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what is a home office | a home office is a space designated in a person s residence for official business purposes it provides a space for those that are self employed or work remotely for an employer the irs allows qualified taxpayers to claim a home office on their tax return and deduct certain home expenses when they file taxes | |
what is a home office expense | home office expenses are expenses incurred from the operation of a business or the performance of employment related activities within a primary residence understanding home office expenseshome office expenses allow individuals to deduct some housing expenses such as utilities interest paid towards the property s mortgage and property taxes on their annual tax return 1 the irs provides the details for the rules on home office deductions in publication 587 expenses incurred by a business you conduct in your home are the basis for home office deductions that can lower your tax bill if you are self employed any services or utilities that are used exclusively for the business purposes can be fully deducted this includes offices supplies phone lines and computer equipment the amount of deductions permitted will depend on several factors including how a homeowner files their return and their earnings but most will be able to claim several items as expenses as long as they are incurred during the normal course of business 1 a home office will only qualify for home office deductions if it meets the following criteria 2 the rule of thumb is exclusive and regular the place you designate as your home office has to be used exclusively and regularly as a home office in the words of the irs the space does not need to be marked off by a permanent partition you do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes 3 if you have a corner of your house with a desk that you only use to transact business that qualifies as a home office space but if you conduct your business on a laptop while sitting on your couch next to a family member who is watching tv you cannot claim the couch as a home office | |
how to calculate home office expenses | there are two ways the irs says you can calculate how much of your home constitutes a home office and how much of your incurred expenses are deductible the first way the regular method is to calculate your actual expenses the second way is called the simplified method which is faster but may not yield as many deductions 1 the method that uses an accounting of your actual expenses begins with calculating the following 4 direct expenses are things like painting or repairs only in the area used for business indirect expenses are expenses for the entire home like insurance utilities and general repairs that also benefit your home office 5 to figure out the allowable business percentage of your home area the irs gives two methods 6 the regular method requires to keep accurate records but the irs has a helpful worksheet to set taxpayers on the right path 7 if your expenses are less than your gross income from the business conducted in your house all your expenses are deductible but if your expenses exceed your gross income only a portion of them can be deducted the simplified method was introduced in 2013 to simplify the calculation of allowable deductions for your home office to calculate your deductions with the simplified method you need to know 8 once you have this information you can calculate your deduction with these steps 9 other rules apply that limit the filer s ability to use the simplified method for example if you share the space with another person you can t both deduct the same space 10 other restrictions are listed in publication 587 real world examples of home office expensesas an example consider a freelance writer who operates their own business out of their home they have a dedicated office space which is approximately 200 square feet a cell phone that is only used for work related calls and a subscription to a magazine that provides editorial leads to writers all these items are tax deductible as home office expenses including the 200 square feet of the writer s house since that room is used for business purposes additionally the writer can deduct the ink that they use to print contracts out the full cost of the all in one printer that they had to purchase to be able to send those signed contracts in and any industry related training they complete because the tax cuts and jobs act limited the amount of property tax filers can deduct you cannot use the home office deduction to deduct the full amount of your property tax if it exceeds 10 000 11 there are a variety of expenses that can be deducted when a person works out of their home whether it be as a remote employee or because they are self employed a certified tax specialist can review available deductions and make sure that all items that are being claimed are valid for instance if this freelance writer didn t have a dedicated office space and instead worked out of the coffee shop around the corner from their house every day they wouldn t be able to claim the utility and mortgage associated costs as part of their home office deduction there may be additional deductions available to them like the coffee and donut they purchase each day while working out of the shop | |
what is a home warranty | a home warranty is a residential service contract that covers the cost of maintaining household systems or appliances for a set period a home warranty is different from homeowners insurance and it is different than a structural warranty which is used by home builders and buyers and not used for existing homes | |
when an appliance or system is damaged the homeowner contacts the home warranty provider the warranty company usually works in unison with one or more home service providers such as plumbing or electrical contractors after being notified of a claim the warranty company requests the services from one of its partnered providers who will assess the damage and subsequently provide a report to the warrantor | the assessment report reveals the extent and potential causes of damage to the appliance the home warranty company confirms if the policyholder s contract covers the appliance or system for the assessed damage if approved the warrantor employs the contractor to repair or replace the system a home warranty plan sometimes called a residential service contract usually covers major appliances such as water heaters stoves and refrigerators it may also include systems such as hvac plumbing and electrical it is imperative to read the fine print of a warranty document to understand coverages and exclusions while some warranties cover garage door openers as part of the basic coverage plan others may require additional premiums although it is possible to purchase additional coverage for a home feature not available with basic coverage it is also likely that some warranty companies do not cover specific components of a home for example some home warranty companies cover outdoor pools or spas for an additional premium to the policy whereas other companies may not warranty a pool on their offerings a new service fee will apply to each feature or system scheduled for maintenance for example if a homeowner s oven and refrigerator are faulty they will pay the contractor two separate trade fees these costs may run between 55 to 150 2home warranty vs home insurancewhile a home warranty bears a resemblance to home insurance policies in terms of premiums deductibles claims and liabilities they each offer different services home warranties maintain the functionality of household systems which can break or wear out home insurance on the other hand covers damage to or loss of the home itself that may be due to fire or certain other natural disasters | |
when purchasing a home the buyer may not know how well the previous owners maintained and managed the components of the home information on the age of household appliances or their useful life in years may not be available at the time of purchase | also the search for an expert handyman or service provider may be time consuming for the homeowner limited time and the high costs of paying for damage or replacing multiple components of the home are two main reasons that homebuyers purchase home warranties home warranty qualificationshome warranty providers may deny coverage for several reasons known damage existing before the start of warranty coverage may mean a denial of the claim for this reason if a home inspection conducted before purchase reveals damage to some systems or appliances the prospective buyer should ask the seller to repair or replace the item before finalizing the sale also a warranty company will not cover poorly maintained improperly installed or misused household components homebuilders sellers and homeowners may purchase a home warranty some home builders offer policies that cover the structure up to 10 years for structural defects including issues with flooring walls roofs framing sheetrock and other items homebuilder warranties may also cover two years of electrical and plumbing systems and six months for installed household appliances the cost of a homebuilder warranty policy is usually part of the price of the new house the seller or agent may pay for the warranty to incentivize a buyer to purchase the home for older homes warranties for existing homes typically cover a year of household systems and appliance maintenance after a year the homeowner has the option to renew the contract home warranty coststhe average cost for a home warranty basic coverage ranges between 432 to 816 annually depending on what the products are and which ones are added to the policy in addition to the annual premium homeowners will usually pay the servicing contractor a fee often called a service call fee or a trade call fee the contractor fee is synonymous with an insurance deductible the costs of these fees depend on various factors the fee can range between 55 and 150 1 most policies include the clause that if a repair or replacement cost is less than the fee the homeowner pays the lesser amount finally if repair or replacement costs more than the home warranty contract limit the homeowner must cover the excess homeowners should analyze the offerings of home warranty companies to understand which out of pocket expenses they would be liable for in the event of a claim and whether a home warranty is worth it | |
is a home warranty for my home | no a home warranty isn t a warranty on your house but covers the appliances in your home such as a refrigerator | |
do i have to buy a warranty for my home | unlike homeowners insurance you do not have to purchase a warranty on appliances in your home however if you purchase an older home where appliances are dated you may want to consider replacing them or purchasing a home warranty policy | |
what is a residential service contract | a residential service contract is another name for a home warranty which protects your homes systems and appliances if they break during the period that is protected by the warranty | |
what are homemade dividends | homemade dividends are a form of investment income generated from the sale of a portion of an individual s investment portfolio these assets differ from the traditional dividends that a company s board of directors distributes to certain classes of shareholders understanding homemade dividendsthe ability of investors to create their own homemade dividends has provoked questions about whether traditional dividends offer real value some investment experts argue that since a stock price will decrease by exactly the amount of the dividend on its ex dividend date it neutralizes any financial gains this idea sits at the crux of the dividend irrelevance theory which claims that investors fundamentally do not need to pay heed to a company s dividend payment policy since they retain the option of selling off portions of their equity portfolios should they ever need to generate cash naysayers of this theory counter argue that when an investor sells a portion of their portfolio they end up with fewer shares which consequently results in a depleted asset base despite any short term monetary gains they may enjoy economists merton miller and franco modigliani were among the first voices to espouse the irrelevance of corporate dividends when they publicized their theories in the early 1960s traditional dividendsas noted a company s board of directors is charged with the responsibility of declaring dividend payouts to shareholders following the declaration date the company establishes a record date to determine which shareholders are eligible to receive distributions the ex dividend date which occurs precisely two business days before the record date denotes the final day a seller is still entitled to collect dividends even if they have already sold their shares to a buyer normal dividends typically occur on a regular monthly or quarterly basis while extra or special dividends are one time distributions generally speaking a company s board declares special dividends after witnessing exceptionally strong earnings results or when a company seeks either to materially change its financial structure or to spin off a subsidiary company companies with sector exposure to basic materials oil and gas financials healthcare pharmaceuticals and utility concerns historically produce the highest dividend yields furthermore companies structured as master limited partnerships mlps or real estate investment trusts reits are also top dividend payers because these companies are typically mature and they exhibit stable cash flows in contrast start ups and other high growth companies such as many technology plays seldom offer high dividends these companies usually prefer to reinvest any earnings they make into research and development or to the expansion of operations | |
what is homemade leverage | homemade leverage is used by an individual investor to artificially adjust the leverage of a company an individual investing in a company with no leverage can recreate the effect of leverage using homemade leverage which includes taking out personal loans on the investment however differences in the tax rate between the corporation and the individual will likely disrupt the ability of the investor to construct the leveraging scenario accurately | |
how homemade leverage works | the use of leverage increases the potential for returns while increasing the riskiness of an investment companies that utilize leverage may be able to generate a more substantial return for shareholders all else equal than a company that does not employ leverage however investment in leveraged companies may be riskier than investment in companies that do not borrow a way to attempt to get around this risk reward tradeoff is for an investor to buy shares of a company that does not utilize leverage and then takes out personal loans to gain personal leverage theoretically if the person can borrow at the same rate as the company the investor can earn a rate of return closer to a leveraged company return while being invested in a non leveraged company the goal of the investor is to replicate the return compounding effects of corporate leverage synthetically but while being invested in a non leveraged firm theoretically an investor may be able to come close to this goal if they can borrow at the same rate the company is able to borrow special considerationsthe principle behind homemade leverage described by the modigliani miller theorem is that investors do not care about capital structure because they can undo any changes with their own homemade leverage thus the capital structure of a company should not affect the stock price the modigliani miller theorem says that investors have no regard for how a company finances its investments debt versus equity or pays its dividends that s because investors can mirror leverage in their own personal portfolio however the theorem also assumes that this holds true only if taxes and bankruptcy costs are absent and the market is efficient advantages and disadvantages of homemade leveragehomemade leverage is meant to allow an investor to invest in an unlevered company to replicate the return of a levered firm taxes however make creating the exact leverage effect difficult as the cost of corporate leverage and the cost of individual leverage differ homemade leverage does however allow an investor to undo changes to a company s capital structure that they do not agree with for example if a company that an investor owns shares in decides to raise capital via debt a company can adjust their personal portfolio leverage to maintain the desired leverage | |
what is a homeowners association hoa | a homeowners association hoa is an organization in a subdivision planned community or condominium building that makes and enforces rules for the properties and residents those who purchase property within an hoa s jurisdiction automatically become members and are required to pay dues which are known as hoa fees some associations can be very restrictive about what members can do with their properties while others may give residents more freedom sydney saporito investopedia | |
how homeowners associations hoas work | homeowners associations hoas are usually formed within communities or neighborhoods of single family homes or multiple unit buildings such as townhomes or condominiums an hoa is typically established to make and enforce rules regarding the properties within the jurisdiction hoas are composed of and run by the community s residents membership is usually a requirement to buy a home within a community where an hoa has been established an hoa usually has a board of directors or governors these groups are elected to enforce and oversee the hoa s rules and regulations an hoa typically describes its rules as restrictive covenants in a document called a declaration of covenants conditions and restrictions cc rs cc rs set certain conditions for owners about the maintenance of their properties 1these conditions sometimes include structural restrictions such as the type of fences or landscape allowed but they may also include more minor aesthetic choices like the color of paint on a house a cc r document may also outline the penalties for violating the guidelines set forth in the agreement these penalties can take the shape of fees or forced compliance in some cases it may even be as drastic as litigation homeowners association hoa feessome hoas can wield significant financial and legal power over the property owners in their zone hoas collect monthly or annual hoa fees these fees depend on a number of factors including the fees are typically 200 to 400 per month but they can range anywhere from less than 100 to upward of 10 000 in luxury neighborhoods or communities hoa fees also often contribute to the association s reserve fund which is set aside for major renovation projects or emergency use in addition to regular fees hoas can also impose special assessments on homeowners when the association lacks sufficient reserves to pay for unexpected repairs on common areas such as sidewalks or parking lots the hoa s board is usually responsible for the organization s finances as such it oversees the collection and management of funds along with setting dues and assessments the board can slap fines on homeowners who break the rules or damage the common areas in addition to imposing penalties hoas can also place a lien on a property if a homeowner falls seriously behind on their dues existing hoa liens can make it difficult to sell the home unless they are cleared homeowners associations hoas vs community associations vs property owner associationsmost hoas are incorporated this means that they are subject to state laws however some states consider condominium based hoas often called condominium communities and organizations governing cooperatives called co op boards to be distinct entities from hoas this distinction is made on the assumption that the property interests of these organizations differ as a result the designation community association serves as a broader umbrella term that encompasses hoas condominium communities and co op boards 1however an hoa is distinct from a property owners association this organization is a more broad term that usually refers to a group of people who want to better their community and the real estate values of the property in their community the main difference between them and hoas is that property owners associations may include anyone in the community with an interest in the value of the community s real estate including individuals who aren t homeowners the number of hoas in the united states as of 2023 according to the foundation for community association research a trade organization lobbying group the foundation estimates that 75 5 million americans reside in a community association neighborhood or property 2advantages and disadvantages of homeowners associations hoas the hoa provides regulations and guidelines for its members these standards are upheld with the aim of preserving and enhancing the community s property values the guidelines are often appearance oriented so they deal with regulations for the cleanliness of the property the condition of the property and any repairs done to the property usually the guidelines for hoas are designed to help ensure a uniform appearance for all the properties included in the association s zone the hoa management will typically provide additional services for its members in exchange for their hoa fees these amenities are available for all hoa members and may include some hoa fees may also cover the cost of trash collection and certain utilities on a more theoretical level hoas are symbolic of self governance and democracy for certain individuals this belief may stem from the idea that the best people to manage a community are the people living in it as opposed to a landlord who doesn t live on the premises one disadvantage of an hoa is the high cost of the association fees which could act as a deterrent for some prospective buyers also the hoa rules and regulations can seem unreasonable arbitrary or too restrictive for some homeowners who may want the freedom to customize their properties hoa board members are normally volunteers and they may not be properly trained to manage real estate deal with complex financial issues or unite a disparate group of people for a common cause because the leadership of hoas must reach a consensus when they are making decisions about maintenance and upgrades it is also possible that there may be conflicts among hoa members who disagree set and enforce community rulesprotect property valuesprovide services amenities and facilitiesoffer self governanceimpose fees dues and assessmentsmaintain restrictive regulationsoperate inefficientlymay be run amateurishly or ineptlyexample of a homeowners association hoa individual homeowners may conflict with their hoas one thorny issue in particular relates to the installation of solar panels hoa boards often don t like them fearing they hurt property values in 23 states they re allowed to forbid homeowners from adding them to their residences 3in 2020 an electrical engineer residing in blaine minnesota applied for permission to add solar panels to his house in october of that year the hoa rejected his proposal citing aesthetic concerns the panels were too visible from the street and the lack of established guidelines for rooftop solar in the association s bylaws 3the electrical engineer joined a group of homeowners and solar advocates who are asking minnesota lawmakers to support a bill that would allow homeowners associations to regulate but not ban the installation of solar thermal panels on single family homes introduced in the minnesota house of representatives in early 2021 it is one of a series of similar bills proposed since 2014 but never passed 43 | |
what does a homeowners association hoa cover | a homeowners association hoa is an organization tasked with governing the affairs of a real estate development owned by multiple parties such as an apartment building hoas are responsible for tasks such as ensuring building maintenance deciding on whether to pursue larger renovation projects and drafting enforcing the building s bylaws to fund its operations hoas charge their members monthly hoa fees typically in the range of 200 to 400 per month they also have the authority to enforce the community s bylaws such as by imposing fines on residents who refuse to comply | |
what are the pros and cons of belonging to an hoa | hoas can benefit individual owners by providing necessary management services for example without an hoa the owners of an apartment building would need to coordinate among themselves to decide on common problems such as building wide garbage removal building repairs and community policies this could be very time consuming for residents and could result in conflicts and disagreements between owners on the other hand hoas can also create problems for owners to the extent that the owner disagrees with the hoa s community bylaws or spending decisions | |
what legal powers does an hoa have | individual hoas have different levels of legal powers depending on how they were designed however hoas generally have the legal authority to create and enforce community policies such as whether to allow smoking pets or rentals in the building hoas also decide on budgets for the building and have the authority to charge monthly or one time fees to their members if a member refuses to pay these fees or to comply with the community policies hoas can impose a range of penalties in many cases these penalties can include monetary fines the restriction of community privileges and even litigation the bottom lineowning a home comes with many rights and responsibilities but if you own a townhome or condo or are part of a specific community you may be part of a homeowners association hoa being part of these communities can be beneficial because they often take care of some of the nitty gritty of homeownership such as property maintenance utilities landscaping and snow removal but keep in mind that these organizations can be restrictive by setting boundaries on what you can and can t do with your property all for a fee | |
what is a homeowners association hoa fee | the term homeowners association hoa fee refers to an amount of money that must be paid by certain types of residential property owners every month to their homeowners associations hoas these fees are collected to assist the association with maintaining and improving properties hoa fees are almost always levied on condominium owners but they may also apply in some neighborhoods of single family homes hoa fees may also go by the term common charges or maintenance charges understanding homeowners association hoa feeshomeowners associations are organizations that are designed to set up and enforce rules for certain properties and the residents who live in them these groups are typically created in planned communities subdivisions or condo buildings people who purchase these properties automatically become members of the association as such they are required to pay their dues through monthly fees which are called homeowners association fees hoa fees paid by condo owners usually cover the costs of maintaining the building s common areas such as fees may also cover some common utilities such as water sewer fees and garbage disposal the association may also levy special assessments from time to time if its reserve funds funds set aside for major and or emergency repairs are not sufficient to cover a major repair such as a new elevator or roof these fees can also apply to single family houses especially town houses in certain neighborhoods particularly if there are common amenities like tennis courts a community clubhouse or neighborhood parks to maintain hoa fees tend to vary drastically depending on the property or community the fees range anywhere from 100 to 1 000 per month the average though tends to be from 200 to 300 per month the general rule that applies is the more services and amenities the higher the fees some homeowners associations can be very restrictive about what members can do with their properties these rules are written in the homeowner s agreement special considerationsif a member fails to remit payment to the hoa it affects the other members of the community common areas may suffer due to lack of funds or other members may be assessed special fees to cover maintenance costs or other expenses the hoa has the authority to take action against delinquent homeowners the actions depend on the contract between the hoa and the homeowner some contracts dictate that the hoa can charge late fees to the homeowner while others allow the hoa to initiate a lawsuit place a lien on the property or foreclose on the owner s property to collect the delinquent payments some associations may assess both condo fees and hoa fees so it s a good idea to find out how much you ll be responsible to pay before you purchase a property criticism of hoa feesthe main problem that people have with hoa fees is the cost as mentioned above they can range from a few hundred to a few thousand dollars each month this is of course based on the type of property and the amenities involved paying monthly fees on top of mortgage payments and other costs such as utilities can put financial pressure on property owners owners may even face higher fees if the reserve fund isn t properly managed remember these are funds that are set aside for unexpected and or major repairs to the property and the hoa s board and or management have a fiduciary duty to make sure that their reserve funds are maintained and managed properly hoas also create rules related to parking or the use of common areas in neighborhoods with single family homes the hoa may create rules on how often members can paint their houses which types of fences they may have how they must maintain their landscaping and any other related issues this can often ruffle feathers and create legal hurdles for both the associations and homeowners | |
what do homeowners association hoa fees normally cover | hoa fees typically cover the costs of maintaining common areas such as lobbies patios landscaping swimming pools tennis courts a community clubhouse and elevators in many cases the fees cover some common utilities such as water sewer fees and garbage disposal the association may also levy special assessments from time to time if its reserve funds are not sufficient to cover a major repair such as a new elevator or new roof | |
what is the average range for hoa fees | hoa fees vary drastically but some estimates claim these fees range from 100 to 1 000 per month with the average ranging from 200 to 300 the amount of an hoa fee varies based on the type of property and the amenities it provides the more services and amenities the higher the fees in some cases owners face higher fees when an association s reserve fund isn t managed correctly | |
what happens if someone doesn t pay their hoa fees | property owners who don t pay their monthly or annual fees as well as any special assessments may face action by the hoa these actions depend on the contract between the hoa and the homeowner some allow the hoa to charge late fees while others allow them to initiate a lawsuit place a lien on the property or foreclose on the owner s property to collect the delinquent payments | |
why are hoa fees higher in some areas | since hoa fees pay for the amenities and maintenance in a community those prices will vary from place to place in high cost of living cities like new york city even basic maintenance will be more expensive than in low cost of living cities because of higher minimum wages power costs and or taxes hoa fees may also be higher in condominiums than they are in single family houses since the fees will pay for electricity heating cooling etc in common areas in a recent survey new york city was listed as the second highest median hoa cost in the nation behind honolulu with monthly fees of 410 on the other end of the spectrum harrisburg carlisle pa had a median of 120 1the bottom linehoa fees are charges levied on owners of many condominiums co ops and certain neighborhoods these fees cover the maintenance and upkeep of common areas such as shared hallways elevators lobbies and parking lots it will also usually cover snowplowing gardening and damage to common areas owners of condos should be aware of hoa fees when computing their monthly expenses | |
what is homeowners insurance | homeowners insurance is a form of property insurance that covers losses and damages to your residence along with furnishings and other assets in the home homeowners insurance also provides liability coverage against accidents in the home or on the property | |
how homeowners insurance works | a homeowners insurance policy usually covers four kinds of incidents on the insured property interior damage exterior damage loss or damage of personal assets belongings and injury that occurs while on the property when a claim is made on any of these incidents the homeowner will typically be required to pay a deductible 1policy providers offer riders that increase coverage for specific events cover high value property and can reduce deductible amounts these adders cost an additional premium the insurance provider will usually depreciate the value of the covered property based on its age use condition and useful life the insurer deducts the depreciation value from the replacement cost to arrive at the actual cash value acv that they will return to the insured you can get a recoverable depreciation clause added to your contract that will pay you the depreciation value along with the replacement cost for example say a claim is made to an insurer for interior water damage that has occurred in a home a claims adjuster estimates the cost to bring the property back to livable conditions to be 10 000 if the claim is approved the homeowner is informed of the amount of their deductible say 4 000 according to the policy agreement in this case the insurance company will issue a payment for the excess cost of 6 000 the higher the deductible on an insurance contract the lower the monthly or annual premium on a homeowners insurance policy 2every homeowner s insurance policy has a liability limit that determines the amount of coverage you have the standard limits are usually 100 000 but you can often choose a higher limit if a claim is made the liability limit stipulates the percentage of the coverage amount that would go toward replacing or repairing damage to the property structures personal belongings and costs to live somewhere else while the property is worked on acts of war or acts of god such as earthquakes or floods are typically excluded from standard homeowners insurance policies if you live in an area prone to these natural disasters you may need special coverage to insure your property against floods or earthquakes most basic homeowners insurance policies cover events such as hurricanes and tornadoes 3homeowners insurance and mortgages | |
when you apply for a mortgage you re usually required to provide proof of insurance on the property before the banks will loan you funds the property insurance can be acquired separately or by the lending bank | if you want to get your own insurance policy you can compare multiple offers and pick the plan that works best for your needs if you don t have your property covered from loss or damages the bank may get one for you at an extra cost payments made toward a homeowners insurance policy are usually included in the monthly payments of your mortgage the lending bank that receives the payment allocates the portion for insurance coverage to an escrow account once the insurance bill comes due the amount owed is settled from this escrow account homeowners insurance vs home warrantyhomeowners insurance is different from a home warranty a home warranty is a contract that provides for repairs or replacements of home systems and appliances such as ovens water heaters washers dryers and pools these contracts usually expire after a certain period usually 12 months and are not mandatory for a homeowner to buy to qualify for a mortgage a home warranty covers issues and problems that result from poor maintenance or inevitable wear and tear on items situations in which homeowners insurance doesn t apply homeowners insurance vs mortgage insurancea homeowners insurance policy also differs from mortgage insurance mortgage insurance is typically required by the bank or mortgage company for homebuyers making a down payment of less than 20 of the cost of the property the federal home administration also requires it of those taking out an fha loan 4 it s an extra fee that can be figured into the regular mortgage payments or may be a lump sum charged when the mortgage is issued some homeowner policies include a mortgagee clause the clause covers and pays the lender in case your home is lost or irreparably damaged during the time you have a mortgage on it mortgage insurance covers the lender for taking on the extra risk of a home buyer who doesn t meet the usual mortgage requirements if the buyer should default on payments the mortgage insurance would compensate the lender basically while both deal with residences homeowners insurance protects the homeowner while mortgage insurance protects the mortgage lender | |
what does homeowners insurance cover | homeowners insurance generally covers a wide range of potential damages to your home other structures on your land personal property and your liability for injuries others sustain on your property policies typically cover losses due to such causes as fire lightning high winds and vandalism however coverages vary widely among insurance companies and states so read the fine print carefully to ensure you understand what is and isn t covered | |
does homeowners insurance cover floods | flooding caused by internal problems such as a leaking bathroom pipe is typically covered by homeowners insurance however if the damage is caused by a natural cause outside the home such as flash flooding a basic policy will not usually cover the loss often you can purchase supplemental flood insurance at an additional cost to cover flood damage also most policies do not cover damage from earthquakes and other types of natural and man made catastrophes 5 | |
how much does home insurance typically cost | home insurance premiums average about 1 300 a year across the nation however rates for individual policies can vary significantly depending on your location coverage limits credit score insurance company state regulations and other factors while location is one of the most important factors insurers also look at the condition of your home how old it is and the history of previous claims the bottom linehomeowners insurance covers a variety of damages to your home and other assets at your residence while most policies provide several basic coverages the types of losses that are insured can vary widely across the industry to find the most affordable home insurance for your situation consider getting home insurance quotes from several insurance providers | |
what is the homeowners protection act | the homeowners protection act of 1998 is a law designed to reduce the unnecessary payment of private mortgage insurance pmi by homeowners who may no longer be required to pay it the homeowners protection act covers all private residential mortgages purchased after july 29 1999 the act also known as the pmi cancellation act mandates that lenders disclose certain information about pmi the law also stipulates that pmi must be automatically terminated for homeowners who accumulate the required amount of equity in their homes and thus are no longer required to have purchased pmi understanding the homeowners protection actmost lenders require a down payment that is equal to approximately 20 of the home s purchase price this standard is meant to ensure that the borrower has enough financial interest in the property to continue making payments and in the event that the borrower is unable to make mortgage payments that the lender has sufficient equity available to cover lender foreclosure costs if a borrower can t or chooses not to come up with that amount a lender may decide that the loan is a risky investment and as a result require that the homebuyer take out pmi in the event that a borrower defaults on their mortgage and their home goes into foreclosure the purpose of pmi is to provide extra protection for the lender the homeowners protection act does not apply to veterans affairs va or federal housing administration fha loans an additional reason that a homeowner may be required to purchase pmi coverage is if the mortgage the homeowner seeks has a high loan to value ltv ratio ltv is one of the measures of risk that lenders use in underwriting a mortgage ltv divides the amount of the loan by the value of the home most mortgages with an ltv ratio greater than 80 require that the borrower have pmi because they are considered more likely to default on the mortgage with pmi homeowners are responsible for purchasing insurance coverage for their mortgage and for paying insurance premiums these premiums may either be added to the borrower s monthly mortgage payments or the additional cost may be absorbed by the borrower s interest rate resulting in a higher interest rate pmi can be removed once a borrower pays down enough of the mortgage s principal usually when their equity reaches 20 or when their ltv ratio reaches 80 however before the homeowners protection act many homeowners had problems canceling pmi in some instances lenders may have agreed to terminate coverage when the borrower s equity reached 20 but policies for canceling pmi coverage varied widely among lenders and homeowners had limited recourse if lenders refused to cancel pmi the homeowners protection act protects homeowners by prohibiting life of loan pmi coverage for borrower paid pmi products and establishing uniform procedures for canceling pmi coverage the consumer financial protection bureau cfpb supervises and enforces compliance with the homeowners protection act | |
what is a homestead exemption | a homestead exemption is a legal provision that shields a home from some creditors following the death of a homeowner s spouse or the declaration of bankruptcy and minimizes property taxes for homeowners | |
how to qualify for homestead exemption | the homestead tax exemption can provide surviving spouses with ongoing property tax relief on a graduated scale so homes with lower assessed values benefit the most the homestead exemption is designed to offer both physical shelter and financial protection blocking the forced sale of a primary residence individuals may apply for a homestead property tax exemption if they have a primary residence and want to reduce the overall property tax bill associated with that residence some states offer the exemption to every homeowner while others require individuals to meet certain criteria such as the homestead exemption doesn t prevent or stop a bank foreclosure if the homeowner defaults on their mortgage homestead exemptions by statesome homestead exemptions are based on a flat reduction of all of the taxable value of your home a percentage calculates other homestead property tax exemptions lower valued homes receive a larger reduction using the first method the latter is a better choice for people with high value properties a version of the homestead exemption provision is found in every state or territory with some exceptions such as new jersey and pennsylvania however how the exemption is applied and how much protection it affords against creditors varies by state the homestead exemption is an automatic benefit in some states but homeowners must file a claim with the state to receive it in others 1protection from creditorsa few states including florida and texas afford unlimited financial protection against unsecured creditors for the home although acreage limits may apply for the protected property a limit for protection from creditors can range from 5 000 to 550 000 depending on the state 21the protection limits are not for the home s value but for the homeowner s equity a homeowner can t be forced to sell the property to benefit creditors if the equity held is less than the limit but creditors may force the sale if a homestead s equity exceeds the limits 3protection doesn t apply to secured creditors such as the bank that holds the mortgage the homeowner is protected only from unsecured creditors who may come after the home s value to satisfy claims against the homeowner s assets 4bankruptcy protectionfederal bankruptcy law shields a home from sale if the owner s equity does not exceed 25 150 if the bankruptcy case was filed after april 1 2019 56 homeowners commonly use the state s limits which often prove more favorable those who declare bankruptcy in new jersey or pennsylvania can get protection using the federal limits despite the absence of a state homestead exemption in these states but bankruptcy protection only protects against unsecured creditors it won t prevent a bank that holds a mortgage from foreclosing on the home 4deducting the homestead exemptiona homestead tax or property tax is typically applied to homes based on the assessed value by the local government tax assessor s office the homestead tax can be a percentage of the property s value or a fixed amount the homestead exemption may offer ongoing reductions in property taxes depending on state laws homestead tax exemptions usually offer a fixed discount on taxes such as exempting the first 50 000 of the assessed value with the remainder taxed at the normal rate with a 50 000 homestead exemption a home valued at 150 000 would be taxed on only 100 000 of assessed value a home valued at 75 000 would be taxed on only 25 000 fixed homestead tax exemptions create a progressive tax that s more favorable for those with modest homes the exemption is paid for with a local or state sales tax in some areas 7 | |
do homestead exemptions only apply to a primary residence | homeowners must occupy the property as their permanent residence to qualify for a homestead exemption | |
where do individuals apply for a homestead exemption | a county or local tax assessor s website or office will provide details on available homestead tax exemptions some states require an application available online and have deadlines | |
what states have homestead exemptions | most states have homestead exemptions except new jersey and pennsylvania some states have other homestead laws such as provisions that protect surviving spouses from creditors the bottom linethe homestead exemption provides an exemption from property taxes on a primary residence and protects the value from creditors and circumstances that arise from the death of the homeowner s spouse the exemption can t be claimed for another property elsewhere homestead protection is automatic in some states but homeowners must file a claim for a homestead exemption in others | |
what is homo economicus | homo economicus is a theoretical abstraction that some economists use to describe a rational human being in certain neoclassical economic theories people are portrayed this way as ideal decision makers with complete rationality perfect access to information and consistent self interested goals understanding homo economicushomo economicus or economic man is the figurative human being characterized by the infinite ability to make rational decisions certain economic models have traditionally relied on the assumption that humans are rational and will attempt to maximize their utility for both monetary and non monetary gains modern behavioral economists and those who study neuroeconomics however have demonstrated that human beings are in fact not rational in their decision making they argue that a more human subject that makes somewhat predictable irrational decisions would provide a more accurate tool for modeling human behavior origins of homo economicusthe origins of homo economicus lie in an essay about the political economy by the english civil servant philosopher and political economist john stuart mill in 1836 the essay which was titled on the definition of political economy and on the method of investigation proper to it attempted to assign characteristics to subjects under consideration for the new field mill s subject was a being who desires to possess wealth and who is capable of judging the comparative efficacy of means for obtaining that end he stated that political economy abstracts other human motives except for those that help the hypothetical being in his pursuit of wealth luxury is considered part of the being s desires as well as producing babies the economic man s tastes and propensities are also passed on from one generation to another according to mill in mill s model a parent with a taste for luxury might have children who possess similar tendencies 1defining traits of homo economicusthe most important trait of homo economicus is that they care primarily about maximizing profit more importantly they are always able to make decisions that allow them to pursue this goal in the most efficient way if they are a consumer the primary goal of the homo economicus is to maximize utility if they are a producer their primary goal is profit in addition to profit maximization there are several other defining traits of homo economicus these traits include flawless rationality unlimited cognitive capacity perfect information narrow self interest and preference consistency the decision making of the homo economicus is perfectly rational and is never influenced by any personal biases the homo economicus also has an unlimited cognitive capacity and can process any amount of information regardless of its quantity quality or complexity furthermore the homo economicus has access to all the relevant information that relates to the decisions they have to make the homo economicus possesses narrow self interest they are only concerned with helping themselves finally the homo economicus preferences and goals remain constant over time homo economicus todaythe homo economicus is a cornerstone of the neoclassical economics approach particularly in microeconomics in modern economics the neoclassical theory rests on three assumptions rational decisions maximization of utility and a self interested orientation this assumes that individuals are conscious of making decisions based on their own self interest that individuals have relevant and full information so they can make a rational calculation that would maximize utility and that the primary goal for companies is to maximize profits and for individuals to maximize utility companies accomplish this by adding to their workforce until a point where the value of the output balances the additional cost of hiring workers consumers attempt to maximize utility by paying for goods and services up to the point that the amount they pay balances the satisfaction gained from an extra unit 2limitations of homo economicushistory and various economic crises over the years have proved that the theory of an economic man is a flawed one daniel kahneman an israeli american psychologist and nobel laureate and amos tversky a leading expert in judgment and human decision making founded the field of behavioral economics with their 1979 paper prospect theory an analysis of decision under risk kahneman and tversky researched human risk aversion finding that people s attitudes regarding risks associated with gains are different from those concerning losses homo economicus and the idea that humans always act rationally is challenged by risk aversion kahneman and tversky for example found that if given a choice between definitely getting 1 000 or having a 50 chance of getting 2 500 people are more likely to accept the 1 000 3 other human decision making modelsbecause there are many criticisms of the homo economicus model there have been alternative models of human decision making that have been proposed over the years here are a few of them homo reciprocans the homo reciprocans is a person who rewards positive actions and punishes negative actions 4homo politicus the homo politicus is a person that always acts in a way that is consistent with what is best for society 5homo sociologicus the homo sociologicus is a person that is not always perfectly rational because they are affected by society they strive to fulfill their role in society but are also influenced by societal forces 6it s important to keep in mind that these models are not mutually exclusive for example while a person may act like a homo reciprocans in one situation they may act like a homo politicus in a different situation example of homo economicusthe most common example provided of the homo economicus is that of a businessperson the businessperson seeks to eke out profits from each transaction and decision for example they may automate operations and lay off workers in order to maximize productivity similarly they might get rid of non performing parts of their business to focus on the ones that generate profits in 2007 in an essay in the new york review of books called who was milton friedman paul krugman wrote that for most of the past two centuries economic thinking has been dominated by the concept of homo economicus it s easy to make fun of this story nobody not even nobel winning economists really makes decisions that way but most economists myself included nonetheless find economic man useful with the understanding that he s an idealized representation of what we really think is going on 7 | |
what is homogeneous expectations | homogeneous expectations refers to the assumption expressed in harry markowitz s modern portfolio theory mpt that all investors have the same expectations and make the same choices in a given situation understanding homogeneous expectationsmpt pioneered by harry markowitz in his 1952 paper portfolio selection is a nobel prize award winning theory it is an investment model designed to maximize returns while taking the lowest possible risk mpt assumes that all investors are risk averse and that risk is an inherent part of higher reward 1markowitz argued that the solution is constructing a portfolio of multiple assets when assets considered to be high risk such as small cap stocks are placed alongside others their risk profile changes balancing everything out because each asset class acts differently during a market cycle according to the theory there are four steps involved in the construction of a portfolio homogeneous expectations are a core principle of mpt it basically assumes all investors have the same expectations regarding inputs used to develop efficient portfolios including asset returns variances and covariances according to homogeneous expectations if investors are shown several investment plans with different returns at a particular risk they will choose the plan that boasts the highest return alternatively if investors are shown plans that have different risks but the same returns they will choose the plan that has the lowest risk as you can see here the homogeneous expectations assumption works on the theory that investors are rational actors they all think alike and are not influenced by anything but the facts of the matter at hand this is also an underlying assumption of many classical economic theories advantages of homogeneous expectationsmarkowitz s mpt and homogeneous expectations theory have revolutionized investing strategies emphasizing the importance of investment portfolios risk and the relationships between securities and diversification many investors avoid attempting to time the market preferring instead to buy securities and then hold onto them over the long term known as the buy and hold strategy the balanced asset allocation approach championed for markowitz has helped guide them to build robust portfolios criticism of homogeneous expectationsmpt has also attracted plenty of backlashes making assumptions is always dangerous and homogeneous expectations make plenty of them the theory posits that markets are always efficient and that investors all think alike studies in behavioral finance have questioned that premise arguing that people and investors are not always rational and have different perceptions and goals that impact their thought processes mpt categorizes investors as the same suggesting that all of them want to maximize returns without taking on unnecessary risk understand expected returns do not factor in commissions when making decisions and have access to the same information history has shown that this is not always the case questioning the validity of mpt and its core tenet the notion of homogeneous expectations | |
what is homoskedastic | homoskedastic also spelled homoscedastic refers to a condition in which the variance of the residual or error term in a regression model is constant that is the error term does not vary much as the value of the predictor variable changes another way of saying this is that the variance of the data points is roughly the same for all data points this suggests a level of consistency and makes it easier to model and work with the data through regression a lack of homoskedasticity may suggest that the regression model may need to include additional predictor variables to explain the performance of the dependent variable | |
how homoskedasticity works | homoskedasticity is one assumption of linear regression modeling and data of this type work well with the least squares method if the variance of the errors around the regression line varies much the regression model may be poorly defined the opposite of homoskedasticity is heteroskedasticity just as the opposite of homogenous is heterogeneous heteroskedasticity also spelled heteroscedasticity refers to a condition in which the variance of the error term in a regression equation is not constant special considerationsa simple regression model or equation consists of four terms on the left side is the dependent variable it represents the phenomenon the model seeks to explain on the right side are a constant a predictor variable and a residual term also known as an error term the error term shows the amount of variability in the dependent variable that is not explained by the predictor variable example of homoskedasticsuppose you wanted to explain student test scores using the amount of time each student spent studying in this case the test scores would be the dependent variable and the time spent studying would be the predictor variable the error term would show the amount of variance in the test scores that was not explained by the amount of time studying if that variance is uniform or homoskedastic then that would suggest the model may be an adequate explanation for test performance that is that the amount of time spent studying explains the test scores but the variance may be heteroskedastic a plot of the error term data may show a large amount of study time corresponded very closely with high test scores but that low study time test scores varied widely and even included some very high scores this would indicate that the variance of scores was not well explained simply by the one predictor variable of the amount of time studying in this case some other factor is probably at work the model would likely need to be enhanced to identify it or them | |
when considering that variance is the measured difference between the predicted outcome and the actual outcome of a given situation determining homoskedasticity can help to determine which factors need to be adjusted for accuracy | further investigation may reveal other factors that impacted scores such as to improve on the regression model the researcher would have to try out other explanatory variables that could provide a more accurate fit to the data if for example some students had seen the answers ahead of time the regression model would then have two explanatory variables time studying and whether the student had prior knowledge of the answers with these two variables more of the variance of the test scores would be explained and the variance of the error term might then be homoskedastic suggesting that the model was well defined | |
what does heteroskedasticity mean | heteroskedasticity in statistics is the error variance this is the dependence of scattering that occurs within a sample with a minimum of one independent variable this means that the standard deviation of a predictable variable is non constant | |
how can you tell if a regression is homoskedastic | you can tell if a regression is homoskedastic by looking at the ratio between the largest variance and the smallest variance if the ratio is 1 5 or smaller then the regression is homoskedastic | |
why is homoskedasticity important | homoskedasticity is important because it identifies dissimilarities in a population any variance in a population or sample that is not even will produce results that are skewed or biased making the analysis incorrect or worthless the bottom linein a linear regression model homoskedasticity occurs when the variance of the error term is constant this indicates that the model is well defined meaning that the dependent variable is adequately defined by the predictor variable if there is too much variance in the error term the model isn t well defined this is known as heteroskedasticity too much variance indicates that there are other factors influencing the dependent variable these factors need to be considered through further investigation or modeling | |
what is hong kong exchanges and clearing limited hkex | hong kong exchanges and clearing limited hkex is a publicly traded holding company based in hong kong hkex is one of the largest market operators in the world established in 2000 its subsidiaries include the hong kong stock exchange hkg hkex also manages four clearing houses in hong kong as well as the london metal exchange lme making it an important institution in the global financial markets understanding hong kong exchanges and clearing limited hkex hong kong exchanges and clearing limited is among the world s largest exchange groups its goal is to connect china with the global investment community and markets the markets offer investors a range of products including equities bonds exchange traded funds etfs and real estate investment trusts reits there are also derivatives currency futures and commodities hkex is a global platform for raising capital for issuers based in hong kong china and around the world its main services include listing trading clearing market data reference prices and connectivity the company was established in 2000 following the merger of the hong kong stock exchange the hong kong futures exchange and the hong kong securities clearing company all of which remain subsidiaries of the company the consolidation was the result of a greater emphasis on comprehensive reform and oversight related to stock and futures markets in hong kong and was designed to increase china s competitiveness in the global market in 2012 the group acquired the lme 1the corporate structure of hkex focuses on three main markets that are integrated to form a complementary grouping these core markets are the stock exchange the futures exchange and the lme this makeup allows hkex to position itself to take advantage of two of the world s leading financial hubs hong kong and london india s stock market surpassed hong kong s in january 2024 making it the fourth largest in the world the combined value of indian shares reached 4 33 trillion while those traded in hong kong hit 4 29 trillion india s market hit the 4 trillion mark on dec 5 2023 2special considerationshkex operates four clearinghouses the group also serves as a regulating body overseeing the trading activities of companies listed in hong kong and those who participate in trading activities within its venue the company prides itself on maintaining a well organized and tightly regulated marketplace for investors 67hkex had a market capitalization of 28 1 trillion with 2 610 listed companies as of jan 31 2024 8listing on hkexas noted above hkex trades in stocks bonds warrants reits mutual funds etfs and equity linked instruments to be traded on hkex s main board a company must satisfy one of three tests other requirements include an interested party to have management continuity of three years a minimum of 300 shareholders and semi annual financial reporting among other requirements 10 | |
what is china s largest stock exchanges | the largest stock exchange in china is the shanghai stock exchange sse it is also the country s oldest exchange the sse was founded in 1891 as the shanghai stock and sharebrokers association 11 as of january 2024 the sse had a market cap of 6 52 trillion usd with 2 263 listed companies 12 | |
how many stock exchanges operate in mainland china | three stock exchanges operate in mainland china the shanghai stock exchange is the largest of the three the other two exchanges are the shenzhen stock exchange and the beijing stock exchange which is owned by the national equities exchange and quotations 13 the hong kong stock exchange operates independently outside mainland china | |
what is the world s largest stock exchange | the world s largest stock exchange is the new york stock exchange nyse the exchange had a market cap of 25 56 trillion as of january 2024 12the bottom linehong kong exchanges and clearing limited is a holding company that hong kong and china s financial markets to the rest of the world the company has several subsidiaries including the hong kong stock exchange one of the leading markets in asia along with offering different financial assets the company operates several clearinghouses that facilitate and settle trades | |
what is the hong kong interbank offered rate hibor | the hong kong interbank offered rate known by its abbreviation hibor is the benchmark interest rate stated in hong kong dollars for lending between banks within the hong kong market the hibor is a reference rate for lenders and borrowers that participate directly or indirectly in the asian economy as of december 2020 plans were in place to transition away from hibor to the hong kong overnight index average honia 1 understanding the hong kong interbank offered rate hibor the banking industry uses an interbank market for transferring funds and currency and for managing liquidity if a hong kong bank is nearing the point at which withdrawals are close to depleting short term cash reserves that bank will go into the hong kong interbank market and borrow money at the hong kong interbank offered rate hibor the terms of the loans vary from overnight to one year the u k version the london interbank offered rate libor is similar to the hibor the rate is released each day at 11 00 a m local time it is derived from the contributed quotes of 20 banks determined by the hong kong association of banks hkab the hkab acts similarly to a central bank for hong kong the highest three and the lowest three contributed values are discarded leaving the remaining 14 contributions in the calculation hibor s primary function is to serve as the benchmark reference rate in the asian markets for debt instruments this function assists government and corporate bonds mortgages and derivatives such as currency and interest rate swaps among many other financial products for example an interest rate swap involving two counterparties with good credit ratings both of which have bonds issued in hong kong dollars will likely be quoted in hibor plus a given percentage in another example a hong kong dollar denominated floating rate note frn or floater which pays coupons based on hibor plus a margin of 35 basis points 0 35 annually in this case the hibor rate used is the one year hibor plus a 35 basis point spread every year the coupon rate is reset to match the current honk kong dollar one year hibor plus the predetermined spread if for instance the one year hibor is 4 at the start of the year the bond will return 4 35 of its par value at year s end the spread usually increases or decreases depending on the creditworthiness of the institution issuing the debt criticism of hiborsince the asian currency crisis in 1997 concerns over volatility and even liquidity grew to a point where hibor s value as a benchmark is questioned even libor which is a global benchmark is under fire especially since the 2012 libor fixing scandal as of december 2020 plans were in place to phase out the libor system by 2023 and replace it with other benchmarks such as the sterling overnight index average sonia 2 sonia is based on actual bids and offers from the contributing banks and not indicated levels the latter are subject to manipulation if the contributing bank wants to hide or enhance its capital position indeed in 2013 the hibor market had its scandal when the city widened its investigation into possible manipulation of this key interest rate the hibor fixing mechanism was eventually ruled to be sound but with similar problems surfacing in other interbank markets the trend towards finding replacements is moving forward the replacement push centers on libor since it is the globally recognized standard the u s federal reserve introduced the secured overnight financing rate sofr a new reference rate created in cooperation with the u s treasury department s office of financial research | |
what is the hong kong monetary authority hkma | established in 1993 the hong kong monetary authority hkma acts to control inflation and maintain the stability of the hong kong dollar hkd and of the banking sector through its monetary policy 1 the hkma links the hkd to the u s dollar to help the hkd maintain a stable value 2 understanding the hong kong monetary authority hkma hong kong is a key finance capital for the people s republic of china and it s a place for multinational companies to set up operations as a special administrative region of the people s republic of china hong kong is an autonomous territory with its own currency and an annual nominal gdp of more than 365 billion as of 2019 3 the hkma acts as a de facto central bank for the region 4 the hkma maintains a sovereign wealth fund called the hong kong monetary authority investment portfolio 5 the hkma is a member of the executives meeting of east asia pacific central banks along with the reserve bank of australia the people s bank of china the bank of japan and seven other central banks 6 hkma responsibilitiesone of the key roles of the hkma is maintaining currency stability the linked exchange rate system is designed to stabilize the exchange rate between the hong kong dollar hkd and the united states dollar usd the fixed rate exchange system seeks to maintain parity with the usd within a tight range allowing hkd note issuing banks to issue new banknotes only when they deposit an equivalent value of u s dollars with the authority 7 the exchange rate tends to fluctuate within a set range the hkma has one of the world s largest currency reserves in relation to its economy 8 the authority operates the exchange fund the fund s primary objective to affect either directly or indirectly the exchange value of the currency of hong kong the fund may also be used to maintain the stability and integrity of hong kong s monetary and financial systems to help maintain hong kong as an international financial center 9 the hkma is charged with promoting the stability and integrity of the financial system including the banking system one of the key ways the authority does this is by buying hkd to maintain parity with the dollar within the stated range 2 as of 2021 the fixed rate system has kept interest rates ultra low in hong kong encouraging expansion and investment 10 but low interest rates have also fueled a record home price boom in the territory creating affordability problems | |
what is the hong kong monetary authority investment portfolio | the hong kong monetary authority investment portfolio is an investment portfolio run by the hong kong monetary authority the authority is the sovereign wealth fund of the government of the hong kong special administrative region understanding the hong kong monetary authority investment portfolio hkma the investment portfolio is only one of two in the hong kong monetary authority s exchange fund the exchange fund also manages a backing portfolio that supports the operations of the hong kong currency board because the backing portfolio is invested only in highly liquid u s government securities it is generally not considered part of the sovereign wealth fund according to the sovereign wealth fund institute the investment portfolio controlled 580 54 billion in assets as of 2021 and is the 4th largest sovereign wealth fund in the world the hong kong monetary authoritythe hong kong monetary authority is the region s currency board and de facto central bank it was established april 1 1993 when the office of the exchange fund and the office of the commissioner of banking merged the organization reports directly to the financial secretary under the exchange fund ordinance the hong kong monetary authority s primary objective is to ensure the stability of the region s currency and banking system it is also responsible for promoting the efficiency integrity and development of the financial system a majority of the exchange fund assets are managed internally all of the backing fund is managed internally as is some of the investment portfolio however the exchange fund employs external managers for its equity portfolios and other specialized investments the investment benchmark for the exchange fund consists of 75 bonds and 25 equities the hong kong monetary authority investment portfoliothe hong kong monetary authority investment portfolio is invested primarily in the bond and equity markets of oecd organisation for economic co operation and development countries the target allocation is 73 bonds and 27 equities the target currency mix is 89 usd and hkd denominated assets to 11 other denomination assets the investment process of the exchange fund is underpinned by decisions on two types of asset allocation strategic and tactical the strategic asset allocation reflected in the investment benchmark represents the long term optimal asset allocation given the investment objectives of the exchange fund guided by the strategic allocation assets are tactically allocated in an attempt to achieve an excess return over the benchmark this means the actual allocation is often different from the benchmark or strategic allocation | |
what is hong kong sar china | hong kong is the premier financial and business center in china and a regional financial leader hong kong is one of china s special administrative regions sars a sar is a relatively autonomous region within the people s republic of china that maintains separate legal administrative and judicial systems from the rest of the country understanding hong kong sar chinahong kong is a special administrative region sar that exists as part of the people s republic of china under the one country two systems doctrine negotiated in the sino british joint declaration negotiated and signed in 1984 but taking effect in 1997 1the one country two systems doctrine stipulated that the people s republic of china s socialist system would not be practiced in hong kong and hong kong would maintain its political and economic quasi independence for 50 years after the transfer of sovereignty until 2047 1 | |
what does that mean since july 1 1997 when the united kingdom transferred the sovereignty of hong kong to china hong kong has maintained a separate political and economic system from china democratic ish and capitalist and a separate currency the hong kong dollar hkd | hong kong retains independent executive legislative and judiciary powers in all matters other than military defense and foreign affairs english and chinese are the two official languages 2hong kong s economyhong kong was ranked as the world s freest economy in the heritage foundation s index of economic freedom from the index s inception in 1995 until 2020 when singapore knocked it off the top spot to number two however the following year in 2021 the index stopped including hong kong and macau due to an increase in china s influence 34in 1990 milton friedman wrote that it was perhaps the best example of a free market economy the service economy in hong kong is characterized primarily by low taxation near free port trade and a well established international financial market service economy here means an economy that is not industrial or manufacturing based but is instead based on financial services health and human services hospitality information technology etc 5using its political and economic autonomy hong kong has positioned itself as the place where international and chinese businesses find common ground it is also considered the principal financial center in china as a result more than 9 000 companies in hong kong have parent companies located outside of hong kong in 2023 6this democratic government and the free market have been successful to some extent it s the world s 43rd largest economy in 2022 with a population smaller than the city of tokyo at 7 35 million in 2022 hong kong had a gdp of 359 8 billion in 2022 giving it the world s 28th highest gdp per capita at 48 983 in 2022 78910hong kong and china s tensionshistorically china has had considerable incentive to refrain from interfering in hong kong s political and economic systems at the transfer of sovereignty in 1997 hong kong with a population of 6 5 million at the time had an economy one fifth the size of the chinese economy which had a population of over 1 2 billion 1112this is no longer the case over the past 20 years hong kong s economy has stagnated changing very little in makeup with gdp growth slowing and inequality rising significantly during the same period china became an economic superpower as of 2022 hong kong now accounts for just 2 of chinese gdp 11some think that the greatest risk to hong kong s autonomy is political and business elites in the region ceding it to the liaison office to remove political tensions from the region and return hong kong to an economic city this may prove a poor decision though as a marriage of business and government has proven counterproductive in hong kong leading to an increase in conflicts of interest and cronyism not to mention a non responsive government that refuses to broaden its tax base or lower property taxes and has excluded political parties from democratic participation all of this has led to a public perception of the hong kong sar government as not as legitimate as it once was 13given these recent trends the liaison office the people s republic of china representative in hong kong has been taking steps to meaningfully increase its influence and clout in the region interfering in both domestic affairs and elections for example the liaison office bought hong kong s largest publishing house removing titles critical of the communist party and lobbied for hong kong s 2017 chief executive carrie lam in 2022 lam stepped down 1415 | |
what is the financial system of hong kong | hong kong is a large financial center with many banks and financial institutions the region has favorable tax laws and a strong financial market with its own stock market the currency the hong kong dollar is pegged to the u s dollar | |
what is hong kong ranked in the financial market | according to the global financial centres index 34 published in sept 2023 hong kong ranks fourth in a list of the top global financial centers behind new york london and singapore 16 | |
is hong kong financially stable | yes hong kong is financially stable despite protests and china s ever expanding grip to bring hong kong further under its laws hong kong remains a financially stable region the bottom linehong kong is one of the leading financial centers in the world and for a large part of its history was under british rule until it was returned to china in 1997 hong kong operated outside of china s sphere of politics for a long time after returning to the country however as china has grown both in economic and political power it has brought hong kong further into its control the region continues to be a prominent financial hub in both asia and the world 1 | |
what is the hong kong stock exchange hkg | the hong kong stock exchange hkg is a stock exchange based in hong kong known formally as the stock exchange hong kong the hong kong stock exchange is one of the world s largest securities markets by market capitalization it is owned and operated as a subsidiary of hong kong exchanges and clearing limited hkex which was established as a holding company in 2000 1 the exchange lists different securities including equities and debt securities among others understanding the hong kong stock exchange hkg the hong kong stock exchange is one of the primary exchanges in hong kong and is one of the largest markets in asia as noted above it is a subsidiary of the holding company hkex the company also owns and operates the hong kong futures exchange and the hong kong securities clearing company 1 hkex had a combined market capitalization of 3 97 trillion as of january 2024 2the exchange is home to different securities that investors can choose from including equities debt securities derivatives exchange traded products etps real estate investment trusts reits and warrants 3 as of january 2024 there were 2 609 listed on hkex subsidiaries including the hkg this figure includes 2 428 domestic and 181 foreign companies 2several of the major companies by market cap listed on the exchange are banks and insurance companies from mainland china they include the industrial and commercial bank of china china construction bank bank of china and ping an insurance chinese internet conglomerate tencent holdings stands far above the crowd in the top position 4securities trading takes place monday to friday between 9 30 a m and 4 00 p m local time the pre opening session runs between 9 00 a m and 9 30 a m while the after hours trading session runs from 4 00 p m to a random closing between 4 08 p m and 4 10 p m derivative trading begins at 9 15 a m and ends at 4 30 p m several derivative markets take a break at noon each day after hours trading runs between 5 15 p m and 3 a m the following day the exchange is closed on major holidays 5hong kong s stock market was the fourth largest in the world until january 2024 when the indian market eclipsed it the value of shares reached over 4 33 trillion beating out those in hong kong which amounted to 4 29 trillion 6special considerationsthe hkg is the leading venue to raise capital for issuers based in hong kong and mainland china growth in hong kong s markets is fueled by listings of mainland chinese companies these securities are referred to as h shares on the hkg their rapid development has gone hand in hand with the enormous economic rise of the country the minimum market capitalization for a listing is hk 500 million and the minimum value of public float is hk 125 million the exchange raised these minimum amounts in 2017 to strengthen trading liquidity for market participants and enhance the quality of the exchange s listed issuers 7history of the hkgsecurities trading in hong kong dates back to 1891 that s when the first formal market called the stockbrokers association of hong kong was established the organization s name was changed to the hong kong stock exchange in 1914 8seven years later regulators incorporated another exchange called the hong kong stockbrokers association it merged with the hong kong stock exchange in 1947 resuming operations under that name 8 the exchange introduced automated ordering in 1993 and options trading in 1995 910as noted above the hkg merged with the hong kong futures exchange and the hong kong securities clearing company in 2000 to form hong kong exchanges and clearing a publicly traded company 8the exchange had a physical trading floor until the popularity of electronic trading took over as such the stock exchange closed down the physical trading floor in 2017 11who owns the hong kong stock exchange the hong kong stock exchange is owned by the hong kong exchanges and clearing limited which is a publicly traded holding company in addition to the hkg hkex has other subsidiaries including the hong kong futures exchange and the hong kong securities clearing company 1can i buy and sell securities on the hong kong stock exchange the hong kong stock exchange offers securities listed in hong kong and mainland china if you re a foreign investor who wants to take advantage of hong kong s stock market contact your brokerage firm to see if you can open an account that allows you to invest in international markets be sure you do your research and due diligence before you begin trading | |
how can i invest in hong kong | there are several ways you can take advantage of hong kong s stock market and economy as an investor you can purchase shares exchange traded funds etfs and or mutual funds that hold hong kong securities in their portfolios american depositary receipts adrs of hong kong companies and index funds if you want to invest directly in shares that trade in hong kong talk to a brokerage firm to see if you can invest internationally the bottom linethe hong kong stock exchange was established in the late 1800s since then it has evolved to become one of the most important markets in asia and in the world the exchange is home to companies in hong kong and mainland china and also lists other securities like derivatives and warrants | |
what is an honorarium | an honorarium is a voluntary payment that is given to a person for services for which fees are not legally or traditionally required honoraria are typically used to help cover costs for volunteers or guest speakers and may be considered taxable income for example when a guest makes a speech at a conference they might receive an honorarium to cover travel expenses | |
how an honorarium works | an honorarium is a different type of payment than a per diem which is a daily allowance paid to employees or consultants to cover business trip expenses like a hotel stay travel and food an honorarium is often provided for services meriting compensation that propriety prevents from requesting for example a world renowned professor gives a speech to a scholarly foundation and the foundation provides the professor with an honorarium for their service an honorarium is determined by the amount of work put into creating and delivering a service such as a speech for example one hour of speaking may entail three days of effort in addition delivering a speech on multiple occasions requires hours of practicing and improving before each presentation money made from honoraria is usually not considered tax free income 1the speaker s travel and recovery time require consideration as well following up on the example above how can one hour of speaking require three days of work there can be one day for practicing and improving the speech another day for travel and deliverance and a third day for getting back into the speaker s normal routine those three days cannot be used for making money through other methods justifying an honorarium tax treatment of an honorariumlike other forms of income an honorarium is taxable organizations paying honoraria report them to both the speaker and the internal revenue service irs on a 1099 misc form if compensation is 600 or greater in one calendar year 2even if a speaker does not receive form 1099 they still must report the honorarium as income there are rare exceptions to the rule for example the irs allows ministers tax exemption on honoraria paid for giving speeches or performing weddings baptisms or other activities 3 the honoraria may be considered gifts rather than taxable compensation if the intent was giving the honoraria as such an honorarium is considered self employment income and is typically reported with related expenses on schedule c of irs form 1040 for a tax return for example the speaker may deduct the cost of their unreimbursed plane ticket and lodging having speech materials printed maintaining a website and using a cellphone for business 4 if honoraria are not part of a speaker s regular business they are reported as other income on the 1040 document 5 an honorarium may be subject to self employment tax as well 6a speaker traveling out of state and earning an honorarium can create additional taxation many states consider giving a speech within their borders a nexus letting the state claim taxes against the speaker s income as a result a speaker may end up filing and paying multiple state tax returns 7 | |
what is the scenario for an honorarium to be paid | an honorarium is often provided for services meriting compensation that propriety prevents from requesting who is usually paid an honorarium an honorarium is a payment given to guest speakers who don t charge a fee for their services it is often used in academic settings by universities | |
how is an honorarium treated tax wise | an honorarium is taxable organizations paying honoraria report them to both the speaker and the internal revenue service irs on a 1099 misc form if compensation is 600 or greater in one calendar year a speaker must report the honorarium as income even if they don t receive form 1099 the bottom linean honorarium is given to a person for services for which fees are not legally or traditionally required it is a voluntary payment that may be considered taxable income | |
what is a hook reversal | hook reversals are short term candlestick patterns that predict a reversal in the trend s direction the pattern occurs when a candlestick has a higher low and a lower high than the previous session s candlestick this pattern differs from engulfing patterns in that the size difference between the first and second bar s body can be relatively small | |
how a hook reversal works | hook reversal patterns are popular candlestick patterns among active traders since they occur fairly frequently and are relatively easy to spot since the second candlestick changes to the opposite color the strength and reliability of the pattern often depends on the strength of the uptrend or downtrend that preceded it and most traders use other candlestick patterns chart patterns or technical indicators as confirmation of a reversal after all the pattern occurs relatively frequently which leads to many false positives that must be discounted hook reversal patterns are often classified as a type of harami or engulfing because the real body of the second candle forms within the body of the previous candle they are also similar to dark cloud cover patterns where both real bodies are similar length the key difference is that hook reversal patterns only require a small size difference whereas harami and engulfing patterns emphasize large differences in sizes between candlesticks in general harami and engulfings tend to be less common and more accurate than hook reversal patterns in predicting a trend reversal examples of hook reversalshook reversal patterns can be either bullish or bearish reversal patterns traders should set take profit and stop loss points for these reversals based on other technical indicators or chart patterns since hook reversals only indicate that a potential reversal is about to take place without providing insight into the magnitude of the reversal | |
what was the hope credit | the hope credit or the hope scholarship tax credit was a nonrefundable education tax credit offered to eligible american taxpayers qualifying students could claim this tax credit for their first two years of postsecondary education 1the hope and other lifetime learning credits were enacted to encourage higher education and provide a measure of tuition reimbursement for parents or students who are paying college tuition and fees the american opportunity tax credit aotc replaced the hope credit in tax year 2009 the basics of the hope creditthe hope credit was one of two nonrefundable education credits available for taxpayers recipients could take the hope credit for tuition and fees and other expenses such as books room and board medical expenses and insurance do not qualify for the hope credit the student incurring the expenses could have been either the taxpayer spouse or dependent 3the other available credit is the lifetime learning credit which could not have been claimed with the hope credit 4as of 2009 the hope credit became part of the american opportunity tax credit aotc 5as of 2022 the maximum aotc credit is 2 500 any individual who incurs qualifying educational expenses can claim an education credit qualifying educational expenses include tuition and fees parents who pay tuition and fees for their children can claim this type of credit on their tax returns subject to certain income restrictions 6 | |
when the hope credit was expanded and renamed the american opportunity tax credit a portion of the tax credit also became refundable this means if the credit brings the amount of tax the taxpayer owes to zero they can have 40 of the remaining amount of the credit up to 1 000 refunded to them 6 | special considerations education tax creditsthe american recovery and reinvestment act arra expanded the hope credit in 2009 this made the credit more accessible to parents and students 7 now more people qualify for the hope credit under the auspices of the american opportunity tax credit the aotc made the hope credit available to a broader range of taxpayers expanding eligibility to those with higher incomes and those who owe no tax the tax is available to individuals with a modified adjusted gross income magi of 80 000 or less 160 000 or less for joint filers 6the irs considers a student qualified if they are enrolled at an accredited postsecondary institution at least part time in one academic year that student must still be enrolled at the institution at the beginning of the tax year taking courses toward a degree or another recognized educational qualification and must not have been convicted of any felony drug offense by the end of the tax year 6taxpayers can claim the credit for up to four years of postsecondary education to reduce the costs of tuition and other eligible expenses according to the irs a qualified educational expense includes tuition paid to the school and expenses for books supplies and equipment that may have been bought from external sources these expenses qualify if taxpayers use student loans to pay for them but not if they use scholarships grants or funds from a 529 savings plan 8 | |
what is hope now alliance | the term hope now alliance refers to a public private initiative that worked to combat home foreclosures that emerged from the subprime mortgage market meltdown the initiative was launched in 2007 and was comprised of members from the u s government the secondary mortgage market lenders mortgage backed securities mbs investors and homeownership counseling organizations the group focused its efforts on reversing the foreclosure trend focused on contacting homeowners for loan modifications and workouts the organization suspended operations in 2020 because of the global covid 19 pandemic understanding hope now alliancethe formation of hope now alliance was the direct result of encouragement from the treasury department and the u s department of housing and urban development hud 1 established in 2007 hope now alliance s main goal was to create a unified coordinated plan to assist homeowners communities and government partners to repair the mortgage market following the subprime mortgage crisis that led to the great recession 1 2 it did this by fighting the wave of foreclosures across the country the alliance s efforts were focused on providing assistance to homeowners who were in danger of losing their homes through loan forgiveness modified loans financial counseling and workouts 3 workouts are agreements that can result in a modified repayment plan or a loan modification hope now alliance also advocated for higher lending standards and more ethical conduct in the mortgage industry after the foreclosure wave subsided and the economy started to improve it began to focus on stabilizing the housing market by making the mortgage process more straightforward and less risky for both lenders and borrowers its tools included a nationally promoted website with foreclosure prevention information a 24 hour toll free telephone number and free phone counseling through the homeownership preservation foundation among other efforts 4 special considerationsalthough hope now alliance was formed as a separate entity its operations were run directly out of the housing policy council as of 2008 according to the new york times 4 the council was created in 2003 in order to push for a safe and sound system it advocates for increased accountability and transparency in order to create a level playing field for everyone in the market 5 hope now alliance announced its closure in july 2020 due to problems stemming from the global covid 19 pandemic the alliance said it could no longer hold the large public gatherings that it once did to bring borrowers and lenders together due to social distancing guidelines it also stated that increased automation in the industry made the organization redundant 6 the hope now alliance announced its closure in july 2020 due in part to the coronavirus pandemic criticism of hope now alliancehope now alliance was formed when the housing market was in a free fall because of the subprime mortgage lending crisis the organization claimed that it helped over 1 7 million distressed borrowers as of the third quarter of 2009 and reported resolving over two million cases in 2014 7 but the actual number of borrowers defined as those who have received long term help and were permanently not at risk for foreclosure as a result of their loan workout or modification did not lose their homes to foreclosure and are able to obtain another mortgage is unclear 4 critics claimed that the alliance did not do enough to aid distressed borrowers and that rollout of the group s assistance was uncoordinated leaving homeowners confused and still at risk for foreclosure they also claimed that the alliance s member firms were slow to move in part because as lenders and investors they stood to lose money on their investment if borrowers received loan modifications that lowered the amount of money owed on their loan 4 the core criticism was that hope now alliance marketed itself heavily to homeowners as a source of help but was actually gatekeeping who received help to aid the least risky borrowers in order to benefit lenders 4 | |
what is horizon analysis | horizon analysis compares the projected discounted returns of a security or investment portfolio s total returns over several time frames or investment horizons understanding horizon analysishorizon analysis uses scenario analysis to estimate a more realistic expectation of an investment or portfolio s performance typically this type of analysis is used to gauge the expected performance of portfolios comprised of fixed income securities bonds the horizon analysis framework allows portfolio managers to project the performance of bonds on the basis of the planned investment horizon and expectations concerning levels of risk interest rates reinvestment rates and future market yields by breaking down expected returns into scenarios it is possible to evaluate which bonds would perform the best over the planned investment horizon something that would not be possible using the yield to maturity ytm this scenario analysis enables the portfolio manager to see how sensitive a bond s performance will be to each scenario and whether it would be likely to meet their investor s goals over their expected investment horizon horizontal analysis is used in financial statement analysis to compare historical data such as ratios or line items over a number of accounting periods investment horizons and portfolio construction | |
when investors have a longer investment horizon they can take on more risk since the market has many years to recover in the event of a pullback for example an investor with an investment horizon of 30 years would typically have most of their assets allocated to equities | beyond that an investor with a long time horizon may invest their assets in what are considered riskier types of equities such as mid cap and small cap stocks these types of stocks or sub asset classes tend to exhibit much larger price swings over short time periods than do large cap stocks because they tend to be less well established and are more susceptible to outside economic forces thus while they may be risky for investors with shorter investment horizons these short term swings have little to no impact on investors looking to hold on to those stocks for the next 30 years investors adjust their portfolios as their investment horizon shortens typically in the direction of reducing the portfolio s level of risk for example most retirement portfolios decrease their exposure to equities and increase their holdings of fixed income assets as they near retirement fixed income investments typically provide a lower potential return over the long run relative to stocks but they add stability to a portfolio s value since they typically experience less pronounced short term price swings | |
what is horizon analysis | horizon analysis compares the projected discounted returns of a security or investment portfolio s total returns over several time frames or investment horizons understanding horizon analysishorizon analysis uses scenario analysis to estimate a more realistic expectation of an investment or portfolio s performance typically this type of analysis is used to gauge the expected performance of portfolios comprised of fixed income securities bonds the horizon analysis framework allows portfolio managers to project the performance of bonds on the basis of the planned investment horizon and expectations concerning levels of risk interest rates reinvestment rates and future market yields by breaking down expected returns into scenarios it is possible to evaluate which bonds would perform the best over the planned investment horizon something that would not be possible using the yield to maturity ytm this scenario analysis enables the portfolio manager to see how sensitive a bond s performance will be to each scenario and whether it would be likely to meet their investor s goals over their expected investment horizon horizontal analysis is used in financial statement analysis to compare historical data such as ratios or line items over a number of accounting periods investment horizons and portfolio construction | |
when investors have a longer investment horizon they can take on more risk since the market has many years to recover in the event of a pullback for example an investor with an investment horizon of 30 years would typically have most of their assets allocated to equities | beyond that an investor with a long time horizon may invest their assets in what are considered riskier types of equities such as mid cap and small cap stocks these types of stocks or sub asset classes tend to exhibit much larger price swings over short time periods than do large cap stocks because they tend to be less well established and are more susceptible to outside economic forces thus while they may be risky for investors with shorter investment horizons these short term swings have little to no impact on investors looking to hold on to those stocks for the next 30 years investors adjust their portfolios as their investment horizon shortens typically in the direction of reducing the portfolio s level of risk for example most retirement portfolios decrease their exposure to equities and increase their holdings of fixed income assets as they near retirement fixed income investments typically provide a lower potential return over the long run relative to stocks but they add stability to a portfolio s value since they typically experience less pronounced short term price swings | |
what is horizontal analysis | horizontal analysis is used in financial statement analysis to compare historical data such as ratios or line items over a number of accounting periods horizontal analysis can either use absolute comparisons or percentage comparisons where the numbers in each succeeding period are expressed as a percentage of the amount in the baseline year with the baseline amount being listed as 100 this is also known as base year analysis investopedia theresa chiechi | |
how horizontal analysis works | horizontal analysis allows investors and analysts to see what has been driving a company s financial performance over several years and to spot trends and growth patterns this type of analysis enables analysts to assess relative changes in different line items over time and project them into the future an analysis of the income statement balance sheet and cash flow statement over time gives a complete picture of operational results and reveals what is driving a company s performance and whether it is operating efficiently and profitably the analysis of critical measures of business performance such as profit margins inventory turnover and return on equity can detect emerging problems and strengths for example earnings per share eps may have been rising because the cost of goods sold cogs has been falling or because sales have been growing steadily coverage ratios like the cash flow to debt ratio and the interest coverage ratio can reveal how well a company can service its debt through sufficient liquidity and whether that ability is increasing or decreasing horizontal analysis also makes it easier to compare growth rates and profitability among multiple companies in the same industry generally accepted accounting principles gaap are based on the consistency and comparability of financial statements 1 using consistent accounting principles like gaap ensures consistency and the ability to accurately review a company s financial statements over time comparability is the ability to review two or more different companies financials as a benchmarking exercise | |
how to perform a horizontal analysis | a horizontal analysis is performed by following the three primary steps to perform a horizontal analysis you must first gather financial information of a single entity across periods of time most horizontal analysis entail pulling quarterly or annual financial statements though specific account balances can be pulled if you re looking for a specific type of analysis be mindful that the gaps between each financial statement are consistent you can choose whatever interval month over month year over year etc but each iterative financial statement should be equal distance away regarding when it was issued compared to other bits of financial information with the financial information in hand it s time to decide how to analyze the information there are several primary comparison methods first a direction comparison simply looks at the results from one period and comparing it to another for example the total company wide revenue last quarter might have been 75 million while the total company wide revenue this quarter might be 85 million this type of comparison is most often used to spot high level easily identifiable differences second a variance analysis determines not only the dollar amount but the direction of change for a given general ledger account as opposed to simply identifying the difference between two numbers variance analysis strives to determine the company s financial health by identifying directional changes frequency of directions or how each financial result compared against an internal target i e a budget last a horizontal analysis can encompass calculating percentage changes from one period to the next as a company grows it often becomes more difficult to sustain the same rate of growth even if the company grows in pure dollar size this percentage method is most useful when identifying changes over a longer period of time where there may be significant deviations from the base period to the current period with different bits of calculated information now embedded into the financial statements it s time to analyze the results the identification of trends and patterns is driven by asking specific guided questions for example upper management may ask how well did each geographical region manage cogs over the past four quarters this type of question guides itself to selecting certain horizontal analysis methods and specific trends or patterns to seek out horizontal analysis vs vertical analysisthe primary difference between vertical analysis and horizontal analysis is that vertical analysis is focused on the relationships between the numbers in a single reporting period or one moment in time vertical analysis is also known as common size financial statement analysis for example the vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales if a company s net sales were 2 million they will be presented as 100 2 million divided by 2 million if the cost of goods sold amount is 1 million it will be presented as 50 1 million divided by sales of 2 million on the other hand horizontal analysis looks at amounts from the financial statements over a horizon of many years horizontal analysis is also referred to as trend analysis assume that the base year for analysis is three years earlier all of the amounts on the balance sheets and the income statements for analysis will be expressed as a percentage of the base year amounts the amounts from three years earlier are presented as 100 or simply 100 the amounts from the most recent years will be divided by the base year amounts for instance if a most recent year amount was three times as large as the base year the most recent year will be presented as 300 this type of analysis reveals trends in line items such as cost of goods sold used to look at line by line account balance changes for specific accounting periodscompares prior accounting period findings with a more current set of findings | |
is often used by management to drive strategic decision making | used to gauge a company s concentration or relationship between certain accountsrestates account balances to proportional percentages | |
is often used by investors or creditors to evaluate risk and corporate finance profiles | criticism of horizontal analysisdepending on which accounting period an analyst starts from and how many accounting periods are chosen the current period can be made to appear unusually good or bad for example the current period s profits may appear excellent when only compared with those of the previous quarter but are actually quite poor if compared to the results for the same quarter in the preceding year although a change in accounting policy or the occurrence of a one time event can impact horizontal analysis these situations should also be disclosed in the footnotes to the financial statements in keeping with the principle of consistency a common problem with horizontal analysis is that the aggregation of information in the financial statements may have changed over time so that revenues expenses assets or liabilities may shift between different accounts and therefore appear to cause variances when comparing account balances from one period to the next indeed sometimes companies change the way they break down their business segments to make the horizontal analysis of growth and profitability trends more difficult to detect accurate analysis can be affected by one off events and accounting charges example of horizontal analysishorizontal analysis typically shows the changes from the base period in dollar and percentage for example a statement that says revenues have increased by 10 this past quarter is based on horizontal analysis the percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the line item value in the base year then multiplying the quotient by 100 for example assume an investor wishes to invest in company xyz the investor may wish to determine how the company grew over the past year assume that in company xyz s base year it reported net income of 10 million and retained earnings of 50 million in the current year company xyz reported a net income of 20 million and retained earnings of 52 million consequently it has an increase of 10 million in its net income and 2 million in its retained earnings year over year therefore company abc s net income grew by 100 20 million 10 million 10 million 100 year over year while its retained earnings only grew by 4 52 million 50 million 50 million 100 | |
what are the benefits of horizontal analysis | horizontal analysis is valuable because analysts assess past performance along with the company s current financial position or growth trends emerge and these can be used to project future performance horizontal analysis can also be used to benchmark a company with competitors in the same industry | |
how can an investor use horizontal analysis | investors can use horizontal analysis to determine the trends in a company s financial position and performance over time to determine whether they want to invest in that company however investors should combine horizontal analysis with vertical analysis and other techniques to get a true picture of a company s financial health and trajectory | |
what is the difference between horizontal analysis and vertical analysis | the primary difference between vertical analysis and horizontal analysis is that vertical analysis is focused on the relationships between the numbers in a single reporting period or one moment in time horizontal analysis looks at certain line items ratios or factors over several periods to determine the extent of changes and their trends | |
when can horizontal analysis be used | horizontal analysis is most useful when an entity has been established has strong record keeping capabilities and has traceable bits of historical information that can be dug into for more information as needed this type of analysis is more specific relevant for analyzing the value we maybe selling or acquiring the bottom linehorizontal analysis is a financial analysis technique used to evaluate a company s performance over time by comparing prior period financial results with more current financial results a company is better able to spot the direction of change in account balances and the magnitude in which that change has occurred | |
what is a horizontal channel | horizontal channels are trend lines that connect variable pivot highs and lows to show the price contained between the upper line of resistance and the lower line of support a horizontal channel is also known as a price range or sideways trend image by sabrina jiang investopedia 2021 | |
how a horizontal channel works | a horizontal channel or sideways trend has the appearance of a rectangle pattern it consists of at least four contact points this is because it needs at least two lows to connect as well as two highs buying and selling pressure is equal and the prevailing direction of price action is sideways horizontal channels form in periods of price consolidation price is framed out in a trading range by the pivot highs resistance and pivot lows support trend lines are drawn on pivots to give a visual picture of price action a new high in the price above the horizontal channel is a technical buy signal a new low in price below the horizontal channel or rectangle pattern is a technical sell signal there are three types of channels horizontal ascending and descending channels channels that are angled up are called ascending channels channels that are angled down are called descending channels ascending and descending channels are also called trend channels because the price moves more dominantly in one direction the horizontal channel is a familiar chart pattern found in every time frame buying and selling forces are similar in a horizontal channel until a breakout or breakdown occurs this type of channel combines several forms of technical analysis to provide traders with precise points for entering and exiting trades as well as controlling risk to identify horizontal channels trading a horizontal channelhorizontal channels provide a clear and systematic way to trade by providing buy and sell points here are the trading rules for entering long or short positions horizontal channel exampleelevate credit inc elvt shares traded within a horizontal channel since gapping lower on oct 30 2018 over this period traders had the opportunity to short sell the stock at the channel s upper resistance line three times red arrows conversely traders had the chance to buy the stock at the channel s lower support line on three occasions green arrows stop loss orders would sit just above the channel s upper resistance line for short positions and just beneath the lower support line for long positions while profits would be taken at the opposite side of the channel image by sabrina jiang investopedia 2021 | |
what are horizontal levels in technical analysis | horizontal levels in technical analysis are price points where resistance or support previously occurred they allow traders to determine entry and exit points on their trades | |
what are the basic principles of technical analysis | the basic principles of technical analysis are trends entry exit signals indicators and patterns the bottom linehorizontal channels used in technical analysis provide traders with specific points of when to buy and sell they are clear to use and provide a systematic approach to trading typically occurring in times of price consolidation | |
what is horizontal equity | horizontal equity is an economic theory that states that individuals with similar income and assets should pay the same amount in taxes horizontal equity should apply to individuals considered equal regardless of the tax system in place the more neutral a tax system is the more horizontally equitable it is considered to be this can be contrasted with vertical equity a method of collecting income tax in which the tax rate one is subject to increases with the amount of earned income the principle behind vertical equity is that those who have the ability to pay more taxes should contribute more than those who are not understanding horizontal equitythe basis behind the theory of horizontal equity is that people should be treated the same by imposing the same level of income tax to people in the same income group vertical equity on the other hand is associated with the redistribution of wealth and encourages a tax system in which high income earners or those with access to more resources pay more tax than low income earners horizontal equity proposes a tax system that does not give preferential treatment to certain individuals and companies in effect it is related to the concept of tax neutrality as it protects taxpayers against arbitrary discrimination so that if two individuals are equally well off before taxes then they should be equally well off after taxes under the horizontal equity principle some economists use annual income as the measure of income that groups taxpayers as equals other economists believe that a taxpayer s lifetime income is a better yardstick one s judgment about whether taxing income or consumption is consistent with horizontal equity depends on which definition of income they use horizontal equity in healthcare refers to equity between people with the same healthcare needs in effect it acts as a measure of the health system by proposing that equal healthcare be provided for those who are the same in a relevant respect such as having the same need 1 example of horizontal equityfor example if two taxpayers earn 50 000 under horizontal equity they should both be taxed at the same rate since they both have the same wealth or fall within the same income bracket however horizontal equity is hard to achieve in a tax system like that of the u s with loopholes deductions credits and incentives because the presence of any tax break means that similar individuals do not pay the same rate for example by allowing mortgage interest payments to be deducted from income tax governments create a difference in tax payments between two tax filers who may otherwise be considered economically similar following our example above if due to the mortgage interest deduction for home ownership one of the taxpayers pays a lower amount of tax than the second taxpayer with equal income then horizontal equity is not achieved | |
what is horizontal integration | horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry that is they make or offer similar goods or services this is in contrast to vertical integration where firms expand into upstream or downstream activities which are at different stages of production understanding horizontal integrationhorizontal integration is a competitive strategy that can create economies of scale increase market power over distributors and suppliers improve product differentiation and help businesses expand their market or enter new markets by merging two businesses may be able to produce more revenue than they would have been able to do independently however when horizontal mergers succeed it is often at the expense of consumers especially if the merger reduces competition for this reason horizontal mergers are heavily scrutinized by regulators to see if they violate antitrust laws indeed the real motive behind a lot of horizontal mergers is that companies want to reduce competition either from potential new entrants established rivals or firms offering substitute or alternative goods these are three of the five competitive forces that shape every industry as identified in porter s five forces model the other two forces the power of suppliers and of customers drive vertical integration types of horizontal integrationthere are three primary forms of horizontal integration mergers acquisitions and internal expansions | |
when two companies merge two separate entities create a new joint organization the brand of one of those two companies is usually retained though the composition of operations and personnel is shared between both of the former individual companies in addition the product line of both companies is often similar and equally competitive in the market | in a merger both companies are striving to become a larger presence in their existing market most mergers are of similar firms where integration of the two companies may be seamless due to the similarities between what the two former companies used to do similar to a merger an acquisition occurs when one company outright takes over the operations of another company though the two companies technically join together one company remains in control the acquiring company s staff executives and operations often remain in place while the acquired company s resources are integrated as management sees fit companies often pursue acquisitions in an attempt to get something specific for example microsoft specifically wanted to enhance its presence in the video game market therefore it acquired activision blizzard in january 2022 this example of an acquisition shows an often deliberate strategy for a specific sector in which a company wants to achieve a very specific goal companies can also embark on horizontal integration by making more conscious allocations of internal capital through internal expansion a company simply chooses to strategically change course and apply more resources in a different way for example a restaurant can expand to offer catering companies or a beverage manufacturer may branch off to make food products in these examples a company continues to operate how it use to however instead of committing capital to acquire an external company or transition with a merging firm it decides to deploy those resources in house to train staff buy equipment make capital investments and grow a new branch of operations on its own the m a market was as hot as ever in 2021 according to mckinsey the total value of larger deals valued greater than 25 million for the year peaked at 5 9 trillion up 37 from 2020 advantages and disadvantages of horizontal integrationcompanies engage in horizontal integration to benefit from synergies there may be economies of scale or cost synergies in marketing research and development r d production and distribution or there may be economies of scale which make the simultaneous manufacturing of different products more cost effective than manufacturing them on their own procter gamble s 2005 acquisition of gillette is a good example of a horizontal merger that realized economies of scope because both companies produced hundreds of hygiene related products from razors to toothpaste the merger reduced the marketing and product development costs per product synergies can also be realized by combining products or markets horizontal integration is often driven by marketing imperatives diversifying product offerings may provide cross selling opportunities and increase each business market a retail business that sells clothes may decide to also offer accessories or it might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch like any merger horizontal integration does not always yield the synergies and added value that was expected it can even result in negative synergies which reduce the overall value of the business if the larger firm becomes too unwieldy and inflexible to manage or if the merged firms experience problems caused by vastly different leadership styles and company cultures there are regulatory issues as well if horizontal mergers within the same industry concentrate market share among a small number of companies it creates an oligopoly if one company ends up with a dominant market share it has a monopoly if a merger threatens competitors or seems to drastically restrict the market and reduce consumer choices it could attract the attention of the federal trade commission may result in efficiencies economies of scale or synergies not otherwise possiblemay reduce company risk through product and market diversificationmay increase profitability through new cross selling opportunitiesmay result in decreased costs due to better processes and greater expertisemay reduce value or synergy if merger is not performed successfullymay expose inflexibilities that won t be resolved by the mergermay result in a clash of management styles with multiple leadership teams coming togethermay result in regulatory issues if a dominant market share is formedhorizontal integration vs vertical integrationboth horizontal integration and vertical integration are the practice of a company expanding its current operations however each process aims to have a different strategic outcome horizontal integration occurs when a company aims to remain within its current part of the supply chain the company often wants to enhance its existing product or get a larger share of the market vertical integration is the strategy of expanding across the supply to get better at processes the company is currently not involved in for example a manufacturer may acquire a raw materials distributor to have better control over the quantity pricing or timing of when it gets raw goods the company is expanding from its current position in the manufacturing process and performing a backward vertical integration vertical integration is often undertaken to have better control over a long process while horizontal integration is more suitable for a company wanting to become more niche for something specific horizontal integration often entails similar companies coming together while vertical integration often entails different companies related to a similar product coming together the ultimate goal of vertical integration is to become independent of suppliers and control more aspects of the supply chain on the other hand horizontal integration strives to eliminate competitors grow in market size and create economies of scale examples of horizontal integrationmany mergers that hit news headlines are examples of horizontal integration if a company acquires or merges with another company and both firms are in a very similar industry it is most likely an example of horizontal integration specific examples include | |
what is the difference between horizontal integration and vertical integration | horizontal integration is the strategy of acquiring other companies that reside along a similar area of the supply chain for example a manufacturer may acquiring a competing manufacturing firm to better enhance its process labor force and equipment vertical integration occurs when a company acquires a company outside of their current position along the supply chain for example a manufacturer may acquire a retail company so that the manufacturer can not only control the process of making the good but also selling the good as well | |
what is the main advantage of horizontal integration | the main advantage of horizontal integration is the strategically focused decision to penetrate a specific section of a supply chain horizontal integration allows a company to potentially acquire a competitor gain greater insight into the market expand its product line or create economies of scale horizontal integration is a way for a company to simply do better at what it was doing before | |
why is horizontal integration important | horizontal integration is important because it allows a company to grow expand diversify and gather a larger market presence horizontal integration further enhances a company s current position in the market and instead of transitioning to widely different aspects of the supply chain it allows a company to become more competitive in the space it was already operating in the bottom linecompanies looking to grow in size increase revenue expand to new product lines and diversify operations may consider pursuing horizontal integration horizontal integration occurs when similar companies merge in the same stage of a supply chain merge as opposed to a vertical integration which helps a company shift to earlier or later in the supply chain horizontal integration further solidifies a company s current position along a manufacturing process | |
what is a horizontal line | in technical analysis a horizontal line is often drawn on a price chart to highlight areas of support or resistance in geometric analysis a horizontal line proceeds parallel to the x axis put another way on a perfectly horizontal line all values on the line will have the same y value understanding a horizontal linehorizontal lines are commonly used in technical analysis to highlight areas of support where the price stopped falling and then bounced on prior occasions or resistance which is where the price stopped rising and then proceeded to fall on prior occasions the horizontal line is drawn by connecting similar swing lows in price to create a horizontal support line for a horizontal resistance line similar swing highs are connected the horizontal line is then used for analytical or trading purposes for example if the price of an asset is moving between support and resistance horizontal lines then the price is considered to be range bound a move below the support horizontal line could indicate a further price decline but if support holds and the price bounces higher then prices could be forthcoming the same concepts apply to a resistance horizontal line if the price moves above resistance higher prices could be forthcoming if the price reaches resistance and then starts to decline the horizontal line has held and traders will watch for lower prices in more simple terms a horizontal line on any chart is where the y axis values are equal if it has been drawn to show a series of highs in the data a data point moving above the horizontal line would indicate a rise in the y axis value over recent values in the data sample fundamental horizontal analysishorizontal analysis is used to compare values or prices over time this is an aspect of fundamental analysis in which an analyst will compare various earnings reports and statements over time in this kind of analysis time functions as the horizontal x axis and allows analysts to calculate percentage changes over time a useful tool for representing the degree of change horizontal analysis looks at the trend of financial statements over multiple periods using a specified base period and typically shows the changes from the base period in dollars and percentages the percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the item value in the base year then multiplying the quotient by 100 for example when you hear someone saying that revenues increased by 10 this past quarter that person is using horizontal analysis horizontal analysis can be used on any item in a company s financials from revenues to earnings per share eps and is useful when comparing the performance of various companies a horizontal line as it relates to supply and demand curvessupply and demand curves are drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis when looking at supply and demand curves a perfectly horizontal line indicates that an item has perfect elasticity or that its demand is immediately responsive to changes in price when the price of a perfectly elastic good or service increases above the market price the quantity demanded falls to zero with perfect elasticity consumers simply are not willing to spend more than a specific price for a good or service example of how to use the horizontal line in technical analysisdrawing a horizontal line is one of the simplest forms of technical analysis but it also provides important information on the chart below a horizontal line is drawn on the spdr s p 500 spy exchange traded fund etf image by sabrina jiang investopedia 2021an uptrend is when a price makes higher swing highs and higher swing lows therefore a horizontal line can highlight when price is making a new high in this case thus showing signs of an uptrend on the spy chart above the price is moving above the horizontal line indicating an uptrend if the price falls back below the horizontal line it could warn that uptrend has failed and lower prices may be forthcoming in this sense the horizontal line acts like a line in the sand where moving above the line is bullish the difference between a horizontal line and a trendlineboth these terms could refer to the same thing drawn lines on a chart while a horizontal line is specifically horizontal a trendline is typically angled and drawn along rising swing lows during a price uptrend or drawn along dropping swing highs during a downtrend limitations of using a horizontal line in technical analysisa horizontal line is not an actual barrier for price it is a technical tool which may help traders determine whether they should be more bearish or bullish | |
where a horizontal line is drawn is subjective not all traders may place the horizontal line at the same price | at highly important prices where a horizontal line may be drawn it is possible the price will whipsaw around it this could cause confusion or some potential losing trades until the price makes a more decisive move above or below the line | |
what is a horizontal market | a horizontal market is diversified so that the products created are able to meet the needs of more than one industry a horizontal market is one in which the output good or service is widely used and in wide demand and so the producers bear little risk in demand for their output producers do however typically face a great amount of competition within the industry understanding horizontal marketsthe profitability for companies producing goods in a horizontal market is determined more by internal rather than external factors as their products are commonly used an example of a horizontal market is the demand for pens across any and all industries pens are used in basically all industries and so success or failure for pen producers is determined by internal decisions and factors rather than macro events businesses that operate in a horizontal market system seek to appeal to a wide demographic that is not really niche for example a reseller of general office furniture is probably not going to target sell to other companies that specialize in office furniture rather they re going to target all types of businesses that maintain offices accounting firms travel agencies insurance agencies etc their market is anyone who needs office furniture examples of companies in horizontal markets include conglomerates and diversified manufacturing companies horizontal markets vs vertical marketsvertical markets are the opposite of horizontal markets in that they focus on a very niche sector or demographic for example this could include a manufacturer of solar panel technology that produces nothing else these types of firms usually sell their goods to solar contractors and installers in other words those they sell to are usually businesses that compete against one another defined by a demographic feature that applies to different kinds of businessesbroader than vertical marketsusually cooperative and seeking joint opportunitiesan opportunity to market to a general audiencea group of businesses that share the same industryalways specific and cannot cross industriesoften competing against each otheran opportunity to market to a specific audiencespecial considerationsalthough the types of markets have clear differences a business s operations can often be characterized as serving both horizontal and vertical markets at the same time for example a shoe company can market horizontally to the area in which it is located it could also market vertically to anyone considering a new pair of shoes a children s book publishing company can market horizontally to literate people or vertically to children and parents knowing which horizontal and vertical markets your company wants to serve can be helpful to its marketing success by defining your markets you can better advertise and serve your markets needs whether generally or specifically | |
what is a horizontal merger | a horizontal merger is a merger or business consolidation that occurs between firms that operate in the same industry the aim is usually to create more efficient economies of scale exploit cost based and revenue based synergies increase market share and generally gain an advantage over other competitors operating in the same space horizontal mergers are just one type of merger another is the vertical merger which takes place when firms from different parts of the supply chain consolidate to make the production process more efficient or cost effective | |
when everything goes to plan horizontal mergers can enable the new entity to gain an edge over the competition and potentially wipe some of it out | horizontal mergers often don t live up to expectations merging two different corporate cultures can be difficult and projections may end up being overambitious horizontal merger vs vertical mergerthe main objective of a vertical merger is to improve a company s efficiency or reduce costs a vertical merger occurs when two companies previously selling to or buying from each other combine under one ownership the businesses are typically at different stages of production for example a manufacturer might merge with a distributor selling its products a vertical merger can help secure access to important supplies and reduce overall costs by eliminating the need for finding suppliers negotiating deals and paying full market prices a vertical merger can improve efficiency by synchronizing production and supply between the two companies and assuring the availability of needed items when companies combine in a vertical merger competitors may face difficulty obtaining important supplies example of horizontal merger and vertical mergerone example of a horizontal merger is hp s merger with compaq the rationale behind this deal was to bolster product lines and market share and have a greater chance of competing with the likes of dell another high profile horizontal merger was exon s tie up with mobil together they became an oil giant capable of cutting costs and squeezing the competition in january 2022 microsoft announced the acquisition of activision blizzard the acquisition enabled microsoft owner of the successful xbox brand to reap the benefits of providing exclusive content to video gamers 1much like a manufacturer acquiring a supplier satya nadella stated that microsoft was investing in activision blizzard to usher in a new era of gaming that puts players and creators first and makes gaming safe inclusive and accessible to all 1special considerationsnot all proposed mergers go through sometimes regulators will put the brakes on the deal and refuse to give it clearance because it is deemed to have a negative impact on consumers a key concern about horizontal mergers is that they reduce the number of choices available to consumers competition is generally seen as a good thing it helps keep prices down and encourages companies to innovate and focus on quality horizontal mergers may lead to fewer options for consumers to choose from mergers tend to get investors excited if they go to plan significant competitive advantages can be realized that promise can lead investors to overlook the complications the reality is that most mergers 70 to 90 according to harvard business review fail to achieve their expected value 2 | |
what are some potential drawbacks of horizontal mergers | horizontal mergers can lead to reduced competition which may result in higher prices decreased innovation and fewer choices for consumers additionally integrating two companies with different corporate cultures and operations can pose social challenges and there may be regulatory scrutiny to ensure the merger does not harm competition | |
how do horizontal mergers affect market competition | horizontal mergers can have a significant impact on market competition by reducing the number of competitors in the industry the merged entity may gain increased market power potentially leading to higher prices reduced product differentiation and limited choices for consumers regulatory authorities often assess the potential effects on competition before approving horizontal mergers to ensure they do not create monopolistic or anti competitive market conditions can vertical mergers benefit small businesses vertical mergers can have mixed effects on small businesses on one hand small businesses may benefit from increased access to distribution channels or improved relationships with larger vertically integrated companies however vertical mergers can also create challenges if small businesses face increased competition or encounter barriers to accessing certain markets controlled by the merged entity | |
do vertical mergers encourage innovation | vertical mergers can have both positive and negative effects on innovation on one hand integrating different stages of the value chain may foster collaboration and information sharing potentially leading to improved product development and innovation on the other hand vertical mergers can reduce the incentive for companies to innovate if they gain significant market power and face less competitive pressure the bottom linehorizontal mergers involve the combination of companies operating in the same industry and at the same stage of the production or distribution process these mergers aim to increase market share eliminate competition and achieve economies of scale on the other hand vertical mergers involve companies operating at different stages of the production or distribution chain they integrate either with suppliers backward integration or customers forward integration to streamline operations gain control over the value chain and potentially achieve cost savings and synergies | |
what is a horizontal spread | a horizontal spread more commonly known as a calendar spread is an options or futures strategy created with simultaneous long and short positions in the derivative on the same underlying asset and the same strike price but with different expiration months understanding horizontal spreadthe goal of a horizontal spread is usually to profit from changes in volatility over time or exploit fluctuation in pricing from short term events the spread can also be used as a method for creating significant leverage with limited risk to create the horizontal spread a trader first specifies an option or futures contract to buy and then sells a similar contract that has a shorter expiration date all other features are the same the two identical contracts separated only by their expiration date create a difference in price a difference which the market accounts for as time value specifically the amount of time that differs between the two contracts in options markets this distinction is important because the time value of each option contract is a key component to its pricing this spread neutralizes the expense of that time value as much as possible in futures markets where time value is not a specific factor in pricing the difference in price represents the expectations of change in pricing that market participants think is likely to occur between the two differing expiration dates while horizontal or calendar spreads are widely used in the futures market much of the analysis is focused on the options market where volatility changes are crucial to pricing because volatility and time value are tightly connected in options pricing this kind of spread minimizes the effect of time and produces a greater opportunity to profit from increases in volatility over the time of the trade short spreads can be created by reversing the configuration buy the contract with nearer expiration and sell it with a more distant expiration this variation seeks to profit from decreases in volatility the long trade takes advantage of how near and long dated options act when time and volatility change an increase in implied volatility would have a positive impact on this strategy because longer term options are more sensitive to changes in volatility higher vega the caveat is that the two options can and probably will trade at different implied volatility measures but it is rare that the movement of volatility and the effect on the price of the horizontal option spread act differently from what would be expected horizontal spread examplewith exxon mobil stock trading at 89 05 in late january 2018 1net cost debit 1 25 125 for one contract trader receives 0 97 while paying 2 22 since this is a debit spread the maximum loss is the amount paid for the strategy the option sold is closer to expiration and therefore has a lower price than the option bought yielding a net debit or cost in this scenario the trader is hoping to capture an increase of value associated with a rising price up to but not beyond 95 between purchase and february expiration the ideal market move for profit would be for the price to become more volatile in the near term but to generally rise closing just below 95 as of the february expiration this allows the february option contract to expire worthless and still allow the trader to profit from upward moves up until the march expiration note that were the trader to simply buy the march expiration the cost would have been 222 dollars but by employing this spread the cost required to make and hold this trade was only 125 making the trade one of greater margin and less risk depending on which strike price and contract type are chosen the strategy can be used to profit from a neutral bullish or bearish market trend | |
what is a horizontal well | a horizontal well is a type of directional drilling technique where an oil or gas well is dug at an angle of at least eighty degrees to a vertical wellbore this technique has become increasingly common and productive in recent years 1 operators use it to retrieve oil and natural gas in situations in which the shape of the reservoir is abnormal or difficult to access | |
how a horizontal well works | horizontal wells took a more prominent role in fossil fuel extraction during the 2010s as technology has developed horizontal drilling has lowered costs and improved the efficiency of oil and natural gas extraction especially in the u s 1the emergence of horizontal wells has been facilitated by two components of the drilling apparatus as well modern drilling techniques allow the use of drill bits that can bend this bending accomplished through the use of hydraulic jets lets engineers adjust the direction of the drilling to a degree horizontal drilling has become a more popular technique as computer aided technology has become more common the angle of the drill bit in use can be adjusted by a computer using global positioning signals gps to pinpoint the location of the bit in relation to the oil or gas field 3horizontal drilling vs vertical drillinghorizontal drilling has become a valuable technique in recent years due to certain advantages over traditional vertical drilling it permits access to subsurface reservoirs that may not be accessible from directly above horizontal drilling also allows one drilling pad or kickoff point to explore a broader underground area horizontal drilling can also be used to seal off or relieve pressure on an out of control well by drilling an adjacent relief well finally beyond the purpose of oil extraction horizontal drilling can be useful in the construction of underground pipelines or utility lines that need to travel beneath a river or an existing building 4horizontal drilling vs hydraulic fracturinghorizontal wells have proven particularly useful as a component of the hydraulic fracturing process fracking helps extract natural gas and oil from huge shale reservoirs in the u s these deposits tend to be inaccessible to traditional vertical drilling due to the impermeability of the shale formations instead oil and gas companies drill horizontally into the shale and pump a compound of water chemicals and guar gum also known as mud into the shale the force of these injections fractures the rock creating openings through which petroleum and natural gas flow 5 | |
what is the hospital insurance trust fund | the federal hospital insurance trust fund is also known as part a of medicare the health insurance program for people aged 65 and older in the united states the program is financed through payroll taxes from current workers and employers and taxes on social security benefits 1this trust fund is overseen by a board of trustees that reports annually regarding its financial status 2 due to changes in legislation and demographics in the united states the fund is projected to be depleted in 2031 3understanding the hospital insurance trust fundthe hospital insurance trust is funded by revenue from social security benefits and payroll taxes from all workers in the united states not just from beneficiaries 1 the program is something all workers pay into and then benefit from when they reach retirement age or are unable to work due to disability medicare part a helps pay for inpatient hospital services hospice care skilled nursing facility and home health services medicare benefitsmanaged by the u s government the federal hospital insurance trust fund or medicare part a pays for healthcare services like hospital stays and hospice care for medicare recipients 4 medicare is a government funded health insurance program for those 65 and older disabled people and people with certain health conditions specified by the government 5medicare parts b c and d pay for healthcare services not covered by the hospital insurance trust fund such as doctor visits lab tests and prescription drugs and are funded through premium payments from beneficiaries 1567the initial enrollment period to apply for medicare lasts for seven months starting three months before enrollees turn 65 and ending three months after the month they turn 65 8funding the hospital insurance trust fundanalysts are concerned that the u s economy will not support the hospital trust within medicare in the future because of changes in population demographics as the birth rate decreases and people live longer 9according to the 2023 report from the social security and medicare boards of trustees it is projected that the hospital insurance trust fund will be able to pay 100 of total scheduled benefits until 2031 after which the fund s reserves will be depleted and continuing program income will be sufficient to pay 89 of benefits 10the estimates are based on several factors including utilization rates of skilled nursing facilities overall levels of worker productivity and recent trends in healthcare costs relative to individual incomes |
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