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what is the best asset to trade using mean reversion | the selection of an asset to trade using mean reversion is dependent on various factors such as market conditions the entity s trading and investing expertise and risk tolerance some commonly traded assets well suited for mean reversion strategies include stocks forex commodities exchange traded funds etfs and fixed income instruments | |
what is the difference between trend following and mean reversion | trend following and mean reversion operate on different premises the objective of trend following is to capitalize on assets moving strongly in a particular direction the objective of mean reversion is to capitalize on price deviations from an established mean or average the bottom linemean reversion is a financial theory that says asset prices will tend to revert to their historical mean or average over time it serves as the backbone for various trading strategies across multiple asset classes including stocks forex and commodities investors commonly use indicators like moving averages rsi and bollinger bands to identify mean reverting opportunities these indicators help pinpoint overvalued or undervalued assets providing potential entry and exit points the strategy can be applied across different time periods from intraday to long term and is particularly effective in range bound or sideways markets however it s crucial for traders and investors to incorporate robust risk management techniques and be mindful of transaction costs given the frequently traded nature of mean reversion strategies | |
what is a mean variance analysis | mean variance analysis is the process of weighing risk expressed as variance against expected return investors use mean variance analysis to make investment decisions investors weigh how much risk they are willing to take on in exchange for different levels of reward mean variance analysis allows investors to find the biggest reward at a given level of risk or the least risk at a given level of return understanding mean variance analysismean variance analysis is one part of modern portfolio theory which assumes that investors will make rational decisions about investments if they have complete information one assumption is that investors seek low risk and high reward there are two main components of mean variance analysis variance and expected return variance is a number that represents how varied or spread out the numbers are in a set for example variance may tell how spread out the returns of a specific security are on a daily or weekly basis the expected return is a probability expressing the estimated return of the investment in the security if two different securities have the same expected return but one has lower variance the one with lower variance is the better pick similarly if two different securities have approximately the same variance the one with the higher return is the better pick in modern portfolio theory an investor would choose different securities to invest in with different levels of variance and expected return the goal of this strategy is to differentiate investments which reduces the risk of catastrophic loss in the event of rapidly changing market conditions example of mean variance analysisit is possible to calculate which investments have the greatest variance and expected return assume the following investments are in an investor s portfolio investment a amount 100 000 and expected return of 5 investment b amount 300 000 and expected return of 10 in a total portfolio value of 400 000 the weight of each asset is investment a weight 100 000 400 000 25 investment b weight 300 000 400 000 75 therefore the total expected return of the portfolio is the weight of the asset in the portfolio multiplied by the expected return portfolio expected return 25 x 5 75 x 10 8 75 portfolio variance is more complicated to calculate because it is not a simple weighted average of the investments variances the correlation between the two investments is 0 65 the standard deviation or square root of variance for investment a is 7 and the standard deviation for investment b is 14 in this example the portfolio variance is portfolio variance 25 2 x 7 2 75 2 x 14 2 2 x 25 x 75 x 7 x 14 x 0 65 0 0137the portfolio standard deviation is the square root of the answer 11 71 | |
what is a medallion signature guarantee | a medallion signature guarantee is one of several special certification stamps that guarantees a signature that authorizes a transfer of securities is authentic parties will generally require a medallion signature guarantee when an owner wants to sell or transfer securities such as stocks or bonds held in physical certificate form if an owner holds securities through a broker they will not need to obtain a signature guarantee to sell or transfer the securities | |
how medallion signature guarantees work | to provide a medallion signature guarantee an institution must be a member of one of three medallion signature guarantee programs the securities transfer agents medallion program stamp the stock exchanges medallion program semp and the new york stock exchange medallion signature program msp 1normally you can obtain a medallion signature guarantee at a financial institution where you are a customer the bank may assess a small charge for this service fees can range from 0 for customers with solid established relationships to up to a 100 for 200 000 in assets 23for financial institutions with on site stamps the stamp guarantee can be provided on the same day provided there are no outstanding requirements or errors otherwise it could take between two and five business days for a review because the guaranteeing institution s assets back the certification a guarantee stamp is not easy to obtain banks credit unions and other financial institutions that offer medallion signature guarantee are 4medallion signature guarantees can be used for many purposes but the most common reasons are when 2medallion signature guarantee and share certificatea medallion signature guarantee often corresponds with a share certificate a share certificate or stock certificate is a written document that serves as legal proof of ownership of a set number of a company s shares 1this is in contrast with owning a bond a form of debt instrument in which a separate party loans money to a company or the government key information on a share certificate generally includes the following shares may be issued in separate classes for example berkshire hathaway offers stockholders class a brk a and class b brk b shares 5 a number of other well known companies have dual class structures such as ford f and meta meta formerly facebook 67 meanwhile some companies have multiple share classes for example google s parent company alphabet goog and googl has three classes of shares 8each class offers different rights to the stockholder with regard to dividends and voting options 9 sometimes the owner of a stock certificate can give a proxy to another person to vote on matters of company policy if a share certificate is damaged lost or stolen the company may issue a replacement certificate 10 in such a case the shareholder must return the damaged document share certificates may either be registered or in bearer form a bearer share certificate entitles the holder to exercise all legal rights associated with the stock today individual investors rarely have physical possession of their share certificates preferring electronic records instead | |
which banks offer medallion signature guarantee | many u s banks offer medallion signature guarantee but not every branch of a participating bank can provide the service most large financial institutions such as bank of america chase and capital one provide the medallion signature guarantee 4 if one of their branches does not have an on site reviewer the documents must be sent for review | |
how long is a medallion stamp good for | the medallion stamp is valid for the date it is signed 11 | |
how much does it cost to get a medallion signature | medallion signature guarantees are obtained from institutions that have the authority to issue them for some institutions particularly large banks if the customer has an established relationship they may not be subject to fees or charges however if fees apply they can range from as little as 50 to 100 or more depending on the value of the assets 3 | |
why is a medallion signature guarantee so hard to get | medallion signature guarantees expose financial institutions to risks and liabilities therefore they do not issue them readily or to just anyone typically they are provided for well established customers for a nominal fee the bottom linethe medallion signature guarantee validates the identity and signature of a party transferring securities or investments banks credit unions and other financial institutions must belong to one of three select medallion signature guarantee programs to provide this service because of increased financial risks financial institutions tend to react conservatively when issuing them most often medallion signature guarantee stamps are needed for the gifting of securities to transfer assets upon the death of the original owner and when the security or investment holder moves the assets from an account | |
what is a media kit | a media kit is a package of information assembled by a company to provide basic information about itself to reporters the media kit is a promotional public relations tool that can serve several functions these functions include promoting the launch of a new company or announcing the launch of a new product or service by an existing company you can present your company as you would like it be seen and save time by eliminating the need for you or your employees to repeatedly answer the same questions | |
what is the median | the term median refers to a metric used in statistics it is the middle number in a sorted ascending or descending list of numbers and can be more descriptive of that data set than the average it is the point above and below which half 50 of the observed data falls and so represents the midpoint of the data the median is often compared with other descriptive statistics such as the mean average mode and standard deviation understanding the medianstatistics is a branch of mathematics it involves the collection and study of data which allows researchers to make inferences or determinations about a certain topic the analysis of quantitative data can be used to study anything from demographics populations and investments among other things a median is the middle number in a sorted list of numbers either ascending or descending used in statistical studies to determine the median value in a sequence of numbers the numbers must first be sorted or arranged in value order from lowest to highest or highest to lowest the median can be used to determine an approximate average or mean but is not to be confused with the actual mean the median is sometimes used as opposed to the mean when there are outliers in the sequence that might skew the average of the values the median of a sequence can be less affected by outliers than the mean median vs meanas noted above it s important not to confuse the terms median and mean the two may sound the same but they are very different a median is a number that falls in the middle of a group remember this is done by ordering the numbers from smallest to largest and locating the one that falls in the middle a mean on the other hand is the average of a data set also called the arithmetic mean it is the average of the sum of the numbers in a group in order to figure out the mean you must take the sum of the numbers in the group and divide the sum by the total number of data points for instance let s say a data set consists of the numbers 3 5 7 and 19 to figure out the mean in this case the mean is 8 5 the median on the other hand would be 6 that s because there s an even number of data points the middle two of which we add together and divide by 2 to get the result 5 7 2 the median is closely associated with quartiles or dividing up observed data into four equal parts the median would be the center point with the first two quartiles falling below it and the second two above it other ways of bucketing data include quintiles in five sections and deciles in 10 sections example of a medianto find the median value in a list with an odd amount of numbers one would find the number that is in the middle with an equal amount of numbers on either side of the median to find the median first arrange the numbers in order usually from lowest to highest for example in a data set of 3 13 2 34 11 26 47 the sorted order becomes 2 3 11 13 26 34 47 the median is the number in the middle 2 3 11 13 26 34 47 which in this instance is 13 since there are three numbers on either side to find the median value in a list with an even amount of numbers one must determine the middle pair add them and divide by two again arrange the numbers in order from lowest to highest for example in a data set of 3 13 2 34 11 17 27 47 the sorted order becomes 2 3 11 13 17 27 34 47 the median is the average of the two numbers in the middle 2 3 11 13 17 26 34 47 which in this case is 15 or 13 17 2 15 | |
how do you calculate the median | the median is the middle value in a set of data first organize and order the data from smallest to largest to find the midpoint value divide the number of observations by two if there is an odd number of observations round that number up and the value in that position is the median if the number of observations is even take the average of the values found above and below that position | |
where is the median in a normal distribution | in the normal distribution or bell curve the median mean and mode are all the same value and fall at the highest point in the center of the curve | |
when are the mean and median different | in a skewed data set the mean and median will typically be different the mean is calculated by adding up all of the values in the data and dividing by the number of observations if there are sizable outliers or if the data clumps around certain values the mean average will not be the midpoint of the data for instance in a set of data 0 0 0 1 1 2 10 10 the average would be 24 8 3 the median however would be 1 the midpoint value this is why many economists favor the median for reporting a nation s income or wealth since it is more representative of the actual income distribution the bottom linethe median is the number that lies in the middle of an ordered dataset that goes from lowest to highest it should not be confused with the mean which is determined by adding the numbers in a set together and dividing by the total number of data points many experts prefer using the median over the mean because it often provides a more accurate representation of the distribution in a data set | |
what is medicaid | the term medicaid refers to a public health insurance program that provides health care coverage to low income families and individuals in the united states the program is jointly funded by the federal government and individual states it is operated at the state level which means that coverage and administration vary greatly from state to state it is available only to individuals and families who meet specific income based criteria recipients are u s citizens permanent residents or legal immigrants approximately 70 6 million people were covered by medicaid as of september 2020 1understanding medicaidmedicaid was signed into law in 1965 by president lyndon b johnson and authorized by title xix of the social security act which also created medicare 2 it is a government sponsored insurance program for individuals of any age whose resources and income are insufficient to cover health care medicaid does not provide health care directly to individuals instead it covers their doctor visits hospital stays long term medical care custodial care and other health related costs individual states decide on who qualifies for coverage the type of coverage and the process of paying health care workers and hospitals that s because each state is responsible to manage and administer its own medicaid program the federal government matches state spending and the matching rate varies by state from about a statutory minimum of 50 to a maximum of 83 states are not required to participate in medicaid although all states do 3 the program is the largest source of funding for health related services for low income individuals in the u s total medicaid spending came to 613 5 billion in 2019 accounting for 16 of the nation s health care bill 4 the federal government paid 64 5 of the tab while individual states paid 35 6 5 medicaid coverage has typically included the following groups eligibility was expanded to include adults under the age of 65 provided their incomes fell under 133 of the federal poverty level fpl as per the patient protection and affordable care act 7 children account for 38 of enrollees with about 18 of the total cost by comparison people with disabilities account for 14 of enrollees with about 36 of total costs 8 special conditionseligibility for medicaid is determined by filling out an application through the health insurance marketplace website or directly through your state s medicaid agency your eligibility is determined by income in relation to the fpl the fpl is used to determine whether a family or individual s income allows them to qualify for federal benefits in general if an individual s income is less than 100 to 200 of the fpl and they are either disabled a child pregnant or elderly there will be a program available for them if their income is less than 138 of the fpl then there may be a program available for them 9 the income taken into consideration in determining eligibility is an individual s modified adjusted gross income magi this is taxable income plus certain deductions such as social security benefits and tax exempt interest make sure you check the medicaid website for any changes to eligibility and other up to date information about the program the trump administration allowed u s states to remove medicaid coverage for individuals who do not meet certain work requirements or who are not engaged in work activities for a specific number of hours each month 10 arkansas was the first state to implement this policy and it resulted in 18 000 people losing health care coverage however this policy was repeatedly blocked in federal courts and arkansas has suspended the requirements 11 12 medicaid vs the patient protection and affordable care act ppaca president barack obama signed the affordable care act aca into law in 2010 13 the law referred to as obamacare states that all legal residents and citizens of the united states with incomes of up to 138 of the poverty line qualify for coverage in medicaid participating states 9 while the law worked to expand both federal funding and eligibility for medicaid the u s supreme court ruled that states are not required to participate in the expansion in order to continue receiving already established levels of medicaid funding 14as of march 2021 the following 12 states did not expand coverage alabama florida georgia kansas mississippi north carolina south carolina south dakota tennessee texas wisconsin and wyoming 15advantages of medicaidmedicaid has helped to reduce the number of people without health insurance and the aca has helped even further in 2013 the year before major provisions of the aca went into effect an estimated 44 million people didn t have health insurance by 2017 that number dropped down to 27 4 million 16many americans would be without health insurance if medicaid didn t exist this is so because low income individuals often don t have access to insurance through their jobs and purchasing private health insurance in the marketplace is simply not affordable medicaid has provided access to health care that has statistically shown improvements in the overall well being of individuals who otherwise would not be covered for even simple doctor visits or medication | |
what is the medical cost ratio mcr | medical cost ratio mcr also referred to as medical loss ratio is a metric used in the private health insurance industry the ratio is calculated by dividing total medical expenses paid by an insurer by the total insurance premiums it collected a lower ratio likely indicates higher profitability for the insurer as it signifies a larger amount of premiums are left over after paying customer insurance claims under the affordable care act aca insurers are required to allocate 80 or more of their insurance premiums toward customer medical expenses or other services that improve healthcare insurers who fail to abide by this standard must return the excess funds back to consumers these rebates amounted to nearly 2 46 billion in 2019 based on figures filed through october 16 2020 | |
how the medical cost ratio mcr works | medical insurers collect premiums from customers in exchange for assuming liability for funding future medical insurance claims the insurer reinvests the premiums they collect generating a return on investment in order to be profitable the insurer must collect premiums and generate investment returns greater than both the claims made against its policies and its fixed costs one key metric that insurance companies monitor is medical cost ratio mcr this metric consists of total medical expense claims that were paid divided by total premiums collected expressed as a percentage a higher figure indicates lower profitability as a large portion of collected premiums are redirected to fund customer claims conversely a lower number indicates higher profitability as it shows substantial premiums are left over after covering all claims the mcr is used by all major healthcare companies to ensure that they are adhering to regulations and meeting their fiscal requirements insurance companies selling large plans usually more than 50 insured employees must spend at least 85 of premiums on healthcare this means their mcr can be no lower than 85 insurers that focus on small employers and individual plans must spend at least 80 of premiums on healthcare meaning their mcr is no lower than 80 the other 20 can go toward administrative overhead and marketing costs this split between healthcare and non healthcare related spending is known as the 80 20 rule if an insurer generates an mcr below the 80 or 85 threshold the excess premiums must be rebated to customers this regulation was introduced in 2010 by the affordable care act real world example of the medical cost ratio mcr consider the case of xyz insurance a hypothetical medical insurance company in its most recent fiscal year xyz collected 100 million in premiums and paid out 78 million in claims to customers resulting in an mcr of 78 with those numbers xyz would be considered a profitable operation compared to most other medical insurers under aca rules however the 2 percentage points of extra premiums xyz collected beyond the 80 threshold must be rebated to customers or directed toward other healthcare services these rebates amounted to nearly 2 46 billion in 2019 based on figures filed through october 16 2020 compared with 706 7 million two years earlier | |
what is a medium of exchange | a medium of exchange is an intermediary instrument or system used to facilitate the purchase and sale of goods and services between parties for a system to function as a medium of exchange it must represent a standard of value further all parties to the transaction must accept that standard in modern economies the medium of exchange is currency gold has served as a medium of exchange throughout history | |
how a medium of exchange works | a traditional barter system only works when both parties to a transaction have something that the other party wants even then it works only when both parties agree on the value of the goods that each is offering is one chicken worth two bars of soap or three the haggling must have been endless thus introducing a medium of exchange allows for greater efficiency in an economy and stimulates an increase in overall trading activity one or both parties can sell their product for a number of gold coins which can then be used to buy the products they want using a medium of exchange allows for greater efficiency in an economy and stimulates an increase in overall trading activity money as a medium of exchangemoney enables anyone who possesses it to participate as an equal market player when consumers use money to purchase an item or service they are effectively making a bid in response to an asking price this interaction creates order and predictability in the marketplace producers know what to produce and how much to charge while consumers can reliably plan their budgets around predictable and stable pricing models if money as represented by a currency is no longer viable as a medium of exchange or if its monetary units can no longer be accurately valued businesses and consumers lose their ability to plan market volatility will cause the markets to become chaotic prices are bid up or raised in response to worries about scarcity and fears of the unknown meanwhile supply diminishes because of hoarding behavior coupled with an inability of producers to quickly replenish inventory characteristics of a medium of exchangean effective medium of exchange has certain characteristics most of all its value is widely recognized and reasonably stable even so the proliferation of currencies around the world makes it necessary for travelers to exchange their native currency with a local currency in order to do business for sheer practicality a medium of exchange must be dividable into a number of smaller units that can be added or subtracted to equal the payment charged for a specific product or service the governments that issue currency are responsible for most of their qualities they must make certain that the currency is made widely available to the public that it is not easy to copy or reproduce and that it is available in sufficient quantities as needed some of these characteristics may not apply to cryptocurrency which has no physical existence the extreme volatility of cryptocurrency prices may prevent them for now from being widely adopted as a means of payment purposes of a medium of exchangeas noted the primary purpose of a medium of exchange is to smooth transactions between parties an effective medium of exchange has a reasonably stable value that is known and accepted by all parties that relative stability gives currency as the primary medium of exchange another important purpose it can be stored for a long period of time the concepts of saving and investing evolved from the potential of currencies to serve over the long term as stores of value alternative currencies as a medium of exchangealternative currencies have appeared throughout time during periods of economic duress to spur commerce or buttress a national currency in 1907 a cascading series of bank failures caused widespread cash shortages 1 companies had to issue company scrip and other forms of emergency currency in order to pay their workers workers could redeem the scrip for food and services or they could hold onto it for future redemption once u s dollars became available such informal money substitutes are little more than an iou and depend on the reputation of the issuer for their acceptability as a form of payment example of an alternative medium of exchangeacross the u s local currencies have sprung up with the primary purpose of fostering economic growth and sustainability in a region the best known case of a thriving local currency is berkshares launched in 2006 and still accepted by some 350 businesses in the berkshires region of massachusetts the value of berkshares is pegged to the value of the dollar but the bills are issued at a discount berkshares can be obtained at participating bank branches nine branch offices of three local banks in exchange for u s dollars at a rate of 95 cents | |
what is a good medium of exchange | a medium of exchange works if its value is immediately recognizable reasonably stable and portable it then serves its purpose as an intermediary for the exchange of goods or services between two parties | |
what is a bad medium of exchange | a currency is only as good as the government that issues it out of control inflation political instability and government mismanagement are reflected in the value and stability of a nation s currency for example the worst currency in the world at this time according to world atlas is the venezuelan bolivar 2 once a strong currency hyperinflation has made the bolivar almost worthless as a medium of exchange for its citizens | |
what was the first medium of exchange | the earliest medium of exchange may have been a coin issued about 2 600 years ago in lydia an ancient kingdom in what is now western turkey the coin was made of a gold and silver alloy it was stamped with an official government image and the metal had a guaranteed weight and purity 3gold and other metals may have been used earlier as a medium of exchange but the lydians were the first known to have issued it in a standardized form that could be accepted as having a set value the bottom linein an encyclopedia britannica article written in part by milton friedman money is defined as a commodity accepted by general consent as a medium of economic exchange in modern economies the local currency is the universal medium of exchange except in dire economic circumstances for example as britannica points out the usual medium of exchange in germany directly after world war ii was cigarettes or cognac 4 | |
what is a medium term note mtn | a medium term note mtn is a note that usually matures in five to 10 years a corporate mtn can be continuously offered by a company to investors through a dealer with investors being able to choose from differing maturities ranging from nine months to 30 years though most mtns range in maturity from one to 10 years understanding medium term notes mtn by knowing that a note is medium term investors have an idea of what its maturity will be when they compare its price to that of other fixed income securities all else being equal the coupon rate on an mtn will be higher than those achieved on short term notes for corporate mtns this type of debt program is used by a company so it can have constant cash flows coming in from its debt issuance it allows a company to tailor its debt issuance to meet its financing needs medium term notes allow a company to register with the securities and exchange commission sec only once instead of every time for differing maturities benefits of medium term notesmtns offer investors an option between traditionally short term and long term investments this can be ideal for situations where the investor s goals fall into a time frame beyond those offered by certain municipal bonds or short term banknotes without having to commit to the long term note options businesses can benefit from mtns based on their ability to provide a consistent cash flow from investors additionally businesses can choose to offer mtns with or without call options while the rates associated with call options are often higher the business maintains the right to retire or call the bond within a specified period of time before the bond reaches maturity this allows businesses to take advantage of lower rates should they occur before a bond series has reached maturity by calling in the bond issue and then issuing new bonds at the lower rate non callable options do not have the same level of risk regarding the duration of the investment which leads them to be offered at lower rates options available in medium term notesinvestors looking to participate in the mtn market often have options regarding the exact nature of the investment this can include a variety of maturity dates as well as dollar amount requirements since the term involved in an mtn is longer than those associated with short term investment options the coupon rate will often be higher on an mtn while being lower than the rates offered on some longer term securities | |
what is a melt up | a melt up is a sustained and often unexpected improvement in the investment performance of an asset or asset class driven partly by a stampede of investors who don t want to miss out on its rise rather than by fundamental improvements in the economy gains that a melt up creates are considered to be unreliable indications of the direction the market is ultimately headed melt ups often precede meltdowns understanding melt ups and nuances of economic indicatorsignoring melt ups and meltdowns and instead focusing on fundamental factors begins with an understanding of economic indicators economic indicators come in the forms of leading indicators and lagging indicators these are all forms of economic indicators which investors follow to forecast the direction of the stock market and overall health of the u s economy leading indicators are factors that will shift before the economy starts to follow a particular pattern for example the consumer confidence index cci is a leading indicator that reflects consumer perceptions and attitudes are they spending freely do they feel like they have less cash to work with a rise or fall of this index is a strong indication of the future level of consumer spending which accounts for 70 of the economy additional leading indicators include the durable goods report dgr developed from a monthly survey of heavy manufacturers and the purchasing managers index pmi another survey based indicator that economists watch to predict gross domestic product gdp growth lagging indicators shift only after the economy has begun to follow a particular pattern these are often technical indicators that trail the price movements of their underlying assets certain examples of lagging indicators are a moving average crossover and a series of bond defaults melt ups and fundamental investingmany investors attempt to avoid melt ups and their impact on investor emotions when placing bets by instead focusing on the fundamentals of companies warren buffett for example is a famous value investor who made his fortune by careful attention to companies financial statements even amid economic turmoil he focused on corporate value and price was the company on solid financial footing how experienced and reliable was the management and was it over or under priced these questions often help investors focus on intrinsic value over hype example of melt upsfinancial analysts saw the run up in the stock market in early 2010 as a possible melt up because unemployment rates continued to be high both residential and commercial real estate values continued to suffer and retail investors continued to take money out of stocks more examples of melt ups occurred during the great depression when the stock market rose and fell several times despite a generally weak economy according to research by wealth managers stocks fell by more than 80 between 1929 and 1932 but they posted returns of more than 90 in july and august of 1932 and the trend continued over the next six months | |
what is a memorandum of understanding mou | a memorandum of understanding is an agreement between two or more parties outlined in a formal document it is not necessarily legally binding which depends on the signatories intent and the language in the agreement but signals the willingness of the parties to move forward with a contract the mou can be seen as the starting point for negotiations as it defines the scope and purpose of the talks such memoranda are most often seen in international treaty negotiations but may also be used in high stakes business dealings such as merger talks | |
how a memorandum of understanding mou works | an mou is an expression of agreement to proceed it indicates that the parties have reached an understanding and are moving forward although it is not always legally binding it is a serious declaration that a contract is imminent under u s law an mou is similar to a letter of intent in fact arguably a memorandum of understanding a memorandum of agreement and a letter of intent are all similar documents all communicate an agreement on a mutually beneficial goal and a desire to see it through to completion although an mou is not necessarily legally binding it allows parties to prepare for signing a contract by explaining the broad concepts and expectations of their agreement communicating in clear terms what each party hopes to gain from an agreement can be essential to the smooth execution of signing a legal contract in the future mous communicate the mutually accepted expectations of the people organizations or governments involved they are most often used in international relations because unlike treaties they can be produced relatively quickly and in secret they are also used in many u s and state government agencies particularly when major contracts are in the planning stages contents of an mouan mou clearly outlines specific points of understanding it names the parties describes the project on which they are agreeing defines its scope and details each party s roles and responsibilities while not always legally enforceable an mou is a significant step because of the time and effort involved in negotiating and drafting an effective document to create an mou the participating parties need to reach a mutual understanding in the process each side learns what is most important to the others before moving forward an mou communicates the mutually accepted expectations of the people organizations or governments involved the process often begins with each party effectively drafting its own best case mou it considers its ideal or preferred outcome what it believes it has to offer to the other parties and what points may be non negotiable on its side this is each party s starting position for negotiations advantages and disadvantages of an moua memorandum of understanding allows all parties to clearly state all of their objectives and goals this makes for less uncertainty and prevents future unexpected disputes from occurring furthermore by clearly laying out what each party expects of the other an mou provides a blueprint for any contract both parties may or may not wish to draw up in the future the biggest drawback of an mou depending on your point of view is that it is not necessarily legally binding while in some cases this may be a benefit since neither party is required to do what they say in the mou they can simply walk away or change their expectations of course this all depends on the intent and legal language of the mou mous can take significant time and planning to create and if one party completely changes its requirements creating the mou would be a large waste of resources | |
is an mou legally binding | a memorandum of understanding mou is a legal document but it is not necessarily legally binding although it usually signals a contract is imminent the specific intent and language of the agreement will determine whether it is actually binding or not | |
what is the difference between an mou and an moa | an mou is a document that describes very broad concepts of mutual understanding goals and plans shared by the parties in contrast an moa memorandum of agreement is a document describing in detail the specific responsibilities of and actions to be taken by each of the parties so that their goals may be accomplished | |
how do you write an mou | usually a lawyer will draft an mou an mou should clearly state the following what parties are involved the context of the agreement the proposed date of when the agreement will become effective the contact details of all relevant parties the broad purpose of the agreement and what each party is hoping to achieve as well as a space for all necessary signatures | |
why is an mou important | an mou is important because it allows each party to clearly state their objectives and what they expect from one another drafting an mou can help solve any disputes before each party enters into a full legally binding contract the bottom linea memorandum of understanding mou is a starting point of negotiations between multiple parties to signal the intent of doing business or coming to an agreement it simplifies a legal contract by establishing the key objectives and goals | |
what is mental accounting | mental accounting refers to the different values a person places on the same amount of money based on subjective criteria mental accounting is a concept in the field of behavioral economics developed by economist richard h thaler it contends that individuals classify funds differently and are therefore prone to irrational decision making in their spending and investment behavior 1understanding mental accountingin his 1999 paper mental accounting matters richard thaler currently a professor of economics at the university of chicago booth school of business defined mental accounting as the set of cognitive operations used by individuals and households to organize evaluate and keep track of financial activities 23underlying the theory is the concept of the fungibility of money to say money is fungible means that regardless of its origins or intended use all money is the same 14to avoid the mental accounting bias individuals should treat money as perfectly fungible when they allocate it among different accounts they also should value a dollar the same whether it is earned through work or given to them 14thaler observed that people frequently violate the fungibility principle especially in a windfall situation take a tax refund getting a check from the irs is generally regarded as found money something extra that the recipient often feels free to spend on a discretionary item but in fact the money rightfully belonged to the individual in the first place as the word refund implies and is mainly a restoration of money in this case an overpayment of tax not a gift therefore it should not be treated as a gift but rather viewed in much the same way that the individual would view their regular income 1to avoid mental accounting bias people should value every dollar they receive in the same way whether it is earned through work or given to them don t think of a tax refund as a windfall suitable for splurging example of mental accountingthe mental accounting line of thinking seems to make sense but is in fact highly illogical for instance some people keep a special money jar or similar fund set aside for a vacation or a new home while at the same time carrying substantial credit card debt they are likely to treat the money in this special fund differently from the money that is being used to pay down debt in spite of the fact that diverting funds from the debt repayment process increases interest payments thereby reducing their total net worth broken down further it s illogical and in fact detrimental to maintain a savings jar that earns little or no interest while simultaneously holding credit card debt that accrues double digit figures annually in many cases the interest on this debt will erode any interest you could earn in a savings account individuals in this scenario would be best off using the funds they have saved in the special account to pay off the expensive debt before it accumulates any further the solution to this problem seems straightforward yet many people do not behave in this way the reason has to do with the type of personal value that individuals place on particular assets many people feel for example that money saved for a new house or a child s college fund is simply too important to relinquish even if doing so would be the most logical and beneficial move so the practice of maintaining money in a low or no interest account while also carrying outstanding debt remains common professor thaler made a cameo appearance in the movie the big short to explain the hot hand fallacy as it applied to synthetic collateralized debt obligations cdos during the housing bubble prior to the 2007 2008 financial crisis 5mental accounting in investingpeople also tend to experience mental accounting bias when investing for instance many investors divide their assets between safe portfolios and speculative ones on the premise that they can prevent the negative returns from speculative investments impacting the total portfolio in this case the difference in net wealth is zero regardless of whether the investor holds multiple portfolios or one larger portfolio the only discrepancy in these two situations is the amount of time and effort the investor takes to separate the portfolios from one another borrowing from daniel kahneman and amos tversky s groundbreaking theory on loss aversion thaler offers this example an investor owns two stocks one with a paper gain the other with a paper loss the investor needs to raise cash and must sell one of the stocks mental accounting is biased toward selling the winner even though selling the loser is usually the rational decision due to tax loss benefits as well as the fact that the losing stock is a weaker investment the pain of realizing a loss is too much for the investor to bear so the investor sells the winner to avoid that pain this is the loss aversion effect that can lead investors astray with their decisions 4 | |
why do we do mental accounting | people have a natural tendency to treat money differently depending on factors such as its origin and intended use that way of thinking gradually makes less sense the more you think about it and can end up actually being detrimental to our finances | |
is mental accounting a behavioral bias | yes behavioral biases can be described as irrational beliefs or behaviors that unconsciously influence our decision making and mental accounting can be described as resulting in illogical ways of viewing and managing our money | |
how can mental accounting be prevented | the key to dealing with mental accounting and not succumbing to it is to treat money as interchangeable and not give it labels don t consider certain money less important because it came from an unexpected source or continue to park money in a savings account paying little to no interest when you have debts to repay with much higher borrowing costs the bottom linemental accounting is a trap that many including seasoned investors fall into the majority of people assign subjective value to money usually based on where it came from and how it s intended to be used while that approach may sound harmless and totally reasonable it can work against us and leave us economically worse off | |
what are menu costs | menu costs are a type of transaction cost incurred by firms when they change their prices menu costs are one microeconomic explanation offered by new keynesian economists for macroeconomic price stickiness which may cause an economy to fail to adjust to changing macroeconomic conditions understanding menu costsmenu costs are the costs incurred by a business when it changes the prices it offers to its customers a classic example is a restaurant that has to physically print new menus when it changes the prices of its dishes the main takeaway from menu costs is that some prices are sticky 1 that is firms are hesitant to change their prices until there is a sufficient disparity between the firm s current price and the equilibrium market price to justify the expense of incurring the menu cost for example a restaurant should not change its prices until the price change will result in sufficient additional revenue to cover the cost of printing new menus in practice however it may be difficult to determine the equilibrium market price or to account for all menu costs so it is hard for firms and consumers to behave precisely in this manner history of the menu costs conceptthe concept of menu costs was originally introduced by economists eytan sheshinski and yoram weiss in 1977 sheshinski and yoram argued that in an inflationary environment the prices firms charge will not rise continuously but in repeated discrete jumps that occur when the expected increase in revenue justifies incurring the fixed cost of changing the price 2new keynesian economists later applied the argument as a general theory of nominal price rigidity economists used it as an explanation for price stickiness and its role in propagating macroeconomic fluctuations the most direct application was a 1985 paper by gregory mankiw who argued that even small menu costs could produce enough price rigidity to have a major macroeconomic impact 3george akerlof and janet yellen put forward the idea that firms will not want to change their prices due to bounded rationality unless the benefit is more than a small amount this bounded rationality leads to inertia in nominal prices and wages which can cause output to fluctuate at constant nominal prices and wages 4the influence of menu costs on industry | |
how expensive it is to change prices depends on the type of firm and the technology in use for example it may be necessary to reprint menus update price lists contact a distribution and sales network or manually re tag merchandise on the shelf even when there are few apparent menu costs changing prices may make customers apprehensive about buying at the new price this purchasing hesitancy can result in a subtle type of menu cost in terms of lost potential sales | menu costs may be small in some industries but there is often sufficient friction and cost at scale to exert influence on the business decision of whether to reprice or not in a 1997 study store level data from five multi store supermarket chains was examined to directly measure menu costs the study found that menu costs per store averaged more than 35 of net profit margins this means that the profitability of items needed to drop more than 35 to justify updating the final price of the items the authors argued that menu costs may cause considerable nominal rigidity in other industries or markets essentially a ripple effect through suppliers and distributors thus amplifying their effects on the industry as a whole 5some menu costs are unavoidable because businesses must raise their prices at some point to keep up with inflation however a business can minimize menu costs by devising a pricing strategy that considers their unique value and branding compared to market competitors menu costs vary widely by region and industry this can be due to local regulations which may require a separate price tag on each item thus increasing menu costs alternatively there may be relatively few fixed contract suppliers so there are fewer limitations on price adjustment there are also variations on the speed of price limitations for example digitally managed and sold inventories have marginal menu costs and updates to pricing can be made globally with a few clicks in general high menu costs mean that prices are generally not updated until they must be for many goods the adjustment is usually up when input costs drop the marketers of a product tend to pocket the extra margin until competition forces them to reprice this is usually done through promotional discounting rather than true price adjustment menu costs faqsmenu cost theory reflects the effect of a price change on a commercial enterprise the classic example used to illustrate the theory is a restaurant that changes its prices must then bear the cost of printing new menus menu costs then are the costs to a firm of changing nominal prices in general every time a firm raises or cuts the prices it charges it faces a substantial financial outlay another aspect of menu costs is that prices must go up in line with inflation thus menu costs are unavoidable to some extent any costs that occur as a result of a firm changing its prices can be included as menu costs these costs could include printing menus updating computer systems re tagging items or hiring consultants to help with pricing strategy menu costs can also include consumer hesitancy to purchase at the new price yes menu costs result from the cost of changing prices purveyors must change their prices typically to keep up with inflation or they may reduce their prices to be more competitive in the market either way there will be associated costs for doing so menu costs usually are the result of inflation for example if the cost of food rent or wages goes up a restaurant will have to raise its prices to pay for the extra cost and to make the same profit when raising prices there are additional costs such as printing new menus updating the website etc this means the restaurant will incur extra costs simply because of inflation the key to reducing menu costs is to have a good pricing strategy businesses should analyze their market and determine how they differ from their local competitors this will show where their value lies where customers are concerned and can help them price their products effectively taking into account their competitor s products and prices these steps should prevent a business from having to change its prices too frequently or worse reduce them sticky prices exist when prices do not react or are slow to react to changes in demand production costs etc food in grocery stores tends to be sticky at least for a time for instance if the price of tomatoes plummets chef boyardee would more than likely not lower its prices even though the input costs decreased instead the food company would simply take the greater margin as profit in this example consumers notice no difference in price even though it should have been lowered according to the classic laws of supply and demand this works the other way around too olive garden is unlikely to hike up its pasta prices because the price of one ingredient goes up other examples of sticky prices are hair cuts health care and entertainment items such as books and movie tickets | |
what is mercantilism | mercantilism was an economic system of trade that spanned the 16th century to the 18th century mercantilism was based on the principle that the world s wealth was static and consequently governments had to regulate trade to build their wealth and national power many european nations attempted to accumulate the largest possible share of that wealth by maximizing their exports and limiting their imports via tariffs 1investopedia mira norianunderstanding mercantilismmercantilism was a form of economic nationalism that sought to increase the prosperity and power of a nation through restrictive trade practices its goal was to increase the supply of a state s gold and silver with exports rather than to deplete it through imports 1 it also sought to support domestic employment mercantilism centered on the interests of merchants and producers such as england s east india company and the dutch east india company and protected their activities as necessary 23mercantilism had several noteworthy characteristics 1 the belief in the static nature of wealthfinancial wealth was considered limited due to the rarity of precious metals nations that sought prosperity and power needed to secure as much wealth as possible at the expense of other nations 2 the need to increase the supply of goldgold represented wealth and power it could pay for soldiers seafaring exploration for natural resources and expanding empires it could also protect against invasion a lack of gold meant the downfall of a nation 3 the need to maintain a trade surplusthis was integral to building wealth nations needed to focus on selling their exports and collecting the associated revenue more than on spending on imports and sending gold out of countries 4 the importance of a large populationlarge populations represented wealth increasing a nation s population was integral to supplying a labor force supporting domestic commerce and maintaining armies 5 the use of colonies to support wealthsome nations needed colonies for raw materials a labor supply and a way to keep wealth within its control by selling colonies the products their raw materials helped to produce essentially colonies increased a nation s wealth building power and national security 6 the use of protectionismprotecting a nation s ability to build and maintain trade surpluses encompassed prohibiting colonies from trading with other nations and imposing tariffs on imported goods history of mercantilismfirst seen in europe during the 1500s mercantilism was based on the idea that a nation s wealth and power were best served by increasing exports and limiting imports mercantilism replaced the feudal economic system in western europe 4 at the time england was the epicenter of the british empire but had relatively few natural resources to grow its wealth england introduced fiscal policies that discouraged colonists from buying foreign products and created incentives to buy only british goods for example the sugar act of 1764 raised duties on foreign refined sugar and molasses imported by the colonies this increased taxation was meant to give british sugar growers in the west indies a monopoly on the colonial market 5similarly the navigation act of 1651 forbade foreign vessels from trading along the british coast and required colonial exports to first pass through british control before being redistributed throughout europe 6programs like these resulted in a favorable balance of trade that increased great britain s national wealth under mercantilism nations frequently engaged their military might to ensure that local markets and supply sources were protected mercantilists also believed that a nation s economic health could be measured by its ownership of precious metals such as gold or silver their levels tended to rise with increased new home construction increased agricultural output and a strong merchant fleet that serviced additional markets with goods and raw materials arguably the most influential proponent of mercantilism french controller general of finance jean baptiste colbert 1619 1683 studied foreign trade economic theories he was uniquely positioned to execute on mercantilist ideas 7 a devout monarchist colbert called for an economic strategy that protected the french crown from a rising dutch mercantile class 8colbert also increased the size of the french navy on the belief that france had to control its trade routes to increase its wealth 9 although his practices ultimately proved unsuccessful his ideas were hugely popular ultimately they became overshadowed by the theory of free market economics the british colonies were subject to the direct and indirect effects of mercantilist policy at home here are several examples defenders of mercantilism argued that it created stronger economies by marrying the concerns of colonies with those of their founding countries in theory when british colonists created their own products and obtained others by trading with their founding nation they remained independent from the influence of hostile nations meanwhile great britain benefited from receiving large amounts of raw material from the colonists that was necessary for a productive manufacturing sector critics of mercantilism believed the restriction on international trade increased expenses because all imports regardless of product origin had to be shipped by british ships this radically spiked the costs of goods for the colonists who believed the disadvantages of this system outweighed the benefits of affiliating with great britain after a costly war with france the british empire hungry to replenish revenue raised taxes on colonists who rebelled by boycotting british products consequently slashing imports by a full one third this was followed by the boston tea party in 1773 where boston colonists disguised as indians raided three british ships they emptied several hundred chests of tea into the harbor to protest british taxes on tea and the monopoly granted to the east india company to reinforce its mercantilist control great britain pushed harder against the colonies this resulted in the revolutionary war 11merchants and mercantilismby the early 16th century european financial theorists understood the importance of the merchant class in generating wealth cities and countries with goods to sell thrived in the late middle ages consequently many believed the state should allow its leading merchants to create exclusive government controlled monopolies and cartels governments used regulations subsidies and if needed military force to protect these monopolistic corporations from domestic and foreign competition citizens could invest money in mercantilist corporations in exchange for ownership and limited liability in their royal charters these citizens were granted shares of the company profit in essence these were the first traded corporate stocks the most famous and powerful mercantilist corporations were britain s east india company and the dutch east india company for more than 250 years the british east india company maintained the exclusive royally granted right to conduct trade between britain india and china its trade routes were protected by the royal navy 3mercantilism is considered by some scholars to be a precursor to capitalism since it rationalized economic activity such as profits and losses mercantilism vs imperialismmercantilist governments manipulate a nation s economy to create favorable trade balances imperialism uses a combination of military force and mass immigration to foist mercantilism on less developed regions military campaigns forced inhabitants to follow the dominant countries laws one of the most powerful examples of the relationship between mercantilism and imperialism is britain s establishment of the american colonies mercantilism vs capitalismcapitalism provides several advantages over mercantilism for individuals businesses and nations with capitalism s free trade system individuals benefit from a greater choice of affordable goods on the other hand mercantilism restricts imports and reduces the choices available to consumers fewer imports mean less competition and higher prices mercantilist countries engaged in warfare frequently to control resources nations operating under a free trade system prospered by engaging in mutually beneficial trade relations in his seminal book the wealth of nations legendary economist adam smith argued that free trade enabled businesses to specialize in producing the goods that they could manufacture most efficiently this led to higher productivity and greater economic growth 12mercantilism todaytoday mercantilism is deemed outdated the disaster of world war ii underscored the potential danger of nationalistic policies it also prodded the world toward global trading and relationships as a way to combat them however it is hard to escape mercantilism for example after the war barriers to trade were still used to protect locally entrenched industries the united states adopted a protectionist trade policy toward japan and negotiated voluntary export restrictions with the japanese government which limited japanese exports to the united states today russia and china still use a mercantilist system because it partners so well with their forms of government 13 they have relied heavily on their ability to control foreign trade their balance of payments and foreign reserves they have also sought to make their exports relatively more attractive with lower pricing in 2018 president trump imposed tariffs on chinese imports launching a trade war that exists to this day 14 | |
what were the main beliefs of mercantilism | mercantilism s original foundation included beliefs that the world had limited wealth in the form of gold and silver that nations had to build their stores of gold at the expense of others that colonies were important for supplying labor and trading partners that armies and navies were crucial to protecting trade practices and that protectionism was required to guarantee trade surpluses | |
what s the difference between capitalism and mercantilism | one difference is the role that the state plays capitalism calls for a minimum of government intervention and ownership of capital trade and industry by private entities and individuals mercantilism involves state control and regulation capitalism is said to promote individual freedom mercantilism is said to suppress it | |
is mercantilism still used today | yes to some extent it exists in certain countries whose governments seek to maintain control over property ownership trade and the creation of wealth the bottom linethe precursor to free trade economic theory mercantilism reigned supreme for three centuries mercantilism s theory relating to financial wealth building and state power supported the use of protectionism to increase export revenue and decrease imports it sparked an age of exploration and colonization in an effort to secure raw materials controllable trade partners and a net transfer of wealth mercantilism has been replaced in many parts of the world by free trade theory and capitalism however it s still seen in the tariffs imposed by governments of nations seeking a fair or unfair balance of trade with other nations | |
what is merchandising | merchandising is the presentation and promotion of goods that are available for purchase for both wholesale and retail sales this includes marketing strategies display design and competitive pricing including discounting merchandising is important for retailers looking to cultivate their brand improve the experience of customers compete with others in the sector and ultimately drive sales understanding merchandisingmerchandising includes the determination of quantities setting prices for goods creating display designs developing marketing strategies and establishing discounts or coupons more broadly merchandising may refer to retail sales itself the provision of goods to end user consumers cycles of merchandising are specific to cultures and climates these cycles may accommodate school schedules and incorporate regional and seasonal holidays as well as the predicted impact of weather merchandising can take on different and more specific definitions in regard to different aspects of retail sales for example in marketing merchandising can refer to the use of one product image or brand to sell another product image or brand the word merchandise comes from the old french word marchandise from marchand which means merchant special considerationssince retailers may or may not be producers of the goods they sell measuring the gross value of all sales provides insight into the company s performance this is especially true in the customer to customer market where the retailer serves as a third party mechanism for connecting buyers and sellers without actually participating as either merchandising may also provide value to retailers in the consignment sector in this sector retailers never officially purchase their inventory even though the items are often housed within a company s retail location the business functions as the authorized reseller often for a fee of another person s or entity s merchandise or property generally they are never the true owner of the item because the person or entity that placed the item on consignment may return and claim the item if they so choose gross merchandise value is the total value of merchandise sold over a given period of time through a customer to customer exchange site it is a measure of the growth of the business all around the world but most notably in the united states the reality of merchandising is getting an update the roles and rules of merchandising are experiencing an evolution chief merchants formerly concerned mainly with the selection and presentation of products now have broader accountability and a heavier hand in customer experience as well as the development of design and talent related to display and marketing design because consumer savvy is broadening and technology is playing such a massive role in merchandising companies need to stay ahead of consumers expectations innovation and experimentation have a central role in retailers merchandising strategies u s retail cyclesin the united states the routine retail cycle starts at the beginning of january during this time merchandising includes the promotion of valentine s day and st patrick s day products and related items shortly following this presidents day is represented through special sales and discounts the next major holiday in the united states is easter during this time not only is the holiday promoted but so is springtime and the associated warmer weather most promoted products at that time of year include clothing items appropriate for warmer weather in addition to tools and other items suited for outdoor activities such as gardening and picnics these items are typically made available mid winter and heavily marketed and promoted to move such items from shelves to make room for the next batch of products the cycle continues through the rest of the year in the same manner accounting for mother s day memorial day graduation season father s day the fourth of july labor day halloween thanksgiving and christmas retail is the largest private sector employer in the united states responsible for one out of every four jobs or 52 million american workers 1merchandising typically varies within retail chains but will vary greatly depending upon the region of the country and within states themselves merchandising company vs service companyas the name suggests a merchandising company engages in the sale of tangible goods to consumers these businesses incur costs such as labor and materials to present and ultimately sell products service companies do not sell tangible goods to produce income rather they provide services to customers or clients who value their innovation and expertise examples of service companies include consultants accountants financial planners and insurance providers merchandising strategiesmerchandisers employ a number of different strategies to attract buyers to make purchases including window and in store displays strategic grouping of products well stocked shelves that have clear signage the highlighting of certain promotional products samples and other freebies in store demonstrations and other in store advertisements cleanliness and neatness are also important as they are synonymous with professionalism a business s online store should also use merchandising strategies to appeal to online shoppers benefits of merchandisingmerchandising is critical for a retailer as it can directly impact sales and customer retention whether a store has a physical presence and or an online presence how the store presents itself and its products is crucial in a physical store cleanliness organization ease of accessibility and the strategic use of discounts and offers can be the difference between a customer that casually browses once and one that becomes a repeat purchaser effective merchandising can help a retailer grow its brand compete with others in its same category and stay competitive even when the economy is struggling | |
what are the types of merchandising companies | merchandising broadly speaking refers to any entity that engages in selling a product under this definition there are two types of merchandising companies namely retail and wholesale retailers sell their products directly to consumers while wholesalers buy from manufacturers and sell to retailers | |
what does merchandising entail | essentially merchandising is the promotion and sale of products it often is used to mean retail sales itself in that its goal is to influence the buying decisions of consumers however it should not be confused with the sale itself it is the process leading up to a sale it includes the determination of quantities setting prices for goods and services creating display designs developing marketing strategies and establishing discounts or coupons | |
what is the difference between a merchandising and a service company | a merchandising company both wholesale and retail sells tangible goods to its consumer these companies incur costs such as labor and materials to present and ultimately sell products service companies do not sell tangible goods to produce income instead they provide their expertise as a service to their clients examples of service companies include consultants accountants and financial planners | |
what are the four main categories of retail merchandise | there are essentially four types of retail merchandise and most retailers specialize in one of the four classes however especially savvy retailers merchandise their stores with products from all four categories shopping products are the main class of retail merchandise comprising products consumers want are willing to research and comparison shop for and are generally in demand for either a consumer or business audience convenience products that consumers can t live without such as food health and hygiene products and basic household goods comprise the second category the third category constitutes impulse purchases such as candy magazines or drinks these products are usually near the checkout aisle in supermarkets or so called big box retailers finally there are specialty products or unique personalized or otherwise more individualized products that are also available | |
what is a merchant bank | a merchant bank is a financial institution that conducts underwriting loan services financial advising and fundraising services for large corporations and high net worth individuals hnwi merchant banks specialize in providing services for private corporations unlike retail or commercial banks merchant banks do not typically provide financial services to the general public unlike investment banks they focus on private companies not public companies examples of large merchant banks include jpmorgan chase goldman sachs and citigroup investopedia michela buttignol | |
how merchant banks work | merchant banks are non depository financial institutions and companies that deal with international finance for multinational corporations these banks differ from other types of financial institutions in that they offer financial services such as private equity fundraising and business loans to private companies 12as such most of their services are not targeted at the general public while they may offer some banking services to wealthy individuals merchant banks are more oriented toward corporate clients they may have a retail banking arm but they do not provide for example checking accounts the term merchant bank describes investment banks in the united kingdom still it has a more narrow definition in the u s merchant banks may act like investment banks in the u s still they tend to focus on services tailored to multinational corporations and high net worth individuals who do business in more than one country unlike investment banks merchant banks in the u s do not focus on publicly held companies functions of a merchant bankmerchant banks provide financial and advisory services to help corporate clients conduct business they often work with companies that may not be large enough to raise funds from the public through an initial public offering ipo merchant banks traditionally perform international financing and underwriting including real estate trade finance and foreign investment they may also issue letters of credit locs 3merchant banks can also provide more creative forms of financing they can help corporations issue securities through private placement which requires less regulatory disclosure and are sold to sophisticated investors 4if a multinational corporation operates in many different countries a merchant bank can finance business operations in all of those countries and manage the currency exchanges when a company seeks to make a major purchase in another country it will seek a merchant bank that can transfer the funds to make the purchase using a letter of credit example of merchant bankingcompany abc based in the u s wants to buy company xyz in germany abc would hire a merchant bank to facilitate the process that bank would advise company abc on how to structure the transaction it may also help abc in the financing and underwriting process using the example above the sellers in germany would receive a letter of credit issued by the merchant bank hired by company abc as payment for the purchase the merchant can also help company abc work through the legal and regulatory issues required to do business in germany although merchant banks generally don t deal with the general public some of the biggest merchant banks also have retail and commercial banking operations merchant banks vs investment banksmerchant and investment banks are similar investment banks underwrite and sell securities to the general public through ipos the bank s clients are large corporations that are willing to invest the time and money necessary to register securities for sale to the public investment banks also provide advisory services to companies about mergers and acquisitions m a and provide investment research to clients while merchant banks are fee based investment banks have a two fold income structure they may collect fees based on the advisory services they provide to their clients but may also be fund based meaning they can earn income from interest and other leases 5regardless of how a company sells securities there are some minimum disclosure requirements to inform investors both ipos and private placements can require a company audit by an external certified public accountant cpa firm which provides an opinion on the financial statements potential investors can use this information about the risks and potential rewards to make decisions about buying or selling the securities underwrite and sell securities for private placements fee based income structures clients tend to be private pre ipo companies underwrite and sell securities to the public income based on fees and advisory services most clients are large public companies | |
what is a merchant bank account | a merchant bank account is a bank account for business clients these accounts are set up to receive debit and credit cards or other forms of electronic payment | |
what does merchant services mean on a bank statement | merchant services providers are financial intermediaries between a bank and its business clients they may help businesses handle payment processing cash advances online transactions check writing and cashing or other necessary services to maintain cash flow can i open an account at a merchant bank merchant banks are non depository institutions that do not provide the same types of consumer services that are offered by a retail bank although merchant banks may also serve wealthy individuals their services are more focused on providing financing and investment to commercial enterprises the bottom linemerchant banks are institutions that provide loans and capital for business enterprises they may also provide consulting services or help their clients structure large international transactions merchant banks provide different services from both retail and investment banks they may have retail banking divisions but they typically don t provide banking services to the general public | |
what is the merchant discount rate | the merchant discount rate mdr is a fee that merchants and other businesses must pay to a payment processing company on debit or credit card transactions the mdr typically comes in the form of a percentage of the transaction amount it is also referred to as a transaction discount rate tdr or a discount rate understanding the merchant discount rate | |
when merchants and other businesses want to accept payments from debit or credit cards they must first set up an account with a payment processing company payment processors serve as intermediaries between a business and the various banks that issue debit and credit cards the merchant discount rate is what the business pays for their services | payment processors have well established infrastructures and fee schedule arrangements in place to support all types of merchant payments most local and e commerce merchants can expect to pay a 1 to 3 fee for payment processing of each transaction | |
how payment processing works | payment processing companies help facilitate commerce worldwide in return for a cut in addition to point of sale pos and online services many now offer options for extended payment plans loans and lines of credit merchants have a range of options available for payment processing they can use fintech company services such as paypal square or shopify they can also set up payment processing with a traditional bank that offers such services among major banks payment processing services are chase pos payment solutions u s bank pos solutions and bank of america merchant services most payment processors offer e commerce and mobile payment processing in addition to processing for in store transactions that s the amount that retailers and their customers paid in credit and debit card processing fees in 2022 according to the national retail federation 1 | |
how much merchants pay for payment processing | merchants and other businesses have numerous payment processing providers to choose from which offer varying fee schedules depending on the size of the business and types of transactions merchant discount rates for e commerce transactions are typically higher due to added security costs for example chase pos payment solutions which calls itself the 1 payment processor in the u s recently posted these rates on its website 2chase added that custom pricing was also available while payment processors typically charge for each transaction at the applicable merchant discount rate some charge a flat monthly fee fintech processors typically offer lower costs and bank processing fees are usually higher while the merchant may pay a single fee that fee will typically be split among the payment processor the credit card issuing bank and sometimes other parties 3 | |
what is an interchange fee | an interchange fee often referred to as interchange is a portion of the merchant discount rate that the payment processor pays to the card issuer used in a transaction typically a bank in addition to the interest charged to cardholders credit card issuers earn money through interchange fees which are also called swipe fees can merchants charge extra for using a credit card in most states in the u s merchants are allowed to charge customers extra for using a card rather than cash in effect covering some or all of the merchant discount rate they have to pay on the transaction this is commonly known as a surcharge and is typically calculated as a percentage of the transaction amount in some cases merchants can also charge convenience fees which are typically a flat amount 45can a merchant give you a discount if you pay in cash yes as an alternative to charging more for using a debit or credit card merchants can give customers a discount for paying in cash this practice is legal in all 50 states of the u s 6 | |
do merchants pay more when you use credit vs debit | merchants tend to pay lower fees when the customer uses a debit card rather than a credit card according to the national retail federation swipe fees for credit cards average about 2 while fees for debit cards from the nation s largest banks are capped by the federal reserve at 21 cents per transaction plus 0 05 of the transaction amount debit cards from small banks it adds are exempt from that restriction 1 | |
why do merchants pay higher fees for online transactions | according to credit card companies online transactions involve more financial risk than in person transactions where both the customer and their physical card are on hand the higher merchant discount rates for online transactions are said to reflect that in credit industry jargon these are often referred to as card present vs card not present transactions 7the bottom linetoday s electronic payment networks offer customers the option to make purchases using a variety of credit and debit cards this is a convenience for consumers and an advantage for merchants who want to sell more goods merchants pay a fee for the services that make this possible consumers may also pay if the merchant builds that fee into the prices it charges | |
what is a merger | a merger is an agreement that unites two existing companies into one new company there are several types of mergers and reasons companies complete mergers mergers and acquisitions m a are commonly done to expand a company s reach expand into new segments or gain market share all of these are done to increase shareholder value often during a merger companies have a no shop clause to prevent purchases or mergers by additional companies investopedia joules garcia | |
how a merger works | a merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity the firms that agree to merge are roughly equal in terms of size customers and scale of operations for this reason the term merger of equals is sometimes used acquisitions unlike mergers are generally not voluntary and involve one company actively purchasing another mergers are most commonly done to gain market share reduce operational costs expand to new territories unite common products grow revenues and increase profits all of which should benefit the firms shareholders after a merger shares of the new company are distributed to existing shareholders of both original businesses the total value of u s mergers and acquisitions for 2023 dropped to 1 33 trillion from 1 49 of the previous year 1types of mergersthere are various types of mergers depending on the companies goals companies in the technology healthcare retail and financial sectors will frequently merge here are some of the most common types of mergers this is a merger between two or more companies engaged in unrelated business activities the firms may operate in different industries or different geographical regions a pure conglomerate involves two firms that have nothing in common a mixed conglomerate on the other hand takes place between organizations that while operating in unrelated business activities are actually trying to gain product or market extensions through the merger companies with no overlapping factors will only merge if it makes sense from a shareholder wealth perspective that is if the companies can create synergy which includes enhancing value performance and cost savings a conglomerate merger was formed when the walt disney company merged with the american broadcasting company abc in 1995 2a congeneric merger is also known as a product extension merger this type combines two or more companies operating in the same market or sector with overlapping factors such as technology marketing production processes and research and development r d a product extension merger is achieved when a new product line from one company is added to an existing product line of the other company when two companies become one under a product extension they can gain access to a larger group of consumers and thus a larger market share an example of a congeneric merger is citigroup s 1998 union with travelers insurance two companies with complementing products 3this type of merger occurs between companies that sell the same products but compete in different markets companies that engage in a market extension merger seek to gain access to a bigger market and thus a bigger client base for instance to extend their markets eagle bancshares and rbc centura merged in 2002 4a merger is the voluntary fusion of two companies on broadly equal terms into a new legal entity a horizontal merger occurs between companies operating in the same industry the merger is typically part of consolidation between two or more competitors offering the same products or services such mergers are common in industries with fewer firms and the goal is to create a larger business with greater market share and economies of scale since competition among fewer companies tends to be higher the 1998 merger of daimler benz and chrysler is considered a horizontal merger 5 | |
when two companies that produce parts or services for a product merger the union is referred to as a vertical merger a vertical merger occurs when two companies operating at different levels within the same industry s supply chain combine their operations such mergers are done to increase synergies achieved through cost reduction which results from merging with one or more supply companies one of the most well known examples of a vertical merger occurred in 2000 when internet provider america online aol combined with media conglomerate time warner 6 | examples of mergersanheuser busch inbev bud is an example of how mergers work and unite companies together the company is the result of multiple mergers consolidations and market extensions in the beer market the renamed company anheuser busch inbev is the result of the mergers of three large international beverage companies interbrew belgium ambev brazil and anheuser busch united states 7ambev merged with interbrew uniting the world s third and fifth largest brewers when ambev and anheuser busch merged it united the number one and two largest brewers in the world 89 this example represents both horizontal merger and market extension as it was an industry consolidation and extended the international reach of all the combined company s brands the largest mergers in history have totaled over 100 billion each in 2000 vodafone acquired mannesmann a transaction valued at 190 billion to create the world s largest mobile telecommunications company 10 in 2000 aol and time warner vertically merged in a 164 billion deal considered one of the biggest flops ever 11 in 2014 verizon communications bought out vodafone s 45 stake in vodafone wireless the value of which was 130 billion 12 | |
what is a horizontal merger | a horizontal merger is when competing companies merge companies that sell the same products or services the t mobile and sprint merger is an example of a horizontal merger meanwhile a vertical merger is a merger of companies with different products such as the at t and time warner combination | |
what is an spac merger | a special purpose acquisition company spac merger generally occurs when a publicly traded spac uses the public markets to raise capital to buy an operating company the operating company merges with an spac and becomes a publicly listed company | |
what is a reverse merger | a reverse merger also known as a reverse takeover rto is when a private company purchases a publicly traded company for instance the new york stock exchange nyse completed a reverse merger with archipelago holdings in 2006 13the bottom linemergers occur when two or more companies combine to make one larger one they are usually strategic in nature for one or both businesses granting them both larger market share or other advantages | |
what is merger arbitrage | merger arbitrage often considered a hedge fund strategy involves simultaneously purchasing and selling the respective stock of two merging companies to create riskless profits because there is the uncertainty of the deal being completed the stock price of the target company typically sells at a price below the acquisition price a merger arbitrageur will review the probability of a merger not closing on time or at all and will then purchase the stock before the acquisition expecting to make a profit when the merger or acquisition completes understanding merger arbitragemerger arbitrage also known as risk arbitrage is a subset of event driven investing or trading which involves exploiting market inefficiencies before or after a merger or acquisition a regular portfolio manager often focuses on the profitability of the merged entity by contrast merger arbitrageurs focus on the probability of the deal being approved and how long it will take to finalize the deal since there is a probability the deal may not be approved merger arbitrage carries some risk merger arbitrage is a strategy that focuses on the merger event rather than the overall performance of the stock market special considerations | |
when a corporation announces its intent to acquire another corporation the acquiring company s stock price typically decreases and the target company s stock price increases to secure the shares of the target company the acquiring firm must offer more than the current value of the shares the acquiring firm s stock price declines because of market speculation about the target firm or the price offered for the target firm | however the target company s stock price typically remains below the announced acquisition price which is reflective of the deal s uncertainty in an all cash merger investors generally take a long position in the target firm if a merger arbitrageur expects a merger deal to break the arbitrageur may short shares of the target company s stock if a merger deal breaks the target company s share price typically falls to its share price prior to the deal announcement mergers may break due to a multitude of reasons such as regulations financial instability or unfavorable tax implications types of merger arbitragethere are two main types of corporate mergers cash and stock mergers in a cash merger the acquiring company purchases the target company s shares for cash alternatively a stock for stock merger involves the exchange of the acquiring company s stock for the target company s stock in a stock for stock merger a merger arbitrageur typically buys shares of the target company s stock while shorting shares of the acquiring company s stock if the deal is thus completed and the target company s stock is converted into the acquiring company s stock the merger arbitrageur could use the converted stock to cover the short position a merger arbitrageur could also replicate this strategy using options such as purchasing shares of the target company s stock while purchasing put options on the acquiring company s stock | |
what are mergers and acquisitions m a | mergers and acquisitions m a are the different ways companies are combined entire companies or their major business assets are consolidated through financial transactions between two or more companies a company may all of these ways of combining or consolidating assets are m a activities the term m a also is used to describe the divisions of financial institutions that facilitate or manage such activities understanding mergers vs acquisitionsthe terms mergers and acquisitions are often used interchangeably however they have slightly different meanings | |
when one company takes over another and establishes itself as the new owner the purchase is called an acquisition unfriendly or hostile takeover deals in which target companies do not wish to be purchased are always regarded as acquisitions however an acquisition can also be done with the willing participation of both companies | on the other hand a merger describes two firms that join forces to move forward as a single new entity rather than remain separately owned and operated in general the two firms are of approximately the same size and this action is known as a merger of equals for example when daimler benz and chrysler merged the two separate companies ceased to exist instead the new company daimlerchrysler was created both companies stocks were surrendered and new company stock was issued in its place 1 in a brand refresh the company underwent another name and ticker change to the mercedes benz group ag mbg in february 2022 2a purchase deal will also be called a merger when both ceos agree that joining together is in the best interest of both of their companies a deal can be classified as a merger or an acquisition based on whether the acquisition is friendly or hostile and how it is announced in other words the difference lies in how the deal is communicated to the target company s board of directors employees and shareholders lara antal investopediam a deals generate sizable profits for the investment banking industry but not all mergers or acquisition deals close 3types of mergers and acquisitionsthe following are some common transactions that fall under the m a umbrella in a merger the boards of directors for two companies approve the combination and seek shareholders approval this type of m a activity is designed to boost both brands allowing each to bring their existing strengths to a new company and create a bigger piece of the industry pie for the new company that is formed for example in 2024 hbc announced that it was acquiring the neiman marcus group and merging it with another brand that it owned saks fifth avenue both nmg which owns neiman marcus and bergdorf goodman and saks are luxury retailers but their share of retail sales has declined with the rise of online shopping and the reduction of brick and mortar retail the merger will consolidate the three existing brands saks neiman marcus and bergdorf goodman into a single luxury retail brand known as saks global this consolidation is intended to make it easier to compete with online retail giants 4in a simple acquisition the acquiring company obtains the majority stake in the acquired firm which does not change its name or alter its organizational structure in some cases the target company may require the buyers to promise that the target business remains solvent for a period after acquisition through the use of a whitewash resolution an acquisition often allows the acquiring company to move into a new or related industry expanding its offerings by tapping into the acquired company s existing customer base and services an example of this type of transaction was amazon s acquisition of whole foods in 2017 the acquisition allowed amazon to expand into grocery delivery services groceries make up a large portion of many people s budgets as well as tap into the market for health conscious customers 5 whole foods which had been losing market share to customers who could find similar products at lower prices in other grocery chains benefitted from amazon s broad customer base and ease of connecting with consumers corporate consolidation happens when two or more companies combine to increase their market share and eliminate competition for example facebook consolidated its dominance in the social media industry by acquiring other social media companies that had promising business models and could have become competitive with facebook an example of this is when it acquired instagram in 2012 for 1 billion 6 instagram continued to operate as a separate company under the parent facebook company now meta platforms however other instances of consolidation under facebook resulted in acquired social media companies being integrated into the facebook platform for example the messaging service beluga was acquired by facebook then rebranded as facebook messenger 7in a tender offer one company offers to purchase the outstanding stock of the other firm at a specific price rather than the market price the acquiring company communicates the offer directly to the other company s shareholders bypassing the management and board of directors 8 for example in 2008 johnson johnson made a tender offer to acquire omrix biopharmaceuticals for 438 million 9 the company agreed to the tender offer and the deal was settled by the end of december 2008 10in an acquisition of assets one company directly acquires the assets of another company the company whose assets are being acquired must obtain approval from its shareholders the purchase of assets is typical during bankruptcy proceedings wherein other companies bid for various assets of the bankrupt company which is liquidated upon the final transfer of assets to the acquiring firms in a management acquisition also known as a management led buyout mbo a company s executives purchase a controlling stake in another company taking it private these former executives often partner with a financier or former corporate officers in an effort to help fund a transaction this type of m a transaction is typically financed disproportionately with debt and the majority of shareholders must approve it for example in 2022 tesla motors ceo elon musk purchased twitter inc for 44 billion taking the company private the deal included 25 5 billion of margin loan and debt financing 11 | |
how mergers are structured | mergers can be structured in different ways based on the relationship between the two companies involved in the deal mergers may also be distinguished by following two financing methods each with its own ramifications for investors as the name suggests this kind of merger occurs when one company purchases another company the purchase is made with cash or through the issue of some kind of debt instrument the sale is taxable which attracts the acquiring companies who enjoy the tax benefits acquired assets can be written up to the actual purchase price and the difference between the book value and the purchase price of the assets can depreciate annually reducing taxes payable by the acquiring company with this merger a brand new company is formed and both companies are bought and combined under the new entity the tax terms are the same as those of a purchase merger vertical vs horizontal acquisitionshorizontal integration and vertical integration are competitive strategies that companies use to consolidate their position among competitors horizontal integration is the acquisition of a related business a company that opts for horizontal integration will take over another company that operates at the same level of the value chain in an industry for instance when marriott international inc acquired starwood hotels resorts worldwide inc 12vertical integration refers to the process of acquiring business operations within the same production vertical a company that opts for vertical integration takes complete control over one or more stages in the production or distribution of a product apple for example acquired authentec which makes the touch id fingerprint sensor technology that goes into its iphones 13 | |
how acquisitions are financed | a company can buy another company with cash stock assumption of debt or a combination of some or all of the three at times the investment bank involved in the sale of one company might offer financing to the buying company this is known as staple financing and is done to produce larger and timely bids in smaller deals it is also common for one company to acquire all of another company s assets company x buys all of company y s assets for cash which means that company y will have only cash and debt if any of course company y becomes merely a shell and will eventually liquidate or enter other areas of business another acquisition deal known as a reverse merger enables a private company to become publicly listed in a relatively short time period reverse mergers occur when a private company that has strong prospects and is eager to acquire financing buys a publicly listed shell company with no legitimate business operations and limited assets the private company reverses merges into the public company and together they become an entirely new public corporation with tradable shares | |
how mergers and acquisitions are valued | both companies involved on either side of an m a deal will value the target company differently the seller will obviously value the company at the highest price possible while the buyer will attempt to buy it for the lowest price possible fortunately a company can be objectively valued by studying comparable companies in an industry and by relying on the following metrics with the use of a price to earnings ratio p e ratio an acquiring company makes an offer that is a multiple of the earnings of the target company examining the p e for all the stocks within the same industry group will give the acquiring company good guidance for what the target s p e multiple should be with an enterprise value to sales ratio ev sales the acquiring company makes an offer as a multiple of the revenues while being aware of the price to sales p s ratio of other companies in the industry a key valuation tool in m a a discounted cash flow dfc analysis determines a company s current value according to its estimated future cash flows forecasted free cash flows net income depreciation amortization capital expenditures change in working capital are discounted to a present value using the company s weighted average cost of capital wacc admittedly dcf is tricky to get right but few tools can rival this valuation method in a few cases acquisitions are based on the cost of replacing the target company for simplicity s sake suppose the value of a company is simply the sum of all its equipment and staffing costs the acquiring company can literally order the target to sell at that price or it will create a competitor for the same cost naturally it takes a long time to assemble good management acquire property and purchase the right equipment this method of establishing a price certainly wouldn t make much sense in a service industry wherein the key assets people and ideas are hard to value and develop impact on shareholdersgenerally speaking in the days leading up to a merger or acquisition shareholders of the acquiring firm will see a temporary drop in share value at the same time shares in the target firm typically experience a rise in value this is often because the acquiring firm will need to spend capital to acquire the target firm at a premium to the pre takeover share prices after a merger or acquisition officially takes effect the stock price usually exceeds the value of each underlying company during its pre takeover stage in the absence of unfavorable economic conditions shareholders of the merged company usually experience favorable long term performance and dividends the shareholders of both companies may experience a dilution of voting power due to the increased number of shares released during the merger process this phenomenon is prominent in stock for stock mergers when the new company offers its shares in exchange for shares in the target company at an agreed upon conversion rate shareholders of the acquiring company experience a marginal loss of voting power while shareholders of a smaller target company may see a significant erosion of their voting powers in the relatively larger pool of stakeholders | |
how do mergers differ from acquisitions | in general acquisition describes a transaction wherein one firm absorbs another firm via a takeover the term merger is used when the purchasing and target companies mutually combine to form a completely new entity because each combination is a unique case with its own peculiarities and reasons for undertaking the transaction the use of these terms tends to overlap | |
why do companies acquire other companies | two of the key drivers of capitalism are competition and growth when a company faces competition it must both cut costs and innovate at the same time one solution is to acquire competitors so that they are no longer a threat companies also grow by acquiring new product lines intellectual property human capital and customer bases by combining business activities overall performance efficiency tends to increase and across the board costs tend to drop as each company leverages the other company s strengths | |
what is a hostile takeover | friendly acquisitions are most common and occur when the target firm agrees to be acquired its board of directors and shareholders approve of the acquisition and these combinations often work for the mutual benefit of the acquiring and target companies unfriendly acquisitions commonly known as hostile takeovers occur when the target company does not consent to the acquisition hostile acquisitions don t have the same agreement from the target firm and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest which forces the acquisition the bottom linemergers and acquisitions or m a are the different ways that businesses and their assets can be bought consolidated or combined with another business an acquisition is usually the outright purchase of one company by another in a merger the two businesses generally combine to form a new company both mergers and acquisitions can be financed through a combination of stock debt or cash they may be friendly or unfriendly an unfriendly acquisition is often known as a hostile takeover and is not desired by the acquired company | |
what is merrill lynch co | merrill lynch co is the former name of a prominent wall street investment firm since its acquisition by bank of america bac in 2009 it has become known simply as merrill and operates as a wealth management division of bank of america founded by charles e merrill in 1914 merrill lynch co has long been one of the american financial sector s iconic institutions understanding merrill lynch co today merrill lynch co is headquartered at 250 vesey street in manhattan new york part of bank of america the firm holds assets under management aum of over 2 75 trillion and employs over 19 000 financial advisors 1 while today it is focused on its wealth management business merrill lynch co is recognized for its investment banking activities in june 1971 merrill lynch co completed its initial public offering ipo and began trading on the new york stock exchange nyse during the early 2000s merrill lynch co became a leader in the market for mortgage backed collateralized debt obligations cdos following its acquisition of the subprime lending firm first franklin financial in 2006 merrill lynch co gradually expanded its service offerings by acquiring and merging with various other firms the company has been engaged in retail brokerage services prime brokering broker dealer activities and commodities trading among others the company became the subject of widespread concern during the 2007 to 2008 financial crisis in november 2007 merrill lynch co announced billions in losses related to its portfolio of subprime mortgages and related derivative products 2 following the termination of its chief executive officer ceo the company began selling company assets in a bid to maintain its solvency amidst speculation that it was on the verge of collapse in september 2008 bank of america proposed a takeover of merrill lynch co with an offer value of over 40 billion this takeover offer which represented a premium of over 70 relative to the company s then depressed market price was accepted shortly thereafter and bank of america ultimately acquired merrill lynch for a 50 billion all stock transaction 3according to financial planning the company plans to cut payouts to its advisors that manage small account holders in 2021 in an effort to maintain stability 4 advisors will not receive a payout for production credits generated in households under 250 000 this change echoes a trend among the biggest brokerage firms which are encouraging advisors to cater to larger clients and move smaller accounts to robo advisors or self directed platforms this action is a reflection of the digital transformation that has occurred in the fintech sector a senior merrill executive stated that shift really reflects where our business is today and where it is going 4 | |
what is the merton model | the merton model is a mathematical formula that stock analysts and commercial loan officers among others can use to judge a corporation s risk of credit default named for economist robert c merton who proposed it in 1974 the merton model assesses the structural credit risk of a company by modeling its equity as a call option on its assets formula for the merton modele v t n d 1 k e r t n d 2 where d 1 ln v t k r v 2 2 t v t and d 2 d 1 v t e theoretical value of a company s equity v t value of the company s assets in period t k value of the company s debt t current time period t future time period r risk free interest rate n cumulative standard normal distribution e exponential term i e 2 7183 standard deviation of stock returns begin aligned e v tn left d 1 right ke r delta t n left d 2 right textbf where d 1 frac ln frac v t k left r frac sigma v 2 2 right delta t sigma v sqrt delta t text and d 2 d 1 sigma v sqrt delta t text e theoretical value of a company s equity v t text value of the company s assets in period t text k value of the company s debt text t current time period text t future time period text r risk free interest rate text n cumulative standard normal distribution text e exponential term left i e text 2 7183 right sigma text standard deviation of stock returns end aligned e vt n d1 ke r tn d2 where d1 v t lnkvt r 2 v2 t andd2 d1 v t e theoretical value of a company s equityvt value of the company s assets in period tk value of the company s debtt current time periodt future time periodr risk free interest raten cumulative standard normal distributione exponential term i e 2 7183 standard deviation of stock returns | |
what does the merton model tell you | the merton model allows for easier valuation of a company and helps analysts determine if it will be able to retain solvency by analyzing the maturity dates of its debt and its debt totals the merton model calculates the theoretical pricing of european put and call options without considering dividends paid out during the life of the option the model can however be adapted to consider dividends by calculating the ex dividend date value of underlying stocks the merton model makes the following basic assumptions variables that are taken into consideration in the formula include options strike prices present underlying prices risk free interest rates and the amount of time before expiration history of the merton modelrobert c merton is a noted american economist and nobel prize laureate who purchased his first stock at age 10 he earned a bachelor of science in engineering at columbia university a master of science in applied mathematics at the california institute of technology and a doctorate in economics at the massachusetts institute of technology mit where he later became a professor 1during merton s time at mit he and fellow economists fischer black and myron s scholes were all working on problems related to the pricing of options and often aided in each other s work black and scholes published a seminal paper on the topic the pricing of options and corporate liabilities in 1973 2 merton s on the pricing of corporate debt the risk structure of interest rates published early the following year described what has come to be known as the merton model 3merton and scholes were awarded the nobel prize for economics in 1997 black had died and was no longer eligible the prize committee cited them for developing a pioneering formula for the valuation of stock options their methodology has paved the way for economic valuations in many areas it has also generated new types of financial instruments and facilitated more efficient risk management in society 4their best known collaboration is often referred to today as the black scholes merton model | |
what is a call option | a call option is a contract that allows the buyer to purchase a stock or other financial asset at a specified price by or on a certain date | |
what is the difference between european and american options | european options can be exercised only on their expiration date while american options can be exercised anytime | |
what is a risk free interest rate | a risk free interest rate is the theoretical rate of return on an investment carrying zero risk it is theoretical because no investment is entirely without risk although some come closer than others the bottom linethe merton model developed by economist robert c merton is a mathematical formula that assesses the structural credit risk of a company by modeling its equity as a call option on its assets it is often used by stock analysts and commercial loan officers to ascertain a corporation s likely risk of credit default | |
what are metrics | metrics are measures of quantitative assessment commonly used for assessing comparing and tracking performance or production generally a group of metrics will typically be used to build a dashboard that management or analysts review on a regular basis to maintain performance assessments opinions and business strategies investopedia candra huffunderstanding metricsmetrics have been used in accounting operations and performance analysis throughout history metrics come in a wide range of varieties with industry standards and proprietary models often governing their use executives use them to analyze corporate finance and operational strategies analysts use them to form opinions and investment recommendations portfolio managers use metrics to guide their investing portfolios furthermore project managers also find them essential in leading and managing strategic projects of all kinds overall metrics refer to a wide variety of data points generated from a multitude of methods best practices across industries have created a common set of comprehensive metrics used in ongoing evaluations however individual cases and scenarios typically guide the choice of metrics used choosing metricsevery business executive analyst portfolio manager and the project manager has a range of data sources available to them for building and structuring their own metric analysis this can potentially make it difficult to choose the best metrics needed for important assessments and evaluations generally managers seek to build a dashboard of what has come to be known as key performance indicators kpis in order to establish a useful metric a manager must first assess its goals from there it is important to find the best outputs that measure the activities related to these goals a final step is also setting goals and targets for kpi metrics that are integrated with business decisions academics and corporate researchers have defined many industry metrics and methods that can help shape the building of kpis and other metric dashboards an entire decision analysis method called applied information economics was developed by douglas hubbard for analyzing metrics in a variety of business applications 1 other popular decision analysis methods include cost benefit analysis forecasting and monte carlo simulation several businesses have also popularized certain methods that have become industry standards in many sectors dupont began using metrics to better their own business and in the process came up with the popular dupont analysis which closely isolates variables involved in the return on equity roe metric ge has also commissioned a set of metrics known as six sigma that are commonly used today with metrics tracked in six key areas critical to quality defects process capability variation stable operations and design for six sigma examples of metricswhile there are a wide range of metrics below are some commonly used tools economic metricsoperational company metricsfrom a comprehensive perspective executives industry analysts and individual investors often look at key operational performance measures of a company all from different perspectives some top level operational metrics include measures derived from the analysis of a company s financial statements key financial statement metrics include sales earnings before interest and tax ebit net income earnings per share margins efficiency ratios liquidity ratios leverage ratios and rates of return each of these metrics provides a different insight into the operational efficiency of a company executives use these operational metrics to make corporate decisions involving costs labor financing and investing executives and analysts also build complex financial models to identify future growth and value prospects integrating both economic and operational metric forecasts there are several metrics that are key to comparing the financial position of companies against their competitors or the market overall two of these key comparable metrics which are based on market value include price to earnings ratio and price to book ratio portfolio managementportfolio managers use metrics to identify investing allocations in a portfolio all types of metrics are also used for analyzing and investing in securities that fit a specific portfolio strategy for example environmental social and governance esg criteria are a set of standards for a company s operations that socially conscious investors use to screen potential investments project management metricsin project management metrics are essential in measuring project progression output targets and overall project success some of the areas where metric analysis is often needed include resources cost time scope quality safety and actions project managers have the responsibility to choose metrics that provide the best analysis and directional insight for a project metrics are followed in order to measure the overall progression production and performance | |
what is a metropolitan statistical area msa | metropolitan statistical areas msa are delineated by the u s office of management and budget omb as having at least one urbanized area with a minimum population of 50 000 1understanding metropolitan statistical areas msa a metropolitan statistical area msa formerly known as a standard metropolitan statistical area smsa is the formal definition of a region that consists of a city and surrounding communities that are linked by social and economic factors as established by the u s office of management and budget omb 1metropolitan statistical areas serve to group counties and cities into specific geographic areas for population censuses and compilations of related statistical data modern msas are configured to represent contiguous geographic areas with a relatively high density of human population metropolitan statistical areas usually consist of a core city with a large population and its surrounding region which may include several adjacent counties the area defined by the msa is typically marked by significant social and economic interaction people living in outlying rural areas for example may commute considerable distances to work shop or attend social activities in the urban center 1as of march 6 2020 latest information per the omb bulletin no 20 1 there are 392 regions that meet the requirements to be designated as metropolitan statistical areas msa in the u s and puerto rico 384 in the united states and eight in puerto rico 2in contrast to micropolitan statistical areas which center on towns and smaller communities with populations between 10 000 50 000 msas must include a city with a population of at least 50 000 1some msas such as dallas fort worth arlington contain multiple cities with populations exceeding 50 000 the most populous msa in the country new york newark jersey city spans portions of three adjacent states new york new jersey and pennsylvania 34msa data usesthe bureau of labor statistics bls uses msa data to analyze labor market conditions within a geographical area within a metropolitan statistical area workers can presumably change jobs without having to move to a new location creating a relatively stable labor force 5statistical data about msas also helps government officials and businesses review information about per capita income spending patterns and unemployment rates the resulting data can be used to formulate policies designed to stimulate economic growth in the region for example the atlanta sandy springs alpharetta metropolitan statistical area exerts a significant influence on the economic health of the region it is the most populous area of georgia companies seeking to relocate or establish new companies in the atlanta sandy springs alpharetta region can use statistical data about the area to project the viability of their intended business 4real estate investors also use msa data to study housing trends and population movement in addition applicants for certain social services may need to prove income levels below a fixed percentage of the median gross income in their metropolitan statistical area to qualify for help including low income housing and other forms of support | |
what size is a metropolitan statistical area | a metropolitan statistical area consists of a location that has at least one urbanized area and a population of at least 50 000 people 1 | |
what is the difference between msa and csa | a metropolitan statistical area msa is an area with at least one urbanized area and a population of at least 50 000 people this includes the core jurisdiction plus adjacent counties that have a high degree of social and economic relations with the core county a combined statistical area csa is two or more msas or micropolitan statistical areas with employment interchange measures of at least 15 employment interchange measures means the sum of the percentage of workers living in the smaller entity who work in the larger entity and the percentage of employment in the smaller entity that is accounted for by workers who reside in the larger entity 6 | |
what is the largest metro area in the world | tokyo is the largest metro area in the world with a total metropolitan population of 36 5 million 7the bottom linea metropolitan statistical area msa is determined by the u s office of management and budget omb as a location with at least one urbanized area and at least 50 000 people msas are typically cities and their linked surrounding areas msas help to group counties and cities into geographic areas for consensus purposes | |
what is mezzanine debt | mezzanine debt occurs when a hybrid debt issue is subordinated to another debt issue from the same issuer mezzanine debt has embedded equity instruments attached often known as warrants which increase the attractiveness of the subordinated debt and allow greater flexibility when dealing with bondholders mezzanine debt is frequently associated with acquisitions and buyouts for which it may be used to rank new owners higher than existing owners in the stakeholder seniority list in case of company liquidation investopedia jake shiunderstanding mezzanine debtmezzanine debt bridges the gap between debt and equity financing and it s one of the highest risk forms of debt it s senior to pure equity but subordinate to pure debt but it also offers some of the highest returns when compared to other debt types it often receives rates between 12 and 20 per year 1types of mezzanine debtthe types of equity included with the debt can be many some examples of embedded options include stock call options rights and warrants mezzanine debt behaves more like a stock than debt in practice because the embedded options make the conversion of the debt into stock very attractive mezzanine debt structures are most commonly found in leveraged buyouts a private equity firm might seek to purchase a company for 100 million with debt but the lender only wants to put up 80 of the value and offers a loan of 80 million the private equity firm doesn t want to put up 20 million of its own capital and instead looks for a mezzanine investor to finance 15 million the firm then only has to invest 5 million of its own dollars to meet the 100 million price tag the investor used mezzanine debt so they ll be able to convert that debt to equity when certain requirements are met using this method of financing leverages the buyer s potential return while minimizing the amount of capital that it must put up for the transaction a hybrid security classification on the balance sheet under u s generally accepted accounting principles gaap is dependent on how the embedded option is influenced by the debt portion the two parts of the hybrid the debt and the embedded equity option must be classified in both the liability and stockholders equity sections of the balance sheet if the act of exercising the embedded option is influenced by the structure of the debt in any way example of mezzanine debtmezzanine debt is most often used in mergers and acquisitions olympus partners a private equity firm based in connecticut received debt financing from antares capital in 2016 to acquire amspec holding corp a company that provides testing inspection and certification services for petroleum traders and refiners the total amount of the financing was 215 million this included a revolving credit facility a term loan and a delayed draw term loan antares capital provided the total capital in the form of mezzanine debt thus giving it equity options 2 | |
what is equity financing | equity financing is a means of raising capital through company shares the shares are sold by the company to investors granting them a percentage of ownership rights 3 | |
what is a hybrid security | hybrid securities share characteristics of stocks and bonds they include preferred stocks convertible bonds and exchange traded notes risks and returns hover somewhere in the middle between stocks and bonds an investor can convert a convertible bond into a stock relatively easily but these bonds generally offer lower interest rates 4 | |
what is a warrant in finance | warrants are securities that come with the right but not the obligation to purchase them they re sometimes included with other bonds and shares or awarded to employees as an incentive the price and a deadline to act are set at inception 5the bottom linemezzanine debt is the result of a hybrid debt issue being subordinated to another debt issue from the same issuer it s often used in mergers and acquisitions it provides a bridge between debt and equity financing and it shares several characteristics with stocks returns can range up to 20 annually making this type of debt an attractive option for investors over other debt types | |
what is mezzanine financing | mezzanine financing is a hybrid of debt and equity financing that gives a lender the right to convert debt to an equity interest in a company in case of default generally after venture capital companies and other senior lenders are paid in terms of risk it exists between senior debt and equity mezzanine debt has embedded equity instruments often known as warrants attached they increase the value of the subordinated debt and allow greater flexibility when dealing with bondholders mezzanine financing is frequently associated with acquisitions and buyouts for which it may be used to prioritize new owners ahead of existing owners in case of bankruptcy | |
how mezzanine financing works | mezzanine financing bridges the gap between debt and equity financing and is one of the highest risk forms of debt it is senior to pure equity but subordinate to pure debt however this means that it also offers some of the highest returns to investors in debt when compared to other debt types as it often receives rates of 12 to 20 per year and sometimes as high as 30 mezzanine financing can be considered as very expensive debt or cheaper equity because it carries a higher interest rate than the senior debt that companies would otherwise obtain through their banks but is substantially less expensive than equity in terms of the overall cost of capital it is also less diluting of the company s share value in the end mezzanine financing permits a business to own more capital and increase its returns on equity 12companies will turn to mezzanine financing in order to fund specific growth projects or to help with acquisitions having short to medium term time horizons often these loans will be funded by the company s long term investors and existing funders of the company s capital in the case of preferred equity there is in effect no obligation to repay the money acquired through equity financing since there are no mandatory payments to be made the company has more liquid capital available to it for investing in the business even a mezzanine loan requires only interest payments prior to maturity and thus leaves more free capital in the hands of the business owner a number of characteristics are common in the structuring of mezzanine loans including mezzanine financing structuremezzanine financing exists in a company s capital structure between its senior debt and its common stock as subordinated debt or preferred equity or some combination of these two the most common structure for mezzanine financing is unsecured subordinated debt sub debt as it is also called is an unsecured bond or loan that ranks below more senior loans or securities in its ability to claim against the company s assets or earnings in the case of a borrower default sub debt holders are not paid out until all senior debt holders are paid in full unsecured sub debt means that the debt is backed only by the company s promise to pay in other words there is no lien or other credit that supports the debt other mezzanine debt is security by a lien on the underlying property and is therefore secured payments are usually made with monthly payments of debt service based on a fixed or floating rate and the balance due at the maturity date preferred equity rather than being a loan that may be unsecured or secured by a lien is an equity investment in a property owning entity it is generally subordinate to mortgage loans and any mezzanine loans but is senior to common equity it is generally deemed to be a higher risk than mezzanine debt because of increased risk and the lack of collateral payments are made through priority distributions before any distributions to holders of common equity some investors negotiate to receive additional profit participation the principal is repaid at the stated redemption date usually after that of mezzanine debt the sponsor may sometimes negotiate for an extension of this date a preferred equity investor may however have broader corporate approval rights because it does not have lender liability issues maturity redemption and transferabilitymezzanine financing typically matures in five years or more 3 however the maturity date of any given issue of debt or equity is frequently dependent on the scheduled maturities of existing debt in the issuer s financing structure preferred equity generally does not have a fixed maturity date but may be called by the issuer as of some date after its issue redemption is usually exercised to take advantage of lower market rates to call in and reissue debt and equity at lower rates generally the lender in mezzanine financing has the unrestricted right to transfer its loan if the loan involves future distributions or advances the borrower may be able to negotiate a qualified transferee standard as a limitation on the borrower s right to transfer preferred equity in contrast is often subject to restrictions or conditions on transferring the purchaser s interest in the entity once all the preferred equity has been contributed the entity may permit transfers advantages and disadvantages of mezzanine financingas with any complex financial product or service mezzanine financing has advantages and disadvantages to consider for lenders and borrowers mezzanine financing may result in lenders or investors gaining immediate equity in a business or acquiring warrants for purchasing equity at a later date this may significantly increase an investor s rate of return ror in addition mezzanine financing providers are scheduled to receive contractually obligated interest payments made monthly quarterly or annually borrowers prefer mezzanine debt because the interest they pay is a tax deductible business expense thus substantially reducing the actual cost of the debt also mezzanine financing is more manageable than other debt structures because borrowers may move their interest to the balance of the loan if a borrower cannot make a scheduled interest payment some or all of the interest may be deferred this option is typically unavailable for other types of debt in addition quickly expanding companies grow in value and may restructure mezzanine financing loans into one senior loan at a lower interest rate saving on interest costs in the long term as an investor the lender often receives an incentive an additional equity interest or option to obtain such interest a warrant sometimes if the venture is highly successful the little add ons can end up hugely valuable mezzanine debt also generates a much higher rate of return which is important in what is still a low interest rate environment mezzanine debit also offers guaranteed periodic payments in contrast to the potential but not guaranteed dividends on preferred equity | |
when securing mezzanine financing owners may sacrifice some control and upside potential due to the loss of equity lenders may have a long term perspective and may insist on a board presence owners also pay more in interest the longer the mezzanine financing is in place loan agreements will also often include restrictive covenants limiting the ability to borrow additional funds or refinance senior debt as well as establishing financial ratios that the borrower must meet restrictions on payouts to key employees and even owners are also not uncommon | mezzanine lenders are at risk of losing their investment in the event of the bankruptcy of the borrowing company in other words when a company goes out of business the senior debt holders get paid first by liquidating the company s assets if there are no assets remaining after the senior debt gets paid off mezzanine lenders lose out finally mezzanine loan debt and equity can be tedious and burdensome to negotiate and put into place most such deals will take three to six months to finalize long term patient debtcheaper than raising equitystructural flexibilityno dilutive effect on company s equitylenders tend to be long termhigh interest ratesdebt is subordinatedcan be hard and slow to arrangemay include restrictions on further creditowner must relinquish some controlexample of mezzanine financingin a mezzanine financing example bank xyz provides company abc a maker of surgical devices with 15 million in a mezzanine loan financing the funding replaced a higher interest 10 million credit line with more favorable terms company abc gained more working capital to help bring additional products to the market and paid off a higher interest debt bank xyz will collect 10 a year in interest payments and will be able to convert the debt to an equity stake if the company defaults bank xyz was also able to prohibit company abc s borrowing of additional funds and to impose certain financial ratio standards upon it in a preferred equity example company 123 issues series b 10 preferred stock with a par value of 25 and liquidation value of 500 the stock will pay periodic dividends when funds are available until the defined maturity is reached the relatively high liquidation value is a takeover defense making it unprofitable to acquire the stock for such purposes in general mezzanine loan financing and preferred equity are useful in various situations among these are | |
what is a mezzanine type loan | a mezzanine loan is a source of capital that is between less risky senior debt and higher risk equity with some of the features of both mezzanine loans are usually subordinated to senior debt or can be preferred equity with a fixed rate coupon or divided they may also have some form of participation rights such as warrants in the common equity of the business though in a manner that will be far less dilutive of ownership than the issuance of common equity mezzanine loans are generally quite expensive in the 12 to 30 range but are also patient debt in that no payments toward the principal are due prior to maturity this patient attitude of the debt allows the business to grow toward the ability to repay the loans and to increase its ability to carry more senior and therefore less expensive debt it is usually not just subordinated but also unsecured if the borrower faces liquidity problems it is possible to push a pause button on current interest payments for mezzanine debt thus making the senior lenders more secure in their protected senior status | |
what is mezzanine financing in real estate | a real estate mezzanine loan is generally used to pay for acquisitions or development projects they are subordinate to senior debt within the entity s capital structure but receive priority over preferred and common equity mezzanine bridge loans cover the cost of a purchase or development project that is not covered by senior debt the loans are unsecured but may be replaced by equity in the event of a default mezzanine financing allows the loan to increase the funding without the ownership dilution that would be caused by the issuance of a significant amount of preferred or common equity on the other hand real estate mezzanine loans appear as equity on the balance sheet which may make obtaining further financing somewhat easier for the lender real estate mezzanine loans offer very high rates of return in a low interest rate environment the opportunity to obtain some equity or control of the business and occasionally the ability to apply some control to the operations of the business | |
how do mezzanine funds make money | a mezzanine fund is a pool of capital that seeks to invest in mezzanine finance for the purposes of acquisitions growth recapitalization and management or leveraged buyouts investors in a mezzanine fund receive a rate of return of 13 to 35 higher than offered on most forms of debt financing 4as with all pooled investments a mezzanine fund will make money off the interest received on its pooled investments as well as on profits from purchases and sales of various mezzanine financing instruments who provides mezzanine financing mezzanine debt is provided by lenders usually funds ranging in size from millions to billions specializing in such loans they look to make loans to companies that can safely service higher debt levels an ideal debt provider will offer a positive track record of outcomes over many years and will be willing to offer references of previous transactions the provider should also be willing and able to customize the debt structure to meet a borrower s needs and plans finally the ideal provider will be willing to work in your interest providing the best value for the amount price and flexibility of the debt raised lenders have often previously been involved with the company seeking the loan and each has experience of the other s reliability and ability to understand the business at hand | |
are mezzanine loans secured | mezzanine debts can be secured or unsecured those used in real estate are often indirectly secured to some extent by the borrower s real estate interests it can be said that in corporate mezzanine financing the debt is secured by the borrower s ownership interest in the company but because a mezzanine loan is fairly low down in the repayment schedule this collateral may be of limited value the bottom linemezzanine financing combines debt and equity financing it gives a lender the right to convert debt to an equity interest in a company in case of default generally after venture capital companies and other senior lenders are paid in terms of risk it lies between senior debt and equity | |
who is michael bloomberg | michael bloomberg is a billionaire businessman publisher philanthropist and a former three term mayor of new york city the founder and owner of bloomberg lp he is one of the wealthiest people in the world with an estimated net worth of 82 billion as of june 23 2022 according to forbes 1 on nov 24 2019 bloomberg entered the 2020 race for president of the united states as a democrat but in march 2020 he suspended his campaign and backed president joseph biden 23bloomberg is the founder and owner of bloomberg lp a financial data and media company he currently owns 88 of the company 4alison czinkota investopediaearly years and educationbloomberg was born on feb 14 1942 in boston and grew up in nearby medford massachusetts he earned an undergraduate degree in electrical engineering from johns hopkins university in 1964 he paid his tuition by working as a parking lot attendant and taking out loans he earned an mba from harvard business school in 1966 5bloomberg began his career in financial services in 1966 at the now defunct wall street investment bank salomon brothers where his first job was counting bonds and stock certificates in the bank s vault he moved up to bond trading becoming a partner in 1972 and a general partner in 1976 5in 1979 salomon brothers moved him from his position of head of equity trading and sales to run information systems this was apparently a demotion but it put bloomberg in charge of the department that implemented computer technology when the company was acquired by the commodity trading firm phibro in 1981 bloomberg received a 10 million severance package 6bloomberg lpbloomberg used the windfall to found a company called innovative market solutions that used the latest information systems technology to provide traders with data on u s treasury bond prices merrill lynch became a major client and investor in 1982 this company grew into what is today bloomberg lp a financial data and media company headquartered in new york city with offices in 100 cities around the world 56bloomberg lp recorded 11 billion in revenue in 2022 7 the company operates data terminals used throughout the financial services industry it also includes the business news cable channel bloomberg television bloomberg radio and a monthly magazine bloomberg markets businessweek magazine was purchased by michael bloomberg s company in 2009 and was renamed bloomberg businessweek 8michael bloomberg is a strong supporter of gun control and founded the nonprofit everytown for gun safety during the 2020 election this group donated millions of dollars for digital advertising to help support candidates who campaigned for stronger gun laws in america 910bloomberg s political lifebefore entering politics bloomberg was a democrat he switched to the republican party in order to run for mayor of new york city he won his first term as mayor weeks after the sept 11 2001 terrorist attacks on new york he won a second term in 2005 after successfully engineering a change in the city s term limits law he was elected to a third term this time as an independent candidate in 2009 5during his time as mayor bloomberg focused on improving the city s troubled public school system and revitalizing its former industrial areas he was among the first american politicians to force limits on smoking implementing a citywide smoking ban in indoor offices and restaurants he gained nationwide ridicule from conservatives for attempting to restrict the size of sugary sodas sold in new york city 11bloomberg was criticized for being out of touch with his everyday constituents and the media reported that the wealth gap in new york city grew during his time as mayor the bloomberg administration was also criticized for its stop and frisk policy which many complained unfairly targeted the black and latinx populations in the city 12bloomberg s post mayoral politicsbloomberg moved to the independent party while still serving as mayor of new york politically he is seen as fiscally conservative but socially liberal which is a mix is more often seen in new york city than elsewhere in the 2016 election bloomberg endorsed democratic party candidate hillary clinton over republican candidate donald trump 13 he denounced republicans in congress as absolutely feckless for failing to exercise oversight of president trump in 2018 bloomberg donated 80 million to congressional candidates with all but a fraction of that total going to democratic or liberal candidates 14 his goal in making those donations was to help democrats gain a majority in the house of representatives i ve never thought that the public is well served when one party is entirely out of power and i think the past year and a half has been evidence of that bloomberg stated 15bloomberg has been an active proponent of gun control he was one of 15 american mayors who founded an advocacy group everytown for gun safety in 2006 to press for reform of gun laws 16 he has also made substantial donations to environmental organizations and as mayor of new york pressed for clean energy policies presidential candidateon nov 24 2019 michael bloomberg entered the 2020 race for the u s presidency as a democrat 3 he self funded his campaign and reported to the federal election commission he had spent over 1 billion 17in his campaign statement bloomberg aimed at president trump as his motivation for running he wrote i m running for president to defeat donald trump and rebuild america we cannot afford four more years of president trump s reckless and unethical actions he represents an existential threat to our country and our values if he wins another term in office we may never recover from the damage 18bloomberg dropped out of the presidential race on march 4 2020 after a poor showing on super tuesday 19bloomberg and the united nationsas of february 2021 michael bloomberg serves as secretary general s special envoy for climate ambition and solutions this is his third special envoy role and within it bloomberg supports the secretary general of the united nations by helping to strengthen and grow the coalition of companies government officials on a local and national level plus global financial institutions that are committing to net zero before the year 2050 bloomberg works alongside the private sector civil society workers and government officials worldwide to help create a global clean energy economy 20philanthropyas a philanthropist he and his charitable foundation bloomberg philanthropies have donated an estimated total of 11 1 billion primarily to five main focus areas the arts education the environment public health and government innovation 21 | |
how rich is michael bloomberg | michael bloomberg is a billionaire whose fortune is estimated to be worth 82 billion 1did michael bloomberg run for president yes former new york city mayor michael bloomberg announced his candidacy in 2019 entering the 2020 presidential race but he dropped out of the race in march 2020 | |
how long was michael bloomberg mayor of nyc | he served as the mayor of nyc from 2002 until the end of 2013 when he served as mayor he helped push the smoking ban into effect 22 | |
is michael bloomberg married | michael bloomberg was married to the former susan brown from 1975 to 1993 they have two daughters diana lancaster taylor a former new york state superintendent of banks was known as new york city s de facto first lady during bloomberg s tenure as mayor | |
michael milken is a billionaire financier best known as the man behind the junk bond boom of the late 1970s and 1980s milken found a way to lend money to riskier companies struggling to access credit leading parts of the economy to boom and milken to make a fortune 1 | greed eventually got the better of milken and he was sent to prison for securities fraud since getting released the junk bond king has remained in the spotlight this time mainly for his charitable donations and focus on education and medical research early life and educationmichael milken was born on july 4 1946 in encino california michael whose father was an accountant was said to be reclusive from an early age and reportedly stood out by working harder and longer than his peers he was head cheerleader of birmingham high school and went bald in his early teens 12in 1968 michael earned a bachelor s degree from the university of california berkeley he then pursued an mba at the university of pennsylvania 1in 1969 while studying at the university of pennsylvania s wharton school of finance milken joined drexel burnham lambert two years later he became head of the company s bond trading department milken would remain with drexel burnham lambert for 17 years during which he took a keen interest in junk bonds 1notable deedsat drexel burnham lambert milken initiated a high yield bond trading department an idea that would eventually earn a 100 return on investment 3 envisioning a path for investors to garner high returns by buying bonds issued by companies with low credit ratings milken helped drexel burnham lambert launch an effort to underwrite junk bonds by convincing companies to issue them 4the bonds provided capital for companies unable to access credit and milken raised a large amount of money from a sizable base of interested investors milken led drexel burnham lambert s lucrative practices of leveraged buy outs hostile takeovers and junk bond issues 4the percentage of the junk bond market controlled by drexel burnham lambert in the 1980s 5milken s compensation topped 550 million in 1987 and exceeded 1 billion over four years 6 milken was nicknamed the junk bond king and at its peak drexel burnham lambert was one of the largest investment banks in the u s 5wall street leaders pondered how drexel burnham lambert could allow one executive to gain unregulated power such an extraordinary income inevitably raises questions as to whether there isn t something unbalanced in the way our financial system is working said david rockefeller retired chairman of the chase manhattan bank one has to be concerned when the norms that have been accepted over the years suddenly become so distorted 6in 1986 one of drexel burnham lambert s clients ivan boesky was convicted of insider trading and implicated milken and drexel burnham lambert in his illegal financial dealings two years later in 1988 milken and his employer were charged with securities fraud 1in 1990 milken pleaded guilty to six felony counts of violating securities laws and was sentenced to ten years in prison and fined 600 million he was also banned for life from the securities industry by the securities and exchange commission sec in that same year drexel burnham lambert declared bankruptcy 7milken s sentence was later reduced to two years for good behavior and for cooperating with testimony against former colleagues gordon gekko the conniving trader from oliver stone s 1987 film wall street was said to be partly inspired by michael milken 7following his release from prison milken worked as a strategic consultant which violated his probation and he was subsequently fined 8 he was pardoned by president donald trump in february 2020 7milken s estimated net worth as of december 12 2023 9 | |
what is the milken family foundation | the milken family foundation is a private foundation established by michael milken and his brother in 1982 that primarily focuses on supporting education and medical research 10 |
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