments through an equity,for,debt swap and convertible debt can resolve the inefficiency caused by managerial opportunism. We consider a situation in which a corporate manager's investment decision is affected by the firm's debt level. Although both an equity,for,debt swap and convertible debt can induce the self,interested manager to undertake only value,increasing projects through capital structure adjustments, there exists a significant difference between these two financial instruments. An equity,for,debt swap, which requires the agreement of both shareholders and debt holders, can change a firm's debt level only prior to the manager's investment decision. On the other hand, convertible debt, which gives debt holders a unilateral right to convert, can change a firm's debt level even after the manager's investment decision. [source] Equity-Liabilities Distinction: The case for Co-operatives,JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2009Germán López-Espinosa Members' shares in co-operative entities are financial instruments with particular characteristics. In this paper we analyse the relation between firm leverage and systematic risk to provide empirical evidence on the economic substance of the member shares of members of cooperatives. We have studied the characteristics of members' shares in six European countries: France, Germany, Italy, Portugal, Spain and United Kingdom. We have also conducted tests on co-operatives of these countries over the period 1993,2005. The study reports that in global terms the economic substance of the redeemable part of equity in co-operatives is not the same across countries. Therefore if accounting standards setters want to develop a global standard for co-operatives, a recommendation derived from this study would be to follow a probabilistic model to classify the redeemable part of co-operative financial instruments, where the entity does not have the unconditional right to refuse the redemption, or to report this part as an intermediate item with characteristics of debt and equity. [source] Regulation Avoidance in the Banking Industry: The Case of 364 Day Lines of CreditJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2000Michael Mosebach The purpose of this case is to offer a demonstration of Kane's regulatory dialectic and to discuss a line of credit that is a result of the interaction between the regulators and the regulated. Banks have been affected by new capital requirements. Calculation of these requirements considers not only on-balance sheet activities but off-balance sheet activities. Prior to these requirements, banks issued one year lines of credit for 365 days. These lines of credit have since been replaced with 364 day lines of credit. With maturity less than one year, the percentage of lines of credit considered in the calculations for required capital is reduced from 50% to 20%. Lines of credit are well established financial instruments and there is no reason, other than the changes in regulations, to make banks change the maturity dates by one day. [source] Handling Weather Related Risks Through the Financial Markets: Considerations of Credit Risk, Basis Risk, and HedgingJOURNAL OF RISK AND INSURANCE, Issue 2 2007Linda L. Golden The profits of many businesses are strongly affected by weather related events, and insurance against weather related risks (acts of God) has been a traditional domain for transfer of (certain) of these risks. Recent innovations in the capital market have now provided financial instruments to transfer and hedge some of these risks. Unlike insurance solutions, however, using these financial derivative instruments creates a situation in which the return to the purchaser of the instrument is no longer perfectly correlated with the loss experienced. Such a mismatch creates new risks which must be examined and evaluated as part of ascertaining cost effective risk management plans. Two newly engendered risks, basis risk (the risk created by the fact that the return from the financial derivative is a function of weather at a prespecified geographical location which may not be identical to the location of the firm) and credit risk (the risk that the counterparty to the derivative contract may not perform), are analyzed in this article. Using custom tailored derivatives from the over the counter market can decrease basis risk, but increases credit risk. Using standardized exchange traded derivatives decreases credit risk but increases basis risk. Here also the effectiveness of using hedging methods involving forwards and futures having linear payoffs (linear hedging) and methods using derivatives having nonlinear payoffs such as those involving options (nonlinear hedging) for the purpose of hedging basis risk are examined jointly with credit risk. [source] Geschäfts- und Risikopolitik von Hedgefonds im Vergleich zu anderen Finanzintermediären: Sind Hedgefonds besonders gefährlich?PERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 3 2000Günter Franke Hedge funds are characterized by short-term investments in over- or undervalued financial instruments. Their policy is highly dynamic as opposed to the more long-term investments of mutual funds. On average, the risk taken by hedge funds appears to be higher than that taken by mutual funds, although quite risky mutual funds also exist. Banks sometimes take large default risks, as evidenced by various banking crises. Also banks trade heavily on the term structure of interest rates. Hence, in these respects it appears that banks take risks that are at least as high as hedge funds. In short-term proprietary trading, banks and hedge funds face similar challenges. Overall, hedge funds cannot be regarded as more dangerous than banks. Since hedge funds trade with professional investors and banks, there is little reason to protect these counterparties by special regulation. Moreover, most hedge funds are rather small players and do not seem to act in herds. Therefore, the probability of systemic risks created by hedge funds appears to be very low. As a consequence, market control of hedge funds supported by more transparency appears to be preferable to specific hedge fund regulation. [source] On the exit value of a forward contractTHE JOURNAL OF FUTURES MARKETS, Issue 2 2009Gabriel J. Power Default risk associated with forward contracts can be substantial, yet these financial instruments are widely used to hedge price risk. An objectively priced exit option on the forward contract would help reduce the likelihood of litigation associated with contract default. A method is proposed to compute the exit option's value for an arbitrary forward contract, using Black's (1976) model and option premium data. The time series dynamics of the exit option value are confirmed to be, like its underlying, well described by a martingale with heavy-tailed (Student) GARCH residuals. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 29: 179,196, 2009 [source] Creative destruction: Efficiency, equity or collapse? (Respond to this article at http://www.therai.org.uk/at/debate)ANTHROPOLOGY TODAY, Issue 1 2010Stephen Gudeman Around the globe, unemployment and sub employment have risen, salaries are frozen, homes are being repossessed, economic inequality continues, and many are experiencing heightened emotional distress. We have heard many explanations for this economic and social mess. But the current crisis should make us question the standard narratives, which failed to predict it and now offer ambiguous solutions. I argue that the crisis represents a tectonic shift in material life that calls for rethinking our image of economy. Because the normal discourse of economics does not explain this world of contradictions, ironies, and unpredictability, perhaps anthropology's moment has arrived. I offer a sketch of the contemporary situation based on a vision of economy as a combination of value domains and the impact of growing specialization, beginning in the workplace and reaching to new financial instruments. If the idea of the growing division of tasks in markets has been a central thread in economics since Adam Smith, its counterpart in anthropology has been the assumption of value diversity within and between cultures. [source] Issues in the Drive to Measure Liabilities at Fair ValueAUSTRALIAN ACCOUNTING REVIEW, Issue 21 2000MICHAEL E. BRADBURY This paper compares the discussion on liability measurement in Accounting The0y Monograph 10 with the liability measurement requirements in recent international proposals on accounting for financial instruments. Rather than conducting a detailed review of the Monograph, the paper examines three major issues which wawant amplifjing, extending or criticising: What is "fair value"? Why fair value liabilities? Should fair value include an entity's own credit risk? The focus is on financial liabilities such as "plain vanilla" debt; other financial liabilities, such as insurance obligations, pensions, wawanties and environmental damage restoration involve additional considerations and are therefore not considered. [source] ,Fair Value' for Financial Instruments: How Erasing Theory is Leading to Unworkable Global Accounting Standards for Performance ReportingAUSTRALIAN ACCOUNTING REVIEW, Issue 21 2000JOANNE HORTON The LASC is pursuing proposals for accounting for financial instruments that are conceptually flawed and unworkable in practice. "Fair value" has been elevated to a catch-all concept to resolve measurement issues objectively. Adoption of fair value, as cuwently interpreted by standard-setters (eg, by the FASB in Concepts Statement No. 7, issued in February 2000), threatens to drive out a long-understood, theory-based approach to the rationales for cuwent value accounting , founded on "deprival value" , that has recently been comprehensively restated in Accounting Theory Monograph 10, issued by the Australian Accounting Research Foundation in 1998, and reaffirmed in the UK Accounting Standards Board's Statement of Principles for Financial Repovting, issued in December 1999. 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