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what are benchmarks | a benchmark is a standard that is used to measure the change in an asset s value or another metric over time in investing benchmarks are used as a reference point for the performance of securities mutual funds exchange traded funds portfolios or other financial instruments generally broad market and market segment stock and bond indexes are used for this purpose even cryptocurrencies have benchmarks hallmarking the importance of having something to compare an asset s performance to if there is an investment instrument there is a benchmark to compare it to learn more about benchmarks and how you can use them to check your portfolio s performance investopedia yurle villegasunderstanding benchmarksmarket benchmarks are indexes a market proxy created to include multiple securities assets or other instruments to represent the performance of a stock fund or any other investment of the same type and composition benchmark indexes have been created across all types of asset classes for example the s p 500 and dow jones industrial average are two of the most popular large capitalization stock benchmarks in the equities market the s p 500 was created by standard poor s it lists 500 companies there are actually 505 stocks on the index based on specific metrics and valuation techniques that reflect the best performing stocks on the stock market according to the professionals at s p the dow jones industrial average comprises 30 u s blue chip stocks the stocks of well recognized established and financially sound companies the s p 500 of course has many more stocks listed on it than the dow does but there are many similar stocks both of these indexes are used by many to gauge the performance of the stock market as a whole even though they only represent a fraction of the stocks listed on public exchanges mutual fund investors may use refinitiv lipper indexes which use the 30 largest mutual funds in a specific category while international investors may use msci indexes 12 the wilshire 5000 is also a popular benchmark it represents all of the publicly traded stocks in the u s 3fixed income indexes measure the performance of fixed income assets like bonds and treasuries which investors use for generating income or as a way to preserve capital during falling market conditions some examples of top fixed income benchmarks include the bloomberg aggregate bond index known as the agg the bloomberg capital u s corporate high yield bond index and the bloomberg capital u s treasury bond index 4commodity indexes measure the performance of a basket of commodities for example the bloomberg commodity index bcom consists of 23 exchange traded physical commodities futures the index measures 21 commodities across five different sectors and acts as an indicator of the performance of the commodities market the five sectors are 5in addition to traditional benchmarks representing broad market characteristics such as large cap mid cap small cap growth and value you ll also find indexes based on fundamental characteristics sectors dividends market trends investing themes and much more thematic indexes are lists of stocks that meet specific criteria for a theme such as environmental social and governance esg or sustainability 67examples of benchmarksthe following are examples of the most popular benchmarks used in investing using benchmarks | |
when evaluating your investment portfolio s performance it s important to compare it against a benchmark representing the industry sector and market segment to which it belongs however if your portfolio is diversified you may not be able to compare the total portfolio against one index you may need to evaluate it in sections based on how you ve allocated your investments | most retail investors don t build their portfolios by choosing individual stocks however it is possible to do so but in many cases it is simply too expensive and time consuming to evaluate stocks and purchase the ones that meet your investing criteria so many choose mutual funds or exchange traded funds etfs that mirror the performance of specific indexes if you have a fund or more than one in your portfolio you can compare the information fund managers already provide to see how your funds are doing compared to the indexes they mirror for example the vanguard mega cap growth etf mgk is an exchange traded fund that tracks the performance of the crsp u s mega cap growth index if you had purchased shares of mgk and wanted to evaluate its performance you d first find the fund s page on vanguard s website and locate the performance and fees tab and ensure summary is underlined by clicking on it you ll see the following information 8you can see the fund s changes in market price from its inception to the last month s performance and compare it to its benchmark then find the historical volatility and see how the fund s return and risk compares to that of its benchmark r squared measures how closely the fund has tracked its benchmark in mgk s case it has very closely matched the returns of its benchmark a value of 1 0 indicate tracking while less than 1 0 indicates less tracking beta is a measure of the fund s risk compared to that of the benchmark again mgk has matched its benchmark s risk level again 1 0 indicates it has tracked while less or more than 1 0 indicates less or more tracking respectively mgk has historically matched the return and risk of the benchmark index it was designed to track give or take a few percentage points however when compared to the dow jones u s total stock market index mgk has returned less and has slightly more risk | |
what is the best stock benchmark | the best stock benchmark is an index that matches your portfolio or holdings the closest | |
is the s p 500 a good benchmark | it is very commonly used but many more can be used based on how the benchmark is designed some widely used benchmarks in the stock market are the wilson 5000 dow jones industrial average and the russel 2000 | |
how is a benchmark calculated | different indexes use different methods to calculate their performance for example the s p 500 uses a free float market capitalization method the bottom linemarket benchmarks are important because they allow investors to compare their holdings performance against reliable metrics additionally benchmarks indicate the health of a market you can also see how a particular class is performing or view the equities market performance as a whole market benchmarks constantly evolve with new ones occasionally appearing based on changing investing strategies and investor sentiments the one limitation benchmarks have is that they are indicators of past performance there is no way of knowing how the investments that comprise an index will perform you can only view the results of your investment decisions which is a good thing because you can use the information to make adjustments or readdress your strategy | |
what is a beneficial owner | a beneficial owner is a person who enjoys the benefits of ownership even though the title to some form of property is in another name it also means any individual or group of individuals who either directly or indirectly has the power to vote or influence the transaction decisions regarding a specific security such as shares in a company understanding beneficial owners | |
when shares of a mutual fund are held by a custodian bank or when securities are held by a broker in street name the true owner is the beneficial owner even though for safety and convenience the bank or broker holds the title 1 | beneficial ownership may be shared among a group of individuals if a beneficial owner controls a position of more than 5 of a company or entity it must file schedule 13d under section 12 of the securities exchange act of 1934 2beneficial ownership is distinguished from legal ownership in most cases the legal and beneficial owners are one and the same but there are some cases legitimate and sometimes less legitimate where the beneficial owner of a property may wish to remain anonymous | |
when a corporation or other legal entity opens a bank account the bank must identify the beneficial owners of that entity this is intended to prevent money laundering and tax evasion | to prevent money laundering banks are required to verify the beneficial owners of the companies or legal entities that open an account for these purposes a beneficial owner is anyone with more than 25 ownership of a legal entity or anyone who controls the legal entity 3areas of beneficial ownershipeach type of asset has different rules for how beneficial ownership is recorded although these rules vary by jurisdiction these are some of the most common standards as mentioned in the example above publicly traded securities are often registered in the name of a broker for safety and convenience the securities and exchange commission sec recognizes this and has regulated the practice in private companies for a number of reasons a beneficial owner may not want their name as a shareholder of record so long as tax laws and other laws are complied with this practice is not illegal in itself in most countries real estate registries show the names of the owners of properties in some cases a beneficial owner may not want their name to appear on public records in such cases it is common for trustees or other entities to act as legal owners in place of the beneficial owner for example famous artists or politicians may not want their home addresses to be easily found in public records so they do not appear personally on title deeds wealthy individuals who are at risk of lawsuits or simply want to protect their assets and plan their estate generally use trusts to act as the legal owner of their property often securities and money while they and their families continue to be the beneficial owners here again this practice is legal but highly regulated in intellectual property law a beneficial owner is someone who benefits from a trademark patent or copyright even though the legal right belongs to someone else this may happen when the owner of an intellectual property assigns some of their rights to another party 4panama papersfamously in early 2016 the international consortium of investigative journalists made public what it called the panama papers these documents taken from the archives of the law firm mossack fonseca co show in detail the beneficial ownership of several thousands of offshore corporations 5while many were used legally it appears some beneficial ownership was hidden for nefarious or illegal motives the papers revealed the secret business activities and holdings of several public figures including british prime minister david cameron and icelandic prime minister sigmundur gunnlaugsson who resigned as a result it also shed light on the web of secret holdings by russian leader vladimir putin 6newer rules regarding beneficial ownerson may 5 2016 the financial crimes enforcement network fincen fortified and clarified due diligence requirements for banks brokers mutual funds and other financial entities most importantly the new rules require legal entity customers to identify and verify the identities of their beneficial owners when they open an account these rules took effect on may 11 2018 7regulatory requirements for beneficial ownership | |
when a broker or other financial institution holds assets on behalf of a corporation or other legal entity they are required to record the beneficial owner of those assets this is intended to prevent money laundering or the use of financial infrastructure for terrorism financing | under financial regulations a beneficial owner is considered anyone with a stake of 25 or more in a legal entity or corporation beneficial owners can also be considered anyone with a significant role in the management or direction of those entities or any trusts that own 25 or more of an entity 8advantages and disadvantages of beneficial ownershipbeneficial ownership can simplify the process of owning and possessing certain assets such as securities a common example is the stock market it is rare for someone to take actual possession of the stocks that they buy which would incur additional paperwork instead their stocks remain in the hands of the brokerage which holds them in beneficial ownership this is sometimes referred to as owning the shares in street name however there are some tradeoffs to holding shares in street name there may be some delay in communications as all official messaging from the issuing firm must first pass through the brokerage there may also be delays in issuing dividends and interest payments in shadier circumstances beneficial ownership may also be used to withhold the actual owner of a property or security an example might be assets that are legally held by a shell company that is controlled by the beneficial owner although such companies are not inherently illegal they are sometimes used to keep the owner s financial assets a secret allows stockholders to control their shares and receive dividends without actually registering in their name can be a convenient way to manage large numbers of assets for securities all communication and dividends must pass through the broker shell companies can sometimes be used to conceal the identity of the beneficial owners for unethical purposes | |
what is the beneficial ownership rule | in banking the beneficial ownership rule is a regulatory requirement for banks to collect information on the beneficial ownership of an account at the time that the account is opened this is intended to prevent money laundering and tax evasion by identifying the actual owners of the legal entity that opens an account 9 | |
how do you determine beneficial ownership | in banking beneficial ownership is determined based on ownership and control of the legal entity in question ownership means any person with more than 25 equity in the legal entity and control means any individual with significant decision making responsibility such as a ceo or cfo 10who is exempt from the beneficial ownership rule certain types of entities do not need to provide identifying information under the beneficial ownership rule these include sole proprietorships certain trusts non account ownership and in the case of credit cards authorized users who are not the actual owners of the cards 9who is the beneficial owner of a charity or nonprofit for charities and nonprofits the beneficial ownership rule does not apply to those with over 25 of the company because these entities do not typically have percentage based controlling interests however they must still disclose the information of any executive or officer who has significant control over the company 11who is the beneficial owner of an irrevocable trust | |
when it comes to trusts beneficial ownership information includes information on the settlor trustees protector beneficiaries and any other person exercising ultimate control over a trust if a trust owns 25 or more of a corporation or legal entity the trustee s of that trust are considered beneficial owners of the corporation 8 | the bottom linebeneficial ownership allows someone to benefit from assets that are actually held in the name of a company or other legal entity this is most common for securities which are typically registered with a broker where the beneficial owners are their customers in banking the beneficial owners of a legal entity are those individuals who have a large equity interest or control over the entity s financials banks are required to collect this information in order to prevent money laundering | |
what is a beneficiary | a beneficiary is a person or entity who is designated to receive the benefits of property owned by someone else beneficiaries often receive these benefits as part of an inheritance a beneficiary can be designated in the documents relating to a life insurance policy a retirement account a brokerage account a bank account and other financial products it s important to designate beneficiaries for your financial assets so that they can be distributed according to your wishes when you pass away investopedia julie bang | |
how beneficiaries work | any person or organization can be named a beneficiary to receive your property after you pass away the individual who owns the property or the benefactor can put various stipulations on the disbursement of property these might include the requirement that a beneficiary is a certain age or is married before taking control of the inherited property beneficiaries designated on the paperwork for financial accounts override any beneficiary listed in a will 1there can be tax consequences for the beneficiary when inheriting certain financial assets for example if someone is the beneficiary of a life insurance policy it s useful to know that while the principal of most policies is not taxed the accrued interest might be 2failure to name beneficiaries on your financial accounts can result in the financial institution that holds the assets having to make decisions about the distribution of the assets failure to name beneficiaries in a will can tie up your property in probate potentially for years it can leave the decision about how to distribute your assets up to the state in which you live in either case the people for whom you wanted to provide financial support after your death may not receive it or they may have to wait a long time for it | |
why beneficiaries are important | it s important to designate beneficiaries for your financial property so that you can feel confident that the people you ve decided your money should go to will be assured of receiving it types of beneficiariesthe primary beneficiary is the first choice of beneficiary made by a financial account owner while other beneficiaries also may be listed in account or estate documents this person or organization will receive all of the assets in an account a contingent beneficiary is a secondary beneficiary they receive the account benefits only if the primary beneficiary is no longer living or cannot be located you can name more than one contingent beneficiary and how the assets would be divided between them | |
how to choose a beneficiary | beneficiaries should be designated for all of your important assets including property insurance policies retirement accounts brokerage accounts bank accounts and more | |
when selecting your beneficiaries | upon first opening your financial accounts companies ask that you provide beneficiary information if you didn t provide it at that time you can request the paperwork that allows you to designate one or more beneficiary fill it out sign and date it and return it to the company this can usually be done online or in person maintain a copy for your files minor children can t directly receive the proceeds of a life insurance policy but you could name a trust or your children s legal guardian as a beneficiary 4examples of beneficiariesan individual retirement account ira gives the account holder the ability to designate a beneficiary or beneficiaries the options for distribution of the assets are different depending on whether the beneficiary is an eligible designated beneficiary or a designated beneficiary each beneficiary type may take a lump sum distribution of the proceeds if they so desire 5 if not the choices are as follows eligible designated beneficiaryan eligible designated beneficiary is a spouse the minor child of the account owner someone less than 10 years younger than the account owner e g a family member or friend or someone who is chronically ill or disabled designated beneficiarya designated beneficiary is someone who is listed in the account records as a beneficiary but who doesn t fit into the category of eligible designated beneficiary 5if the beneficiary is either an estate or a trust referred to as a non designated beneficiary the executor or trustee directs the distribution of assets they may open an inherited ira account and distribute assets according to the rules for a non designated beneficiary 7life insurance proceeds are tax free for the beneficiary and are not reported as gross income however any interest received or accrued is taxable 2life insurance beneficiaries can be individuals such as a spouse or an adult child or entities such as a trust for example if you have minor children you may choose to establish a trust and name it as the beneficiary of your life insurance policy if you were to pass away then the policy s death benefit would be paid to the trust the trustee would then manage those assets according to the terms of the trust on behalf of its beneficiaries e g your children life insurance beneficiaries can be revocable or irrevocable revocable beneficiaries can be changed if necessary at any time during the policy owner s lifetime this is similar to a revocable living trust which can also be changed as long as the trust grantor is still living an irrevocable beneficiary is permanent if there are multiple beneficiaries named to a life insurance policy e g a primary beneficiary and several contingent beneficiaries then they would all need to consent to any changes involving an irrevocable beneficiary therefore it s important to choose beneficiaries carefully | |
what is a beneficiary | a beneficiary is a person or organization that has been named to receive property belonging to another person in the event of their death | |
what happens if i don t choose a beneficiary | if you don t choose one or more beneficiaries for your assets then the decision about what happens to your money will be made by someone other than you such as a financial institution or a court in the state in which you live 13 | |
how difficult is it to designate a beneficiary | it s not difficult at all once you ve decided on who your beneficiary or beneficiaries should be designating beneficiaries for your financial accounts involves providing the names social security numbers and perhaps other specifics on a form when you open your account if your accounts have already been opened simply request the appropriate form for designating beneficiaries fill it out and return it to your financial institution who can change the beneficiary on a life insurance policy in the case of a life insurance policy that has one or more revocable beneficiaries the owner of the policy can change the beneficiary designations at any time this is something that may be necessary if a beneficiary passes away or if the primary beneficiary is a spouse and the marriage ends in divorce if irrevocable beneficiaries are named to a life insurance policy then the policy owner would need the consent of the beneficiary and any contingent beneficiaries to make a change for that reason it s important to think carefully when choosing policy beneficiaries the bottom lineif you care about the dispensation of your financial assets after you re gone then choosing beneficiaries for your financial accounts should be a priority by designating beneficiaries you can ensure that your property winds up in the right hands | |
what is the benefit cost ratio brc | the benefit cost ratio bcr is a ratio used in a cost benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project bcr can be expressed in monetary or qualitative terms if a project has a bcr greater than 1 0 the project is expected to deliver a positive net present value to a firm and its investors | |
how the benefit cost ratio bcr works | benefit cost ratios bcrs are most often used in capital budgeting to analyze the overall value for money of undertaking a new project however the cost benefit analyses for large projects can be hard to get right because there are so many assumptions and uncertainties that are hard to quantify this is why there is usually a wide range of potential bcr outcomes the bcr also does not provide any sense of how much economic value will be created so the bcr is usually used to get a rough idea about the viability of a project and how much the internal rate of return irr exceeds the discount rate which is the company s weighted average cost of capital wacc the opportunity cost of that capital the bcr is calculated by dividing the proposed total cash benefit of a project by the proposed total cash cost of the project prior to dividing the numbers the net present value of the respective cash flows over the proposed lifetime of the project taking into account the terminal values including salvage remediation costs is calculated | |
what does the bcr tell you | if a project has a bcr that is greater than 1 0 the project is expected to deliver a positive net present value npv and will have an internal rate of return irr above the discount rate used in the dcf calculations this suggests that the npv of the project s cash flows outweighs the npv of the costs and the project should be considered if the bcr is equal to 1 0 the ratio indicates that the npv of expected profits equals the costs if a project s bcr is less than 1 0 the project s costs outweigh the benefits and it should not be considered example of how to use the bcras an example assume company abc wishes to assess the profitability of a project that involves renovating an apartment building over the next year the company decides to lease the equipment needed for the project for 50 000 rather than purchase it the inflation rate is 2 and the renovations are expected to increase the company s annual profit by 100 000 for the next three years the npv of the total cost of the lease does not need to be discounted because the initial cost of 50 000 is paid upfront the npv of the projected benefits is 288 388 or 100 000 1 0 02 1 100 000 1 0 02 2 100 00 1 0 02 3 consequently the bcr is 5 77 or 288 388 divided by 50 000 in this example our company has a bcr of 5 77 which indicates that the project s estimated benefits significantly outweigh its costs moreover company abc could expect 5 77 in benefits for each 1 of costs limitations of the bcrthe primary limitation of the bcr is that it reduces a project to a simple number when the success or failure of an investment or expansion relies on many factors and can be undermined by unforeseen events simply following a rule that above 1 0 means success and below 1 0 spells failure is misleading and can provide a false sense of comfort with a project the bcr must be used as a tool in conjunction with other types of analysis to make a well informed decision | |
what is the benefit cost ratio brc used for | the brc is used in cost benefit analysis to describe the connection between the costs and benefits of a potential project | |
how do you calculate the benefit cost ratio | the benefit cost ratio is determined by dividing the proposed total cash benefit of a project by the proposed total cash cost of the project | |
what does a benefit cost ratio over 1 0 suggest | a reading over 1 0 suggests that on a broad level a project should be financially successful a reading of 1 0 suggests that the benefits equal the costs and a reading below 1 0 suggests that the costs trump the benefits the bottom linethe benefit cost ratio bcr is used in a cost benefit analysis to get a summary of the overall relationship between the relative costs and benefits of a proposed project a project with a bcr greater than 1 0 is expected to deliver a positive net present value npv to a firm and its investors | |
what is bhd berhad | bhd is a suffix for berhad which is used in malaysia to identify a public limited company berhad bhd or bhd after a company s name indicates that it is a malaysian public limited company plc while the extended suffix sendirian berhad sdn bhd denotes that it is a private limited company share issue and bhdboth bhd and sdn bhd companies are classified as those that issue shares which is the most common type of business entity in malaysia such companies have a limited number of shares and the liability of their shareholders is restricted to the amount specified on their unpaid shares other types of companies in malaysia are companies limited by guarantees such as nonprofit organizations public societies and unlimited liability corporations ulc bhd versus sdn bhda bhd company must have a minimum of two shareholders and the maximum is unlimited an sdn bhd company can have two to 50 shareholders sdn bhd companies are typically small or midsized enterprises sme while bhd companies are the largest companies in malaysia bhd companies have stricter financial reporting standards than sdn bhd companies because they must disclose their financial statements to the public bhd firms also have greater access to capital than sdn bhd companies because they can access public equity and debt financing when they require funding although the process of incorporation for both types of companies is substantially similar an sdn bhd company has some stringent stipulations in its articles of association these include restrictions on transfers of the company s shares a maximum of 50 shareholders a prohibition on public subscriptions to the company s shares or debentures and on collecting public deposits although most bhd companies list their shares and trade on a stock market it is not a mandatory requirement therefore they can choose to stay unlisted real world examplein 2018 the forbes global 2000 list included 13 malaysian bhd companies according to the forbes ranking which is based on a combination of sales profits assets and market value the largest companies in malaysia include | |
what is berkshire hathaway | berkshire hathaway is a holding company for a multitude of businesses including geico and fruit of the loom it s run by chair and ceo warren buffett berkshire hathaway is headquartered in omaha nebraska originally it was a company comprised of a group of textile milling plants buffett assumed control of the struggling new england company in 1965 since that time berkshire has grown to be one of the largest companies in the world based on market capitalization today it is one of the world s largest companies by market capitalization understanding berkshire hathawaywarren buffett became the controlling shareholder of berkshire hathaway in the mid 1960s and began a progressive strategy of diverting cash flows from the core business into other investments as of may 2023 berkshire hathaway had a market capitalization of over 715 billion making it one of the largest publicly traded companies worldwide 1berkshire hathaway has a long history of operating success and smart investments the company is the sixth largest public company in the world in terms of market capitalization as of may 2023 1 berkshire s stock trades on the new york stock exchange in two classes a shares and b shares class a shares have never split and closed above 500 00 per share in may of 2023 its class b shares traded at a more modest 325 on the same date 2insurance subsidiaries represent a large part of berkshire hathaway s holdings however the company also manages hundreds of diverse businesses all over the world these include duracell international dairy queen pampered chef fruit of the loom netjets and geico among others 3 in addition to owning private companies berkshire also has a large investment portfolio of stocks in major public companies such as apple aapl bank of america bac and united parcel service ups 4 as of december 31 2022 berkshire s public market equity portfolio was valued at more than 346 billion 5early in his career buffett came across the novel idea to use the float from his insurance subsidiaries to invest elsewhere he focused on selecting stocks that would be held for the long term buffett has long eschewed a diversified stock portfolio in favor of trusted investments that would be over weighted in order to leverage the anticipated return over time buffett s investing prowess became so renowned that berkshire hathaway s annual shareholder meetings are now a mecca for value investing proponents they re also the target of intense media scrutiny the overall return of berkshire hathaway s stock from 1965 to 2021 during this same period the s p 500 returned 30 209 6 in annualized terms berkshire s stock generated an average yearly return of 20 1 over that period while the s p 500 s annualized gain was 10 5 6succession and controlsuccession has always been a hot topic for berkshire the big question is whether buffett s replacement can continue the streak of outperforming the market this becomes even more pressing when you consider that buffett turned 91 years old in august of 2021 in 2010 buffett announced that he would be succeeded at berkshire hathaway by a team comprised of one ceo and two to four investment managers in 2011 it was announced that hedge fund managers todd combs and ted weschler would be two of those managers in 2018 the company put ajit jain in charge of all of the insurance operations and made greg abel the manager of all other noninsurance operations both men seemed likely candidates for buffett s heir apparent buffet has not announced any retirement plans still it s good that the question of succession has been answered considering the advanced age of the oracle of omaha on may 1 2021 vice chair of berkshire hathaway charlie munger unofficially announced that warren buffett would be succeeded as ceo by greg abel when buffett eventually steps down abel s official title is ceo of berkshire hathaway energy and vice chair in charge of noninsurance operations who is warren buffett warren buffett is a world famous business owner and investor he s renowned not only for the jaw dropping success of berkshire hathaway the holding company of which he s been in charge since 1964 buffett is also celebrated for his winning approach to investing which has created great wealth for many shareholders his frugal lifestyle despite being one of the world s wealthiest individuals and his easy going manner have earned him fans across the globe | |
what is value investing | value investing refers to investing in a security with an intrinsic value that s greater than its market value the idea is that the undervalued security s market value should increase to meet its intrinsic value warren buffett is one example of an investor whose focus on value investing has led to incredible success | |
what is a class a share | class a shares of common stock usually give shareholders a greater amount of voting rights than class b and other classes of stock they re often held by a company s executives and some members of management so that those in charge of the company can retain control of it in various situations such as a hostile takeover attempt the bottom lineberkshire hathaway is a holding company run by warren buffett that owns a diverse range of private businesses and significant minority interests in public companies such as apple it has a market capitalization of over 715 billion and is the sixth largest public company in the world berkshire hathaway s success is largely due to buffett s value investing strategy and its annual shareholder meetings have become a mecca for value investing proponents the question of succession has been answered with greg abel named the heir apparent to buffett | |
what is a bermuda option | a bermuda option is a type of exotic options contract that can only be exercised on predetermined dates often on one day each month a spin on american style options which permit holders to exercise early at any time bermudian options allow investors to buy or sell a security or underlying asset at a preset price on a set of specific dates as well as the option s expiration date understanding bermuda optionsoptions contracts are financial derivatives that provide the buyer the right but not the obligation to transact in an underlying asset such as shares of stock at a distinct price the strike price on or before a specified future date an option to buy an underlying asset is a call option an option to sell an underlying asset is a put option at the option s expiration the contracts can be converted to shares known as exercising of the asset at the predetermined price there are two main types or styles of options american and european options american options are exercisable at any time between the purchase date and the date of expiration european options however are exercised only at the date of expiration bermuda options are a restricted form of the american option that allows for early exercise but only at set dates the early exercise feature of bermuda options allows for an investor to use the option and convert it to shares on specific dates before expiry the dates contained in the contract s terms are known upfront during the purchasing of the option special considerationssome bermuda options might allow an investor to exercise the option on the first business day of the month so if an investor s call option s strike price is lower than the underlying stock s market price on the first of the month the investor can exercise and buy shares for the lower strike price conversely if the investor s put option strike price is higher than the market price of the stock the investor can sell at the strike and pick up the shares at the lower market price most times the net difference is cash settled however some bermuda options have early expiration date restrictions for example a bermuda option might have the features of a european option where it cannot be exercised until the early exercise date following the early exercise date the option converts to american style options and can be exercised at any time the ability to exercise an option early is a benefit to the holder and this feature adds value to the contract the premium price on a bermuda option will often be higher than a european option with the same terms and lower than an american option due to its limitations on early exercise bermuda options advantages and disadvantagesthere are several advantages and disadvantages to bermuda options unlike american and european options bermuda options give investors the ability to create and purchase a hybrid contract in other words investors are given more control over when the options can be exercised premiums for bermuda options are typically lower than those of american options however bermuda options don t have the flexibility of exercising at any time as a result american options are the most expensive while european options are the cheapest since they offer the least flexibility the cost of bermuda options falls somewhere in between their american and european counterparts a possible drawback to a bermuda option can happen if an investor doesn t exercise until the option s expiration date in this case the investor would have been better off buying the cheaper european option instead also the additional exercise dates of a bermuda option may not necessarily represent the best times to exercise premiums for bermuda options are typically lower than those of american options bermuda options allow investors to exercise the option on specific dates before expiry premiums for bermuda options are more expensive than european options the early exercise feature doesn t guarantee that it will be the most advantageous time to exercise example of a bermuda optionlet s say an investor owns stock in tesla inc the investor purchased the stock at 250 per share and wants insurance against a drop in the company s stock price the investor buys a bermuda style put option that expires in six months with a strike price of 245 the option costs 3 or 300 since each option contract represents 100 shares the option protects the position from a decline in price below 245 for the next six months however the bermuda feature allows the investor to exercise early on the first of each month beginning in month four the stock price falls to 200 and by the first day of the option s fourth month the investor exercises the put option the stock position has declined and is sold at 200 while the strike price of 245 provides a profit of 45 from the put option the investor is effectively out of the position at 245 minus the 300 cost of the premium and any additional broker commissions however if the stock price rose considerably after the option was exercised say to 300 by the option s expiry the investor would miss out on any of those gains although bermuda options provide flexibility to exercise early that doesn t necessarily mean the investor s choice to exercise will be the right or profitable one | |
bernard lawrence bernie madoff was an american financier who executed the largest ponzi scheme in history defrauding thousands of investors out of an estimated 65 billion over the course of at least 17 years | he was also a pioneer in electronic trading and chairman of the nasdaq stock exchange in the early 1990s madoff died in a prison hospital at age 82 on april 14 2021 while serving a 150 year sentence for money laundering securities fraud and several other felonies 1investopedia ellen lindnerearly life and educationmadoff was born in brooklyn new york on april 29 1938 to ralph and sylvia madoff his father worked as a plumber before entering the financial industry with his wife 2 they founded gibraltar securities which was ultimately forced to close by the sec 34bernie earned a bachelor s degree in political science from hofstra university in 1960 and briefly attended law school at brooklyn law school while in college bernie married his high school sweetheart ruth n e alpern with whom he later founded bernard l madoff investment securities llc in 1960 3at first he traded penny stocks with 5 000 he earned installing sprinklers and working as a lifeguard 5notable accomplishmentsmadoff appeared to have a chip on his shoulder and felt that he was not part of the wall street in crowd in an interview with journalist steve fishman madoff said we were a small firm we weren t a member of the new york stock exchange it was very obvious 6according to madoff he began to make a name for himself as a scrappy market maker i was perfectly happy to take the crumbs he told fishman giving the example of a client who wanted to sell eight bonds a bigger firm would disdain that kind of order but madoff s would complete it 7success finally came when he and his brother peter began to build electronic trading capabilities artificial intelligence in madoff s words that attracted massive order flow and boosted the business by providing insights into market activity i had all these major banks coming down entertaining me madoff told fishman it was a head trip 8he and four other wall street mainstays processed half of the new york stock exchange s order flow controversially he paid for much of it and by the late 1980s madoff was making in the vicinity of 100 million a year madoff would become chair of the nasdaq exchange in 1990 and also served in that role in 1991 and 1993 9scandal scheme and crimeat some point madoff attracted investors by claiming to generate large steady returns through an investing strategy called split strike conversion a legitimate trading strategy | |
what madoff was really doing was depositing client funds into a single bank account that he used to pay existing clients who wanted to cash out he funded the redemptions by attracting new investors and their capital this is the classic ponzi scheme model take in a constant stream of new money while paying enough back to maintain the appearance of outsized gains | inevitably the fraud unraveled when the market turned sharply lower in late 2008 and too many clients sought to withdraw their money on dec 10 2008 he confessed his wrongdoing to his sons who worked at his firm the following day they turned him over to the authorities bernie remained adamant that his sons and his wife were not aware of his scheme the fund s last statements indicated it had 64 8 billion in client assets 2it is not certain when madoff s ponzi scheme began he testified in court that it started in the early 1990s but his account manager frank dipascali who had been working at the firm since 1975 said the fraud had been occurring for as long as i remember 1011even less clear is why madoff carried out the scheme at all i had more than enough money to support any of my lifestyle and my family s lifestyle i didn t need to do this for that he told fishman adding i don t know why the legitimate wings of the business were extremely lucrative and madoff could have earned the wall street elites respect solely as a market maker and electronic trading pioneer 12madoff repeatedly suggested to fishman that he was not entirely to blame for the fraud i just allowed myself to be talked into something and that s my fault he said without making it clear who talked him into it i thought i could extricate myself after a period of time i thought it would be a very short period of time but i just couldn t 13madoff put some of the blame on his clients several wealthy individuals and a number of fund managers funneled vast amounts of money into madoff s firm some were feeder funds that essentially handed over their clients entire assets to madoff to manage everybody was greedy everybody wanted to go on and i just went along with it madoff told fishman he indicated that these investors at least must have had their suspicions about the returns he claimed to be producing how can you be making 15 or 18 when everyone is making less money madoff said 14 | |
when clients sought to redeem their investments madoff funded the payouts with new capital which he continued to attract through a reputation for unbelievable returns and by grooming his victims madoff cultivated an image of exclusivity often initially turning clients away | this model allowed roughly half of madoff s investors to cash out at a profit these investors have been required to pay into a victims fund to compensate defrauded investors who lost money madoff created a front of respectability and generosity impressing investors with his activities on behalf of charities in fact many nonprofits were among his victims about 10 of the money he swindled came from nonprofit organizations according to the new york state attorney general s office 15madoff s plausibility to investors was based on several factors the sec had been investigating madoff and his securities firm off and on since 1992 a fact that frustrated many after he was finally prosecuted since it was felt that much of the damage could have been prevented if the initial investigations had been rigorous enough 17financial analyst harry markopolos was one of the earliest whistleblowers in 1999 he calculated in the space of an afternoon that madoff had to be lying he filed his first sec complaint against madoff in may 2000 but the regulator ignored him in a scathing 2005 letter to the securities and exchange commission sec markopolos wrote madoff securities is the world s largest ponzi scheme in this case there is no sec reward payment due to the whistle blower so basically i m turning this case in because it s the right thing to do 18many felt that madoff s worst damage could have been prevented if the sec had been more rigorous in its initial investigations it was not until 2005 shortly after madoff s firm nearly went belly up due to a wave of redemptions that the regulator asked madoff for documentation on his trading accounts he made up a six page list the sec drafted letters to two of the firms listed but didn t send them and that was that the lie was simply too large to fit into the agency s limited imagination writes diana henriques author of the book the wizard of lies bernie madoff and the death of trust which documents the episode the sec was excoriated in 2008 following the revelation of madoff s fraud and their slow response to act on it eight employees faced disciplinary action but none were fired 19in november 2008 bernard l madoff investment securities llc reported year to date returns of 5 6 despite a 39 decline in the s p 500 during that period 20 as the selling continued madoff could no longer fulfill the cascade of client redemption requests so on dec 10 according to the account he gave fishman madoff confessed to his sons mark and andy who worked at their father s firm the afternoon i told them all they immediately left they went to a lawyer the lawyer said you gotta turn your father in they went did that and then i never saw them again bernie madoff was arrested on dec 11 2008 21madoff insisted he acted alone though several of his colleagues were sent to prison his elder son mark madoff committed suicide exactly two years after his father s fraud was exposed 22 andy madoff died of cancer at age 48 in 2014 23madoff was sentenced to 150 years in prison and ordered to forfeit 170 billion in 2009 his three homes and four boats were auctioned off by the u s marshals 24on feb 5 2020 madoff s lawyers requested that madoff be released early from prison claiming that he was suffering from a terminal kidney disease that would kill him within 18 months 25madoff prisoner no 61727 054 remained at the butner federal correctional institution in north carolina until he died in the prison hospital on april 14 2021 the paper trail of victims claims displays the complexity and sheer size of madoff s betrayal of investors his final account statements which include millions of pages of fake trades and shady accounting show that the firm had 47 billion in profit 26while madoff pleaded guilty in 2009 and was sentenced to spend the rest of his life in prison thousands of investors lost their life savings and multiple tales detail the harrowing sense of loss victims endured 27as of late september 2022 about 4 billion was returned to some 40 000 of his victims via the u s department of justice s madoff victim fund 28depictions of bernie madoff in popular culturebernie madoff has been depicted as a villain in the media and pop culture in a 2009 episode of hbo s curb your enthusiasm jason alexander who played george on seinfeld is swindled by madoff and loses all of his money madoff or similar knock offs appeared in woody allen s film blue jasmin and in elinor lipman s novel the view from penthouse b in 2017 madoff was played by robert deniro in the hbo film the wizard of lies several documentaries and books have recounted madoff s fraud and his fall who was bernie madoff bernie madoff was an american financier who orchestrated the largest ponzi scheme in history collecting about 65 billion that he had no intention of investing bernie promised investors high returns in exchange for their investments but their money was not invested madoff deposited it into a bank account which he freely used to fund his lavish lifestyle withdrawals were funded out of new deposits keeping the fraud going for decades during the 2008 recession madoff could no longer meet the redemption requests his sons turned him in to the authorities madoff was convicted of fraud money laundering and other related crimes for which he was sentenced to 150 years in federal prison he died in prison on april 14 2021 at the age of 82 | |
how much money did bernie madoff return | madoff s assets including real estate yachts and jewelry were seized and sold by the feds to reimburse his victims as of september 2022 only about 4 billion had been returned to 40 000 victims | |
how did madoff get caught | although several people alerted the sec and other authorities of bernie madoff s scheme it wasn t until he confessed to his sons that he was caught in 2008 when bernie could no longer accommodate investors redemption requests he admitted his wrongdoings to his sons mark and andrew who turned their father over to authorities the bottom linein 2009 at age 71 madoff pleaded guilty to 11 federal felony counts including securities fraud wire fraud mail fraud perjury and money laundering 29his ponzi scheme became a potent symbol of the culture of greed and dishonesty that to critics pervaded wall street in the run up to the financial crisis madoff the subject of numerous articles books movies and biopic miniseries was sentenced to 150 years in prison and ordered to forfeit 170 billion in assets but no other prominent wall street figures faced legal ramifications in the wake of the crisis in april 2021 madoff died in a federal correctional facility at age 82 | |
what is a bespoke cdo | a bespoke cdo is a structured financial product specifically a collateralized debt obligation cdo that a dealer creates for a specific group of investors and tailors to their needs the investor group typically buys a single tranche of the bespoke cdo and the remaining tranches are then held by the dealer who will usually attempt to hedge against potential losses using other financial products like credit derivatives a bespoke cdo is now more commonly referred to as a bespoke tranche or a bespoke tranche opportunity bto the basics of a bespoke cdotraditionally a collateralized debt obligation cdo pools together a collection of cash flow generating assets such as mortgages bonds and other types of loans and then repackages this portfolio into discrete sections called tranches bespoke cdos can be structured like these traditional cdos pooling classes of debt with income streams but the term is usually referring to synthetic cdos that invest in credit default swaps cds and which are more highly customizable and nuanced tranches are portions of a pooled asset divided by specific characteristics different tranches of the cdo carry different degrees of risk depending on the underlying asset s creditworthiness therefore each tranche has a different quarterly rate of return that corresponds with its own risk profile obviously the greater the chance of default of the tranche s holdings the higher the return it offers the major rating agencies do not grade bespoke cdos the creditworthiness evaluation is done by the issuer and to some extent market perception because these are illiquid and complex financial instruments bespoke cdos only trade over the counter otc background of bespoke cdosbespoke cdos like cdos in general have lost popularity due to their prominent role in the financial crisis that followed the housing bubble and mortgage meltdown between 2007 and 2009 the creation of these products by wall street was seen as contributing to the massive market crash and eventual government bailout as well as a lack of common sense the products were highly structured investments that were hard to understand both by those buying and those selling them and difficult to value despite this cdos are a useful tool for transferring risk to parties willing to shoulder it and for freeing up capital for other uses wall street is always looking for ways to transfer risk and unlock capital so since around 2016 the bespoke cdo has been making a comeback in its reincarnation it s often called a bespoke tranche opportunity bto re branding has not however changed the tool itself but there is presumably a bit more scrutiny and due diligence going into the pricing models it is hoped with these new products the investors don t find themselves once again holding obligations they don t properly understand some 50 billion worth of btos were sold in 2017 pros of bespoke cdosthe obvious advantage of a bespoke cdo is that the buyer can customize it a bespoke cdo is simply a tool that allows investors to target very specific risk to return profiles for their investment strategies or hedging requirements if an investor wants to make a large targeted bet against the goat cheese industry there will be a dealer who can build up a bespoke cdo to do that for the right price still these products are somewhat diversified since the pool loans from say several goat cheese producers the second main benefit is the above market yields they can provide when the credit markets are steady and fixed interest rates are low those seeking investment income must dig deeper cons of bespoke cdosthe big disadvantage is that there is typically little to no secondary market for bespoke cdos this lack of market makes daily pricing difficult the value must be calculated based on complex theoretical financial models those models can make assumptions that turn out to be catastrophically wrong costing the holder dearly and leaving them with a financial instrument they are unable to sell at any price the more customized the cdo the less likely it will appeal to another investor or investors then there is the lack of transparency and liquidity that accompanies over the counter transactions in general and these instruments in particular as unregulated products bespoke cdos remain relatively high on the risk scale more of a suitable instrument for institutional investors like hedge funds than for individuals customized to investor specshigh yieldingdiversifiedunregulatedhigh riskilliquid small secondary market opaque pricingreal world example of bespoke cdoscitigroup is one of the leading dealers in bespoke cdos doing us 7 billion worth of business in them in 2016 alone to increase transparency in what has historically been an opaque market to quote vikram prasad citi s managing director of correlation and exotics trading the bank offers a standardized portfolio of credit default swaps these are the asset usually used to build the cdos it also makes the cdo tranches pricing structure visible on its client portal publishing the figures tranches fetch | |
what is a best alternative to a negotiated agreement batna | a best alternative to a negotiated agreement batna is a course of action that a party engaged in negotiations has determined should be taken if talks fail and no agreement can be reached negotiation researchers roger fisher and william ury coined the term batna in their 1981 bestseller getting to yes negotiating agreement without giving in 1a party s batna is the position it will fall back on if negotiation proves unsuccessful understanding a best alternative to a negotiated agreement batna considering a batna can be useful to anyone in any situation that calls for negotiations whether it s an employee seeking a raise or a company considering a merger a party to negotiations cannot make an informed decision about whether to accept an agreement unless they first think through their alternatives importance of a batnaidentifying your batna in advance gives you the option of walking away from a bad deal for example if you re negotiating a price for a new car and the dealer s final offer is unacceptable what can you do the obvious options are disappointing you can take a deal you don t want or walk away empty handed or if you have identified your batna you can go to another dealer that you know has another make and model car that you like your batna gives you negotiating power even if you don t reveal it during the negotiations you know you don t have to take a bad deal 2in a negotiation the best alternative to a negotiated agreement or batna is the individual s determination of the action to be taken if no deal can be reached the zone of possible agreement or zopa is the area of overlap among each party s batna to be really prepared for a negotiation you don t just have to determine your own batna you need to have a sense of the batna that each other party has settled upon if there is any overlap among them there is the possibility of an outcome that is satisfactory to all while a batna may not always be easy to identify harvard researchers have outlined several steps to help clarify the process 3if the value of the deal proposed to you is lower than your reservation value you should reject the offer and pursue your batna however if the final offer is higher than your reservation value you should accept the offer a strong batna can also help a party understand that it has an appealing alternative to the deal and can walk away from a tempting offer negotiation is more than determining a series of alternatives understanding the nuances of negotiation tactics can help improve professional relationships by resolving difficult disputes understanding negotiation can also help you evaluate personal strengths and weaknesses in the face of conflict and learn to manage your bargaining tendencies finally studying the manipulative negotiation tactics employed by some skilled negotiators can help neutralize their effects batna tipsto reach the best possible outcome it is important to do as much preparation as possible before entering into negotiations this means that not only should you prepare a strong batna in advance but you should also consider the batnas that may be available to the opposing party you must expect the other party to do the same don t let the other side attempt to downplay your batna 4it is also possible to prepare multiple batnas contrary to what the word best might imply in fact you should have as many as possible the more batnas in your arsenal the more cards you have to play at the negotiating table 5despite the name you can prepare multiple batnas giving you a stronger negotiating position batna trapseven when you understand all the available options it is possible to reach an unsatisfactory result there are many possible pitfalls in a difficult negotiation and it is important for negotiators to remain disciplined under pressure from the opposing party it is also important to understand the value of all the alternatives available a negotiator who places too high a value on the other party s hand risks making big concessions for little benefit a negotiator who undervalues the other party s hand can be too intractable to move many negotiators become emotionally invested in a successful outcome especially if they have already spent a lot of time at the bargaining table this is the sunk cost fallacy a skilled negotiator should always be ready to walk away advantages and disadvantages of batnaa strong batna can be a valuable card at the negotiating table allowing parties to ground their positions on a factual basis rather than emotions strong batnas also ensure a backup plan so that the organization won t be interrupted if the negotiations fail it makes failure less likely the stronger the batna the more likely the opposing party is to seek a mutual agreement however the batna process has its costs depending on how complicated the business at hand is finding the best alternative can be a lengthy and expensive process in itself it is also not an infallible process and negotiators run the risk of miscalculating their options or overlooking possibilities provides a backup plan if negotiations failgrounds negotiations in a sound factual basismakes agreement more likely as a strong batna is more likely to be acceptable to all partiescalculating batnas can be an expensive and complicated process negotiators may still miscalculate the cost or benefits of some alternatives there is still a risk of making a disadvantageous choice example of a batnafor example company a makes a takeover offer of 20 million to company b but company b s executives believe it is worth 30 million company b quickly rejects the offer however company b did not take into account the increasing competition in the industry and tighter regulations which will restrict its growth in the coming year s and lower its valuation if company b had taken time to incorporate these factors into the current valuation and clearly moved through the four batna steps including evaluating the alternative of staying the course in a difficult business environment management might have been persuaded to accept company b could have included these potential risks in their estimate of the reservation value the worst possible outcome that a negotiator is prepared to accept | |
how do i find my batna | the first step to determining a batna is to list all the possible courses of action that will be available if the negotiations fail next evaluate the value of each alternative third determine which ones are most attractive finally having calculated your batna you can make a determination about the lowest value deal that you would be willing to accept | |
should i reveal my batna in negotiations | a strong batna can provide valuable leverage but a weak batna should never be revealed it only gives the opposing side reason to hold out for more concessions for example in employment negotiations a strong counteroffer from another employer can help you bargain for a higher salary or more vacation time revealing a weak counteroffer simply indicates that you have no advantages to going elsewhere | |
what is a strong batna | a batna or best alternative to a negotiated agreement is the best option in the view of one party in a negotiation if the talks break down a strong batna gives that party a reasonably attractive alternative to negotiation if an agreement cannot be reached the batna can be implemented with minimal disruption | |
what is the difference between a batna and reservation value | a batna is the best option available to one party if negotiations fail while a reservation value is the worst deal they would be willing to accept a reservation value is always higher than the batna for example if you were buying a car the batna might represent the option of shopping at another dealer the reservation value would be the highest price you are willing to pay the bottom linedeciding on your batna is a key part of the planning process for any negotiation any negotiation can fail to reach an agreement if it does what s your next step knowing your best alternative to a negotiated agreement reveals your option for an acceptable if not an ideal resolution | |
what is a best alternative to a negotiated agreement batna | a best alternative to a negotiated agreement batna is a course of action that a party engaged in negotiations has determined should be taken if talks fail and no agreement can be reached negotiation researchers roger fisher and william ury coined the term batna in their 1981 bestseller getting to yes negotiating agreement without giving in 1a party s batna is the position it will fall back on if negotiation proves unsuccessful understanding a best alternative to a negotiated agreement batna considering a batna can be useful to anyone in any situation that calls for negotiations whether it s an employee seeking a raise or a company considering a merger a party to negotiations cannot make an informed decision about whether to accept an agreement unless they first think through their alternatives importance of a batnaidentifying your batna in advance gives you the option of walking away from a bad deal for example if you re negotiating a price for a new car and the dealer s final offer is unacceptable what can you do the obvious options are disappointing you can take a deal you don t want or walk away empty handed or if you have identified your batna you can go to another dealer that you know has another make and model car that you like your batna gives you negotiating power even if you don t reveal it during the negotiations you know you don t have to take a bad deal 2in a negotiation the best alternative to a negotiated agreement or batna is the individual s determination of the action to be taken if no deal can be reached the zone of possible agreement or zopa is the area of overlap among each party s batna to be really prepared for a negotiation you don t just have to determine your own batna you need to have a sense of the batna that each other party has settled upon if there is any overlap among them there is the possibility of an outcome that is satisfactory to all while a batna may not always be easy to identify harvard researchers have outlined several steps to help clarify the process 3if the value of the deal proposed to you is lower than your reservation value you should reject the offer and pursue your batna however if the final offer is higher than your reservation value you should accept the offer a strong batna can also help a party understand that it has an appealing alternative to the deal and can walk away from a tempting offer negotiation is more than determining a series of alternatives understanding the nuances of negotiation tactics can help improve professional relationships by resolving difficult disputes understanding negotiation can also help you evaluate personal strengths and weaknesses in the face of conflict and learn to manage your bargaining tendencies finally studying the manipulative negotiation tactics employed by some skilled negotiators can help neutralize their effects batna tipsto reach the best possible outcome it is important to do as much preparation as possible before entering into negotiations this means that not only should you prepare a strong batna in advance but you should also consider the batnas that may be available to the opposing party you must expect the other party to do the same don t let the other side attempt to downplay your batna 4it is also possible to prepare multiple batnas contrary to what the word best might imply in fact you should have as many as possible the more batnas in your arsenal the more cards you have to play at the negotiating table 5despite the name you can prepare multiple batnas giving you a stronger negotiating position batna trapseven when you understand all the available options it is possible to reach an unsatisfactory result there are many possible pitfalls in a difficult negotiation and it is important for negotiators to remain disciplined under pressure from the opposing party it is also important to understand the value of all the alternatives available a negotiator who places too high a value on the other party s hand risks making big concessions for little benefit a negotiator who undervalues the other party s hand can be too intractable to move many negotiators become emotionally invested in a successful outcome especially if they have already spent a lot of time at the bargaining table this is the sunk cost fallacy a skilled negotiator should always be ready to walk away advantages and disadvantages of batnaa strong batna can be a valuable card at the negotiating table allowing parties to ground their positions on a factual basis rather than emotions strong batnas also ensure a backup plan so that the organization won t be interrupted if the negotiations fail it makes failure less likely the stronger the batna the more likely the opposing party is to seek a mutual agreement however the batna process has its costs depending on how complicated the business at hand is finding the best alternative can be a lengthy and expensive process in itself it is also not an infallible process and negotiators run the risk of miscalculating their options or overlooking possibilities provides a backup plan if negotiations failgrounds negotiations in a sound factual basismakes agreement more likely as a strong batna is more likely to be acceptable to all partiescalculating batnas can be an expensive and complicated process negotiators may still miscalculate the cost or benefits of some alternatives there is still a risk of making a disadvantageous choice example of a batnafor example company a makes a takeover offer of 20 million to company b but company b s executives believe it is worth 30 million company b quickly rejects the offer however company b did not take into account the increasing competition in the industry and tighter regulations which will restrict its growth in the coming year s and lower its valuation if company b had taken time to incorporate these factors into the current valuation and clearly moved through the four batna steps including evaluating the alternative of staying the course in a difficult business environment management might have been persuaded to accept company b could have included these potential risks in their estimate of the reservation value the worst possible outcome that a negotiator is prepared to accept | |
how do i find my batna | the first step to determining a batna is to list all the possible courses of action that will be available if the negotiations fail next evaluate the value of each alternative third determine which ones are most attractive finally having calculated your batna you can make a determination about the lowest value deal that you would be willing to accept | |
should i reveal my batna in negotiations | a strong batna can provide valuable leverage but a weak batna should never be revealed it only gives the opposing side reason to hold out for more concessions for example in employment negotiations a strong counteroffer from another employer can help you bargain for a higher salary or more vacation time revealing a weak counteroffer simply indicates that you have no advantages to going elsewhere | |
what is a strong batna | a batna or best alternative to a negotiated agreement is the best option in the view of one party in a negotiation if the talks break down a strong batna gives that party a reasonably attractive alternative to negotiation if an agreement cannot be reached the batna can be implemented with minimal disruption | |
what is the difference between a batna and reservation value | a batna is the best option available to one party if negotiations fail while a reservation value is the worst deal they would be willing to accept a reservation value is always higher than the batna for example if you were buying a car the batna might represent the option of shopping at another dealer the reservation value would be the highest price you are willing to pay the bottom linedeciding on your batna is a key part of the planning process for any negotiation any negotiation can fail to reach an agreement if it does what s your next step knowing your best alternative to a negotiated agreement reveals your option for an acceptable if not an ideal resolution | |
what are best practices | best practices are a set of guidelines ethics or ideas that represent the most efficient or prudent course of action in a given business situation best practices may be established by authorities such as regulators self regulatory organizations sros or other governing bodies or they may be internally decreed by a company s management team | |
how best practices work | best practices serve as a general framework for a variety of situations for instance in businesses that produce physical products best practices that highlight efficient ways to complete tasks might be given to employees best practices lists may also outline safety procedures in order to minimize employee injuries for corporate accountants the generally accepted accounting principles gaap represent best practices gaap is a common set of accounting standards which aim to improve the clarity consistency and comparability of the communication of financial information gaap facilitates the cross comparison of financial information across different companies within the same sector this benefits investors and the companies they invest in by promoting transparency 1investment managers may follow best practices when handling a client s money by prudently investing in a well diversified portfolio and adhering to a client s risk tolerances time horizons and retirement goals corporate governance or a code of ethics can serve as best practices for an organization special considerations best practices is a term that can be applied broadly and across a swath of industries in the world of business the phrase is used in connection with everything from project management to audit functions to explain the most efficient method of completing a business task with the advent of newer quality control systems came the need for a way to apply measurable benchmarks and communicate ways to rapidly implement new standards of excellence across an organization this is done by identifying problems quantifying their frequencies cultivating solutions and monitoring the execution of those solutions to ensure they solve the issues at hand best practices can also be used as a benchmark where one company can share actionable solutions with other organizations say there s a firm well known for its best in class product distribution infrastructure when asked to precisely describe the best practices that led to their hyper efficiency the company reveals that it outfits all fulfillment staffers with red markers that they may use to sign off on their highest priority deliveries consequently all red ink orders are given higher levels of scrutiny than others as more eyes reflexively search for errors when they see red ink more mistakes can be flagged and corrected although companies share their best practices as a matter of routine revealing trade secrets that might be easily replicated by the competition would be unwise steps for developing best practiceshere are eight steps for developing best practices examples of best practicesjust in time jit is a best practices solution focused on inventory that seeks to align materials ordered from suppliers to a production schedule the goal of jit is to ensure efficiency and reduce waste by only receiving materials when needed while this trims inventory costs it requires businesses to forecast demand for their goods accurately to ensure proper amounts of supplies are on hand kaizen is a japanese management philosophy that seeks to improve productivity gradually and methodically it is a japanese word that means change for the better or continuous improvement kaizen seeks to involve all employees and improve operations on a continuous basis characteristics of kaizen include designing a workplace to be more efficient and impactful by creating a team atmosphere improving everyday procedures making sure employees are engaged and seeking to make jobs more fulfilling safer and less tiring best practices for investorswith so many stocks to choose from it can be hard to know which one to pick for your portfolio in choosing a stock it s important to know what you want your portfolio to look like and to keep that in mind as time goes by as an investor it s critical to be aware of daily news not only for the companies you are analyzing or have already invested in but also for world and financial news as these impact stocks as well reading the news is probably the first step in deciding what stock to pick understanding which companies are trending what sectors are primed to do well and where the economy is heading will give you an idea of where to start looking from there start compiling a list of stocks that interest you for example if you read that new technology has emerged that has made another product obsolete for example smartphones making traditional landlines obsolete you may start looking into such companies you can find stocks through research of who the main players are in the sector you are interested in conversely you can look at exchange traded funds etfs that invest in the sector you can also use screeners to sort through companies based on a variety of factors such as market cap and earnings from there a detailed analysis of a company s financial statements would provide you with information you need regarding the company s health | |
what are best practices in education | best practices in education include staying proactive by ensuring your next teaching activity is prepared and set to go before the current one finishes this allows students to be engaged by reducing disruptions encourage communication by involving students in the classroom setting this can include varying the way in which they provide answers e g verbal written visual in groups etc work backward by setting an end goal and figuring out how to reach that goal with your students always keep your resources such as lesson plans so you can build upon what you have done before and refine the way you approach teaching and lastly be a role model by setting the examples you want your students to exhibit 3 | |
what are best practices in healthcare | best practices in healthcare include training your staff so that they know how to deliver great service and put patient care and experience as their main priority ensure patient education which has been proven to improve the overall healthcare experience a patient that understands the what and why of their health and the care they are getting are usually happier and more comfortable establish a care orientated environment by incorporating small details such as remembering a patient s name smiling listening carefully and incorporating follow up calls 4 | |
what are best practices in customer service | good customer service starts with good employees ensure you are hiring the best people and incentivizing them to join your firm and stay this can be done through good pay and benefits as well as the overall corporate environment manage customer expectations telling a customer that everything will be taken care of is easy but this isn t always the case being upfront and honest with a customer will always keep them grounded and prevent them from being disappointed with customer service first impressions count make sure the first impression is perfect this sets the tone for future engagement and shapes customers opinions of the service they re receiving collect as much data as you can to help them and also personalize the experience 5 | |
what is beta | beta is the second letter of the greek alphabet used in finance to denote the volatility or systematic risk of a security or portfolio compared to the market usually the s p 500 which has a beta of 1 0 stocks with betas higher than 1 0 are interpreted as more volatile than the s p 500 investopedia yurle villegas | |
how beta works | a beta coefficient shows the volatility of an individual stock compared to the systematic risk of the entire market beta represents the slope of the line through a regression of data points in finance each point represents an individual stock s returns against the market beta effectively describes the activity of a security s returns as it responds to swings in the market it is used in the capital asset pricing model capm which describes the relationship between systematic risk and expected return for assets capm is used to price risky securities and to estimate the expected returns of assets considering the risk of those assets and the cost of capital calculating betaa security s beta is calculated by dividing the product of the covariance of the security s returns and the market s returns by the variance of the market s returns over a specified period the calculation helps investors understand whether a stock moves in the same direction as the rest of the market it also provides insights into how volatile or how risky a stock is relative to the rest of the market for beta to provide useful insight the market used as a benchmark should be related to the stock for example a bond etf s beta with the s p 500 as the benchmark would not be helpful to an investor because bonds and stocks are too dissimilar beta coefficient covariance r e r m variance r m where r e the return on an individual stock r m the return on the overall market covariance how changes in a stock s returns are related to changes in the market s returns variance how far the market s data points spread out from their average value begin aligned text beta coefficient beta frac text covariance r e r m text variance r m textbf where r e text the return on an individual stock r m text the return on the overall market text covariance text how changes in a stock s returns are text related to changes in the market s returns text variance text how far the market s data points spread text out from their average value end aligned beta coefficient variance rm covariance re rm where re the return on an individual stockrm the return on the overall marketcovariance how changes in a stock s returns arerelated to changes in the market s returnsvariance how far the market s data points spreadout from their average value beta values | |
how investors use beta | an investor uses beta to gauge how much risk a stock adds to a portfolio while a stock that deviates very little from the market doesn t add a lot of risk to a portfolio it also doesn t increase the potential for greater returns investors must ensure a specific stock is compared to the right benchmark and review the r squared value to the benchmark r squared is a statistical measure that compares the security s historical price movements to the benchmark index a security with a high r squared value indicates a relevant benchmark a gold exchange traded fund etf such as the spdr gold shares gld is tied to the performance of gold bullion 1 consequently a gold etf would have a low beta and r squared relationship with the s p 500 investors commonly evaluate two categories of risk systematic risk is the risk of the entire market declining called un diversifiable unsystematic or diversifiable risk is the uncertainty associated with an individual stock or industry it is risk related to a company or sector and can be mitigated through diversification a stock s beta will change over time as it relates a stock s performance to the returns of the overall market theory vs practicethe beta coefficient theory assumes that stock returns are normally distributed from a statistical perspective in reality returns aren t always normally distributed therefore what a stock s beta might predict about a stock s future movement may prove untrue a stock with a very low beta could have smaller price swings yet still be in a long term downtrend so adding a down trending stock with a low beta decreases the risk in a portfolio only if the investor defines risk strictly in terms of volatility and not potential losses similarly a high beta stock that is volatile in a mostly upward direction will increase the risk of a portfolio but it may increase gains investors who beta to evaluate a stock also evaluate it from other perspectives such as fundamental or technical factors before assuming it will add or remove risk from a portfolio | |
is beta a helpful measure for long term investments | while beta can offer useful information when evaluating a stock it does have some limitations beta can determine a security s short term risk and analyze volatility however beta is calculated using historical data points and is less meaningful for investors looking to predict a stock s future movements for long term investments a stock s volatility can change significantly over time depending on a company s growth stage and other factors | |
is beta a good measure of risk | beta can provide some risk information but it is not an effective measure of risk beta only looks at a stock s past performance relative to the s p 500 and does not predict future moves it also does not consider the fundamentals of a company or its earnings and growth potential | |
how do investors interpret a stock s beta | a beta of 1 0 for a stock means it has been as volatile as the broader market if the index moves up or down 1 so too would the stock on average betas larger than 1 0 indicate greater volatility so if the beta were 1 5 and the index moved up or down 1 the stock would have moved 1 5 on average betas less than 1 0 indicate less volatility if the stock had a beta of 0 5 it would have risen or fallen just half a percent as the index moved 1 the bottom linebeta is the second letter of the greek alphabet used to measure the volatility of a security or portfolio compared to the s p 500 which has a beta of 1 0 a beta of 1 0 shows that a stock has been as volatile as the broader market betas larger than 1 0 indicate greater volatility and betas less than 1 0 indicate less volatility | |
what is a bicameral legislature | a bicameral legislature is a two house legislative system such as the house of representatives and the senate that make up the u s congress the word bicameral is derived from the latin bi meaning two and camera meaning chamber the british parliament a bicameral system has been the model for most parliamentary systems around the world a bicameral system can be contrasted with a unicameral system in which all members of the legislature deliberate and vote as a single group the legislative branch of the u s federal government uses a bicameral system in addition to all of the u s states with the exception of nebraska u s cities by contrast commonly use the unicameral system | |
how a bicameral system works | in a bicameral legislature the two chambers of the legislative body can have different organizations rules methods of selecting members and designated powers regarding the legislation and oversight of the other branches of the government in the u s the other branches of the government are the executive branch and the judiciary branch there are both practical and historical reasons to have two houses of the legislature a practical reason for a bicameral legislature is to function as part of the larger system of checks and balances that balance the power of different parts of a government or a society by dividing power within the legislative branch bicameralism helps prevent the legislative branch from having too much power a kind of intrabranch check within the legislative body bicameralism has historically functioned to balance the power of different social classes or groups within a society the bicameral system arose in medieval europe sharp class distinctions between the nobility the clergy and the commoners meant that these classes were represented by separate groups of representatives which were charged with advising the king on matters related to and representing the interests of their respective social spheres in england these groups eventually developed into the house of lords and the house of commons in the modern u k the house of lords is still considered a more elite body while the house of commons represents a larger more common class the u s bicameral legislature system arose from a desire to have a balanced system within the legislative branch and to address a disagreement over how states would be allocated representation history of bicameralism in the u s the bicameral legislature in the u s consists of the house of representatives and the senate collectively known as the u s congress article 1 section 1 of the u s constitution establishes that the u s congress consists of the senate and the house of representatives during the constitutional convention america s founders could not agree on whether the states should each have the same number of representatives or whether the number of representatives should be based on the population size in an agreement known as the great compromise the founders decided to incorporate both elements the bicameral system was established like the two houses of the english parliament the two chambers within the u s legislative were also intended to represent different stakeholders within the u s the senate was designed to represent the interests of the states senators were originally appointed by the state legislatures not elected and the house of representatives was intended to be elected by and represent the interests of the common people this is also reflected in the powers delegated to each house by the constitution with the senate given a more deliberative advisory and oversight role while the house of representatives was given primary authority over the taxation of their constituents members of the u s house of representatives serve two year terms two year terms are meant to keep representatives responsive to voters needs there are 435 representatives in total with the number from each state being in proportion to that state s population this system is called proportional representation alabama for example has seven representatives while california has 53 the seven least populous states alaska delaware montana north dakota south dakota vermont and wyoming have only one representative each the first instance of british bicameralism occurred in 1341 when the commons met separately from the nobility and clergy for the first time an upper chamber and a lower chamber were effectively created the u s adopted a bicameral system after its founding each state also has two senators a system called equal representation who are directly elected by voters and serve six year terms before the seventeenth amendment to the constitution was ratified in 1913 the state legislatures got to choose senators these positions tended to be held by the elites each house has different requirements to serve to be a u s representative you must be at least 25 years old a u s citizen for at least seven years and a resident of the state you want to represent to be a u s senator you must be at least 30 years old a u s citizen for at least nine years and a resident of the state you want to represent each house also has unique powers only members of the house of representatives can criminally indict or impeach the president and other federal officials the senate then reviews the case the house also decides presidential elections if no candidate wins a majority of electoral college votes and any bill that increases taxes originates in the house which is why the house of representatives is said to have the power of the purse the senate votes to confirm the appointment of more than 1 000 executive officers and it can ratify treaties with a two thirds vote bicameralism vs unicameralismworldwide about 41 of governments are bicameral and about 59 are unicameral other countries that have a bicameral system include australia brazil canada germany india the u k ireland the netherlands russia spain and the czech republic the size term of office and method of election directly elected indirectly elected appointed or other for each chamber of a bicameral system will vary by country unicameral systems became more popular during the 20th century and some countries including greece new zealand and peru switched systems from bicameral to unicameral | |
what does bicameral mean | bicameral literally means two chambers and in practice refers to a government structure involving two houses or two legislative bodies that are separate in deliberation from one another | |
why did the u s constitution establish a bicameral legislature | the founders of the u s established a bicameral legislature in order to create a separation of powers at the constitutional convention larger states mostly in the south and smaller states in the north began to quarrel over which should wield more power at the federal level as a compromise called the great compromise roger sherman a delegate from the colony of connecticut proposed bicameralism this way smaller states got equal representation with larger states with each having two senators at the same time the house of representatives assigns members of congress proportional to the population | |
which u s states do not have a bicameral legislature | all states in the u s but one are bicameral with both a house and a senate the one exception is nebraska which has just a one chamber legislature the bottom linea bicameral legislature refers to a style of government with a two house legislative system in the u s congress has two houses the house of representatives and the senate as such it s a bicameral legislature this system can be contrasted with the unicameral system in which all members of a legislature deliberate and vote as a single group | |
what is a bid | the term bid refers to an offer made by an individual or corporation to purchase an asset buyers commonly make bids at auctions and in various markets such as the stock market bids may also be made by companies that compete for project contracts when a buyer makes a bid they stipulate how much they re willing to pay for the asset along with how much they are willing to purchase a bid also refers to the price at which a market maker is willing to buy a security but unlike retail buyers market makers must also display an ask price | |
how a bid works | buyers and sellers keep the market going each participant facilitates the purchase and sale of assets sellers are entities that provide assets for purchase buyers are those who want to purchase goods or services these two parties normally come together at different venues to conduct their business including auctions live and online the stock market and retail outlets the bid process depends on the market through which these goods and services are sold for instance bids that are made at an auction may be made in person or online while investors may make bids through their brokers for securities like stocks some bids take place in secret usually through a sealed process this process allows for fair and conflict free bidding in some cases companies may make bids in order to win contracts for jobs the bidding process involves sending out packages to interested parties 1 these contracts may be issued by governments or large corporations for infrastructure construction and other projects in a variety of different industries such as 2inside the spreadthe spread between the bid and the ask is a reliable indicator of supply and demand for a particular financial instrument put simply the greater interest on the part of the investor the narrower the spread in stock trading the spread constantly varies as buyers and sellers match electronically where the size of the spread in dollars and cents reflects the price of the stock being traded for example a spread of 25 cents on a price of 10 equals 2 5 but the spread shrinks to only 0 25 if the stock price jumps to 100 in foreign exchange the standard bid ask spread in eur usd interbank quotes is between two and four pips the price move in a given exchange depending on both the amount being traded and the time of the day in which the trade occurs spreads are typically narrowest during the morning in new york when the european market is simultaneously open for business for example a bid of 1 1015 is typically accompanied by an ask of between 1 1017 and 1 019 a standard usd jpy bid ask spread is 106 18 to 106 20 currency pairs that are less actively traded tend to have wider spreads many buyers make bids to procure the goods and services they seek these may include securities stocks bonds and other types of investments commodities currencies or any other assets the bid is the price of a stock for a buyer while the ask represents the price a seller is willing to accept on the trade the mathematical difference between the bid and the ask is known as the spread 3 | |
when completing a purchase at the bid price both the bid and the ask may rise to significantly higher levels for subsequent transactions if the seller perceives a strong demand | market makersmarket makers who are often referred to as specialists are vital to the efficiency and liquidity of the marketplace by quoting both bid and ask prices they step into the stock market when electronic price matching fails which enables investors to buy or sell a security although specialists must always quote a price for a stock they trade there is no restriction on the bid ask spread in the foreign exchange market interbank traders function as market makers because they provide a continuous stream of two way prices to both direct counterparties and the electronic trading systems their spreads widen during times of market volatility and uncertainty and unlike their counterparts in the stock market they are not required to make a price in low liquidity markets other types of bidsthere is more than one way to make a bid as mentioned above the different types of bids depend on where the offer is being made some of the most common types of bids are listed below auctions are forums that bring together multiple buyers who compete for certain assets such as livestock home goods properties property tax liens and art these venues are usually held in person but the rise in technology has made online auctions a reality buyers who participate in auctions bid against each other in order to win the asset through an open bidding process they do so by placing competitive bids in an attempt to beat out the other buyers the person who bids the highest amount wins the auction online bidding sites work just like traditional auctions sites like ebay and ebid allow buyers to congregate in a virtual arena and make bids for products and services of their choosing for instance someone may be selling a pair of designer sunglasses on ebay and starts an auction with a minimum price interested buyers can bid on the item with an amount they wish to pay until one person s bid is accepted by the seller these sites normally require buyers to set up accounts and may also require payment card information unlike the two types of bids noted above participants in some venues aren t privy to how much their competitors are bidding this is the case with sealed bid auctions a sealed bid auction happens when multiple bidders are given envelopes in which they place their bids the envelopes are then sealed so no one bidder can knowingly outbid the other making the outcome fair the highest bidder is the one who wins this type of bidding normally takes place for contracts or real estate sales make sure you don t go over your maximum amount when you re bidding at an auction examples of a bidlet s take a look at how the bidding process works using two examples sotheby s is one of the world s largest marketplaces for art and luxury goods that operates in 40 countries it caters to 70 different categories including jewelry contemporary art and wine and spirits the organization holds hundreds of auctions each year in person online and through private sales it hosted 529 in 2023 and expects hundreds more in 2024 45a winning bid of 2 68 million landed a buyer an unmounted diamond weighing 50 03 carats on june 17 2021 6 a collection of artwork owned by real estate mogul harry macklowe and his ex wife raised a total of 922 million in 2022 making it the most valuable collection sold through the auction company 7jeff bezos the founder of amazon auctioned off a seat on his spaceship in june 2021 through a month long bidding process the auction which took place live over the phone ended on june 12 2021 the undisclosed winner bid 28 million in order to secure a place on the blue origin with bezos for a sightseeing tour on july 20 2021 from west texas 8 | |
how do you bid on ebay | you can create an account or bid on ebay as a guest the easiest way for you to make your bids is through the automated process this allows you to enter the total amount you re willing to pay for an item the site then bids for you in increments without going over your maximum limit if another individual outbids you ebay will let you know you can decide whether you want to place a new maximum limit 9 | |
how do you cancel a bid on ebay | buyers can retract or cancel their bids on ebay in certain circumstances you can cancel your bid if enter the wrong amount when the seller makes a drastic change to the item s description or if the seller s contact information is incorrect bids can also be retracted if there are more than 12 hours left in the sale if there are less than 12 hours left you can cancel your last bid provided you placed it less than an hour ago if all else fails you can contact the seller to see if they re willing to cancel your bid 10 | |
how do you bid on government contracts | there are a few different ways to bid on government contracts you may have to register your company with the appropriate agency or website in order to compete for these jobs most government contracts are open for bids through a sealed bid process which means you can t see how your competition is bidding 11you can bid for the contract yourself through government bidding portals which can often take a lot of time you can also use a bidding service which can provide you with information on various government contracts available in your area 12 | |
what is bid and ask | bid and ask also known as bid and offer is a two way price quotation representing the highest price a buyer will pay for a security and the lowest price a seller will take for it the difference between bid and ask prices or the spread is a key indicator of the liquidity of the asset in general the smaller the spread the better the liquidity the bid price the price a buyer is willing to pay is the first price in the pair the ask price or the price a seller is willing to accept is the second investopedia laura porterunderstanding bid and askthe average investor contends with the bid and ask spread as an implied cost of trading most investors and retail traders are market takers meaning that they usually will have to sell on the bid where someone else is willing to buy and buy at the offer where someone else is willing to sell for example if the current price quotation for the stock of abc corp is 10 50 10 55 investor x who is looking to buy abc at the current market price would pay 10 55 while investor y who wishes to sell abc shares at the current market price would receive 10 50 who benefits from the bid ask spread the bid ask spread works to the advantage of the market maker continuing with the above example a market maker quoting a price of 10 50 10 55 for abc stock indicates a willingness to buy abc at 10 50 the bid price and sell it at 10 55 the asked price the spread represents the market maker s profit bid ask spreads can vary widely depending on the security and the market blue chip companies that constitute the dow jones industrial average may have a bid ask spread of only a few cents while a small cap stock that trades less than 10 000 shares a day may have a bid ask spread of 0 50 or more the bid ask spread can widen dramatically during periods of illiquidity or market turmoil since traders will not be willing to pay a price beyond a certain threshold and sellers may not be willing to accept prices below a certain level | |
what is the difference between a bid price and an ask price | bid prices refer to the highest price that traders are willing to pay for a security the ask price on the other hand refers to the lowest price that the owners of that security are willing to sell it for if for example a stock is trading with an ask price of 20 then a person wishing to buy that stock would need to offer at least 20 to purchase it at current price the gap between the bid and ask prices is often called the bid ask spread | |
when the bid and ask prices are very close this typically means that there is ample liquidity in the security in this scenario the security is said to have a narrow bid ask spread this situation can be helpful for investors because it makes it easier to enter or exit their positions particularly in the case of large positions | on the other hand securities with a wide bid ask spread where the bid and ask prices are far apart can be time consuming and expensive to trade | |
how are the bid and ask prices determined | bid and ask prices are set by the market in particular they are set by the buying and selling decisions of the people and institutions investing in that security if demand outstrips supply then the bid and ask prices will gradually shift upwards conversely if supply outstrips demand bid and ask prices will drift downwards the spread between the bid and ask prices is determined by the overall level of trading activity in the security with higher activity leading to narrow bid ask spreads and lower activity creating wide spreads the bottom linemost quotes in securities markets are two sided meaning they come with both a bid and an ask the bid is the highest price at which someone is willing to buy the security the ask or offer is the lowest price at which someone is willing to sell it together the bid and ask make up the price quote with the distance between the bid ask spread is an indicator of a security s liquidity the tighter the spread the more liquid quotes will often also show the number available at both the current best bid and ask prices most retail traders and investors must sell on the bid or buy on the offer while market makers set the bid and offer prices where they are willing to buy and sell | |
what is a bid ask spread | a bid ask spread is the amount by which the ask price exceeds the bid price for an asset in the market the bid ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept an individual looking to sell will receive the bid price while one looking to buy will pay the ask price investopedia zoe hansenunderstanding bid ask spreadsa security s price is the market s perception of its value at any given point in time and is unique to understand why there is a bid and an ask one must factor in the two major players in any market transaction namely the price taker trader and the market maker counterparty market makers many of which may be employed by brokerages offer to sell securities at a given price the ask price and will also bid to purchase securities at a given price the bid price when an investor initiates a trade they will accept one of these two prices depending on whether they wish to buy the security ask price or sell the security bid price the difference between these two the spread is the principal transaction cost of trading outside commissions and it is collected by the market maker through the natural flow of processing orders at the bid and ask prices this is what financial brokerages mean when they state that their revenues are derived from traders crossing the spread the depth of the bids and the asks can have a significant impact on the bid ask spread the spread may widen significantly if fewer participants place limit orders to buy a security thus generating fewer bid prices or if fewer sellers place limit orders to sell as such it s critical to keep the bid ask spread in mind when placing a buy limit order to ensure it executes successfully bid ask spread trades can be done in most kinds of securities as well as foreign exchange and commodities traders use the bid ask spread as an indicator of market liquidity high friction between the supply and demand for that security will create a wider spread most traders prefer to use limit orders instead of market orders this allows them to choose their own entry points rather than accepting the current market price there is a cost involved with the bid ask spread as two trades are being conducted simultaneously bid ask spread calculationthe bid ask spread is calculated as the difference between the highest price that a buyer is willing to pay for a security and the lowest price that a seller is willing to accept mathematically the bid ask spread can be represented as while the basic calculation of the bid ask spread involves pretty simple math more complex calculations may be necessary during dynamic volatile markets there may be more specific things that happen where it s not so straightforward for example in markets with multiple tiers of bids and asks you might calculate a weighted average spread that takes into account the distribution of orders at different price levels you could also lean on the effective spread the effective spread accounts for the impact of market orders this calculation is the difference between the execution price of a market order and the midpoint of the bid ask spread this can be a more accurate reflection of the true cost of trading especially in highly liquid markets you can also convert a bid ask spread to a percentage spread if you re less interested in the actual dollar amount but you want more of a comparative metric for instance if the bid ask spread is 1 and a stock is trading at 50 you may care more about a percentage spread of 2 1 50 as opposed to the nominal amount of 1 bid ask spread and liquiditythe size of the bid ask spread from one asset to another differs mainly because of the difference in liquidity of each asset the bid ask spread is the de facto measure of market liquidity certain markets are more liquid than others and that should be reflected in their lower spreads essentially transaction initiators price takers demand liquidity while counterparties market makers supply liquidity for example currency is considered the most liquid asset in the world and the bid ask spread in the currency market is one of the smallest one hundredth of a percent in other words the spread can be measured in fractions of pennies on the other hand less liquid assets such as small cap stocks may have spreads that are equivalent to 1 to 2 of the asset s lowest ask price bid ask spreads can also reflect the market maker s perceived risk in offering a trade for example options or futures contracts may have bid ask spreads that represent a much larger percentage of their price than a forex or equities trade the width of the spread might be based not only on liquidity but also on how quickly the prices could change placing market orders can be risky when the bid ask spread is shifting or large if you find yourself in this position consider using a limit order to set the exact price you want to exchange at instead of relying on market offerings bid ask spread exampleif the bid price for a stock is 19 and the ask price for the same stock is 20 then the bid ask spread for the stock in question is 1 the bid ask spread can also be stated in percentage terms it is customarily calculated as a percentage of the lowest sell price or ask price for the stock in the example above the bid ask spread in percentage terms would be calculated as 1 divided by 20 the bid ask spread divided by the lowest ask price to yield a bid ask spread of 5 1 20 x 100 this spread would close if a potential buyer offered to purchase the stock at a higher price or if a potential seller offered to sell the stock at a lower price factors that impact the bid ask spreadthere s a bunch of things that drive bid ask spreads the list below may not contain everything but it s a good overview of why bid ask spreads exist and how they may change bid ask spreads and market makerswe ll wrap up this article by touching on market makers market makers do play a part in how bid ask spreads are formulated they are able to make this impact because they | |
how does bid ask spread work | in financial markets a bid ask spread is the difference between the asking price and the bidding price of a security or other asset the bid ask spread is the difference between the highest price a buyer will offer the bid price and the lowest price a seller will accept the ask price typically an asset with a narrow bid ask spread will have high demand by contrast assets with a wide bid ask spread may have a low volume of demand therefore influencing wider discrepancies in its price | |
what causes a bid ask spread to be high | bid ask spread also known as spread can be high due to a number of factors first liquidity plays a primary role when there is a significant amount of liquidity in a given market for a security the spread will be tighter stocks that are traded heavily such as google apple and microsoft will have a smaller bid ask spread conversely a bid ask spread may be high to unknown or unpopular securities on a given day these could include small cap stocks which may have lower trading volumes and a lower level of demand among investors | |
what is an example of a bid ask spread in stocks | consider the following example where a trader is looking to purchase 100 shares of apple for 50 the trader sees that 100 shares are being offered at 50 05 in the market here the spread would be 50 00 50 05 or 0 05 wide while this spread may seem small or insignificant on large trades it can create a meaningful difference which is why narrow spreads are typically more ideal the total value of the bid ask spread in this instance would be equal to 100 shares x 0 05 or 5 the bottom linethe bid ask spread serves as an effective measure of liqudity as more liquid securities will have small spreads while illiquid ones will have larger ones investors should keep an eye on the spread of any security they wish to buy or sell to get a sense for how frequently it trades and to decide on the type of order to use when making a transaction correction dec 4 2022 this article s question and answer segment was edited from a previous version that incorrectly defined bid ask spread | |
what is a bid bond | a bid bond guarantees compensation to the bond owner if the bidder fails to begin a project bid bonds are often used for construction jobs or other projects with similar bid based selection processes the function of the bid bond is to provide a guarantee to the project owner that the bidder will complete the work if selected the existence of a bid bond gives the owner assurance that the bidder has the financial means to accept the job for the price quoted in the bid understanding bid bondsbid bonds ensure that contractors can comply with bid contracts and will fulfill their job responsibilities at agreed prices most public construction contracts require contractors or subcontractors to secure their bids by providing bonds that serve as a means of legal and financial protection to the client without bid bonds project owners would have no way of guaranteeing that the bidder they select for a project would be able to complete the job properly for example an underfunded bidder might run into cash flow problems along the way bid bonds also help clients avoid frivolous bids which saves time when analyzing and choosing contractors requirements for bid bondswhile most project owners typically require between 5 and 10 of the tender price upfront as a penalty sum federally funded projects require 20 of the bid 1 the cost of the bond depends on several factors including the jurisdiction of the project work bid amount and contractual terms for example a contractor that is making a 250 000 bid to provide roofing for an elementary school will have to submit a bid bond of 50 000 this bid bond is required along with a proposal to be taken seriously as a contender for a federal contract writing a bid bonda bid bond can be a written guarantee made out by a third party guarantor and submitted to a client or project owner the bid bond affirms that the contractor has the required funds necessary to carry out the project typically bid bonds are submitted as a cash deposit by contractors for a tendered bid a contractor purchases a bid bond from a surety which carries out extensive financial and background checks on a contractor before approving the bond several factors determine whether a contractor will be issued a bid bond they include the company s credit history and the number of years of experience in the field financial statements may also be examined to determine the overall financial health of the company parties involveda surety bond involves three primary players the financial guarantor or surety of a construction bond guaranteeing the obligee that the contractor called the principal will act in accordance with the terms established by the bond both the surety and contractor are held liable if the contractor fails to abide by any of the contract s conditions bid bonds vs performance bondsa bid bond is replaced by a performance bond when a bid is accepted and the contractor proceeds to work on the project a performance bond protects a client from a contractor s failure to perform according to the contractual terms if the work done by a contractor is poor or defective a project owner can make a claim against the performance bond the bond provides compensation for the cost of redoing or correcting the job failure to meet obligationsif the contractor does not meet the obligations of the bid bond the contractor and the surety are held jointly and severally liable for the bond a client will usually opt for the lowest bidder since it will mean reduced costs for the company if a contractor wins the bid but decides not to execute the contract for one reason or another the client will be forced to award the second lowest bidder the contract and pay more in this instance the project owner can make a claim against the full or partial amount of the bid bond a bid bond is thus an indemnity bond that protects a client if a winning bidder fails to execute the contract or provide the required performance bonds the amount claimed against a bid bond typically covers the difference between the lowest bid and the next lowest bid this difference will be paid by the bonding company or surety which may sue the contractor to recover the costs whether the surety can sue the contractor depends on the terms of the bid bond frequently asked questionsa contract bid is most commonly associated with a proposal and price submitted by a contractor or service provider to a soliciting firm for a business opportunity involving construction or renovation projects while having good credit is always helpful in matters like these those with poor credit may still be able to obtain bid bonds from companies that agree to do so but these will often be more costly to obtain once a project is successfully completed per the contract the bid bond amount is returned the three main types of construction bonds are bid performance and payment | |
what is a bid price | a bid price is a price for which somebody is willing to buy something whether it be a security asset commodity service or contract it is colloquially known as a bid in many markets and jurisdictions generally a bid is lower than an offered price or ask price which is the price at which people are willing to sell the difference between the two prices is called a bid ask spread bids are made continuously by market makers for a security and may also be made in cases where a seller requests a price where they can sell sometimes a buyer will present a bid even if a seller is not actively looking to sell in which case it is considered an unsolicited bid understanding bid pricesthe bid price is the amount of money a buyer is willing to pay for a security it is contrasted with the sell ask or offer price which is the amount a seller is willing to sell a security for the difference between these two prices is referred to as the spread the spread is how market makers mms derive profits thus the higher the spread is the greater the profit bid prices are often specifically designed to exact a desirable outcome from the entity making the bid for example if the ask price of a good is forty dollars and a buyer wants to pay thirty dollars for the good they might make a bid of twenty dollars and appear to compromise and give up something by agreeing to meet in the middle exactly where they wanted to be in the first place | |
when multiple buyers put in bids it can develop into a bidding war wherein two or more buyers place incrementally higher bids for example a firm may set an asking price of five thousand dollars on a good bidder a might make a bid of three thousand dollars bidder b may offer three thousand and five hundred dollars bidder a might counter with four thousand dollars | eventually a price will be settled upon when a buyer makes an offer which their rivals are unwilling to top this is quite beneficial to the seller as it puts a second pressure on the buyers to pay a higher price than if there was a single prospective buyer quotes will often show the national best bid and offer nbbo from across all exchanges that a security is listed that means that the best bid price may come from a different exchange or location than the best offer in the context of stock trading the bid price refers to the highest amount of money a prospective buyer is willing to spend for it most quote prices as displayed by quote services and on stock tickers are the highest bid price available for a given good stock or commodity the ask or offer price displayed by said quote services corresponds directly to the lowest asking price for a given stock or commodity on the market in an options market bid prices can also be market makers if the market for the options contract is illiquid or lacks enough liquidity investors and traders that initiate a market order to buy will typically do so at the current ask price and sell at the current bid price limit orders in contrast allow investors and traders to place a buy order at the bid price or a sell order at the ask which could get them a better fill those looking to sell at the market price may be said to hit the bid bid sizein addition to the price that people are willing to buy the amount or volume bid for is also important for understanding the liquidity of a market bid sizes are typically displayed along with a level 1 quote if the quote indicates a bid price of 50 and a bid size of 500 that you can sell up to 500 shares at 50 bid size may be contrasted with the ask size where the ask size is the amount of a particular security that investors are offering to sell at the specified ask price investors interpret differences in the bid size and ask size as representing the supply and demand relationship for that security example of bid pricesuppose alex wants to buy shares in company abc the stock is trading in a range between 10 and 15 but alex is not willing to pay more than 12 for them so they place a limit order of 12 for abc s shares this is their bid price | |
what is bid size | the bid size represents the quantity of a security that investors are willing to purchase at a specified bid price for most investors who view level 1 quotes on their trading screens the bid size represents the amount of shares that investors are willing to purchase at the best available bid price | |
how bid size works | bid sizes are typically displayed in board lots representing 100 shares each therefore if a level 1 quote shows a bid price of 50 and a bid size of five that means that the best available offer from investors looking to buy the security is 50 per share to buy 500 shares an investor who owns that stock could therefore sell up to 500 shares at 50 per share bid size is the opposite of ask size where the ask size is the amount of a particular security that investors are offering to sell at the specified ask price investors interpret differences in the bid size and ask size as representing the supply and demand relationship for that security in addition to the best available bid price there will often be many more bid prices available at lower prices each with their own bid size this additional information can be viewed using level 2 market quotations real world example of bid sizefor example in keeping with our security above there might be a bid size of 10 1 000 shares at a bid price of 49 in that scenario an investor wishing to sell 1 500 shares could sell them for a combined price of 74 000 25 000 from the first 500 shares plus 49 000 for the remaining 1 000 shares level 2 quotes are required in order to see the data concerning bid prices and bid prices below the best available bid this information is typically available as a premium feature in most brokerage accounts the purpose of this depth of market dom information is to provide insight into the size and structure of liquidity for the security for instance in our example above it may be the case that after selling 1 500 shares the next best bid price would be much lower say 40 in this scenario an investor who sells significantly more than 1 500 shares would cause the market price of the security to fall sharply such an investor may choose to delay not only to obtain a better price but also to avoid causing the price of their remaining shares to decline | |
what is big data | big data refers to the large diverse sets of information that grow at ever increasing rates it encompasses the volume of information the velocity or speed at which it is created and collected and the variety or scope of the data points being covered known as the three v s of big data big data often comes from data mining and arrives in multiple formats 1 | |
how big data works | big data can be categorized as unstructured or structured structured data consists of information already managed by the organization in databases and spreadsheets it is frequently numeric in nature unstructured data is information that is unorganized and does not fall into a predetermined model or format it includes data gathered from social media sources which help institutions gather information on customer needs big data can be collected from publicly shared comments on social networks and websites voluntarily gathered from personal electronics and apps through questionnaires product purchases and electronic check ins the presence of sensors and other inputs in smart devices allows for data to be gathered across a broad spectrum of situations and circumstances big data is most often stored in computer databases and is analyzed using software specifically designed to handle large complex data sets many software as a service saas companies specialize in managing this type of complex data 1the uses of big datadata analysts look at the relationship between different types of data such as demographic data and purchase history to determine whether a correlation exists such assessments may be done in house or externally by a third party that focuses on processing big data into digestible formats businesses often use the assessment of big data by such experts to turn it into actionable information many companies such as alphabet and meta formerly facebook use big data to generate ad revenue by placing targeted ads to users on social media and those surfing the web nearly every department in a company can utilize findings from data analysis from human resources and technology to marketing and sales the goal of big data is to increase the speed at which products get to market to reduce the amount of time and resources required to gain market adoption target audiences and to ensure customers remain satisfied advantages and disadvantages of big datathe increase in the amount of data available presents both opportunities and problems in general having more data on customers and potential customers should allow companies to better tailor products and marketing efforts in order to create the highest level of satisfaction and repeat business companies that collect a large amount of data are provided with the opportunity to conduct deeper and richer analysis for the benefit of all stakeholders with the amount of personal data available on individuals today it is crucial that companies take steps to protect this data a topic which has become a hot debate in today s online world particularly with the many data breaches companies have experienced in the last few years while better analysis is a positive big data can also create overload and noise reducing its usefulness companies must handle larger volumes of data and determine which data represents signals compared to noise deciding what makes the data relevant becomes a key factor 1furthermore the nature and format of the data can require special handling before it is acted upon structured data consisting of numeric values can be easily stored and sorted unstructured data such as emails videos and text documents may require more sophisticated techniques to be applied before it becomes useful 21 | |
what is a bilateral contract | a bilateral contract is an agreement between two parties in which each side agrees to fulfill their side of the bargain typically bilateral contracts involve an equal obligation or consideration from the offeror and the offeree although this need not always be the case in more complex situations such as multinational trade negotiations a bilateral contract can be a so called side deal that is both parties are involved in the general negotiations but may also see the need for a separate contract relevant only to their shared interests | |
how a bilateral contract works | the bilateral contract is the most common kind of binding agreement each party is both an obligor a person who is bound to another to its own promise and an obligee a person to whom another is obligated or bound on the other party s promise a contract is signed so that the agreement is clear and legally enforceable any sales agreement is an example of a bilateral contract a car buyer may agree to pay the seller a certain amount of money in exchange for the title to the car the seller agrees to deliver the car title in exchange for the specified sale amount if either party fails to complete one end of the bargain a breach of contract has occurred 1in that sense virtually all of our daily routine transactions are bilateral contracts sometimes with a signed agreement and often without one business contracts are almost always bilateral businesses provide a product or service in exchange for financial compensation so most businesses are constantly entering into bilateral contracts with customers or suppliers an employment agreement in which a company promises to pay an applicant a certain rate for completing specified tasks is also a bilateral contract | |
when determining whether a contract is unilateral or bilateral in nature courts will often consider whether both parties offered something specific of value in which case the contract is bilateral | bilateral vs unilateral contractsas noted a bilateral contract by definition has reciprocal obligations that makes it distinct from a unilateral contract in a unilateral contract one party is obligated to fulfill its obligation only if and when the other party completes a specified task a unilateral contract typically involves the first party issuing a payment only on completion of the second party s task 2in legal terms that second party in a unilateral contract is not obliged to actually perform the task and may not be found in breach of contract for not doing so if it were a bilateral contract both parties would have a legal obligation an example of a unilateral contract might be a contest to find a buried treasure to win 1 million no one is obligated to hunt for the treasure but if someone finds it the contest creator is obliged to pay 1 million to that person if the nature of a contract is disputed a court will judge the merits of the claim against the content of the contract determining if one or both parties maintain an obligation or concession | |
what is bilateral trade | bilateral trade is the exchange of goods between two nations promoting trade and investment when engaged in bilateral trade participating countries may agree to reduce or eliminate tariffs import quotas export restraints and other trade barriers to encourage trade and investment in the united states the office of bilateral trade affairs minimizes trade deficits by negotiating free trade agreements with new countries supporting and improving existing trade agreements promoting economic development abroad and other actions understanding bilateral tradebilateral trade agreements aim to expand access between two countries markets and increase their economic growth standardized business operations also prevent one country from stealing another s innovative products dumping goods at a small cost or using unfair subsidies bilateral trade agreements standardize regulations labor standards and environmental protections the united states has signed bilateral trade agreements with 20 countries some of which include israel jordan australia chile singapore bahrain morocco oman peru panama and colombia 1the dominican republic central america ftr cafta dr is a free trade agreement signed between the united states and smaller economies of central america as well as the dominican republic 1 the central american countries are el salvador guatemala costa rica nicaragua and honduras nafta replaced the bilateral agreements with canada and mexico in 1994 the u s renegotiated nafta under the united states mexico canada agreement which went into effect in 2020 2advantages and disadvantages of bilateral tradecompared to multilateral trade agreements bilateral trade agreements are negotiated more easily because only two nations are party to the agreement bilateral trade agreements initiate and reap trade benefits faster than multilateral agreements | |
when negotiations for a multilateral trade agreement are unsuccessful many nations will negotiate bilateral treaties instead however new agreements often result in competing agreements between other countries eliminating the advantages the free trade agreement fta confers between the original two nations | bilateral trade agreements also expand the market for a country s goods the united states vigorously pursued free trade agreements with a number of countries under the bush administration during the early 2000s 3in addition to creating a market for u s goods the expansion helped spread the mantra of trade liberalization and encouraged open borders for trade however bilateral trade agreements can skew a country s markets when large multinational corporations which have significant capital and resources to operate at scale enter a market dominated by smaller players as a result the latter might need to close shop when they are competed out of existence examples of bilateral tradein october 2014 the united states and brazil settled a longstanding cotton dispute in the world trade organization wto 4 brazil terminated the case relinquishing its rights to countermeasures against u s trade or further proceedings in the dispute brazil also agreed to not bring new wto actions against u s cotton support programs while the current u s farm bill was in force or against agricultural export credit guarantees under the gsm 102 program because of the agreement american businesses were no longer subject to countermeasures such as increased tariffs totaling hundreds of millions of dollars annually in march 2016 the u s government and the government of peru reached an agreement removing barriers to u s beef exports to peru that had been in effect since 2003 5the agreement opened one of the fastest growing markets in latin america in 2015 the united states exported 25 4 million in beef and beef products to peru removal of peru s certification requirements known as the export verification program assured american ranchers expanded market access the agreement reflected the u s negligible risk classification for bovine spongiform encephalopathy bse by the world organization for animal health oie the united states and peru agreed to amendments in certification statements making beef and beef products from federally inspected u s establishments eligible for export to peru rather than just beef and beef products from establishments participating in the usda agricultural marketing service ams export verification ev programs under previous certification requirements | |
what is bilateral and multilateral trade | bilateral trade and multilateral trade are very similar concepts as mentioned above bilateral trade refers to trade between two specific countries while multilateral trade is conducted across three or more bilateral trade agreements are easier to negotiate as they only require the approval of two states multilateral trade agreements have to strike a more delicate balance across the economic needs and wants of multiple countries | |
what is advantage of bilateral trade example | the most immediate advantage of bilateral trade is that it affords both participating countries easier access to expanded markets consider the case of an electronics producer that has successfully sold and marketed devices to a significant portion of the population in the region in which it s based to further drive revenue it wants to begin engaging in commerce internationally if confronted with trade barriers such as high import fees or duties it may not be able to make a profit abroad a bilateral trade agreement that eliminates or reduces such frictions can provide businesses in both participating countries with significantly increased economic opportunity it may also give consumers in both regions more choice | |
when a bilateral trade agreement is set participating countries have access to a greatly expanded market however not everyone benefits from this change equally in particular larger firms are generally better situated than their smaller counterparts | consider a hypothetical multinational food business headquartered in the u s and with subsidiaries located across the world if the u s established a new bilateral trade agreement that eliminated barriers with another country the multinational might be much better poised to take advantage of this new market as it would likely have the necessary capital to scale up production and transport not only might the multinational s u s competitors struggle to do the same but local businesses in the other country might also find it difficult to compete with the production marketing and human resources of the multinational ultimately this could lead to a system in which there are some winners and losers resulting from the new agreement the bottom linebilateral trade refers to commerce conducted between two countries it is typically facilitated by bilateral trade agreements which are designed to eliminate common barriers such as tariffs quotas or other restraints bilateral trade agreements can help to standardize business regulations and practices across different regions and increase economic strength of participating nations however expanded markets may benefit larger firms over smaller players leading to closures of some businesses | |
what is a bill auction | a bill auction is a public auction held weekly by the u s treasury of federal debt obligations specifically treasury bills t bills whose maturies range from one month to one year 1 as of may 2021 there are 24 authorized primary dealers who are required to participate in the auction and bid directly upon each issue 2 a bill auction is the official manner in which all u s treasury bills are issued understanding a bill auctionthe weekly bill auction is actually an electronic dutch auction in this sort of proceeding investors place a bid for the amount of the offering they are willing to buy in terms of quantity and price the best bid wins of course but the offering s price is set after all the bids are taken in and sorted as opposed to it rising sequentially as bidders consecutively counter each other to kickstart the process an announcement is released several days before the auction is to occur the announcement includes information such as the auction date issue date amount of securities that will be sold bidding close times participation eligibility etc 1 bids are accepted up to 30 days in advance 4once it begins the bill auction accepts competitive bids to determine the discount rate to be paid on each issue a group of securities dealers banks and brokerages known as primary dealers are authorized and obligated to submit competitive bids on a pro rata share of every treasury bill auction 2 the winning bid on each issue will determine the interest rate that is paid on that issue once an issue is purchased the dealers are allowed to hold sell or trade the bills the demand for t bills at auction is determined by market and economic conditions all bill auctions are open to the public through treasury direct or the treasury automated auction processing system taaps who participates in a bill auction participants in any treasury auction consist of retail investors and institutional investors who submit bids categorized as either competitive or non competitive tenders non competitive tenders are submitted by smaller investors in effect these investors are bidding a bit blind while they are guaranteed to receive bills they won t know the exact final price or what discount rate they will receive until the auction closes an investor who submits a non competitive bid agrees to accept the final discount rate which is determined by the competitive side of the auction 3competitive tenders are submitted by bigger investors such as institutional investors each bidder is limited to 35 of the amount of the offering per bill auction 5 each bid submitted specifies the lowest rate or discount margin that the investor is willing to accept for the debt securities the bids with the lowest discount rate will be accepted first the lowest discount rate that meets the supply of debt being sold serves as the winning yield or the highest accepted yield after all non competitive bids have been subtracted from the total amount of securities offered 3unlike the non competitive bidders competitive bidders are not guaranteed to receive any t bills as approval of their bid depends on the discount yield that they offered to accept if their offered price is too low they may end up getting locked out of the offering all investors competitive and non competitive who bid at or above the level of the winning yield receive securities with this discount rate 3the non competitive bid closing time for bills is normally 11 00 a m eastern time on auction day the competitive bid closing time for bills is normally 11 30 a m eastern time on auction day 5 | |
how a bid auction works | for example suppose the treasury seeks to raise 9 million in one year t bills with a 5 discount rate the minimum amount you can buy a bill for is 100 although the most commonly sold bills have a par between 1 000 and 10 000 let s assume the competitive bids submitted are as follows 1 million at 4 79 2 5 million at 4 85 2 million at 4 96 1 5 million at 5 3 million at 5 07 1 million at 5 1 5 million at 5 5 the bids with the lowest discount rates will be accepted first since the government will prefer to pay lower yields to investors in this case since the treasury is looking to raise 9 million it will accept the bids with the lowest rates up to 5 07 at this mark of 5 07 only 2 million of the 3 million bid will be approved all bids below the 5 07 rate will be accepted and bids above will be rejected in effect this auction is cleared at 5 07 and all successful competitive and non competitive bidders receive the 5 07 discount rate on issue day treasury delivers t bills to non competitive bidders who made their submissions in a particular bill auction in exchange treasury charges the accounts of those bidders for payment of the securities the purchase price of the t bill is expressed as a price per hundred dollars 6correction april 6 2023 this article has been updated to correct the example of which bids would be accepted and rejected by the treasury | |
what is a bill of materials bom | a bill of materials bom is an extensive list of raw materials components and instructions required to construct manufacture or repair a product or service it lists the finished product at the top followed by individual components and materials engineering boms are used in the design process while manufacturing boms are used in the assembly process types of bill of materials boms using a bommanufacturers start the assembly process by creating a bom a bill of materials bom is a centralized source of information listing the items and instructions needed to create a product every line of the bill of materials includes the product code part name part number part revision description quantity unit of measure size length weight and specifications it includes all alternative and substitute part numbers and parts contained in the drawing notes creating an accurate bill of materials ensures that parts are available when needed and that the assembly process is efficient an inaccurate bom can cause production delays if time is required to locate missing parts this increases operating costs a manufacturing bom is essential in designing enterprise resource planning erp systems and in materials requirement planning mrp bom displaysa bom displays its information in one of two ways an explosion display or an implosion display an explosion display defines an assembly at the highest level broken down into individual components and parts a bom implosion display links the lower level parts to an assembly at the higher level for example a computer is exploded into hard drives chips random access memory panels and processors each processor is then exploded into an arithmetic unit a control unit and a register the requirements for the arithmetic unit control unit and register are imploded into the requirements for the processor which are imploded into the requirements for the computer | |
what is a bill of materials used for | a bill of materials shows the relationship between the finished product and its components it s useful for estimating the amount and cost of materials planning purchases ensuring the availability of parts and avoiding production delays | |
what is product lifecycle management | the process of designing developing creating producing and disposing of a manufactured product is called product life cycle management the product life cycle details when a product is introduced to consumers until it s removed from the shelves | |
what are the key components of a bom | a bom must include the name of the product or assembly raw materials required with quantity and units of measure sub assemblies part numbers with their names and descriptions unit costs and product quantity the bottom linea bill of materials is an important part of the engineering and manufacturing process that lists the parts and materials required to build a product an accurate bom helps reduce waste streamline production and ensure the availability of necessary parts bills of materials help companies manage their operations costs | |
what is a billing cycle | a billing cycle is the interval of time from the end of one billing statement date to the next billing statement date for goods or services a company provides to another company or consumer on a recurring basis although billing cycles are most often set on a monthly basis they can vary in length depending on the type of product or service rendered understanding billing cyclebilling cycles guide companies on when to charge customers while helping internal departments such as accounts receivable units monitor the amount of revenue yet to be collected at the end of every billing cycle customers are granted a certain amount of time to remit payment this window known as the grace period is similar to a moratorium period which is defined as a specific period of time in which a lender lets a borrower stop making payments on a loan examples of billing cyclesthe date at which the billing cycle begins depends on various factors including the type of service being offered and the customer s needs for example an apartment complex may issue a bill for rent on the first day of every month regardless of when tenants signed their individual leases this style of billing cycle can simplify accounting while making it easier for tenants to remember the payment due date companies may also choose to use a rolling billing cycle for example a cable tv provider may set a customer s billing cycle to align with the date on which that customer first received a signal if charges are not remitted in full by a due date they are rolled over to the next billing cycle which may trigger late fees and interest charges determining the length of a billing cyclealthough the lengths of billing cycles tend to fall in line with industry norms vendors can shorten or augment their individual billing cycles in ways that help them better manage cash flows or accommodate changes in the creditworthiness of customers for example a wholesaler who distributes produce to a supermarket chain might need to accelerate the receipt of cash flows because the company from which it leases delivery trucks has tightened its billing cycle for the wholesaler as another example consider a situation where a retail store owner has fallen into the habit of making the occasional late payment to his supplier in this situation the wholesaler may compress the billing cycle from four weeks to three weeks to anticipate for the delinquency the flexibility of the billing cycle can go the other way too for example suppose a large corporate customer needs to lengthen the cycle from 30 days to 45 days for software as a service saas if the creditworthiness of this customer is sound the vendor will normally agree to do so | |
what is a bill of exchange | a bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date bills of exchange are similar to checks and promissory notes they can be drawn by individuals or banks and are generally transferable by endorsements investopedia laura porterunderstanding bills of exchangea bill of exchange transaction can involve up to three parties the drawee is the party that pays the sum specified by the bill of exchange the payee is the one who receives that sum the drawer is the party that obliges the drawee to pay the payee the drawer and the payee are the same entity unless the drawer transfers the bill of exchange to a third party payee unlike a check however a bill of exchange is a written document outlining a debtor s indebtedness to a creditor it s frequently used in international trade to pay for goods or services while a bill of exchange is not a contract itself the involved parties can use it and the attached forms to fulfill the terms of a contract it can specify that payment is due on demand or at a specified future date the period between billing and payment is called the usance it s often extended with credit terms such as 90 days as well a bill of exchange must be accepted by the drawee to be valid bills of exchange generally do not pay interest making them in essence post dated checks they may accrue interest if not paid by a certain date however in this case the rate must be specified on the instrument they can conversely be transferred at a discount before the date specified for payment a bill of exchange must clearly detail the amount of money the date and the parties involved including the drawer and drawee if a bill of exchange is issued by a bank it can be referred to as a bank draft the issuing bank guarantees payment on the transaction if bills of exchange are issued by individuals they can be referred to as trade drafts bills of exchange are useful in international trade because they help buyers and sellers deal with the risks associated with exchange rate fluctuations and differences in legal jurisdictions if the funds are to be paid immediately or on demand the bill of exchange is known as a sight draft in international trade a sight draft allows an exporter to hold title to the exported goods until the importer takes delivery and immediately pays for them however if the funds are to be paid at a set date in the future it is known as a time draft a time draft gives the importer a short amount of time to pay the exporter for the goods after receiving them the difference between a promissory note and a bill of exchange is that the latter is transferable and can bind one party to pay a third party that was not involved in its creation banknotes are common forms of promissory notes a bill of exchange is issued by the creditor and orders a debtor to pay a particular amount within a given period of time the promissory note on the other hand is issued by the debtor and is a promise to pay a particular amount of money in a given period example of a bill of exchangesay company abc purchases auto parts from car supply xyz for 25 000 car supply xyz draws a bill of exchange becoming the drawer and payee in this case the bill of exchange stipulates that company abc will pay car supply xyz 25 000 in 90 days company abc becomes the drawee and accepts the bill of exchange and the goods are shipped in 90 days car supply xyz will present the bill of exchange to company abc for payment the bill of exchange was an acknowledgment created by car supply xyz which was also the creditor in this case to show the indebtedness of company abc the debtor |
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