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when considering the implication of economic activity economists only use perfect competition models a such the term imperfect market is somewhat misleading most people will assume an imperfect market is deeply flawed or undesirable however this is not always the case the range of market imperfections is as wide as the range of all real world markets some are much or less efficient than others | consequences of imperfect marketsnot all market imperfections are harmless or natural situations can arise in which too few sellers control too much of a single market or when prices fail to adequately adjust to material changes in market conditions it is from these instances that the majority of economic debate originates some economists argue that any deviation from perfect competition models justifies government intervention in order to promote increased efficiency in production or distribution such interventions may come in the form of monetary policy fiscal policy or market regulation one common example of such interventionism is anti trust law which is explicitly derived from perfect competition theory governments may also use taxation quotas licenses and tariffs to help regulate so called perfect markets other economists argue that government intervention may not always be necessary to correct imperfect markets this is because government policy is also imperfect and government actors may not possess the right incentives or information to interfere correctly finally many economists argue government intervention is rarely if ever justified in markets the austrian and chicago schools notably blame many market imperfections on erroneous government intervention types of imperfect markets | |
when at least one condition of a perfect market is not met it can lead to an imperfect market every industry has some form of imperfection imperfect competition can be found in the following structures | this is a structure in which there is only one dominant seller products offered by this entity have no substitutes these markets have high barriers to entry and a single seller who sets the prices on goods and services prices can change without notice to consumers this structure has many buyers but few sellers these few players in the market may bar others from entering they may set prices together or in the case of a cartel only one takes the lead to determine the price for goods and services while the others follow in monopolistic competition there are many sellers who offer similar products that can t be substituted businesses compete with one another and are price makers but their individual decisions do not affect the other these structures have many sellers but few buyers in both cases the buyer is the one who manipulates market prices by playing firms against one another imperfect markets vs perfect marketsperfect markets are characterized by having the following in reality no market can ever have an unlimited number of buyers and sellers economic goods in every market are heterogeneous not homogeneous as long as more than one producer exists a diverse range of goods and tastes are preferred in an imperfect market perfect markets though impossible to achieve are useful because they help us think through the logic of prices and economic incentives it is a mistake however to try extrapolating the rules of perfect competition into a real world scenario logical problems arise from the start especially the fact that it is impossible for any purely competitive industry to conceivably attain a state of equilibrium from any other position perfect competition can thus only be theoretically assumed it can never be dynamically reached | |
what is an implicit cost | an implicit cost is any cost that has already occurred but is not necessarily shown or reported as a separate expense it represents an opportunity cost that arises when a company uses internal resources toward a project without any explicit compensation for the utilization of resources this means when a company allocates its resources it always forgoes the ability to earn money off the use of the resources elsewhere so there s no exchange of cash put simply an implicit cost comes from the use of an asset rather than renting or buying it investopedia michela buttignolunderstanding implicit costsimplicit costs are also referred to as imputed implied or notional costs these costs aren t easy to quantify that s because businesses don t necessarily record implicit costs for accounting purposes as money does not change hands these costs represent a loss of potential income but not of profits implicit costs are a type of opportunity cost which is the benefit that a company misses out on by choosing one option or alternative versus another the implicit cost could be the amount of money a company misses out on for choosing to use its internal resources versus getting paid for allowing a third party to use those resources for example a company could earn income from renting out its building versus the revenue earned from using the building for manufacturing and selling its products a company may choose to include implicit costs as the cost of doing business since they represent possible sources of income economists include both implicit costs and the regular costs of doing business when calculating total economic profit in other words economic profit is the revenue a company generates minus the cost of doing business and any opportunity costs in corporate finance decisions implicit costs should always be considered when deciding how to allocate company resources implicit costs vs explicit costsimplicit costs are technically not incurred and cannot be measured accurately for accounting purposes there are no cash exchanges in the realization of implicit costs but they are an important consideration because they help managers make effective decisions for the company these expenses are a big contrast to explicit costs the other broad categorization of business expenses explicit costs represent any costs involved in the payment of cash or another tangible resource by a company rent salary and other operating expenses are considered explicit costs they are all recorded within a company s financial statements the main difference between the two types of costs is that implicit costs are opportunity costs while explicit costs are expenses paid with a company s own tangible assets this makes implicit costs synonymous with imputed costs while explicit costs are considered out of pocket expenses implicit costs are harder to measure than explicit ones which makes implicit costs more subjective implicit costs help managers calculate overall economic profit while explicit costs are used to calculate accounting profit and economic profit examples of implicit costsexamples of implicit costs include the loss of interest income on funds and the depreciation of machinery for a capital project they may also be intangible costs that are not easily accounted for including when an owner allocates time toward the maintenance of a company rather than using those hours elsewhere in most cases implicit costs are not recorded for accounting purposes | |
when a company hires a new employee there are implicit costs to train that employee if a manager allocates eight hours of an existing employee s day to teach this new team member the implicit costs would be the existing employee s hourly wage multiplied by eight this is because the hours could have been allocated toward the employee s current role | another example of an implicit cost involves small business owners who may decide to pass on taking a salary in the early stages of operations to reduce costs and increase revenue they provide the business with their skill in lieu of a salary which becomes an implicit cost | |
what is an example of an implicit cost | an implicit cost is an opportunity cost a resource that could be utilized elsewhere an example would be an individual who starts a business and while working is not making any money the labor they put into starting their business could be utilized in another job where they would earn a salary their labor in the business is an implicit cost | |
what are examples of explicit costs | explicit costs are specific costs of a business that are normal in the course of operations and are directly linked to a firm s profitability examples include wages utilities advertising raw materials and rent | |
is labor an implicit cost | labor can technically be an implicit and explicit cost in regard to employees when wages and salaries are paid labor is an explicit cost to a business when wages or salaries are foregone such as that for an entrepreneur starting their own business labor would be an implicit cost the bottom lineimplicit costs are not recorded and do not have a specific reciprocal when used though implicit costs represent a loss of income they do not represent a loss of profit because their value is being utilized elsewhere for the benefit of the business though they are harder to value and are often subjective they play a key role in the success of a business | |
what is implied authority | implied authority refers to an agent with the jurisdiction to perform acts that are reasonably necessary to accomplish the purpose of an organization under contract law implied authority figures have the ability to make a legally binding contract on behalf of another person or company | |
how implied authority works | implied authority is an authority that is not express or written into a contract like actual authority but it is authority an agent is assumed to have in order to transact the business for a principal implied authority is incidental to express authority since not every single detail of an agent s authority can be spelled out in the written contract for example in real estate express authority means the agent has been given the authority to act on behalf of the principal implied authority applies to the insurance company agent that is given the authority to solicit applications for life insurance on behalf of the insurer when the insurer gives the agent that express authority it also gives the agent the implied authority to telephone prospects on its behalf to arrange sales appointments implied authority also applies in a situation where a person is wearing a uniform or nametag bearing the logo or trademark of a business or organization express and implied authority are often used in the real estate industry example of implied authorityif a server at a restaurant tells you they can give you a free beverage with the purchase of an entree they have made a contract with you on behalf of the restaurant business they are representing the server s authority is implied by the fact that they have been chosen as the sole employee of the business designated to do business with you whether or not other employees ultimately get involved in the transaction is immaterial because it is expected that they will be the only person required to complete your business transaction in such a situation if a restaurant manager came to your table and informed you that the server made a mistake and tried to take back the free beverage with paid entree offer the business would actually be in direct violation of a legally enforceable contract made between you the client and their employee they may certainly penalize the employee if they choose but implied authority legally obliges them to honor the terms of the agreement the same principle applies to more complex or extreme legal circumstances special considerationsby contrast expressed authority is clearly stated and granted by the principal to the agent either orally or in writing and apparent authority sometimes called ostensible authority exists where a principal s actions could result in a third party as a reasonable person believing the agent had authority even where it may not be expressed or implied | |
what is an implied contract | an implied contract is a legally binding obligation that derives from the actions conduct or circumstances of one or more parties in an agreement it has the same legal force as an express contract which is a contract that is voluntarily entered into and agreed on verbally or in writing by two or more parties the implied contract on the other hand is assumed to exist but no written or verbal confirmation is necessary understanding implied contractsthe principles underlying an implied contract are that no person should receive unjust benefits at the expense of another person and a written or verbal agreement is not needed to get fair play for example the implied warranty is a type of implied contract | |
when a product is purchased it must be capable of fulfilling its function a new refrigerator must keep food cool or either the manufacturer or the seller has failed to meet the terms of an implied contract | an implied contract is sometimes difficult to enforce because proving the justice of the claim is a matter of argument not a simple matter of producing a signed document in addition some jurisdictions place limits on implied contracts for example a contract for a real estate transaction must be backed up by a written contract in some courts an implied contract has the same legal force as a written contract but may be harder to enforce implied in fact vs implied in law contractsthere are two forms of implied contract called implied in fact and implied in law contracts an implied in fact contract is created by the circumstances and behavior of the parties involved if a customer enters a restaurant and orders food for example an implied contract is created the restaurant owner is obligated to serve the food and the customer is obligated to pay the prices listed on the menu for it an implied in fact contract may also be created by the past conduct of the people involved for example a teenager offers to walk a neighbor s dog and is rewarded with two movie tickets on three subsequent occasions the teenager comes over to walk the dog and is given two movie tickets but on the last occasion the neighbor simply fails to produce the movie tickets the teenager has a case for claiming that the neighbor created an implied in fact contract by regularly producing movie tickets in return for dog walking services it is a reasonable assumption the following must be present to establish an implied in fact contract the other type of unwritten contract the implied in law contract can also be called a quasi contract it is a legally binding contract that neither party had the intention of creating say the same restaurant patron mentioned above chokes on a chicken bone and a doctor dining at the next booth leaps to the rescue the doctor is entitled to send a bill to the diner and the diner is obligated to pay it | |
what is an implied contract vs an express contract | express and most implied contracts require mutual agreement and a meeting of the minds however an express contract is formally arranged through an oral or written agreement an implied contract is formed by circumstances or the actions of parties a real estate contract is an express contract that must be formed in writing to be executable ordering a pizza is an implied contract as the pizza restaurant is obligated to provide pizza to the customer once the purchase is complete | |
do implied contracts hold up in court | implied contracts are legally enforceable and can be held up in court however proving that there is or was a contract could be challenging compared to ones formed orally or in writing courts will often review among other things the relationship between parties whether previous agreements were established and duties performed | |
what are the types of implied contracts and how do they differ | implied contracts are either implied in fact or implied in law implied in fact agreements are made when parties perform duties as if they have a contract in place implied in fact assumes that parties understand the terms of the agreement and what actions must be taken on the contrary an implied in law contract is not formed by intent this type of contract ensures that someone for whom services were provided is not unjustly enriched by the performance of another | |
what are the requirements for an implied contract | requirements for an implied contract differ based on the type of implied contract that is assumed neither are formed orally or in writing for an implied in fact contract there must be an offer an acceptance of the offer mutual agreement and consideration the terms and execution of the agreement will be evidenced by the behavior of the parties involved for an implied in law contract circumstances form the contract rather than intent when services or goods are not gratuitously provided to one party the receiver is expected to offer consideration there cannot be an imbalance of benefits between the parties meaning the receiver cannot be unfairly enriched the bottom lineimplied contracts are contracts formed by the actions conduct or circumstances of parties to an agreement unlike express contracts they are neither oral nor written agreements implied contracts are either characterized as implied in fact or implied in law the former which is easier to prove before a court is formed when parties intend to enter into an agreement and behave in a manner that forms the contract implied in law requires no intent from parties to enter an agreement implied in law was created to prevent one or more parties from being unfairly enriched by another normal contract rules such as mutual agreement an offer and acceptance are not required for implied in law contracts implied in law occurs when a party bestows upon another a measurable benefit that is not intended as a gift | |
what is the implied rate | the implied rate is the difference between the spot interest rate and the interest rate for the forward or futures delivery date understanding the implied ratethe implied interest rate gives investors a way to compare returns across investments and evaluate the risk and return characteristics of that particular security an implied interest rate can be calculated for any type of security that also has an option or futures contract for example if the current u s dollar deposit rate is 1 for spot and 1 5 in one year s time the implied rate is the difference of 0 5 alternatively if the spot price for a currency is 1 050 and the futures contract price is 1 1071 the difference of 5 71 is the implied interest rate in both of these examples the implied rate is positive which indicates that the market expects future borrowing rates to be higher than they are now to calculate the implied rate take the ratio of the forward price over the spot price raise that ratio to the power of 1 divided by the length of time until the expiration of the forward contract then subtract 1 | |
where time length of the forward contract in years | implied rate examplesif the spot price for a barrel of oil is 68 and a one year futures contract for a barrel of oil is 71 the implied interest rate is implied rate 71 68 1 1 1 4 41 divide the futures price of 71 by the spot price of 68 since this is a one year contract the ratio is simply raised to the power of 1 1 time subtract 1 from the ratio and find the implied interest rate of 4 41 if a stock is currently trading at 30 and there is a two year forward contract trading at 39 the implied interest rate is implied rate 39 30 1 2 1 14 02 divide the forward price of 39 by the spot price of 30 since this is a two year futures contract raise the ratio to the power of 1 2 subtract 1 from the answer to find the implied interest rate is 14 02 if the spot rate for the euro is 1 2291 and the one year futures price for the euro is 1 2655 the implied interest rate is implied rate 1 2655 1 2291 1 1 1 2 96 calculate the ratio of the forward price over the spot price by dividing 1 2655 by 1 2291 since this is a one year forward contract the ratio is simply raised to the power of 1 subtracting 1 from the ratio of the forward price over the spot price results in an implied interest rate of 2 96 | |
what is implied volatility iv | the term implied volatility refers to a metric that captures the market s view of the likelihood of future changes in a given security s price investors can use implied volatility to project future moves and supply and demand and often employ it to price options contracts implied volatility isn t the same as historical volatility also known as realized volatility or statistical volatility which measures past market changes and their actual results | |
how implied volatility iv works | implied volatility iv is essentially a measure of how much the market believes the price of a stock or other underlying asset will move in the future and is a key factor in determining the price of an options contract when traders buy or sell options they re not just gaining exposure to the direction of the stock price but also on how much the price might fluctuate in either direction before the option expires unlike historical volatility which measures past price fluctuations observed in the data implied volatility is forward looking and derived from the current market price of an option as a result implied volatility isn t directly observable in the market instead it must be calculated using an options pricing model like black scholes using such models you would start with the current price of the option and work backwards to determine the level of volatility that would justify that price given all the other known variables inputted into the model traders use implied volatility in a few ways first it helps them gauge whether options prices are relatively cheap or expensive an option with higher implied volatility will be more expensive than an option with low implied volatility all else being equal second some traders try to profit from changes in implied volatility itself they might buy options when implied volatility is low expecting it to rise or sell options when implied volatility is high expecting it to fall third implied volatility is a key input into many risk management models that traders and institutions use to manage their options portfolios finally implied volatility is often used as a heuristic gauge of market sentiment particularly fear and uncertainty when markets are calm and traders are complacent implied volatility tends to be low but when there s a lot of uncertainty or concern about potential risks implied volatility can spike higher one well known example of this is the vix or the cboe volatility index which is a measure of the implied volatility of s p 500 index options the vix is sometimes referred to as the stock market s fear gauge because it tends to spike higher during times of market stress or uncertainty traders watch indicators like the vix closely because spikes in implied volatility can often precede significant market moves implied volatility is not dependent on the direction of the stock price movement but rather on the magnitude of the movement in other words implied volatility doesn t indicate whether the price of the underlying asset is expected to go up or down but instead it measures how much the market believes the price could change in either direction implied volatility and options pricingimplied volatility is one of the key factors used in the pricing of options buying options contracts allow the holder to buy or sell an asset at a specific price during a pre determined period implied volatility approximates the future value of the option and the option s current value is also taken into consideration options with high implied volatility have higher premiums and vice versa keep in mind that implied volatility is based on probability this means it is only an estimate of future prices rather than an actual indication of where they ll go even though investors take implied volatility into account when making investment decisions this dependence can inevitably impact prices themselves there is no guarantee that an option s price will follow the predicted pattern however when considering an investment it does help to consider the actions other investors take with the option and implied volatility is directly correlated with the market opinion which does in turn affect option pricing implied volatility also affects the pricing of non option financial instruments such as an interest rate cap which limits the amount an interest rate on a product can be raised black scholes modelimplied volatility can be determined by using an option pricing model it is the only factor in the model that isn t directly observable in the market instead the mathematical option pricing model uses other factors to determine implied volatility and the option s premium this is a widely used and well known options pricing model factors in current stock price options strike price time until expiration denoted as a percent of a year and risk free interest rates the black scholes model is quick in calculating any number of option prices but the model cannot accurately calculate american options since it only considers the price at an option s expiration date american options are those that the owner may exercise at any time up to and including the expiration day this model uses a binomial tree diagram with volatility factored in at each level to show all possible paths an option s price can take then works backward to determine one price the benefit of the binomial model is that you can revisit it at any point for the possibility of early exercise early exercise is executing the contract s actions at its strike price before the contract s expiration early exercise only happens in american style options however the calculations involved in this model take a long time to determine so this model isn t the best in rushed situations factors affecting implied volatilityjust as with the market as a whole implied volatility is subject to unpredictable changes supply and demand are major determining factors for implied volatility when an asset is in high demand the price tends to rise so does the implied volatility which leads to a higher option premium due to the risky nature of the option the opposite is also true when there is plenty of supply but not enough market demand the implied volatility falls and the option price becomes cheaper another premium influencing factor is the time value of the option or the amount of time until the option expires a short dated option often results in low implied volatility whereas a long dated option tends to result in high implied volatility the difference lays in the amount of time left before the expiration of the contract since there is a lengthier time the price has an extended period to move into a favorable price level in comparison to the strike price pros and cons of using implied volatilityquantifies market sentiment uncertaintyhelps set options pricesdetermines trading strategybased solely on prices not fundamentalssensitive to unexpected factors news eventspredicts movement but not directionimplied volatility helps to quantify market sentiment it estimates the size of the movement an asset may take however as mentioned earlier it does not indicate the direction of the movement option writers will use calculations including implied volatility to price options contracts also many investors will look at the iv when they choose an investment during periods of high volatility they may choose to invest in safer sectors or products implied volatility does not have a basis on the fundamentals underlying the market assets but is based solely on price also adverse news or events such as wars or natural disasters may impact the implied volatility implied volatility standard deviation and expected price changesstandard deviation is a statistical measure that quantifies the amount of variation or dispersion in a set of data in the context of implied volatility standard deviation is used to measure risk in terms of the expected range of potential price moves for the underlying asset in options trading implied volatility is expressed as an annualized percentage for example if options on a stock correspond to an implied volatility of 20 it means the market expects the stock price to move up or down by 20 over the course of a year however this annual implied volatility can be converted into a daily or weekly expectation using standard deviation the general rule of thumb is that here s how this works in practice let s say a stock is trading at 100 and has an annualized implied volatility of 20 to calculate the expected move over the next month you first need to convert the annual volatility to a monthly volatility this is done by dividing the annual volatility by the square root of 12 because there are 12 months in a year and volatility calculations involve taking the square root of time in this case now you can calculate the expected move for each standard deviation level alternatively these calculations suggest that over the next month traders could then use these standard deviation levels to help set their expectations for potential price moves and to assist in strategies like setting stop loss levels or target prices of course these are just statistical probabilities based on the implied volatility actual price moves can and do exceed these expectations especially in the case of unexpected events or news that significantly impacts the market s perception of the stock s value implied volatility examplelet s consider a hypothetical example to illustrate how implied volatility can be used in options trading say abc stock is currently trading at 100 per share the market expects the company to make a significant announcement in a month that could greatly impact the stock price as a result the implied volatility for the stock s options has risen to 40 a call option on abc stock with a strike price of 105 and one month until expiration priced at 2 50 in the market using the black scholes option pricing model we can work backwards to calculate the implied volatility the black scholes model takes into account the following variables plugging these values into an options pricing calculator or using the black scholes formula we would find that the implied volatility is approximately 40 now let s consider two scenarios this example demonstrates how implied volatility can be used by traders to make informed decisions if a trader believes that the market is overestimating the potential for a significant move i e the implied volatility is too high they might choose to sell options conversely if a trader believes that the market is underestimating the potential for a significant move i e the implied volatility is priced too low they might choose to buy options | |
how does implied volatility work | implied volatility measures the market s expectation of future price fluctuations for a financial instrument such as a stock or option it is derived from the market price of options and reflects investors perceptions of uncertainty or risk associated with the underlying asset s future movements historical volatility vs implied volatilityhistorical volatility hv and implied volatility iv are both measures of volatility in the price of an underlying asset but they differ in their perspective historical volatility looks at past price movements while implied volatility looks forward representing the market s expectations for future price movements despite these differences there is a relationship between the two this is because implied volatility is often influenced by historical volatility when historical volatility has been high market participants may expect that trend to continue leading to higher implied volatility conversely when historical volatility has been low implied volatility may also be lower however implied volatility is not solely determined by historical volatility it also incorporates the market s expectations about future events that could impact the underlying asset s price the difference between historical volatility and implied volatility is sometimes referred to as the volatility risk premium | |
how is implied volatility computed | since implied volatility is embedded in an option s price one needs to re arrange an options pricing model s formula to solve for volatility instead of the price since the current price is known in the market | |
how do changes in implied volatility affect options prices | regardless of whether an option is a call or put its price or premium will increase as implied volatility increases this is because an option s value is based on the likelihood that it will finish in the money itm since volatility measures the extent of price movements the more volatility there is the larger future price movements ought to be and therefore the more likely an option will finish itm the relationship between an option s extrinsic value and implied volatility is therefore key to understanding option pricing extrinsic value also known as time value is the portion of an option s price that is not intrinsic value i e the difference between the underlying asset s price and the option s strike price which represents the amount an option is in the money extrinsic value is directly influenced by implied volatility higher iv leads to higher extrinsic value while lower iv results in lower extrinsic value at the same time an option s intrinsic value is not related to iv only to its moneyness will all options in a series have the same implied volatility no not necessarily downside put options tend to be more in demand by investors as hedges against losses as a result these options are often bid higher in the market than a comparable upside call unless the stock is a takeover target as a result there is more implied volatility in options with downside strikes than on the upside this is known as the volatility skew or smile the bottom lineimplied volatility iv reflects investors perceptions of uncertainty or risk associated with the future movements of the underlying asset this differs from historical volatility which is observed by looking at past price action because it cannot be directly observed iv must be backed out of options prices using pricing models high implied volatility generally indicates greater expected price swings low implied volatility suggests the market anticipates relatively stable prices traders and investors use implied volatility to assess market sentiment gauge the potential risks and rewards of trading options and better investment decisions | |
what is an import | an import is a good or service bought in one country that was produced in another imports and exports are the components of international trade if the value of a country s imports exceeds the value of its exports the country has a negative balance of trade also known as a trade deficit the united states has run a trade deficit since 1975 the deficit stood at 576 86 billion in 2019 according to the u s census bureau the basics of an importcountries are most likely to import goods or services that their domestic industries cannot produce as efficiently or cheaply as the exporting country countries may also import raw materials or commodities that are not available within their borders for example many countries import oil because they cannot produce it domestically or cannot produce enough to meet demand free trade agreements and tariff schedules often dictate which goods and materials are less expensive to import with globalization and the increasing prevalence of free trade agreements between the united states other countries and trading blocks u s imports of goods and services increased from 580 14 billion in 1989 to 3 1 trillion as of 2019 free trade agreements and a reliance on imports from countries with cheaper labor often seem responsible for a large portion of the decline in manufacturing jobs in the importing nation free trade opens the ability to import goods and materials from cheaper production zones and reduces reliance on domestic goods the impact on manufacturing jobs was evident between 2000 and 2007 and it was further exacerbated by the great recession and the slow recovery afterward disagreement about importseconomists and policy analysts disagree on the positive and negative impacts of imports some critics argue that continued reliance on imports means reduced demand for products manufactured domestically and thus can hobble entrepreneurship and the development of business ventures proponents say imports enhance the quality of life by providing consumers with greater choice and cheaper goods the availability of these cheaper goods also help to prevent rampant inflation real life example of importsthe united states top trading partners as of november 2020 included china canada mexico japan and germany two of these countries were involved in the north american free trade agreement nafta that was implemented in 1994 and at the time created one of the largest free trade zones in the world with very few exceptions this allowed the free movement of goods and materials between the united states canada and mexico the united states has experienced a continuous trade deficit since 1975 it is widely believed nafta has reduced automotive parts and vehicle manufacturing in the united states and canada with mexico being the main beneficiary of the agreement within this sector the cost of labor in mexico is much cheaper than in the united states or canada pushing automakers to relocate their factories south of the border the minimum hourly wage paid to autoworkers for certain cars under a trade agreement signed between the u s canada and mexico in 2018 the u s canada and mexico agreed to replace nafta with the united states mexico canada agreement usmca its highlights include the usmca took effect on july 1 2020 | |
what is import duty | import duty is a tax collected on imports and some exports by a country s customs authorities a good s value will usually dictate the import duty depending on the context import duty may also be known as a customs duty tariff import tax or import tariff import duty explainedimport duties have two distinct purposes raise income for the local government and to give a market advantage to locally grown or produced goods that are not subject to import duties a third related goal is sometimes to penalize a particular nation by charging high import duties on its products in the united states congress established import duties the harmonized tariff schedule hts lists the rates for imports and is published by the international trade commission usitc different rates are applied depending on the countries trade relations status with the united states the general rate applies to countries that have normal trade relations with the united states the special rate is for countries that are not developed or are eligible for an international trade program international organizationsaround the world several organizations and treaties have a direct impact on import duties several countries have tried to reduce duties to promote free trade the world trade organization wto promotes and enforces commitments that its member nations have made to cut tariffs countries make these commitments during complex rounds of negotiations another example of an international effort to reduce tariffs was the north american free trade agreement nafta between canada the united states and mexico nafta eliminated tariffs except those on certain agriculture between the three north american nations in 2018 the u s canada and mexico signed a new deal to replace nafta called the usmca in february 2016 12 pacific rim nations entered into the trans pacific partnership tpp which significantly impacts the import duties between these countries it is expected to take several years before the tpp comes into force real world examplein practice import duty is levied when imported goods first enter the country for example in the united states when a shipment of goods reaches the border the owner purchaser or a customs broker the importer of record must file entry documents at the port of entry and pay the estimated duties to customs the amount of duty payable varies greatly depending on the imported good the country of origin and several other factors in the united states customs uses the hts which has several hundred entries to determine the correct rate for consumers the price they pay includes duty costs therefore all other things being equal the same good produced internally should cost less giving local producers an advantage it takes years for someone to learn how to classify an item to determine its correct duty rate every product requires specialized knowledge to set a correct import duty for instance you might want to know the rate of duty of a wool suit a classification specialist will need to know does it have darts did the wool come from israel or another country that qualifies for duty free treatment for specific categories of its products where was the suit assembled and does it have any synthetic fibers in the lining | |
what is import substitution industrialization isi | import substitution industrialization isi is a theory of economics that s typically adhered to by developing countries or emerging market nations as they seek to decrease their dependence on developed countries the approach targets the protection and incubation of newly formed domestic industries to fully develop sectors so the goods produced are competitive with imported goods the process makes local economies and their nations self sufficient under isi theory understanding import substitution industrialization isi the primary goal of the implemented substitution industrialization theory is to protect strengthen and grow local industries this is accomplished through a variety of tactics including tariffs import quotas and subsidized government loans countries implementing this theory attempt to shore up production channels for each stage of a product s development isi runs directly counter to the comparative advantage concept that occurs when countries specialize in producing goods at a lower opportunity cost and export them the history of isiisi refers to the development economics policies of the 20th century but the theory itself has been advocated since the 18th century it was supported by economists including alexander hamilton and friedrich list 1countries initially implemented isi policies in the global south including latin america africa and parts of asia where the intention was to develop self sufficiency by creating an internal market within each country the success of isi policies was facilitated by subsidizing prominent industries such as power generation and agriculture and encouraging nationalization and protectionist trade policies developing countries nonetheless began to reject isi in the 1980s and 1990s after the rise of global market driven liberalization a concept based on the international monetary fund and the world bank s structural adjustment programs the theory of isiisi theory is based on a group of developmental policies the foundation is composed of the infant industry argument the singer prebisch thesis and keynesian economics a group of practices can be derived from these economic perspectives related to and intertwined with isi is the school of structuralist economics conceptualized in the works of idealistic economists and financial professionals such as hans singer celso furtado and octavio paz this school emphasizes the importance of taking the structural features of a country or a society into account in economic analysis this includes political social and other institutional factors a critical feature is the dependent relationship that emerging countries often have with developed nations structuralist economics theories further gained prominence through the united nations economic commission for latin america ecla or cepal its acronym in spanish latin american structuralism has become a synonym for the era of isi that flourished in various latin american countries from the 1950s to the 1980s real world example of isithe ecla was created in 1950 with argentine central banker raul prebisch as its executive secretary prebisch outlined an interpretation of latin america s burgeoning transition from primary export led growth to internally oriented urban industrial development in a report that report became the founding document of latin american structuralism to quote one academic paper it became a virtual manual for import substitution industrialization 2most latin american nations went through some form of isi in the ensuing years inspired by prebisch s call to arms they expanded the manufacturing of non durable consumer goods like food and beverages and then expanded into durable goods such as autos and appliances some nations including argentina brazil and mexico even developed domestic production of more advanced industrial products like machinery electronics and aircraft the implementation of isi was successful in several ways but it did lead to high inflation and other economic problems many latin american nations sought loans from the imf and the world bank when these problems were exacerbated by stagnation and foreign debt crises in the 1970s these countries had to drop their isi protectionist policies and open up their markets to free trade at the insistence of these institutions | |
how does a tariff work | a tariff works like a tax it can be a flat rate charged on one item or a percentage of that item s value tariffs are normally found in international trade markets they re commonly used as a way to protect domestic producers and the country s economy 3 | |
what are some examples of a protectionist trade policy | a protectionist trade policy is legislation that blocks or restricts international trade tariffs are an example of protectionist policy as are import quotas that limit how many products a country can import 4 | |
what are keynesian economics | the concept of keynesian economics is credited to british economist john maynard keynes keynes economics include the theory that individuals save more during a recession but this is a detriment to an ailing economy keynes also believed that lowering interest rates wouldn t increase demand for products perhaps most notably he argued that more government spending would rescue an economy from tough economic times 5the bottom lineimport substitution industrialization isi is an economic theory common among developing nations and emerging market nations but they began to reject this policy in the 1990s the goal was to gain self sufficiency by developing sectors to ensure that goods produced within the country were competitive with those being imported this led to high inflation and other economic problems in some countries | |
what is an impression | an impression is a metric used to quantify the number of digital views or engagements of a piece of content usually an advertisement digital post or web page impressions are also referred to as an ad view they are used in online advertising which often pays on a per impression basis counting impressions is essential to how web advertising is accounted for and paid for in search engine marketing as well as measuring the performance of social media campaigns impressions are not a measure of whether an advertisement has been clicked on but how many times it was displayed or had potential eyeballs on it which leads to some debate as to how accurate the metric is | |
how impressions work | broadly one impression is equal to each occurrence of a web page ad or piece of content being found and loaded because it is accessible to both measure and understand it has become the most convenient and economical way to determine whether an advertisement is being seen or not but exactly how that figure is interpreted is up for debate some online advertising experts believe that there is no exact way to count impressions since a count can be skewed by a single person registering the same ad in several page views for example there are several more ways for total impression numbers to be skewed which leads to advertisers to view any impression figure with a bit of skepticism in general most advertisers and publishers decide beforehand how impressions are counted and accounted for advertisers may decide on whether a campaign is successful or not based on another form of reporting such as engagement broadly how an ad viewer interacts with an ad impression accountingfrequently impressions are measured by cost per mille cpm where mille refers to 1 000 impressions or cost per thousand a banner ad might have a cpm of 5 meaning that the website owner receives 5 every time an ad on his website is displayed 1 000 times the owner of a website may be paid for each ad impression other advertising arrangements may only pay the website owner when a visitor clicks on the ad or clicks on the ad and makes a purchase typically advertisers pay less for an ad campaign based solely on impressions and more for campaigns based on click throughs and conversions the reason for this difference in pay rates is that an ad that causes its viewer to take action resulting in a sale is more valuable to the advertiser than one that does not still impressions are useful when running public relations campaigns that are designed to build an image or create awareness about a company or product the exact way impressions are counted is somewhat technical ad servers provide a barely visible image or pixel that can be found on each publisher page when a page with that pixel image loads an impression is made impression fraudseveral things can skew impression counts for one estimates have that around 60 of all web traffic is from bots impression counts make no distinction between a human ad viewer or a bot ads can also fail to load or the incorrect ad may load such errors may or may not be accounted for there is also outright fraud with unscrupulous website developers using several methods to game the system one estimate is that a quarter of the online advertising market is fraudulent nonetheless impressions remain a popular way to measure engagement whether in advertising social media or analyzing web traffic | |
what is imprest | an imprest is a cash account that a business relies on to pay for small routine expenses funds contained in imprests are regularly replenished in order to maintain a fixed balance the term imprest can also refer to a monetary advance given to a person for a specific purpose | |
how imprest works | the most well known type of imprest is a petty cash account which is used to cover smaller transactions when it s impractical or inconvenient to cut checks such accounts maintain a set amount of cash on site which can be used to reimburse employees and pay for small expenses petty cash funds are typically handled by custodians who monitor the account and dispense cash to employees who in turn furnish business related receipts imprests may also be used to cover employee payroll dividends employee travel and bonuses after these outgoing expenses are paid the fund is typically reimbursed by capital from the company s primary bank account imprests deter the use of unauthorized spending because the funds are earmarked for specific purposes consequently imprests typically pay out the same amount of money on a regular basis which ideally brings the account to a near zero balance before it s automatically replenished with that same set amount of money this system makes it easier to monitor expenses flag discrepancies and ultimately detect fraud the imprest systemthe imprest system involves the following steps the future of imprestsas companies increasingly rely on electronic transactions the imprest system is steadily falling out of favor it s often easier to use a company credit card than an imprest because the former offers electronic documentation of transactions and doesn t trigger a need to replenish any outgoing funds | |
what is an imprest account used for | companies keep cash on hand in imprest to pay for incidentals like office supplies small reimbursements or other minor expenses similar to petty cash imprest should not be used for material expenses such as utilities or to purchase assets for the firm | |
where does the word imprest come from | the word is derived from the early italian or medieval latin imprestare which meant to lend thus an imprest now means a small advance of funds used for incidentals and which must be replenished after use | |
how else is the term imprest used | in addition to funds used by a business an imprest may also refer to money paid to someone for doing work on behalf of a government in this case the government advances the funds prior to the work being completed | |
what is an impulse wave pattern | an impulse wave pattern is an indication of a strong move in a financial asset s price coinciding with the main direction of the underlying trend impulse waves can refer to upward movements in uptrends or downward movements in downtrends the term is used frequently by adherents of elliott wave theory a method for analyzing and predicting price movements in the financial markets understanding impulse wavesthe interesting thing about impulse wave patterns in relation to the elliott wave theory is that they are not limited to a certain time period a wave can last for several hours several years or decades regardless of the time frame used impulse waves always run in the same direction as the trend but at a one larger degree these impulse waves are shown in the illustration below as wave 1 wave 3 and wave 5 while collectively waves 1 2 3 4 and 5 form a five wave impulse at a one larger degree impulse waves consist of five sub waves that make net movement in the same direction as the trend of the next largest degree this pattern is the most common motive wave and the easiest to spot in a market like all motive waves it consists of five sub waves three of them are also motive waves and two are corrective waves this is labeled as a 5 3 5 3 5 structure as shown above however it has three rules that define its formation these rules are unbreakable if one of these rules is violated then the structure is not an impulse wave and one would need to re label the suspected impulse wave the three rules are 1elliott wave theoryelliott wave theory was formulated by r n elliott in the 1930s based on his study of 75 years of stock charts covering various time periods 2 elliott designed his theory to provide insights into the probable future direction of larger price movements in the equity market the theory can be used in conjunction with other technical analysis methods to pinpoint potential opportunities wave theory seeks to ascertain market price direction through the study of impulse wave and corrective wave patterns impulse waves consist of five smaller degree waves net moving in the same direction as a larger trend while corrective waves are composed of three smaller degree waves moving in the opposite direction to the theory s advocates a bull market consists of a five wave impulse and a bear market consists of a corrective retracement regardless of size the number of waves in a five wave impulse the number of waves in a three wave correction and the number of waves in combinations thereof accord with fibonacci numbers a numeric sequence associated with growth and decay in life forms elliott noticed that wave retracements often conform to fibonacci ratios such as 38 2 and 61 8 which are based on the golden ratio of 1 618 wave patterns are also a part of the elliott wave oscillator a tool inspired by elliott wave theory that depicts price patterns as positive or negative above or below a fixed horizontal axis elliott wave theory continues to be a popular trading tool thanks to robert prechter and his colleagues at elliott wave international a market research firm formed to apply and enhance elliott s original work by integrating it with such current technologies as artificial intelligence 3trading strategies and impulse wave patternstrading strategies built around impulse wave patterns aim to harness the directional movements defined by elliott wave theory one effective approach involves trend following this happens when traders identify the characteristic five the optimal entry point is often at the commencement of the third wave this is because it s usually known for its robust momentum using the strategy above you can protect yourself against downside risk by placing a stop loss order beneath the recent low of the corrective wave 2 this guards you against potential trend reversals profit taking is strategically set at key fibonacci extension levels related to the length of wave 1 allowing you to secure profits as the impulse wave progresses another strategy centers on exploiting corrections within impulse waves the entry point is during the second corrective wave anticipating that it will be followed by one more wave this completes the corrective pattern before the resumption of the larger impulse wave to further protect against risk with this second strategy you can place a stop loss order above the high of the first corrective wave profit taking targets are set at key support or resistance levels aligned with the completion of the third wave common mistakes when identifying impulse wave patternsidentifying impulse waves within the framework of elliott wave theory can be challenging falling prey to common mistakes that can compromise the accuracy of your analyses meaning you ve identified a pattern that did not materialize or failed to identify a pattern that did one prevalent error is the misinterpretation of wave counts where traders incorrectly identify the sub waves within an impulse or mistake a corrective wave for an impulse wave to avoid this traders should adhere to the guidelines of elliott wave theory emphasizing the five wave structure of impulse waves keep in mind that there s distinct characteristics of motive and corrective waves another common mistake involves the overreliance on wave length equality this means that trades ay assume that waves 1 and 5 within an impulse must have the same price distance while equality can happen it is not a strict rule traders should be cautious not to force symmetry where it does not naturally exist last traders can neglect the importance of analyzing the larger market context failing to consider factors such as trendlines support and resistance levels or broader technical indicators ignoring these elements can result in an isolated and myopic view of impulse waves it s true that an impact wave pattern has formed however other factors may externally influence the proper trade treatment which we ll talk more about in the next section past performance is not always an indicator of future price action when using historical data to base future trades proceed with caution limitation of impulse wave patternswhile impulse wave patterns within elliott wave theory provide valuable insights into market trends and can guide trading decisions they come with certain limitations as you rely on this strategy be aware of the following subsections one of the primary challenges with elliott wave analysis including impulse waves is its subjective nature different analysts may interpret wave patterns differently leading to potential variations in wave counts and predictions this subjectivity can introduce a level of ambiguity especially in complex market conditions this can also be frustrating to new traders leading to impatient trading decisions elliott wave patterns are often clearer in hindsight making them susceptible to retrospective bias traders may be tempted to adjust wave counts based on historical price movements which can lead to overfitting and unreliable predictions when applied to real time market data also always remember that historical price action may not dictate future price action as mentioned in the last section elliott wave theory suggests guidelines for the typical relationships between waves however there is inherent variability in the lengths of impulse waves wave lengths can deviate from theoretical expectations making it difficult to rely solely on fixed rules for predicting the duration and magnitude of each wave impulse waves can also extend or truncate deviating from the standard five wave structure this variability introduces uncertainty in predicting the length and direction of waves especially when extensions occur potentially resulting in overestimation of trend strength this also adds complexity for newer traders who are seeking consistency as they become more comfortable with the pattern elliott wave theory assumes that markets move in impulsive and corrective waves which may not always align with real world market conditions in certain situations especially during periods of extreme market sentiment trends may not unfold according to the expected wave patterns in addition actions by the government via monetary or fiscal policy or specific market news from a specific company may also materially impact the price action of that security regardless of what pattern it may or may not have formed can impulse waves be reliably predicted in advance while elliott wave theory provides a framework for understanding market movements the reliability of predicting impulse waves in advance is subject to market complexities and external factors traders should use elliott wave analysis in conjunction with other tools for more robust predictions though it is possible to identify patterns reliably be aware there are other factors to consider | |
how do market news and events impact impulse wave patterns | market news and events can influence the formation and disruption of impulse wave patterns unexpected developments may lead to shifts in sentiment impacting the expected wave patterns traders should consider both technical analysis and external factors | |
what is the role of market sentiment in the formation of impulse waves | market sentiment plays a crucial role in the formation of impulse waves the collective psychology of traders influences the strength and direction of these waves further enforcing the structure and expected price directions | |
do impulse waves behave differently in cryptocurrency markets | cryptocurrency markets may exhibit variations in impulse wave behavior due to generally higher volatility and stronger market sentiment unique to the crypto space the bottom lineimpulse wave patterns a fundamental concept in elliott wave theory consist of a five wave structure with three upward moving motive waves and two downward moving corrective waves these patterns reflect the collective psychology of market participants providing a framework for understanding and predicting directional trends in financial markets | |
what is imputed value | imputed value also known as estimated imputation is an assumed value given to an item when the actual value is not known or available imputed values are a logical or implicit value for an item or time set wherein a true value has yet to be ascertained an imputed value would be the best guess estimate used to forecast a larger set of values or series of data points imputed values can pertain to the value of intangible assets owned by a firm the opportunity cost associated with an event or used for ascertaining the value of a historical item for which facts about its value at a past point in time are not available | |
what is imputed interest | imputed interest is a term used in tax law to describe a situation where a lender charges no interest on a loan but the internal revenue service irs considers the loan to have been made at an interest rate that is imputed or implied by market conditions this can happen when a lender charges a lower interest rate than the market rate or when a borrower receives a loan from a family member or friend at a below market interest rate in such cases the irs may require the lender to pay taxes on the difference between the actual interest rate and the imputed interest rate the irs thus uses imputed interest to collect tax revenues on loans or securities that pay little or no interest imputed interest is important for discount bonds such as zero coupon bonds and other securities sold below face value and mature at par the irs uses an accretive method when calculating the imputed interest on treasury bonds and has applicable federal rates that set a minimum interest rate in relation to imputed interest and original issue discount rules understanding imputed interestimputed interest occurs when a taxpayer has borrowed money but the lender charges no interest or an interest rate that is much lower than the market rate the tax treatment of such loans depends on whether the loan was an actual loan a demand loan or a gift from friends or family this distinction is important because the tax authorities treat each type of loan differently with respect to imputed interest the irs considers an actual loan to occur when there is a written agreement between the lender and borrower in this case the lender may be required to pay taxes on interest income whether or not they actually charged a market interest rate submission of written records helps the irs determine whether the loan is a conventional loan as opposed to a gift loan imputed interest may therefore apply to loans among family and friends for example a mother loans her son 50 000 with no interest charges if the applicable short term federal rate is 2 percent the son should pay his mother 1 000 annually in interest the irs assumes the mother collects this amount from her son and lists it on her tax return as interest income even though she did not collect the funds gift loans of less than 10 000 are exempt from imputed interest as long as the money isn t used to buy income producing assets 1applicable federal ratesbecause there were many low interest or interest free loans that went untaxed the irs established applicable federal rates through the tax act of 1984 the applicable federal rate afr determines the lowest interest that one may charge on loans below a specific interest rate threshold and considers the amount of potential income generated from the interest rate as imputed income because of the creation of afr the irs may collect tax revenue from loans that are otherwise untaxed because imputed tax rates are tied to the actual interest rate environment at a given time each month the irs provides various prescribed rates for federal income tax purposes afr rates are regularly published as revenue rulings and can be looked up on the irs website 2calculating imputed interest on a zero coupon bond | |
when calculating imputed interest on a zero coupon bond an investor first determines the bond s yield to maturity ytm assuming the accrual period is one year the investor divides the face value of the bond by the price paid when it was purchased the investor then increases the value by a power equal to one divided by the number of accrual periods before the bond matures the investor reduces the number by one and multiplies by the number of accrual periods in one year to determine the zero coupon bond s ytm | because the adjusted purchase price of a zero coupon bond is initially equal to its purchase price when issued the accrued interest gained over each accrual period adds to the adjusted purchase price the accrued interest is the initial adjusted purchase price multiplied by the ytm this value is the imputed interest for the period while the concept of interest and the charging of interest on loans is a common practice in the financial world the idea of imputed interest is a legal construct that is used to determine whether a lender is required to pay taxes on a loan that has been made at a below market interest rate imputed interest is therefore not an actual interest rate or a real cost to the borrower but rather a theoretical interest rate that is used for tax purposes imputed interest exemptionsthere are several exemptions to the rules on imputed interest which may allow a lender to avoid paying taxes on the difference between the actual and imputed interest rates for example a loan between family members may be exempt from imputed interest if the loan is for a reasonable amount typically less than 10 000 and is charged at a rate that is not significantly below the market rate and if the loan is not used to purchase income generating assets additionally loans made by a qualified charitable organization a political organization or a nonprofit organization may also be exempt from imputed interest 1loans made for the purpose of buying a primary residence may be exempt from imputed interest as may loans made for the purpose of buying a car or other certain other personal property additionally loans made for the purpose of funding a business or investment may also be exempt from imputed interest in some cases 1it s important to note that the rules and exemptions for imputed interest can vary depending on the specific circumstances of the loan and the applicable tax laws it s always best to consult with a tax professional if you have questions about imputed interest and how it may apply to you imputed interest on a zero coupon bonda zero coupon bond is a type of bond that does not pay periodic interest payments to the bondholder instead the bond is sold at a discount from its face value and the difference between the purchase price and the face value is considered to be the return on the investment in the case of a zero coupon bond the imputed interest is the difference between the purchase price of the bond and the face value for example if a zero coupon bond has a face value of 1 000 and is purchased for 700 the imputed interest would be 300 the bondholder would be required to pay taxes on this imputed interest each year even though they did not receive any actual interest payments example of imputed interestimputed interest is important for determining pension payouts for example when an employee retires from a company where they were a member of a pension plan the company may offer the retiree a lump sum of the 500 000 set aside for them under the plan or they may receive 5 000 a year in benefits assuming the applicable short term federal rate is 2 percent the retiree needs to determine whether they could find better imputed interest in another market by taking the lump sum and purchasing a higher yield annuity can you deduct imputed interest on your taxes in most cases imputed interest is not tax deductible this means that if you are required to pay taxes on the imputed interest on a loan you cannot claim a deduction for that interest on your tax return however there are some exceptions to this rule for example if you use the loan proceeds to buy a primary residence or to fund a business or investment you may be able to claim a deduction for the imputed interest on your taxes additionally if you are a qualified charitable organization a political organization or a nonprofit organization you may be exempt from the rules on imputed interest and may be able to claim a deduction for the interest you pay on your loans it s always best to consult with a tax professional if you have questions about whether you can claim a deduction for imputed interest on your taxes who pays imputed interest in most cases the lender is responsible for paying taxes on the imputed interest on a loan this means that if the irs determines that a loan should have been made at a higher interest rate than the actual rate charged by the lender the lender may be required to pay taxes on the difference between the two rates and is responsible for reporting the imputed interest on their tax return in some cases the borrower may also be required to report the imputed interest and pay taxes on it depending on the specific circumstances of the loan 3 | |
how do you compute imputed interest | the calculation of imputed interest can vary depending on the specific circumstances of the loan and the applicable tax laws in general however the imputed interest on a loan is the difference between the actual interest rate charged by the lender and the market interest rate for a similar loan this difference is then multiplied by the loan principal to determine the amount of imputed interest for example if a borrower receives a loan of 10 000 at an interest rate of 3 and the market interest rate for a similar loan is actually 4 the imputed interest would be 100 1 x 10 000 the bottom lineimputed interest is a term used in tax law to describe a situation where a lender charges no interest on a loan but the irs considers the loan to have been made at an interest rate that is implied by market conditions in such cases the lender may be required to pay taxes on the difference between the actual and imputed interest rates there are several exemptions to these rules including loans made for the purpose of buying a primary residence or funding a business or investment the calculation of imputed interest is generally based on the difference between the actual interest rate and the market interest rate for a similar loan correction may 14 2023 an earlier version of this article incorrectly stated that it is the lender s responsibility to pay interest on a loan in most cases lenders are responsible for paying taxes on the imputed interest of a loan | |
what is in app purchasing | in app purchasing refers to the buying of goods and services from inside an application on a mobile device such as a smartphone or tablet in app purchases allow developers to provide their applications for free the developer then advertises upgrades to the paid version paid feature unlocks special items for sale or even ads other apps and services to anyone who downloads the free version this allows the developer to profit despite giving the basic app itself away for free understanding in app purchasingin app purchasing allows application owners the ability to upsell application users from within the application itself rather than through other marketing channels for example a game application may offer the user the ability to skip a particularly difficult level for a fee or the owner may provide consumers with the ability to view premium content that is behind a pay wall the developer hopes to make enough money from these small transactions and the advertising revenue to cover the costs of creating and maintaining the app the most common type of in app purchase is to pay for the ad free version or the full version of an app special considerationsapplication stores such as google play or itunes allow users to download applications with in app purchasing but they typically let the user know that an application has this feature some have policies allowing refunds if they are requested soon after a purchase is made application stores often take a percentage of the in app sale in app purchases are part of a freemium model for monetizing mobile applications or content consumers making purchases through an application do not have to visit a separate website to conduct the transaction in fact attempting to conduct a sale by redirecting to an external website violates the terms of most application stores as it prevents them from collecting a commission criticism of in app purchasingbecause in app purchases are conducted through a mobile device unauthorized purchases can result in security issues this is especially the case if the username and password used in the application are not strong or credit card information is stored in the app in an insecure manner many applications will email a receipt after a purchase is made which can allow a fraudulent purchase to be stopped there are no overarching guidelines for in app purchasing but regulators have taken a keen interest in in app purchasing one of the primary reasons for this is that many children have access to smartphones many of the optimization schemes in these apps result in children making in app purchases that their parents do not want or may not immediately notice in time to reverse parents and by extension regulators have noticed that the optimization of these in app purchasing ads appears to target children in particular advertising in a way designed to take advantage of kids for a profit tends to be frowned upon but it is governed more by ethics and codes than specific regulations or laws | |
what is in escrow | in financial transactions the term in escrow indicates a temporary condition of an item such as money or property that has been transferred to a third party this transfer is usually done on behalf of a buyer and seller in escrow is a type of legal holding account for items which can t be released until predetermined conditions are satisfied typically items are held in escrow until the process involving a financial transaction has been completed valuables held in escrow can include real estate money stocks and securities understanding in escrowescrowed items are most commonly found in real estate transactions the property cash and the title to the property are often held in escrow until all specified conditions outlined in the escrow agreement are met and transfer of ownership can occur an escrow agreement outlines the conditions and terms between the parties involved in the transaction as well as the responsibilities of each of the parties items placed in escrow are managed by a trustee called an escrow agent the escrow agent which is typically a lawyer holds the assets until predetermined contractual obligations are fulfilled once the agreement terms have been satisfied the escrow agent releases the funds or property held in escrow to the appropriate party real estate in escrowwhile the property is held in escrow the buyer cannot take possession of or occupy the space real estate deals must clear a series of stages during the escrow process below are some of the typical conditions that might need to be met and why assets might be held in escrow an appraisal of the property must be conducted on a property before its sale issues could arise if the appraised value of the property is lower than the agreed upon purchase price banks will not lend money for the amount of a property if the asking price is above the appraised value the buyer could try to find funding to cover the missing portion of the agreed purchase price for the property or ask the seller to lower the price if the buyer can t fund the difference while the real estate is in escrow the transaction could be terminated a buyer might agree to purchase a property with the condition that the home passes a home inspection the funds for the purchase would be held in escrow until the inspection has been completed once the conditions of the offer are satisfied the buyer or seller will then be obligated to purchase or sell the property the real estate transaction could be held in escrow whereby the sale wouldn t be completed until the buyer obtains financing or a mortgage from a bank also the buyer could have difficulty securing the necessary insurance and other policies needed to complete the transaction if the buyer doesn t get approved for the mortgage or obtain the needed insurance the escrow agent would nullify the offer to buy before purchasing a home a title search is performed which is a process of checking public records to determine the ownership of the property the title search helps determine if there are any liens and other claims attached to the property an outstanding lien means that the property was used to guarantee the repayment of a loan a clear title meaning there are no liens is required for any real estate transaction to go through properly the buyer may have wanted the property for a use that does not match current zoning regulations the seller might seek a variance while the property is in escrow to allow the buyer to proceed with their intended plans upon taking full ownership of the real estate the purchase might have included guarantees that the seller would address needed repairs to the property this could include the removal of landscape features such as trees or the reconstruction of part of a building if the seller does not make good on those promises while the property is in escrow then the deal might fall through releasing in escrow fundsthe funds in a real estate transaction can be held in escrow even on the date of the sale and won t be released until all parties the buyer seller and the mortgage company agree that all of the conditions in the escrow agreement have been satisfied the intention of keeping the property in escrow is to assure all parties that the mutual responsibilities outlined in the escrow agreement will be fulfilled | |
what is in house | in house refers to an activity or operation that is performed within a company instead of relying on outsourcing the firm uses its own employees and time to perform a business activity such as financing or brokering this is the opposite of outsourcing which involves hiring outside assistance often through another business to perform those activities understanding in housethe determination as to whether to keep activities in house or to outsource often involves analyzing the various costs and associated risks how these costs are calculated may vary depending on the size and nature of the core business a firm may decide to keep certain activities in house such as accounting payroll marketing or technical support while it can be cheaper to outsource those divisions there are also circumstances where it pays to invest in in house professionals in house financing is provided by many retailers helping to facilitate the purchasing process for customers additionally keeping these activities in house may allow the business to exert higher levels of control by keeping the services and personnel under direct control there may also be fewer security risks depending on the kinds of data that would have to be supplied to an outside party should the activity be outsourced at times internal employees may have a better understanding of how the business functions overall providing them with insights into how certain activities should be handled allowing them to function with the business s core vision at the forefront of the decision making process in house services | |
when dealing with customers a firm may try to keep the entire transaction in house for example in house financing is a common practice in certain industries this form of financing works by using the firm s resources to extend the customer s credit with the firm potentially benefiting from any associated interest payments in exchange for assuming the risk associated with default | for a brokerage the firm may try to match a client s order with another customer creating an in house transaction this allows the firm to benefit from both the buy and sell side commissions and potentially lowering other administrative costs in house financing is a type of seller financing in which a firm extends customers a loan allowing them to purchase its goods or services in house financing eliminates the firm s reliance on the financial sector for providing the customer with funds to complete a transaction although cloud hosting is an inexpensive way to maintain an online presence in house hosting gives a company greater control over its online infrastructure advantages and disadvantages of in house operationsin house business operations can offer an additional revenue stream by offering services that the company s clients would otherwise find elsewhere auto companies frequently offer in house financing at higher rates than those available from banks or credit unions in addition conducting business operations in house gives a company greater control over the execution of these operations since it is the direct employer of the teams conducting those operations the main disadvantage of in house operations is the cost of maintaining an additional team that may be outside of the company s core business many companies outsource their payroll it or other technical work because the companies are too small to justify hiring full time staff for these roles in house services can provide some retailers with additional revenue streams companies have more control over in house teams than they would with a contractor in house operations can be more expensive and take resources away from the company s core business smaller companies might not have enough work to justify hiring full time in house staff | |
when to outsource vs in house | in sourcing provides a company with greater control over the execution of in house tasks since it is the direct employer however investing in specialized full time staff can be expensive particularly if their work is only needed intermittently for example most small companies would not need an in house legal team for this reason most companies keep their most key functions in house while outsourcing roles that are highly specialized or not directly related to their core business model for example payroll web services legal services public relations and online security are often contracted to outside companies larger companies may have the resources to justify keeping these teams in house risks of in house operationsoutsourcing involves contracting out certain business activities for completion by a third party often the expectations regarding the third party s performance are outlined within a contract specifying which tasks should be accomplished along with any associated deadlines the primary risks of outsourcing revolve around the involvement of a third party which is not under the direct control of the hiring company if certain needs are not clearly specified in the contract the third party may not be liable for the completion of said activities additionally the outside party may also have different standards such as in the areas of data security which could put company information at risk web hosting is a good example of insourcing vs outsourcing although it is cheaper and easier to outsource a company s web services to a cloud provider some businesses prefer maintaining control over their own server infrastructure real world example of in house financingford credit is a well known in house auto financing group ford credit is the business of giving out auto loans for ford car buyers at their own dealerships rather than encouraging ford customers to seek external financing from a bank or credit union in january 2017 ford credit partnered with autofi to make car buying and financing even easier through technology that allows the buyer to shop online for their car and auto loan with this new point of sale platform ford customers can shop online through ford dealer websites buy and finance their car this type of customer experience allows car buyers to spend less time at the dealership while also offering a faster sales process for ford other auto companies such as general motors also have important in house financing arms 1 | |
what is the main advantage of an in house approach | a company retains greater control over operations by keeping them in house than they would exercise by outsourcing these roles to a contractor in addition they also have the benefit of in house specialists who are intimately familiar with the company s business and brand compared to an outside company that may be less familiar | |
what is the difference between in house and outsourcing | outsourcing is the practice of hiring an outside company or contractor to perform work whereas in housing also known as insourcing is the practice of assigning this work to existing employees | |
is it better to outsource or keep in house | there are benefits and disadvantages to outsourcing certain roles as there are with keeping those operations in house a company has greater control over the direction and management of work by its in house employees than it would over an outside contractor on the other hand outside companies may have more experience and resources with certain tasks such as legal services in addition a company must pay the full salary and benefits of its in house employees outsourcing those roles to another company could cost more or less than keeping those roles in house depending on the nature of the task | |
what does in house recruitment mean | in house recruitment is when a company directly advertises interviews and hires a new employee to fill an open role the alternative is to outsource hiring to a professional recruiting agency | |
what is in house financing | the term in house financing refers to financing that is provided directly to consumers by retailers or other firms it allows people to purchase and finance goods and services directly from the seller in house financing eliminates the firm s reliance on third party lenders in the financial sector for providing the customer with funds to complete a transaction it is commonly used in the automotive industry and for large purchases in the retail sector understanding in house financingwhile some people are able to most don t have enough money to pay for large purchases outright in cash that s where financing comes into play this is a process that involves borrowing money from another party to complete the purchase in most cases this involves a bank or other lender in other instances the seller may offer financing itself this is referred to as in house financing in house financing is provided by many automobile makers and retailers to facilitate the purchasing process for customers the customer financing arm of the business is known as an investment center this type of lending benefits consumers in that they are typically able to obtain a loan through the company where they may not have been able to through traditional financing means such as via a bank in order to offer this kind of service retailers must have an established lending business within their firm or partner with a single third party credit provider to service a loan for their customers as noted above it is common in certain parts of the retail sector such as large department stores and within the automotive industry some auto dealers may add extra fees for in house financing always read the fine print special considerationswith the emergence of new financial technology fintech companies many borrowers now have greater in house financing options through faster and more convenient point of sale pos credit platforms point of sale credit technology can be built around a company s in house credit department or generally facilitated when a company partners with a single credit provider to service its customer s lending needs point of sale financing simplifies the lending process for customers by allowing them to apply for credit when they are ready to buy the better the credit score the more likely that the customer will be approved and often for higher credit limits it makes credit convenient for customers since they can receive a credit decision from the retailer in minutes it also makes it easier for retailers to close a deal credit backed sales are increasingly popular among consumers with more merchants taking on this option this was especially true during the covid 19 pandemic in fact fintech firms captured as much as 8 billion to 10 billion in revenue from traditional lenders it s estimated that 13 to 15 of purchases will use credit backed pos technology by 2023 1store credit cards tend to have higher interest rates but the rewards may be worthwhile for very frequent shoppers types of in house financingthe automobile sales industry is a prominent user of in house financing since its business relies on buyers taking auto loans to close the purchase of a vehicle offering a car buyer in house financing helps a firm to complete more deals by accepting more customers car dealers also have the benefit of setting their own standards for underwriting which sometimes encompasses a greater number of borrowers by accepting those with a lower credit score in many cases these lending platforms will accept borrowers that banks or other financial intermediaries might turn down for a loan other industries offering in house financing may include equipment manufacturers appliance stores or e commerce retail stores some medical and dental expenses may not be covered by insurance companies because of the types of procedures involved these are usually elective procedures such as plastic surgery and cosmetic dentistry if the consumer isn t able to pay for them upfront the provider may offer in house financing like auto dealers these service providers are able to set up their own financing terms for their clients who may be more likely to return for other services if they need them in the future in house financing is also very common for large retailers especially big box stores that offer more expensive products such as appliances furniture major electronics and building supplies financing options may come in the form of in store credit cards that can only be used at that retailer or loans some of the biggest names in retail that offer this type of financing include home depot lowe s apple and ashley furniture homestore providing the option to finance purchases in house helps retailers retain customer loyalty example of in house financingas noted above in house financing is a common option for consumers who wish to purchase a vehicle ford credit is one of the most well known in house auto financing groups in january 2017 ford credit partnered with autofi to make car buying and financing even easier through technology that allows the buyer to shop online for their car and auto loan 2ford customers can shop online through ford dealer websites with this new point of sale platform it allows them to buy and finance their cars this type of customer experience allows car buyers to spend less time at the dealership while also offering a faster sales process for ford | |
how does in house car financing work | in house car financing is when a car dealership lends their customers part of the purchase price for their car this provides the dealer with an additional income stream from the customer s interest payments while allowing the customer to buy a car that they might not have qualified for otherwise however because in house lenders are smaller they may not be able to match the interest rates of a large bank or credit union it may be worth visiting several institutions to compare rates before considering an in house loan | |
is bank or in house financing better for buying a car | there is no clear winner between banks and dealer financing and it may be worth comparing interest rates from both before making a decision a car loan from a bank represents the true interest rate while dealers may charge a markup or extra fees for financing a car on the other hand dealers specialize in auto loans and may be able to get lower rates for newer cars some dealers even offer promotional 0 financing for the first year on a new car | |
why do stores offer in house financing | many retail stores offer in house financing or store credit cards because these represent an additional source of revenue from their customers while the interest rates tend to be higher than typical credit cards they may come with rewards or perks that can be worthwhile to frequent shoppers | |
what is an in service withdrawal | an in service withdrawal occurs when an employee takes a distribution from a qualified employer sponsored retirement plan such as a 401 k account without leaving the employ of their company this may occur without a tax penalty any time after the employee reaches age 59 or if the employee withdraws up to 10 000 to purchase their first home declares a hardship or establishes extreme financial need in some cases in service withdrawals can be made without these events occurring not every retirement plan allows in service withdrawals but in 2019 about 70 of those available in the u s did offer this option under certain conditions 12understanding in service withdrawalsby law normal withdrawals from retirement plans can be made as a result of employment change hardship and documented financial need or once the employee has reached 59 years of age 3in service withdrawals are a little different if the plan allows in service withdrawals then an employee can take a distribution merely for the purpose of pursuing different investment options that they deem to be more suitable for them this is usually done in the form of an allowable rollover from the plan to a previously existing 401 k account or a new traditional individual retirement account ira this provision can be tricky for example rolling over savings from a 401 k plan to a traditional ira is allowed by law if the money being moved is from employer contributions either matched money or profit sharing accumulations the money being rolled over cannot come from pre tax contributions unless the employee is 59 years old or older 4the solution is to know precisely what your plan allows and what it does not finding out such details might be a little harder than it sounds for some employees because a company administering a company sponsored retirement plan has an incentive to keep participants from taking money out of their accounts early the government agrees that employees who are saving for retirement should be very careful about withdrawing money early these two factors combine to inhibit your ability to find out the details of your plan s in service withdrawals because your employer might not advertise such provisions and the government doesn t require them to do so to find the information you need you ll likely have to search a bit online or make a phone call to your 401 k helpline | |
what to ask your plan administrator about in service withdrawals | if you don t like your current investment options and want to move some or all of your 401 k money to an ira that has better choices you ll need to search for the faq pages or call and ask direct questions of the company which manages your retirement plan look for the answer to these four questions since only about 30 of employer sponsored plans in america don t offer this option it is worth looking into if you want more investment options 5 once you ve determined that your plan does allow non hardship in service withdrawals you ll want to pay attention to the tax consequences of such a decision typically the distribution must be made to a traditional ira to avoid generating new taxes but oftentimes a distribution to a roth ira is allowed if you are willing to pay the taxes that will come from such an action some people might consider paying taxes or penalties worthwhile if their investment options were good enough but most investors and financial advisers would agree it is generally not considered a sound choice to do so still individual circumstances vary and no one can say that one single choice is best for all investors that being said you should be very careful about your choices in this area investors have lost significant money chasing after investments that suggest higher than normal rates of return and in hindsight paying taxes for the privilege of losing money can feel like adding salt to an open wound tax implications of in service withdrawalsmost withdrawals made from a qualified employer sponsored retirement plan before reaching age 59 will come with a 10 early withdrawal penalty tax on the amount being distributed this is in addition to applicable federal income and state taxes some exemptions are defined by the internal revenue service irs 6the 10 premature penalty tax can be waved if the in service withdrawal or hardship distribution is used to cover medical expenses that exceed 7 5 of adjusted gross income agi or if it is used to make a court ordered payment to a divorced spouse or child ren but since non safe harbor employer matching contributions and profit sharing contributions can be distributed at any age and voluntary contributions can be withdrawn at any time in service withdrawals can be used if you have alternative investment vehicles you clearly understand and are willing to manage 7 | |
what types of retirement accounts allow in service withdrawals | today most defined contribution plans such as 401 k 403 b 457 and thrift savings plan tsp allow for in service withdrawals | |
when can you start to take in service withdrawals | you can begin taking in service withdrawals from a retirement account if you are still employed at age 59 if you take it out sooner you will be subject to a 10 early withdrawal penalty in addition to any deferred taxes due can you contribute to a retirement plan if you are also taking in service withdrawals yes you can as long as you do not contribute more than the annual limit not counting any withdrawals note however that withdrawals are subject to income tax in general this strategy while allowable may not make much sense the bottom lineseveral types of employer sponsored plans allow in service withdrawals depending on the plan s rules and how the plan is structured there may be various limitations or qualifications on when or how such withdrawals can be made if you can find the documentation your plan administrator s firm should spell out the types and treatment of each eligible in service distribution in what is called the summary plan description or the plan document itself tax information may not be specified there since specific tax details are set by the irs | |
what is in specie | the phrase in specie is used to describe the transfer of an asset as it is in its current form rather than in its cash equivalent in specie is a latin phrase that is translated to english as in its actual form assets that are commonly transferred in specie are property shares or dividends there are tax benefits to some in specie transactions including favorable tax treatment understanding in specieas noted above the phrase in specie is latin for in its form or in kind the term is commonly used in finance to describe transactions that do not involve the exchange of cash rather an asset is transferred from one party to another in its original form in specie transfers or transactions may involve either physical or financial assets companies or individuals may transfer ownership of land equipment or inventory in their actual forms rather than paying another party in cash in some instances financial assets such as stocks bonds warrants or other securities may be distributed to shareholders in capital return programs for example a company may distribute shares of stock to investors as a dividend when cash is in short supply this particular type of in specie distribution is frequently made in the form of fractional shares for example an investor who owns 100 shares might receive 0 5 or 50 shares distributions that are in specie are usually made when cash isn t readily available or when it s more practical to hand over the asset instead of cash special considerationstax considerations factor into the decision of whether an individual or company should use in specie transfers broadly speaking taxes are collected on cash income and are due only on realized capital gains 1 as such if a company buys another company and pays for the transaction with shares of stock instead of cash the seller does not owe taxes on the gains until those stock shares are sold similarly transferring money from one taxable investment account to another should be done in specie so if you have a certificate of deposit cd that is set to mature and don t want to receive the funds in cash ask your financial institution to reinvest it directly into another cd if you receive the cash proceeds even for a brief time capital gains taxes apply you avoid this with an in specie transfer example of an in specie transferindividual investors generally hold their securities in brokerage accounts or with financial advisors the investor may decide to transfer the assets to another advisor or put the money into another investment such as a trust or an individual retirement account ira the investor can either liquidate the assets to realize the cash or simply transfer the assets to another account the latter is an in specie transfer the in specie option avoids triggering tax consequences taking the cash for however brief a time frame would have obliged the investor to pay capital gains taxes on any appreciation in the investments | |
is it in specie or in kind | in specie and in kind can be used interchangeably when you make a transfer in specie or in kind it means that an asset is transferred from one party to another in the same form for instance investors may hold shares in one company if that company is purchased by another the acquiring company may tender an offer of shares in kind or in specie rather than paying shareholders in cash they offer them shares of the new company | |
why are in specie transfers popular among investors | in specie transfers provide investors with a lot of flexibility and favorable tax treatment for instance an investor who wants to simplify their trading or portfolio management can buy and sell assets in specie or in kind rather than liquidating them and buying them again with cash because an in specie transaction does not involve the exchange of cash from one party to another investors can also defer capital gains taxes when they dispose of assets | |
are there any risks associated with in specie transfers | some of the common risks associated with in specie transfers are market and valuation risks volatility in the market can affect the value of assets including real estate stock shares and other types of real property evaluating certain assets may also be problematic for instance collectibles like art and coins can be difficult to value they often require appraisals from experienced professionals which often comes at a cost the bottom linethere is more than one way to execute a financial transaction you can do so in cash or by making an in specie transfer making an in specie transfer allows you to transfer ownership of an asset in its original form without cash ever changing hands this type of transfer doesn t require liquidation of the asset while offering certain tax benefits namely the deferral of capital gains be sure you understand all of the implications and risks involved including the potential for market and valuation risks | |
what is in the money itm | the phrase in the money itm refers to an option that possesses intrinsic value an option that s in the money is an option that presents a profit opportunity due to the relationship between the strike price and the prevailing market price of the underlying asset due to the expenses such as commissions involved with options an option that is itm does not necessarily mean a trader will make a profit by exercising it options can also be at the money atm and out of the money otm understanding optionsoptions contracts exist on many financial products including bonds and commodities however options on equities are one of the most popular types of options for investors options give buyers the opportunity but not the obligation to buy or sell the security underlying the option contract at the contract stated strike price by the specified expiration date the strike price is what the investor would pay for the shares it s the execution price or transaction value investors pay a fee called the premium to buy an option contract multiple factors determine the premium s value these factors include the current market price of the underlying security time until the expiration date and the value of the strike price in relationship to the security s market price the premium indicates the value that market participants place on any given option an option that has value will likely have a higher premium than one that has little chance of making money for an investor the two components of options premiums are intrinsic and extrinsic value in the money options have both intrinsic and extrinsic value while out of the money options premiums contain only extrinsic time value the options market can be extremely volatile especially in times that move the market such as large scale macroeconomic events like natural disasters and economic plunges in the money call optionscall options allow for the purchase of the underlying asset at a given price before a stated date the amount of premium depends on whether an option is in the money or not but can be interpreted differently depending on the type of option involved investors who purchase call options believe that the underlying asset s price will increase and close above the strike price by the option s expiration date they are bullish on the price direction of the stock a call option is in the money if the stock s current market price is higher than the option s strike price the amount that an option is in the money is called the intrinsic value it means that the option is worth at least that amount a call option with a strike of 25 would be in the money if the underlying stock were trading at 30 per share the difference between the strike price and the current market price is typically the amount of the premium for the option so investors looking to buy a particular in the money call option will pay the premium or the spread between the strike and the market price an investor holding a call option that s expiring in the money can exercise it and earn the difference between the strike price and market price whether the trade is profitable or not depends on the investor s total transaction expense therefore itm doesn t necessarily mean the trader will make money to make a profit the trader needs the option s in the money value to increase so that it does more than cover the cost of the option s premium | |
an incentive stock option iso gives an employee the right to buy shares of company stock at a discounted price the profit on qualified isos is usually taxed at the capital gains rate not the higher rate for ordinary income non qualified stock options nsos are taxed as ordinary income generally isos are awarded only to top management and highly valued employees isos are also called statutory or qualified stock options 1 | understanding incentive stock options isos incentive or statutory stock options are offered by some companies to encourage employees to remain with them long term and contribute to their growth and development isos are usually issued by publicly traded companies or private companies planning to go public they require a plan document that clearly outlines how many options are to be given to specific employees those employees must exercise their options within 10 years of receiving them 2options can be used to augment salaries or as a reward instead of a traditional salary raise stock options like other benefits can be used to attract talent especially if the company cannot afford to pay competitive base salaries | |
how incentive stock options isos work | stock options are issued or granted by a company that sets their price called the strike price this is typically about the value of the shares at the time isos are issued on the grant date and employees exercise their right to buy the options on the exercise date once the options are exercised the employee can either sell the stock immediately or wait to do so unlike nonstatutory options the offering period for isos is always 10 years after which the options expire 2 | |
what is the incidence rate | the term incidence rate refers to the rate at which a new event occurs over a specified period of time put simply the incidence rate is the number of new cases within a time period the numerator as a proportion of the number of people at risk for the disease the denominator this measure is commonly used in epidemiology as a way to denote the occurrence of disease illness or accident this rate only uses new cases rather than previously diagnosed or reported ones it can also be used to determine the probability of other events such as financial phenomena like foreclosures the incidence rate helps experts anticipate future incidents and make plans accordingly | |
how incidence rates work | experts commonly use incidence rates to determine the probability of an outbreak of disease illness or accidents in a given population as such it is commonly used among health experts who often also refer to it as incidence 1 in the case that the incidence rate is not discussing a disease it may cover other topics such as foreclosures or default the rate is typically expressed as the number of cases per person time 1in order to determine the incidence rate of a particular event experts take the number of new cases as a proportion of the population at risk both instances take a specified period of time into consideration 2experts usually take the population at risk from census data they may also study the progress of selected individuals for instance health experts generally conduct studies involving disease in individuals until they either develop the condition die opt out of the group or complete the entire study 1 as mentioned above only new cases are considered which means earlier cases don t apply in the calculation the incidence rate provides experts with a snapshot of changes in the event s progression within a population over time therefore it becomes a very important metric for tracking chronic infectious diseases experts can make comparisons on the probability of disease across different populations or how a financial phenomenon like foreclosure is likely to take place leaders can take action to remedy policies including better regulation or to increase options available to curb negative findings such as health care needs | |
how to calculate incidence rates | in order to calculate the incidence rate of a particular event take the number of new instances of the event in question disease illness accident financial event during a specific period of time and divide that by the total population at risk during that period of time 21 experts must determine the length of time and this time period must be long enough to allow a detailed study 2the result is generally presented as a number of cases in a certain amount of the population it s important to make sure that no information is duplicated in order to get as much of an accurate determination of the rate 2let s say that experts want to determine the incidence rate of foreclosure in anytown u s the total number of homeowners in town is 10 000 experts undertake the study for a full year and learn the number of new foreclosures is 200 using the formula above they determine that the incidence rate of foreclosure in anytown is 0 02 examples of incidence ratelet s say a county in the u s with a population of 500 000 may have had 20 new cases of tuberculosis in 2013 this translates to an incidence rate of four cases per 100 000 persons this is higher than the incidence rate of tb for the entire u s 9 852 new tb cases in 2013 for an incidence rate of three cases per 100 000 persons now let s take a look at an example to determine trends using incidence rates consider a study on lung cancer rates released in january 2014 by the centers for disease control and prevention the study found that thanks to tobacco control efforts lung cancer incidence rates from 2005 to 2009 declined by 2 6 per year among men from 87 to 78 cases per 100 000 men the lung cancer incidence rate for women fell 1 1 per year from 57 to 54 cases per 100 000 women incidence vs prevalenceincidence should not be confused with prevalence remember that incidence measures the likelihood of occurrence during a specific time period prevalence on the other hand is a measure of the actual number of cases of a condition or illness in a population at a certain point in time therefore it is the total accumulation of incidences over a period of time 1here s an example to show how the two terms are distinct the incidence of loan foreclosures would be the number of foreclosed loans over a time period prevalence would be the total number or all of the incidences added up while incidence enables an assessment to be made of the risk of contracting a disease prevalence shows whether the disease is widespread or not the incidence rate can be further categorized by different characteristics such as race gender or age incidence rates and market researchincidence rates are commonly used by the food and drug administration fda to determine if and when pharmaceutical companies are allowed to take their drugs to market in order to do so these companies are required to conduct clinical trials over a series of phases and apply for fda clearance to determine the efficacy of their drugs 3companies enlist individuals to take part in studies these people are given the drug or a placebo during each phase according to the fda the reviewer should identify the subset of trials in phase 2 and 3 databases that will provide the best estimate of rates and develop tables of event rates based on that judgment in order to determine the incidence rate of any adverse side effects 3 these findings are presented in tables that are reported to the fda incidence rates show the rate at which reactions take place along with the severity of each one 4companies rely on positive results and approval in order to get their drugs to market which is usually a long drawn out process meeting these goals means good news for investors especially if the results are really positive but those that aren t able to achieve these milestones often see their stocks drop these losses can be offset if drug companies are undertaking other positive trials or if they have products on the market | |
how do you interpret an incidence rate ratio | the incidence rate ratio refers to the ratio of two different rates of incidence both are required to have the same time period when calculating them individually | |
how do you calculate incidence rates in market research | in market research incidence rate refers to the frequency of people who are able to take part in a particular study this is calculated by taking the total number of people who are qualified to participate by the total number of those who responded to the call for the study including those who didn t qualify to take part | |
how do you calculate person time incidence rates | person time incidence rates which are also known as incidence density rates are determined by taking the total number of new cases of an event and dividing that by the sum of the person time of the at risk population | |
what is the incidence rate of hiv in the u s | experts indicate that the incidence rate of hiv in the u s remains stable in 2021 t was reported to be 13 3 per 100 000 people 5the bottom lineincidence rates are commonly used by experts in a variety of fields from health care to the financial industry by studying the probability of occurrences of things like disease and foreclosure in a given population experts can make sound decisions on the need of people in the future this includes things like health care services and medication or changes in regulation and financial practice standards and if you re investing in sectors like pharmaceuticals and biotech you ll want to take a look at a company s incidence rates to see how far your money will go not just the company s bottom line | |
what is the incidence rate | the term incidence rate refers to the rate at which a new event occurs over a specified period of time put simply the incidence rate is the number of new cases within a time period the numerator as a proportion of the number of people at risk for the disease the denominator this measure is commonly used in epidemiology as a way to denote the occurrence of disease illness or accident this rate only uses new cases rather than previously diagnosed or reported ones it can also be used to determine the probability of other events such as financial phenomena like foreclosures the incidence rate helps experts anticipate future incidents and make plans accordingly | |
how incidence rates work | experts commonly use incidence rates to determine the probability of an outbreak of disease illness or accidents in a given population as such it is commonly used among health experts who often also refer to it as incidence 1 in the case that the incidence rate is not discussing a disease it may cover other topics such as foreclosures or default the rate is typically expressed as the number of cases per person time 1in order to determine the incidence rate of a particular event experts take the number of new cases as a proportion of the population at risk both instances take a specified period of time into consideration 2experts usually take the population at risk from census data they may also study the progress of selected individuals for instance health experts generally conduct studies involving disease in individuals until they either develop the condition die opt out of the group or complete the entire study 1 as mentioned above only new cases are considered which means earlier cases don t apply in the calculation the incidence rate provides experts with a snapshot of changes in the event s progression within a population over time therefore it becomes a very important metric for tracking chronic infectious diseases experts can make comparisons on the probability of disease across different populations or how a financial phenomenon like foreclosure is likely to take place leaders can take action to remedy policies including better regulation or to increase options available to curb negative findings such as health care needs | |
how to calculate incidence rates | in order to calculate the incidence rate of a particular event take the number of new instances of the event in question disease illness accident financial event during a specific period of time and divide that by the total population at risk during that period of time 21 experts must determine the length of time and this time period must be long enough to allow a detailed study 2the result is generally presented as a number of cases in a certain amount of the population it s important to make sure that no information is duplicated in order to get as much of an accurate determination of the rate 2let s say that experts want to determine the incidence rate of foreclosure in anytown u s the total number of homeowners in town is 10 000 experts undertake the study for a full year and learn the number of new foreclosures is 200 using the formula above they determine that the incidence rate of foreclosure in anytown is 0 02 examples of incidence ratelet s say a county in the u s with a population of 500 000 may have had 20 new cases of tuberculosis in 2013 this translates to an incidence rate of four cases per 100 000 persons this is higher than the incidence rate of tb for the entire u s 9 852 new tb cases in 2013 for an incidence rate of three cases per 100 000 persons now let s take a look at an example to determine trends using incidence rates consider a study on lung cancer rates released in january 2014 by the centers for disease control and prevention the study found that thanks to tobacco control efforts lung cancer incidence rates from 2005 to 2009 declined by 2 6 per year among men from 87 to 78 cases per 100 000 men the lung cancer incidence rate for women fell 1 1 per year from 57 to 54 cases per 100 000 women incidence vs prevalenceincidence should not be confused with prevalence remember that incidence measures the likelihood of occurrence during a specific time period prevalence on the other hand is a measure of the actual number of cases of a condition or illness in a population at a certain point in time therefore it is the total accumulation of incidences over a period of time 1here s an example to show how the two terms are distinct the incidence of loan foreclosures would be the number of foreclosed loans over a time period prevalence would be the total number or all of the incidences added up while incidence enables an assessment to be made of the risk of contracting a disease prevalence shows whether the disease is widespread or not the incidence rate can be further categorized by different characteristics such as race gender or age incidence rates and market researchincidence rates are commonly used by the food and drug administration fda to determine if and when pharmaceutical companies are allowed to take their drugs to market in order to do so these companies are required to conduct clinical trials over a series of phases and apply for fda clearance to determine the efficacy of their drugs 3companies enlist individuals to take part in studies these people are given the drug or a placebo during each phase according to the fda the reviewer should identify the subset of trials in phase 2 and 3 databases that will provide the best estimate of rates and develop tables of event rates based on that judgment in order to determine the incidence rate of any adverse side effects 3 these findings are presented in tables that are reported to the fda incidence rates show the rate at which reactions take place along with the severity of each one 4companies rely on positive results and approval in order to get their drugs to market which is usually a long drawn out process meeting these goals means good news for investors especially if the results are really positive but those that aren t able to achieve these milestones often see their stocks drop these losses can be offset if drug companies are undertaking other positive trials or if they have products on the market | |
how do you interpret an incidence rate ratio | the incidence rate ratio refers to the ratio of two different rates of incidence both are required to have the same time period when calculating them individually | |
how do you calculate incidence rates in market research | in market research incidence rate refers to the frequency of people who are able to take part in a particular study this is calculated by taking the total number of people who are qualified to participate by the total number of those who responded to the call for the study including those who didn t qualify to take part | |
how do you calculate person time incidence rates | person time incidence rates which are also known as incidence density rates are determined by taking the total number of new cases of an event and dividing that by the sum of the person time of the at risk population | |
what is the incidence rate of hiv in the u s | experts indicate that the incidence rate of hiv in the u s remains stable in 2021 t was reported to be 13 3 per 100 000 people 5the bottom lineincidence rates are commonly used by experts in a variety of fields from health care to the financial industry by studying the probability of occurrences of things like disease and foreclosure in a given population experts can make sound decisions on the need of people in the future this includes things like health care services and medication or changes in regulation and financial practice standards and if you re investing in sectors like pharmaceuticals and biotech you ll want to take a look at a company s incidence rates to see how far your money will go not just the company s bottom line | |
income is the money you receive in exchange for your labor or products income may have different definitions depending on the context for example taxation financial accounting or economic analysis | for most people income is their total earnings in the form of wages and salaries the return on their investments pension distributions and other receipts for businesses income is the revenue from selling services products and any interest and dividends received with respect to their cash accounts and reserves related to the business economists have different definitions of income and different ways of measuring it from focusing on earnings savings consumption production public finance capital investment or other topics | |
what is income | there are different terms for income depending on the quantity being measured gross income is the total value of your salary or payments without accounting for any cash outflows net income refers to the income left over after subtracting taxes or fees 1you discretionary income is the amount you have available after paying for necessary expenses or money available to budget discretionary income may also be calculated for student financial aid using your income and a poverty guideline 2for taxation purposes income refers to the types of revenues that are eligible for income tax these definitions may vary by jurisdiction salaries and sales are typically considered taxable income but inheritances and gifts usually are not although tax and accounting rules have similarities each system has special rules reflecting its distinctive context and purposes generally taxation and financial accounting measure income over a 12 month period while financial accounting income is comprehensive taxable income is calculated with special statutory exclusions exemptions and allowances that vary by tax status income source and individual and business decisions if you live and work outside the united states you are still required to file income taxes but you do not have to pay taxes on all of it for the 2023 tax year the foreign earned income exclusion covers the first 120 000 of your foreign earned income taxable incomefor income tax purposes the tax code attempts to define income to reflect taxpayers actual economic position the general tax framework applies to taxpayers personal revenue other than tax exempt income from all sources and offsets such revenue with deductions for expenses and losses to determine taxable income in addition public policies may offer favorable taxation for people at certain income levels or for favored economic activities such policies include tax exemptions for government bonds tax favored treatment for retirement savings tax credits for people below a certain income level and promoting energy efficiency through special tax credits 345types of incomethree main categories of income that are part of taxation are ordinary income capital gain and tax exempt income in the united states the tax law distinguishes ordinary income from capital investments ordinary income encompasses earnings interest regular dividends rental income distributions from pensions or retirement accounts and social security benefits ordinary income is taxed at rates ranging from 10 to 37 in 2023 6taxpayers whose net investment income exceeds specified thresholds pay an additional 3 8 net investment income tax 7capital gains are the gains from selling assets that have appreciated in value in the united states the capital gains tax rates on assets held for more than one year are 0 15 and 20 capital assets include personal residences and investments such as real estate stock bonds and other financial instruments 8qualified dividends that is dividends distributed with respect to the u s and certain foreign corporate stock holdings that meet statutory holding period requirements also are taxed at capital gains rates to qualify for the capital gains tax rate which is usually no higher than 15 you must hold an asset for longer than one year before selling it otherwise the gains on that asset will be taxed at the same rate as your ordinary income which is usually higher 9interest paid on certain bonds issued by governmental entities is treated as tax exempt income interest paid on federal bonds and treasury securities is exempt from state and local taxation 10interest on bonds issued by state and local governments generally is not subject to federal taxation municipal private activity bonds are not subject to the regular federal income tax but they are subject to the federal alternative minimum tax some states and local governments also exempt interest on state and local bonds from taxation 11 | |
how is earned income taxed | earned income is the money a person receives due to working or business activities such as earning a salary self employment income or certain government benefits this is distinct from unearned income such as receiving an inheritance capital gains or qualified dividends earned income is subject to different taxes than unearned income in the united states earned income is subject to payroll taxes medicare tax and social security tax although the latter is capped at a certain level business income gaap incomemost businesses including all public companies employ standard financial accounting methods and practices i e generally accepted accounting principles gaap to determine their income and value audited financial statements prepared in accordance with these rules are required for public companies investors assess businesses financial statements and use them to compare the performance of companies in the same or different industries gaap calculations do not incorporate the type of public policy deviations that are embodied in the tax code the two systems employ different timing standards for recognizing revenue and expenses generally the snapshot of income and business value determined using gaap provides a picture of business income and value that is often closer to economic reality than the results of tax accounting 12 | |
is there a standard definition of income | the definition of income depends on the context in which the term is used for example the tax law uses the concepts of gross income which includes all income in all its forms and taxable income which is gross income net of expenses and other adjustments on the other hand the standard for financial accounting generally accepted accounting principles gaap uses the term revenue reduced by expenses to determine net income in addition the calculation of income will vary depending on the scope of the context e g an individual a household an industry a nation etc | |
what is taxable income | taxable income is the total of all income from all sources and in any form minus any tax exempt amounts or allowable deductions this is the amount that is subject to income taxation | |
which categories of income are tax exempt | federal state and local tax laws specify certain categories of income that are not subject to income taxation generally interest paid on state and local government bonds is exempt from federal income tax federal law also exempts interest paid on some special narrow categories of federal agency debt state tax laws exempt interest on u s treasury bonds and some states also exempt interest on state and local bonds in addition distributions from roth 401 k plans and roth individual retirement accounts iras are tax free charities and other tax exempt organizations do not pay tax on their income except for income from unrelated trades or businesses | |
what is not considered income | certain types of payments are not included in your taxable income by the irs they include inheritances and gifts alimony payments cash rebates child support most healthcare benefits qualifying adoption reimbursements and welfare payments scholarship payments and life insurance benefits may be taxable in certain situations 13 | |
is net income the same as profit | net income and profit are both business terms that refer to the excess of income over expenses however there is a difference net income is the difference between a company s total revenues and all expenses including overhead and operational costs taxes depreciation and amortization of assets and any other expenses profit refers to the revenue that remains after some expenses there are several different calculations for profitability such as gross profit and operational profit each of which has a separate importance to analysts the bottom lineincome is one of the most basic measures of economic activity for individuals and companies it measures the net gain of their revenues as a result of working or doing business in public policy income represents the basis for most forms of taxation | |
what is an income annuity | an income annuity is an annuity contract that is designed to start paying income as soon as the policy is initiated once funded an income annuity is annuitized immediately although the underlying income units may be in either fixed or variable investments as such income payments may fluctuate over time an income annuity also known as an immediate annuity a single premium immediate annuity spia or an immediate payment annuity is typically purchased with a lump sum payment premium often by individuals who are retired or are close to retirement these annuities may be contrasted with deferred annuities that begin paying out years later understanding income annuitiesinvestors seeking income annuities should have a clear picture of how much income will be received and for how long most annuities pay out until the death of the annuitant and some pay out until the death of a spouse although the insurance product may be annuitized immediately variable investments can allow for some principal protection by participating in equity markets even if all income units are in fixed investments there may be a provision allowing for a higher return if a specific benchmark index performs exceptionally well the return an annuity buyer gets from their income annuity is based on how long they live greater longevity equals more payments and a better return payments may begin as soon as a month after a contract is signed and a premium payment is made income annuity payments may be monthly quarterly semi annually or annually many income annuities offer a death benefit 1if a cash refund option is chosen the designated beneficiary of an annuitant who dies before receiving enough payments to equal their initial premium will receive the balance as such an annuitant s age life expectancy and health are relevant to deciding whether such an annuity is suitable income annuities may be purchased for a little as a few thousand dollars more significant income annuities may require special vetting however some income annuities may be deferred to build income for use later in life who benefits most from income annuitiesthe strategy behind an income annuity is to create a steady stream of income for a retiree that cannot be outlived in effect an immediate annuity may act as longevity insurance a good rule of thumb is that payments backed by an income annuity should replace a retiree s wage payments until they pass away another strategy utilizing an income annuity is using them to provide income to pay a retiree s expenses such as rent or mortgage food and energy assisted living facility fees and insurance premiums or provide the cash for any other recurring payment needs one disadvantage of income annuities is that once they are initiated they cannot be rolled back or stopped also payments for such annuity may be fixed and not indexed to inflation and will thus stay the same as such the purchasing power of each payment will decrease over time as inflation takes its toll | |
what is the income approach | the income approach sometimes referred to as the income capitalization approach is a type of real estate appraisal method that allows investors to estimate the value of a property based on the income the property generates it s used by taking the net operating income noi of the rent collected and dividing it by the capitalization rate | |
how the income approach works | the income approach is typically used for income producing properties and is one of three popular approaches to appraising real estate the others are the cost approach and the comparison approach the income approach for real estate valuations is akin to the discounted cash flow dcf for finance the income approach discounts the future value of rents by the capitalization rate | |
when using the income approach for purchasing a rental property an investor considers the amount of income generated and other factors to determine how much the property may sell for under current market conditions in addition to determining whether the investor may profit from the rental property a lender will want to know its potential risk of repayment if it extends a mortgage to the investor | of the three methods for appraising real estate the income approach is considered the most involved and difficult special considerations | |
when using the income approach for purchasing a rental property an investor must also consider the condition of the property potential large repairs that may be needed can substantially cut into future profits | in addition an investor should consider how efficiently the property is operating for example the landlord may be giving tenants rent reductions in exchange for completing yard work or other responsibilities perhaps specific tenants are facing economic difficulties that should turn around in the next few months and the landlord does not want to evict them if rent being collected is not greater than current expenses the investor will most likely not purchase the property with the income approach the cap rate and estimated value have an inverse relationship lowering the cap rate increases the estimated valuean investor must also ascertain how many units on average are empty at any given time not receiving full rent from every unit will affect the investor s income from the property this is especially important if a property is in great need of repairs and many units are vacant suggesting a low occupancy rate if the units are not filled on a regular basis rent collection will be lower than it could be and purchasing the property may not be in the investor s best interest example of the income approachwith the income approach an investor uses market sales of comparables for choosing a capitalization rate for example when valuing a four unit apartment building in a specific county the investor looks at the recent selling prices of similar properties in the same county after calculating the capitalization rate the investor can divide the rental property s noi by that rate for example a property with a net operating income noi of 700 000 and a chosen capitalization rate of 8 is worth 8 75 million | |
what is the income effect | the income effect in microeconomics is the resultant change in demand for a good or service caused by an increase or decrease in a consumer s purchasing power or real income as one s income grows the income effect predicts that people will begin to demand more and vice versa so called normal goods will exhibit this typical pattern inferior goods on the other hand may see their demand actually fall as income increases an example of such an inferior good could be store brand items as people become wealthier they may opt instead for more expensive name brands investopedia xiaojie liuunderstanding the income effectthe income effect is a part of consumer choice theory which relates preferences to consumption expenditures and consumer demand curves that expresses how changes in relative market prices and incomes impact consumption patterns for consumer goods and services for normal economic goods when real consumer income rises consumers will demand a greater quantity of goods for purchase the income effect and substitution effect are related economic concepts in consumer choice theory the income effect expresses the impact of changes in purchasing power on consumption while the substitution effect describes how a change in relative prices can change the pattern of consumption of related goods that can substitute for one another changes in real income can result from nominal income changes price changes or currency fluctuations when nominal income increases without any change to prices this means consumers can purchase more goods at the same price and for most goods consumers will demand more if all prices fall known as deflation and nominal income remains the same then consumers nominal income can purchase more goods and they will generally do so these are both relatively straightforward cases however in addition when the relative prices of different goods change then the purchasing power of consumer s income relative to each good changes then the income effect really comes into play the characteristics of the good impact whether the income effect results in a rise or fall in demand for the good | |
when the price of a product increases relative to other similar products consumers will tend to demand less of that product and increase their demand for the similar product as a substitute | normal goods vs inferior goodsnormal goods are those whose demand increases as people s incomes and purchasing power rise a normal good is defined as having an income elasticity of demand coefficient that is positive but less than one for normal goods the income effect and the substitution effect both work in the same direction a decrease in the relative price of the good will increase quantity demanded both because the good is now cheaper than substitute goods and because the lower price means that consumers have a greater total purchasing power and can increase their overall consumption inferior goods are goods for which demand actually declines as consumers real incomes rise or rises as incomes fall this occurs when a good has more costly substitutes that see an increase in demand as the economy improves for inferior goods the income elasticity of demand is negative and the income and substitution effects work in opposite directions an increase in the inferior good s price means that consumers will want to purchase other substitute goods instead but will also want to consume less of any other substitute normal goods because of their lower real income inferior goods tend to be goods that are viewed as lower quality but can get the job done for those on a tight budget for example generic bologna or coarse scratchy toilet paper consumers prefer a higher quality good but need a greater income to allow them to pay the premium price example of income effectconsider a consumer who on an average day buys a cheap cheese sandwich to eat for lunch at work but occasionally splurges on a luxurious hot dog if the price of a cheese sandwich increases relative to hotdogs it may make them feel like they cannot afford to splurge on a hotdog as often because the higher price of their everyday cheese sandwich decreases their real income in this situation the income effect dominates the substitution effect and the price increase raises demand for the cheese sandwich and reduces demand for a substitute normal good a hotdog even if the hotdog s price remains the same | |
what does the income effect depict | the income effect is a part of consumer choice theory which relates preferences to consumption expenditures and consumer demand curves that expresses how changes in relative market prices and incomes impact consumption patterns for consumer goods and services in other words it is the change in demand for a good or service caused by a change in a consumer s purchasing power resulting from a change in real income this income change can be the result of a rise in wages etc or because existing income is freed up by a decrease or increase in the price of a good that money is being spent on | |
what is the difference between the income effect and the price effect | the difference between the income effect and the price effect is that the income effect evaluates consumer spending habits based on a change in their income the price effect instead considers consumer spending habits based on a change in the price of a good or service | |
what is substitution effect | the substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises a product may lose market share for many reasons but the substitution effect is purely a reflection of frugality if a brand raises its price some consumers will select a cheaper alternative | |
what are normal goods | normal goods are those whose demand increases as people s incomes and purchasing power rise as such a normal good will have a positive income elasticity of demand coefficient but it will be less than one this means that a decrease in the relative price of the good will result in an increase in quantity demanded both because the good is now cheaper than substitute goods and because the lower price means that consumers have a greater total purchasing power and can increase their overall consumption |
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