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is my debit card s cvv number the same as a pin | no a debit card s cvv number is different from a pin a cvv is used when making payments online or over the phone to verify the physical card s information a pin is more useful to authorize in person transactions to ensure the user using the card is an authorized person that is allowed to spend using the card | |
how do i activate my debit card pin | to activate a debit card pin you often must enter your card at an atm or use it in a transaction you may be prompted to enter the debit card number then you can follow the instructions to set your pin in other cases you may be given a phone number to call to verify and activate your card as part of that phone call you may be asked to establish a pin the bottom linea personal identification number is an often numeric code used for authentication purposes to access a device a system or an account it s typically a four to six digit code and is a simple way to authenticate a user it is also used to secure certain features and functions of the device or account | |
what is personal income | personal income refers to all income collectively received by all individuals or households in a country personal income includes compensation from a number of sources including salaries wages and bonuses received from employment or self employment dividends and distributions received from investments rental receipts from real estate investments and profit sharing from businesses understanding personal incomethe term personal income is sometimes used to refer to the total compensation received by an individual but this is more aptly referred to as individual income in most jurisdictions personal income also called gross income is subject to taxation above a certain base amount 1personal income has a significant effect on consumer consumption as consumer spending drives much of the economy national statistical organizations economists and analysts track personal income on a quarterly or annual basis 23in the united states the bureau of economic analysis bea tracks personal income statistics each month and compares them to numbers from the previous month the agency also breaks out the numbers into categories such as personal income earned through employment wages rental income farming and sole proprietorships this allows the agency to make analyses about how earning trends are changing 4personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times rapid economic growth since the 1980s in economies such as china india and brazil has spurred substantial increases in personal incomes for millions of their citizens 5personal income vs disposable personal incomedisposable personal income dpi refers to the amount of money that a population has left after taxes have been paid it differs from personal income in that it takes taxes into account 6analyzing after tax income is important as this is the money that the population is effectively left with to spend save or invest only income taxes are removed from the personal income figure when calculating disposable personal income 7personal income vs personal consumption expenditurespersonal income is often compared to personal consumption expenditures pces pces measure changes in the price of consumer goods and services by taking these changes into account analysts can ascertain how changes in personal income affect spending 3to illustrate if personal income increases significantly one month and pces also increase consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services | |
is personal income before or after taxes | personal income represents all payments made to individuals before tax it s not disposable income which reveals how much people actually have left to spend save or invest after income taxes have been deducted | |
how do you calculate personal income and disposable income | to calculate personal income all income collectively received by individuals or households in a country needs to be tallied up that is not only gross pay from work but also dividends rental income interest and so forth disposable income is then calculated by taking the personal income number and subtracting personal income taxes | |
what is the difference between gross national income gni and personal income | personal income focuses on how much money a country s inhabitants are earning gross national income gni on the other hand reveals the total amount of money earned by a nation s residents and businesses | |
what is personal income | personal income refers to all income collectively received by all individuals or households in a country personal income includes compensation from a number of sources including salaries wages and bonuses received from employment or self employment dividends and distributions received from investments rental receipts from real estate investments and profit sharing from businesses understanding personal incomethe term personal income is sometimes used to refer to the total compensation received by an individual but this is more aptly referred to as individual income in most jurisdictions personal income also called gross income is subject to taxation above a certain base amount 1personal income has a significant effect on consumer consumption as consumer spending drives much of the economy national statistical organizations economists and analysts track personal income on a quarterly or annual basis 23in the united states the bureau of economic analysis bea tracks personal income statistics each month and compares them to numbers from the previous month the agency also breaks out the numbers into categories such as personal income earned through employment wages rental income farming and sole proprietorships this allows the agency to make analyses about how earning trends are changing 4personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times rapid economic growth since the 1980s in economies such as china india and brazil has spurred substantial increases in personal incomes for millions of their citizens 5personal income vs disposable personal incomedisposable personal income dpi refers to the amount of money that a population has left after taxes have been paid it differs from personal income in that it takes taxes into account 6analyzing after tax income is important as this is the money that the population is effectively left with to spend save or invest only income taxes are removed from the personal income figure when calculating disposable personal income 7personal income vs personal consumption expenditurespersonal income is often compared to personal consumption expenditures pces pces measure changes in the price of consumer goods and services by taking these changes into account analysts can ascertain how changes in personal income affect spending 3to illustrate if personal income increases significantly one month and pces also increase consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services | |
is personal income before or after taxes | personal income represents all payments made to individuals before tax it s not disposable income which reveals how much people actually have left to spend save or invest after income taxes have been deducted | |
how do you calculate personal income and disposable income | to calculate personal income all income collectively received by individuals or households in a country needs to be tallied up that is not only gross pay from work but also dividends rental income interest and so forth disposable income is then calculated by taking the personal income number and subtracting personal income taxes | |
what is the difference between gross national income gni and personal income | personal income focuses on how much money a country s inhabitants are earning gross national income gni on the other hand reveals the total amount of money earned by a nation s residents and businesses | |
what is personal property | personal property is a class of property that can include any asset other than real estate the distinguishing factor between personal property and real estate or real property is that personal property is movable meaning it isn t fixed permanently to one particular location typically personal property is not taxed like fixed property understanding personal propertypersonal property is also known as movable property movables and chattels because it is viewed as an asset it may be taken into consideration by a mortgage lender when someone applies for a mortgage or other loan personal property can be insured in one of two ways for its current value which takes depreciation into account or for what it would cost to replace it with a similar new item some kinds of property such as home appliances clothing and automobiles tend to depreciate in value over time other types such as artworks and antiques may appreciate in value when assessing a would be borrower s creditworthiness lenders may look at the total current value of their personal property added to their real property personal property can be characterized as either tangible or intangible examples of tangible personal property include vehicles furniture boats and collectibles digital assets patents and intellectual property are intangible personal property just as some loans mortgages for example are secured by real property like a house some loans are secured by personal property a common example is car loans where the vehicle serves as collateral for the loan personal property and insurancepersonal property also comes into play when people insure their homes a homeowners insurance policy typically covers both the physical dwelling and the owner s personal property often referred to as the home s contents it s important to create a list of your personal belongings which might include create a home inventory list of your personal belongings for each room in case you need to make a claim take pictures or shoot a video and don t forget the closets drawers garage and shed 1most homeowners policies base the value of the policyholder s personal property on a percentage of the dwelling s value typically 50 to 70 2 for example if a home costs 200 000 to rebuild following a fire the policy might use 70 of that figure or 140 000 as the coverage limit for the owner s personal property 3homeowners policyholders can typically choose between two options for covering their personal property replacement value or actual cash value if the policy provides for replacement value the insurer would be obligated to replace a destroyed item with a similar new item with actual cash value the insurer may pay you the item s value after depreciating it in other words the item s value is reduced to reflect its age which means you ll likely be paid less than the cost to replace it you can also add a recoverable depreciation clause to your policy which pays out the depreciated and calculated replacement cash values for example if a 10 year old refrigerator is destroyed in a house fire a homeowner with replacement coverage should receive enough money to buy a new refrigerator however a homeowner with actual cost coverage would receive an amount based on the insurance company s estimated value of a 10 year old refrigerator special considerationsin the event that their personal property is destroyed policyholders must file a claim with their insurance company describing what they lost for that reason homeowners should make an inventory of their personal property ideally with photos and receipts and store it safely off premises just in case it s ever needed homeowners policies limit coverage for certain types of personal property such as jewelry and computers for example a policy may limit its coverage of jewelry to 1 500 policyholders whose jewelry is worth more than that can pay extra to raise the limits in their policy or buy additional insurance often called a floater to cover its full value 4 | |
what are examples of personal belongings | personal belongings covered by homeowners insurance may include furniture appliances dishes rugs electronics lamps curtains jewelry clothing tools and outdoor equipment | |
what is the difference between personal property insurance and personal liability insurance | personal property insurance compensates you financially for belongings covered by your policy personal liability insurance provides coverage if you are found liable for harm to another person while they are on your property | |
what s the difference between replacement cost and actual cash value | replacement cost value means your homeowner s insurance policy will pay you the amount needed to replace the covered item at its current market value with actual cash value the insurer will pay you the item s depreciated value which is reduced to reflect its age the bottom linepersonal property are movable items that people own personal property can be intangible such as stocks and bonds or tangible such as clothes or artwork homeowners insurance typically covers personal belongings such as furniture appliances clothes and electronics to receive compensation from an insurance claim create a household inventory list with pictures of the items to send to your insurer | |
what is a personal service corporation | a personal service corporation is a corporation that is created to provide personal services to individuals or groups it is a taxing entity set up under internal revenue service irs regulations such services span a wide variety of professional business endeavors as specified by the irs | |
how a personal service corporation works | the services provided by a personal service corporation may include any activity performed in the following fields accounting engineering architecture consulting actuarial science law performing arts and health including veterinary services financial services activities are not considered qualified services which is why many financial advisers choose to organize as s corporations for c corporations to be considered a personal service corporation by the irs the employee owners must perform at least 20 of the personal services themselves the irs bases this requirement on the amount of time spent working for the corporation compared to the total time all services are performed for the operation for example if a corporation s total service hours for a year are 5 000 hours then the employee owners collectively need to have provided at least 1 000 of these service hours 1the employee owners must also own more than 10 of the outstanding stock of the personal service corporation on the last day of the initial one year testing period 2 this rule ensures that the employees who are actively involved in providing the personal services also have an investment in the corporation 3an income test requires that employees of personal services corporations must spend at least 95 of their work time on qualified services understanding personal service corporation taxespersonal service corporations are taxed by multiplying taxable income by 21 3 there are tax benefits that come with organizing as a c corporation which is why many high earning professionals use the structure for example a c corporation allows employee owners to leave some of their earnings in the corporation which means it will be taxed at a lower corporate rate than the marginal tax rates for individuals professionals may also take advantage of some tax free fringe benefits limited liability and may receive favorable treatment of business deductions such corporations have to comply with certain tax regulations such as employing a fiscal year that is based on the calendar year and adherence to specific passive activity regulations personal service corporations are not to be confused with professional corporations which are business entities made up of certain types of professionals under state law it s crucial to weigh the tax benefits against the administrative and compliance requirements of a personal service corporation while a flat 21 tax rate and potential for corporate deductions may sound appealing carefully consider the cost complexity of setting one up and maintaining compliance personal service corporation testaccording to the irs a person may be considered an employee owner of a personal service corporation if the following conditions are met 3if individual functions as the owner employee of a personal service corporation and their primary business is related to creative fine arts or photography any current expenses they incur pursuant to creative work are deductible for the corporation however either the owner employee or their family members must hold all or nearly all of the corporation s outstanding stock this rule does not apply to other types of personal service corporations | |
what are the benefits of a personal service corporation | the potential benefits to operating as a personal service corporation include tax savings liability protection for employee owners and the ability to take advantage of corporate tax deductions including business expenses employee benefits and capital expenditures | |
what are the drawbacks of a personal service corporation | personal service corporations can be costly and complicated to set up and they are generally less flexible in their structure than other types of corporations failure to comply with irs guidelines and regulations may also increase the risk of an irs audit and can lead to significant tax penalties | |
what s the difference between a personal service corporation and an s corporation | personal service corporations and s corporations differ in many ways including how they are taxed restrictions on the number and type of shareholders allowed liability protection and the nature of services provided the bottom linepersonal service corporations offer a unique corporate structure for professionals in fields like accounting and consulting they combine the benefits of a flat corporate tax rate with potential tax deductions and added limited liability protection however personal service corporations are not the right structure for every company they demand strict adherence to irs regulations and can be complex and costly to set up in addition not every business owner or company will benefit from the flat 21 corporate tax rate | |
what is personally identifiable information pii | personally identifiable information pii is information that when used alone or with other relevant data can identify an individual pii may contain direct identifiers e g passport information that can identify a person uniquely or quasi identifiers e g race that can be combined with other quasi identifiers e g date of birth to successfully recognize an individual either direct and sensitive or indirect and nonsensitive pii types include but are not limited to understanding personally identifiable information pii advancing technology platforms have changed the way businesses operate governments legislate and individuals relate with digital tools like cellphones the internet ecommerce and social media there has been an explosion in the supply of all kinds of data big data as it is called is being collected analyzed and processed by businesses and shared with other companies the wealth of information provided by big data has enabled companies to gain insight into how to better interact with customers however the emergence of big data has also increased the number of data breaches and cyberattacks by entities who realize the value of this information as a result concerns have been raised over how companies handle the sensitive information of their consumers regulatory bodies are seeking new laws to protect the data of consumers while users are looking for more anonymous ways to stay digital sensitive vs nonsensitive piipersonally identifiable information pii can be sensitive or nonsensitive sensitive personal information includes legal statistics such as the above list is by no means exhaustive companies that share data about their clients normally use anonymization techniques to encrypt and obfuscate the pii so it is received in a form that is not personally identifiable an insurance company that shares its clients information with a marketing company will mask the sensitive pii included in the data and leave only information related to the marketing company s goal nonsensitive or indirect pii is easily accessible from public sources like phone books the internet and corporate directories examples of nonsensitive or indirect pii include the above list contains quasi identifiers and examples of nonsensitive information that can be released to the public this type of information cannot be used alone to determine an individual s identity however nonsensitive information although not delicate is linkable this means that nonsensitive data when used with other personal linkable information can reveal the identity of an individual de anonymization and re identification techniques tend to be successful when multiple sets of quasi identifiers are pieced together and can be used to distinguish one person from another regulating and safeguarding personally identifiable information pii has become a dominant issue for individuals corporations and governments safeguarding piimultiple data protection laws have been adopted by various countries to create guidelines for companies that gather store and share the personal information of clients some of the basic principles outlined by these laws state that some sensitive information should not be collected unless for extreme situations 12also regulatory guidelines stipulate that data should be deleted if no longer needed for its stated purpose and personal information should not be shared with sources that cannot guarantee its protection 1cybercriminals breach data systems to access pii and then sell it to willing buyers in underground digital marketplaces for example in 2015 the internal revenue service irs suffered a data breach leading to the theft of more than 100 000 taxpayers pii 3using quasi information stolen from multiple sources the perpetrators were able to access an irs website application by answering personal verification questions that should have been privy to the taxpayers only safeguarding pii may not always be the sole responsibility of a service provider in some cases it may be shared with the individual | |
how pii is stolen | many thieves find pii of unsuspecting victims by digging through their trash for unopened mail this can provide them with a person s name and address in some cases it can also reveal information about their employment banking relationships or even their social security numbers nowadays the internet has become a major vector for identity theft phishing and social engineering attacks use a deceptive looking website or email to trick someone into revealing key information such as their name bank account numbers passwords or social security number it is also possible to steal this information through deceptive phone calls or sms messages tips on protecting piiwhile it is not possible to fully protect yourself you can make yourself a smaller target by reducing the opportunities to steal your pii experian one of the top three credit agencies lists several steps that you can take to reduce your surface area for example a locked mailbox or p o box makes it harder for thieves to steal your mail and removing personal identification from junk mail and other documents makes it harder for identity thieves to associate a name with an address also avoid carrying more pii than you need there s no reason to keep your social security card in your wallet 4likewise there are some steps you can take to prevent online identity theft data leaks are a major source of identity theft so it is important to use a different complex password for each online account always encrypt your important data and use a password for each phone or device it is also a good idea to reformat your hard drive whenever you sell or donate a computer 4pii around the worldthe definition of what comprises pii differs depending on where you live in the world the following are the privacy regimes in specific jurisdictions in the united states the government defined personally identifiable in 2020 as anything that can be used to distinguish or trace an individual s identity such as name ssn and biometrics information either alone or with other identifiers such as date of birth or place of birth 5in the european union eu the definition expands to include quasi identifiers as outlined in the general data protection regulation gdpr that went into effect in may 2018 the gdpr is a legal framework that sets rules for collecting and processing personal information for those residing in the eu 61personal information is protected by the privacy act 1988 this law regulates the collection storage use and disclosure of personal information whether by the federal government or private entities later amendments regulate the use of healthcare identifiers and establish the obligations of entities that suffer from a data breach 7the personal information protection and electronic documents act regulates the use of personal information for commercial use this is defined as information that on its own or combined with other data can identify you as an individual 8personally identifiable information vs personal datapersonal data encompasses a broader range of contexts than pii for instance your ip address device id numbers browser cookies online aliases or genetic data certain attributes such as religion ethnicity sexual orientation or medical history may be classified as personal data but not personally identifiable information pii breachesthere have been many instances where customer pii has been stolen from companies often this has resulted in hefty fines the biggest fine on record as of october 2023 was handed to didi global the chinese ride hailing company was fined 8 026 billion yuan 1 1 billion by the cyberspace administration of china for breaching the nation s network security law data security law and personal information protection law other recipients of big fines for failing to adequately protect personally identifiable information include equifax amazon and meta 9one of the most well known cases belongs to meta or facebook as it was then known in the 2010s the profiles of 30 million facebook users were collected without their consent by an outside company called cambridge analytica cambridge analytica got its data from facebook through a researcher who worked at the university of cambridge the researcher built a facebook app that was a personality quiz 1011the app was designed to take the information from those who volunteered to give access to their data for the quiz unfortunately the app collected not only the quiz takers data but also because of a loophole in facebook s system data from the friends and family members of the quiz takers 10as a result over 50 million facebook users had their data exposed to cambridge analytica without their consent 12 although facebook banned the sale of their data cambridge analytica turned around and sold the data to be used for political consulting 10the data breach not only affected facebook users but investors as well in its first quarter q1 2019 report facebook said it accrued 3 billion in legal expenses which it claimed squeezed its operating margin by 20 percentage points and lowered its earnings per share by 1 04 13that was just the start in the years that followed the company continued to rack up expenses and paid billions of dollars in fines the data breach also tarnished its reputation and led some users to stop using the social network website 141015 | |
what qualifies as pii | personally identifiable information is defined by the u s government as information which can be used to distinguish or trace an individual s identity such as their name social security number biometric records etc alone or when combined with other personal or identifying information which is linked or linkable to a specific individual such as date and place of birth mother s maiden name etc 16 | |
what is not pii | personal data is not classified as pii and non personal data such as the company you work for shared data or anonymized data | |
what is a pii violation | pii violations are illegal and often involve frauds such as identity theft violations may also stem from unauthorized access use or disclosure of pii failure to report a pii breach can also be a violation | |
what must you do when emailing pii | because email is not always secure try to avoid emailing pii if you must use encryption or secure verification techniques | |
what laws protect pii | various federal and state consumer protection laws protect pii and sanction its unauthorized use for instance the federal trade commission act and the privacy act of 1974 1718the bottom linepersonally identifiable information pii is any type of data that can be used to identify someone from their name and address to their phone number passport information and social security numbers this information is frequently a target for identity thieves especially over the internet for that reason it is essential for companies and government agencies to keep their databases secure | |
what is pest analysis | pest analysis political economic social and technological is a management method whereby an organization can assess major external factors that influence its operation in order to become more competitive in the market as described by the acronym those four areas are central to this model a popular variation on the pest analysis format especially in the u k is the pestle strategic planning approach which includes the additional aspects of legal and environmental 1understanding pest analysisit is believed that pest analysis was first introduced under the name etps by harvard professor francis j aguilar in the 1967 publication scanning the business environment aguilar presented the economic technical political and social factors as being major influences on the business environment subsequently the letters were rearranged to create a convenient and quirky acronym used today 2the core of pest analysis is the belief that a comprehensive assessment of the major areas of influence that affect the sector in which an organization is positioned as well as the organization itself can facilitate more effective strategic planning this planning can be undertaken to maximize the organization s ability to capitalize on conditions as they exist and to be forewarned of and better prepared for imminent changes allowing the organization to stay ahead of competitors components of pest analysispolitical the political aspect of pest analysis focuses on the areas in which government policy and or changes in legislation affect the economy the specific industry and the organization in question areas of policy that may particularly affect an organization include tax and employment laws the general political climate of a nation or region as well as international relations can also greatly influence the organization economic the economic portion of the analysis targets the key factors of interest and exchange rates economic growth supply and demand inflation and recession social the social factors that may be included in a pest analysis are demographics and age distribution cultural attitudes and workplace and lifestyle trends technological the technological component considers the specific role and development of technologies within the sector and organization as well as the wider uses trends and changes in technology government spending on technological research may also be a point of interest in this area 3applications of pest analysispest analysis can assist an organization in recognizing and thereby capitalizing on opportunities offered by existing conditions in the business environment it can also be used for identifying current or possible future challenges allowing for effective planning of how to best manage these challenges pest analysis can also be applied in assessing the in house structure of an organization in order to identify strengths and weaknesses in its internal politics economic outlook social climate and technology base the results of this analysis can facilitate changes or improvements in areas identified as subpar pest analysis can be used in conjunction with other forms of strategic business analysis such as the swot strengths weaknesses opportunities and threats model for an even more comprehensive result conducting a comparison between these completed analyses can provide a very solid basis for informed decision making 4 | |
what is pest vs pestle analysis | pest analysis stands for political economic social and technological whereas pestle stands for the same but adds legal and environmental factors to the analysis these areas are considered when assessing the impact of external factors on a company s profitability | |
how do you do a pest analysis | to do a pest analysis you must consider the different factors under each category political economic social and technological and how these factors affect your business for the political component you would assess laws regulations government policies and tariffs for example for the economic component some of the topics you would assess would include access to financing cost of living interest rates inflation and labor costs for the social component you would consider consumer trends and behaviors education division of wealth population growth rates and health for the technological component you would assess areas such as artificial intelligence growth innovation research and development social networking and cybersecurity | |
how often should a pest analysis be done | a pest analysis can be done as often as a business would like it is good to perform a pest analysis when there have been significant changes that may impact a business such as a change in interest rates new government policies or the introduction of new technology it should be done often so as not to become outdated the bottom lineby analyzing the political economic societal and technological factors that impact its business a company can plan reorganize and adjust to these external factors in order to become a more successful operation a business s success is not only predicated on how well it internally manages its operations but also on how it functions in the larger world pest analysis helps it to succeed in that aspect | |
what is the peter principle | the peter principle theorizes that employees in most organizational hierarchies automatically rise through promotion to higher positions however competent employees will be promoted but will ultimately assume positions for which they are incompetent according to the peter principle competence is rewarded with promotion because competence in the form of employee output is noticeable and recognized however once an employee reaches a position in which they are incompetent they are no longer evaluated based on their outputinvestopedia nono floreshistorycanadian educational scholar and sociologist dr laurence j peter defined the theory in his 1968 book the peter principle he surmised that an employee s inability to fulfill the requirements of a position they are promoted to may not be general incompetence but is because the position requires different skills than those the employee possesses 1 for example an employee who competently completes assembly tasks may be promoted to management without proving to be a good manager first dr peter revised the adage the cream rises to the top by stating the cream rises until it sours in other words excellent employee performance is inevitably promoted to the point where the employee s performance is no longer satisfactory he also argued that employees tend to remain in positions in which they are incompetent because mere incompetence is rarely sufficient to cause the employee to be fired 2productivity and morale | |
when newly promoted managers are not well suited to their roles they may be less able to provide effective management and direction to their employees this can also lead to high rates of error or defects if their new responsibilities are associated with quality control | these problems can trickle down to other employees who will make more mistakes under poor management lower level workers may continue to be promoted resulting in several layers of managers who lack the skills or training for their jobs this can also damage employee morale since remaining employees may resent their poor management | |
how companies avoid the peter principle | tom schuller coined the phrase the paula principle theorizing that women tend to work in positions below their level of competence due to gender discrimination lack of professional networks and balancing work and home responsibilities 3examplein 2018 economists alan benson danielle li and kelly shue analyzed sales workers performance and promotion practices at 214 american businesses to test the peter principle they found that companies promoted employees to management positions based on their performance in previous positions rather than on managerial potential 4consistent with the peter principle the researchers found that high performing sales employees were more likely to be promoted and that they were also more likely to perform poorly as managers leading to considerable costs to the businesses | |
what is the corollary to the peter principle | peter s corollary is an extension of the peter principle it states that in time every position within an organization will be filled with someone incompetent to fulfill the duties of their role this may result in compounded mismanagement and poor leadership | |
what is the dilbert principle | the peter principle is the inverse of the dilbert principle an idea coined by the cartoonist scott adams for the comic strip dilbert this rule states that companies tend to promote their least competent employees to management roles where they are least likely to interfere with production both rules explain the presence of incompetent people in management positions but use different explanations | |
what government agency monitors a company s employment practices | the u s equal employment opportunity commission eeoc enforces federal laws that define workplace discrimination hiring firing promotions harassment training wages and benefits 5the bottom linethe peter principle is a theory that explains why many companies have seemingly ineffective management staff it states that rather than promoting people to the roles they are best suited for companies tend to reward successful employees with roles for which they are not qualified this can sometimes result in poor management ineffective leadership decreased productivity and low employee morale | |
petrodollars are crude oil export revenues denominated in u s dollars usd the term became widely used in the mid 1970s when soaring oil prices generated large trade and account surpluses for oil exporting countries | then as now oil sales and the resulting current account surpluses were denominated in dollars because the u s dollar was and remains by far the most widely used currency 1 the u s dollar s global popularity doesn t depend on the goodwill of oil exporters it s based on the u s s status as the world s largest economy and goods importer with deep liquid capital markets backed by the rule of law and military power 2understanding petrodollarspetrodollars are oil export revenues denominated in u s dollars petrodollars are not a distinct currency they are simply the u s dollars accepted as payment by an oil exporter global oil production averaged about 96 million barrels per day in 2023 3 that pace would generate an annual global petrodollar supply of about 2 98 trillion annually assuming an average price of 85 per barrel 4petrodollars are the primary source of revenue and wealth for many members of opec as well as non opec oil and gas exporters including russia qatar and norway just as the petrodollar is not a currency neither is it a global trading system the wide use of the u s dollar as payment for crude oil reflects the traditional preferences of non u s oil suppliers 5petrodollar recyclingoil exporters prefer the usd because it is the preeminent global investment currency that makes it the most convenient store of value for accumulated oil revenue which needs to earn a rate of return to be useful an early example of petrodollar recycling is the 1974 deal between the u s and saudi arabia to funnel saudi petrodollars into u s treasurys 6subsequent deals deployed saudi oil export proceeds to pay for u s aid and development projects in saudi arabia and to finance u s weapons sales to the kingdom 7many oil exporters now invest their petrodollars in stocks bonds and other financial instruments through sovereign wealth funds norway s sovereign wealth fund the world s largest had a value of about 1 5 trillion at the end of 2023 inflows into the fund from the norwegian state during the year amounted to just over 67 billion and they were awarded with an annual return of 16 1 in 2023 71 of the fund was made up of stocks with significant holdings including microsoft corporation msft apple inc aapl and alphabet goog 89can the petrodollar collapse speculation is often found online about this usually springing up in crypto forums from people who show little knowledge of what it means only that it s doomed that the petrodollar system is on the brink of collapsing 10 more serious analyses examine u s facing rivalries with rising powers its aggressive use of sanctions against other countries and the development and strengthening of relations between major opec nations and brics members an increasing number of powerful and fast growing countries including china and russia are making settlements in currencies other than the u s dollar 11while the possibility of the petrodollar becoming less influential can t be entirely dismissed it s unlikely to happen anytime soon for now talk of a petrodollar collapse is far fetched while u s dollar holdings have fallen significantly over the past few decades it remains the world s top reserve currency with no real rival in sight according to the international monetary fund in the first quarter of 2024 the u s dollar accounted for about 58 of allocated currency reserves that s significantly more than the reserves held in euros 20 japanese yen 5 5 british pound sterling 4 9 and chinese renminbi 2 6 12the supposed rivalry with the petroyuanto assess the advantages of an oil exporter getting paid in u s dollars consider periodic claims over the past decade that the petrodollar would soon face a challenge from the petroyuan oil exports denominated and paid for with chinese currency all buyers of exported oil hold or can easily access u s dollars while only china and mostly chinese companies hold the chinese national currency called the yuan or renminbi unlike the u s dollar the renminbi is not a freely convertible currency its exchange rate against other currencies including the u s dollar continues to be managed by china s central bank 1314u s dollars from crude exports can be easily invested worldwide including in the huge eurodollar market for short term dollar denominated deposits in european banks 1516 crude export proceeds in chinese currency cannot be invested outside china as widely as usd and can only be invested inside china at the discretion of the chinese government though chinese capital markets have grown fast they remain much smaller and less liquid than those of the u s 1718to sum up claims that the u s dollar s primacy rests on its status as the settlement currency for oil exports have it backward the dollar s status as the global reserve currency makes it indispensable to oil exporters the dollar was the established global store of value decades before non u s crude oil exporters rose to prominence the real problem with petrodollarspetrodollars recycled into investments overseas or development programs at home can produce positive financial and social returns results are decidedly less positive when petrodollars are spent on fortifying domestic oppression fueling an arms race or waging war abroad in recent years actions including the murder of u s resident jamal khashoggi by saudi state agents in turkey and russia s invasion of ukraine have raised concerns that petrodollars are financing war and human rights violations while shielding perpetrators from accountability 19 while russia in the wake of u s sanctions has been working with its allies to counteract the crushing sanctions imposed in 2022 it s not an example others are likely to want to follow in de dollarization | |
is the petrodollar a currency | no petrodollars are simply u s dollars received in exchange for oil exports there isn t an official petrodollar system the reinvestment of oil export proceeds has sometimes been called petrodollar recycling | |
does the u s dollar s global role depend on its use to settle oil sales | no the u s dollar is used to settle oil sales because of its wide global acceptance that acceptance makes it easier for oil exporters to invest the export proceeds | |
is the petroyuan in sight | not as dominant rival to the petrodollar oil exporters are free to accept payment in a currency of their choosing accepting chinese currency would be most useful for investment in and purchases from china chinese capital markets are much smaller and less liquid than those in the u s and chinese currency is not widely accepted outside china | |
are petrodollars fueling war and oppression | saudi human rights violations and russia s invasion of ukraine have led to suggestions that those countries rulers have been emboldened by their oil wealth like any other resource petrodollars can be deployed for good or ill but they also show the limits of trying to get around the power of the u s dollar did saudi arabia drop the petrodollar in june 2024 rumors spread on social media that saudi arabia the world s largest oil exporter was refusing to renew a secret 50 year deal with the u s to price oil in dollars this was later confirmed to be fake news with experts pointing out the various flaws in the accounts including that there has never been a formal agreement with a specified expiration date before the rumors were debunked google searches for the term petrodollar spiked and people including segments of the media began speculating that the u s dollar s status as the de facto global reserve currency was over and that its economy could face turmoil as a result 20212223the bottom linepetrodollars are u s dollars received in return for oil exports the growth in global oil flows over time has increased the economic interdependence of crude exporters and importers and the volume of international capital flows but the oil trade and related investments depend crucially on the u s dollar as the most widely accepted global currency the u s dollar is unlikely to be supplanted as the global payments currency of choice in the near to medium term | |
what is petroleum | petroleum also called crude oil is a naturally occurring liquid found beneath the earth s surface that can be refined into fuel a fossil fuel petroleum is created by the decomposition of organic matter over time and used as fuel to power vehicles heating units and machines and can be converted into plastics because the majority of the world relies on petroleum for many goods and services the petroleum industry is a major influence on world politics and the global economy understanding petroleumthe extraction and processing of petroleum and its availability is a driver of the world s economy and geopolitics many of the largest companies in the world are involved in the extraction and processing of petroleum or create petroleum based products including plastics fertilizers automobiles and airplanes petroleum is recovered by oil drilling and then refined and separated into different types of fuels petroleum contains hydrocarbons of different molecular weights and the denser the petroleum the more difficult it is to process and the less valuable it is investing in petroleum means investing in oil through the purchase of oil futures or options or indirect investing in exchanged traded funds etfs that invest in companies in the energy sector petroleum companies are divided into upstream midstream and downstream depending on the oil and gas company s position in the supply chain upstream oil and gas companies identify extract or produce raw materials downstream oil companies engage in the post production of crude oil and natural gas midstream oil and gas companies connect downstream and upstream companies by storing and transporting oil and other refined products pros and cons of petroleumpetroleum provides transportation heat light and plastics to global consumers it is easy to extract but is a non renewable limited supply source of energy petroleum has a high power ratio and is easy to transport however the extraction process and the byproducts of the use of petroleum are toxic to the environment underwater drilling may cause leaks and fracking can affect the water table carbon released into the atmosphere by using petroleum increases temperatures and is associated with global warming stable energy sourceeasily extractedvariety of useshigh power ratioeasily transportablecarbon emissions are toxic to the environment transportation can damage the environment extraction process is harmful to the environment the petroleum industryoil is classified into three categories including the geographic location where it was drilled its sulfur content and its api gravity its density measure geologists chemists and engineers research geographical structures that hold petroleum using seismic reflection a reservoir s oil in place that can be extracted and refined is that reservoir s oil reserves 1as of 2022 the top ranking countries for total oil reserves include venezuela with 303 8 billion barrels saudi arabia with 297 5 and canada holding 168 1 2drilling for oil includes developmental drilling where oil reserves have already been found exploratory drilling is conducted to search for new reserves and directional drilling is drilling vertically to a known source of oil investing in petroleumthe energy sector attracts investors who speculate on the demand for oil and fossil fuels and many oil and energy fund offerings consist of companies related to energy mutual funds like vanguard energy fund investor shares vgenx with holdings in conocophillips shell and marathon petroleum corporation 3 and the fidelity select natural gas fund fsngx holding enbridge and hess are two funds that invest in the energy sector and pay dividends oil and gas exchange traded funds etfs offer investors more direct and easier access to the often volatile energy market than many other alternatives three of the top rated oil and gas etfs for 2022 include the invesco dynamic energy exploration production etf pxe first trust natural gas etf fcg and ishares u s oil gas exploration production etf ieo | |
how is petroleum formed | petroleum is a fossil fuel that was formed over millions of years through the transformation of dead organisms such as algae plants and bacteria that experienced high heat and pressure when trapped inside rock formations | |
is petroleum renewable | petroleum is not a renewable energy source it is a fossil fuel with a finite amount of petroleum available | |
what are alternatives to petroleum | alternatives include wind solar and biofuels wind power uses wind turbines to harness the power of the wind to create energy solar power uses the sun as an energy source and biofuels use vegetable oils and animal fat as a power source | |
what are classifications of petroleum | unrefined petroleum classes include asphalt bitumen crude oil and natural gas the bottom linepetroleum is a fossil fuel that is used widely in the daily lives of global consumers in its refined state petroleum is used to create gasoline kerosene plastics and other byproducts petroleum is a finite material and non renewable energy source because of its potential to be harmful to the environment alternative energy sources are being explored and implemented such as solar and wind energy | |
what is petty cash | a petty cash fund is a small amount of company cash often kept on hand e g in a locked drawer or box to pay for minor or incidental expenses such as office supplies or employee reimbursements a petty cash fund will undergo periodic reconciliations with transactions also recorded on the financial statements in larger corporations each department might have its own petty cash fund understanding petty cashpetty cash provides convenience for small transactions for which issuing a check or a corporate credit card is unreasonable or unacceptable the small amount of cash that a company considers petty will vary with many companies keeping between 100 and 500 as a petty cash fund examples of transactions that a petty cash fund is used for include petty cash fund custodians are appointed to oversee the fund the custodial duties generally include enforcing petty cash rules and regulations requesting replenishments and dispensing funds requirements for petty cashthe use of a petty cash fund can circumvent certain internal controls however the availability of petty cash doesn t mean that it can be accessed for any purpose by any person many companies employ strict internal controls to manage the fund often a few individuals are authorized to approve disbursements and can only do so for expenses related to legitimate company activities or operations a petty cashier might be assigned to issue the check to fund the petty cash drawer and make the appropriate accounting entries the petty cash custodian is charged with distributing the cash and collecting receipts for all purchases or any uses of the funds as the petty cash total declines the receipts should increase and add up to the total amount withdrawn by having a petty cash cashier and a petty cash custodian the dual process helps to keep the funds secure and ensure that only those authorized have access to it recording petty cash | |
when a petty cash fund is in use petty cash transactions are still recorded on financial statements no accounting journal entries are made when purchases are made using petty cash it s only when the custodian needs more cash and in exchange for the receipts receives new funds that the journal entries are recorded the journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash | if there s a shortage or overage a journal line entry is recorded to an over short account if the petty cash fund is over a credit is entered to represent a gain if the petty cash fund is short a debit is entered to represent a loss the over or short account is used to force balance the fund upon reconciliation the internal revenue service irs recommends filing out petty cash slips and attaching them to receipts to record and document petty cash expenses 1reconciling petty cashthe petty cash fund is reconciled periodically to verify that the balance of the fund is correct typically as the petty cash balance falls to a preset level the custodian applies for additional cash from the cashier at this time the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer if new funds are needed the cashier writes a new check to fund the petty cash drawer and takes in exchange the receipts from the purchases that depleted the cash the reconciliation process ensures that the fund s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices if the remaining balance is less than what it should be there is a shortage if the remaining balance is more than what it should be there is an overage although there can be minor variances when unbalanced the source of the discrepancy should be identified and corrected petty cash vs cash on hand petty cash and cash on hand sound a lot alike and they do overlap of the two cash on hand is the more generic term petty cash refers specifically to money literally coins and bills that a company keeps on hand for small outlays usually because using cash is easier than using a check or credit card cash on hand is any accessible cash the business or liquid funds have it can be in the form of actual money like amounts you haven t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers in this meaning the difference from petty cash refers to where you re keeping the money and how you re using it with petty cash being more for internal business needs expenses by employees and cash in hand referring to funds received from or being reimbursed to customers but cash on hand has a larger meaning as an accounting term in the financial world it also refers to a company s highly liquid assets funds in checking or other bank accounts money market funds short term debt instruments or other cash equivalents though not literally cash it s money that can be easily and quickly accessed which is why it s on hand in short all petty cash is a form of cash on hand but not cash on hand is petty cash advantages and disadvantages of petty cashpetty cash has its pluses cash in many cases remains the quickest simplest easiest way to pay for things it works well to cover small impromptu expenses like a tip for the kid delivering pizzas to the lunch meeting or cab fare home for employees working late it saves the hassle of reimbursing people or expecting them to pay out of pocket for work related items petty cash can also work for frequent but mundane expenses like milk for the office fridge stamps or cleaning supplies while it shouldn t be a habitual practice petty cash in a pinch can be used to make change for customers if the till s running short on the downside the convenience of petty cash can also make it a problem and a risk cash is hard to secure and impossible to track it s very easy for bills to disappear without a trace even if you ve established a careful system of receipts or vouchers this brings us to another drawback of petty cash funds maintaining them keeping records and reconciling them regularly all involve extra work for someone this may be a minor nuisance in large firms with an office manager or accounting department for small businesses it might create a burden commercial transactions are increasingly cashless even at small retailers and restaurants where purchases traditionally have relied heavily on coins petty cash has become an outmoded concept some critics say in between credit cards debit cards payment services like venmo or paypal electronic wallets and other contactless ways to buy things plenty of alternatives exist simple as cash with the added advantages of being traceable secure and less subject to theft the security aspect is often important to small companies who have long feared that keeping cash around is an invitation to crime convenient easy to understandimmediately accessible no advance planning authorization requiredgood for emergencies impromptu needssecurity risk hard to track and subject to fraud theft misuserequires manual monitoring record keepingold fashioned outdatedpetty cash faqspetty cash is the money that a business or company keeps on hand to make small payments purchases and reimbursements either routine or unexpected these are transactions for which writing a check or using a credit card is impractical or inconvenient the english word petty derives from the french petit which means small or little likewise petty means minor or insignificant so petty cash refers to a small sum of money set aside for trifling or little purchases as opposed to major expenses or bills one of the earliest uses of the phrase comes from an educational work on housekeeping by benjamin billingsley advice to the women and maidens of london that dates to 1678 2petty cash is usually kept in a drawer lockbox or large envelope typical petty cash purchases include no petty cash is actual cash money bills and coins cash equivalents are highly liquid securities and other assets that can be easily converted into cash money market funds commercial paper or short term debt like treasury bills however on corporate financial statements petty cash is listed in the cash and cash equivalents section of the balance sheet 3 so the two can be lumped together in that sense each time you tap into a petty cash fund that is take money out a slip or voucher should be filled out this acts as a receipt logging the amount of the withdrawal the date the purpose and other details increasingly these slips are electronic ones entered in a digital spreadsheet or ledger but it can be helpful to keep paper slips too along with receipts from the purchases or payments if possible after a designated interval usually the same time each month or week it s time to reconcile or balance the petty fund account first note the current amount in the fund then subtract this amount from the starting balance this sum is the total withdrawn from the account during that time period next total the amount of all the outstanding slips plus attached receipts this figure should be the same as the withdrawn sum you calculated from the account starting and ending balances and the amount of cash you have in your storage box or drawer should be the same as the current balance of the account if they don t match you ll have to investigate why was there a mathematical error is a receipt missing or incorrect balancing the petty cash account usually occurs when the fund needs to be replenished the petty cash custodian brings all the slips or vouchers to the business bookkeeper cashier or accountant the petty cash receipts are logged into the company s general ledger as credits to the petty cash account and probably debits to several different expense accounts when the petty fund is replenished usually by drawing on a company issued check it s recorded as a debit to the petty cash account and a credit to the cash account 4the bottom linepetty cash is a small amount of cash that is kept on a business or company s premises to pay for minor expenses and needs usually no more than a few hundred dollars while it s easy to understand and simple to use petty cash is subject to abuse easy to lose track of and vulnerable to theft some feel that in contemporary society the petty cash fund is outmoded plenty of alternatives exist for small purchases that are safer and just as convenient | |
a phantom stock or shadow stock plan is an employee benefit program that gives certain employees typically senior managers many of the benefits of stock ownership without actually handing over company stock 1 | rather than getting physical stock the employee receives mock stock even though it s not real the phantom stock tracks the price moves of the company s actual stock paying out any resulting profits phantom stock plans are an alternative to the equity based incentive plans typically offered by public companies particularly stock option grants these plans can be structured to mimic whole shares of stock allowing participants to receive accumulated returns plus the initial value per share here are the two types of phantom stocks like restricted stock full value phantom shares have a higher per share value than stock options at the time of grant enabling companies to grant fewer shares while still providing competitive grant value this approach is commonly used when employee retention is a concern 2however in most cases companies opt for appreciation only grants where awards are based only on total share return rather than the initial value 1 companies often aim to create performance and award leverage like stock options in addition discounted grants and grants that pay out when returns exceed a specific hurdle rate are also used 3phantom stock plans often have a vesting schedule and may pay out after the occurrence of a predetermined event such as a number of years of employment retirement or termination both phantom stock plans and traditional nonqualified plans share several similarities they can be discriminatory meaning the company can choose which employees participate in the plan these plans are also usually subject to a substantial risk of forfeiture which means that the employee s right to receive the benefit is contingent upon meeting certain conditions such as remaining with the company for a specific period once the benefit is paid to the employee the employee recognizes it as income and the employer can claim a tax deduction for the amount paid although the phantom stock is notional it mimics the behavior of real stock it can pay out dividends and experience price changes just like actual shares after a set period the cash value of the phantom stock is distributed to the participating employees a key advantage of phantom stock is its flexibility there are no inherent requirements or restrictions on how it can be used giving the organization the freedom to structure the plan how it wishes here are phantom stock s advantages and disadvantages summarized employees can benefit from the company s growth without owning shares the company can offer incentives without diluting ownership or control phantom stock plans can be tailored to specific performance goals or periods employees do not have voting rights do not receive dividends or have actual ownership shares in the company payouts are taxed as ordinary income which may be higher than long term capital gains tax rates for actual stock phantom stock is considered a deferred compensation plan and must follow the requirements outlined in the internal revenue service irs code 409 a to ensure compliance an attorney must thoroughly review the plan and all relevant details must be clearly documented 4phantom stock plans have a lot in common with traditional nonqualified stock plans using phantom stock as an organizational benefitsome organizations may use phantom stock as an incentive to upper management phantom stock ties a financial gain directly to a company performance metric it can also be used as a reward or a bonus to employees who meet particular criteria phantom stock can be given to every employee either across the board or distributed according to performance seniority or other factors phantom stock also provides other organizations with a way to offer incentives tied to stock value this can apply to a limited liability corporation a sole proprietor or s companies restricted by the 100 owner rule here are two other common stock related employee benefits along with a table of similar plans stock appreciation rights sars are like a phantom stock based program they are a form of bonus compensation given to employees equal to the appreciation of company stock over a given period like employee stock options eso sars are worthwhile to the employee when company stock prices rise the difference with sars is that employees do not have to pay the exercise price but receive the sum of the increase in stock or cash typically awarded to upper management sars can function as part of a retirement plan they provide incentives that go up as the value of the company does this can help ensure employee retention especially in times of internal volatility such as an ownership change or a personal emergency it reassures employees since phantom stock programs are generally backed in cash this can in turn result in higher selling prices for a business if a prospective buyer perceives the upper management team as stable in a stock option plan employees are granted the right to buy a specific number of company shares at a preset price strike price within a given time frame employees can exercise their options and buy the shares once they vest typically over several years if the company s stock price rises above the strike price employees can profit by exercising their options and selling the shares employees can own actual shares in the company if the stock price increases employees can realize significant gains gains from exercising stock options may be taxed at lower long term capital gains rates employees must pay the strike price to exercise their options and buy shares the options may be worthless if the stock price exceeds the strike price stock options can be complex and require a good understanding of financial markets phantom stock examplelet s say an employee is granted 1 000 phantom shares under an appreciation only plan when the company s stock price is 50 after a vesting period of three years the company s stock price has risen to 75 under the phantom stock plan the employee would receive a cash payout of 25 000 1 000 shares 75 50 but no actual shares of stock the total payout would have been 75 000 if it were a full value phantom plan in contrast an employee granted 1 000 stock options with a strike price of 50 would have the right to buy 1 000 shares at 50 each if the stock price rises to 75 the employee could exercise the options buy the shares for 50 000 and then sell them for 75 000 realizing a profit of 25 000 | |
when was phantom stock first introduced | phantom stock plans were introduced in the 1950s as a way for companies to provide key employees with long term incentives tied to the company s success without granting them actual stock ownership the concept gained popularity in the 1980s as an alternative to traditional stock option plans 2 | |
is phantom stock legal | yes phantom stock plans are legal and are commonly used by companies as a form of employee compensation however the specific terms and conditions of the plan must follow applicable laws and regulations such as those related to taxation and securities 3 | |
what are the tax implications of receiving phantom stock | phantom stock payouts are generally taxed as ordinary income for the employee when received the company can typically deduct the payouts as a compensation expense however the specific tax implications depend on the structure of the plan and the jurisdiction it s essential for both the company and the employees to consult with tax professionals to understand the tax consequences of a phantom stock plan 1the bottom linephantom stock is a deferred compensation plan that provides employees with a cash payment based on the value of a specific number of hypothetical company shares it s designed to align employee incentives with company performance without granting actual stock ownership phantom stock can be structured as either full value or appreciation only plans and payouts typically have vesting periods and other criteria to meet while they are like stock options and sars phantom stock plans offer more flexibility in payouts and timing however it s essential for companies to carefully design and communicate these plans to ensure compliance with legal and tax regulations and to maximize their motivational effect on employees | |
what is philanthropy | philanthropy involves charitable giving to worthy causes on a large scale but it is much more than just a charitable donation philanthropy is an effort an individual or organization undertakes based on an altruistic desire to improve human welfare and wealthy individuals sometimes establish private foundations to facilitate their philanthropic efforts nonprofits are organizations set up to support a variety of social causes such as educational health scientific public safety and human rights in the united states organizations that qualify as nonprofits are exempt from federal tax liability under the internal revenue code irc 501 c 1understanding philanthropyphilanthropy refers to charitable acts or other good works like volunteering your time or efforts that help others or contribute to the well being of society overall for some people philanthropy means donations of money often large sums to support or create university buildings research centers or fund four year college scholarships for others acts of philanthropy mean an annual donation to a local theater food pantry or public school there are many ways to make charitable contributions on a local to a global scale including corporate philanthropy there are also individual philanthropists philanthropy may be done for tax breaks or altruism or a combination of the two things anyone can be a philanthropist if they give of their talent time money or skills the word philanthropy traces its origins to the latin word philanthropia and the greek word philanthr pia which mean love or kindness to mankind history of philanthropyphilanthropy dates back to greek society for instance plato instructed his nephew in his will to use the proceeds of the family farm to fund the academy that he founded in 347 b c the money helped students and faculty keep the academy running 2around 150 years later pliny the younger contributed one third of the funds for a roman school for young boys he instructed the fathers of the students to come up with the rest 3 the intention was to keep young romans educated in the city rather than abroad in 1630 john winthrop of the massachusetts bay colony preached to puritan settlers that the rich should care for the poor who could not help themselves 4 and in 1638 john harvard laid the foundations for harvard university after bequeathing half of his estate to found the school 5more modern and notable philanthropists include mother teresa and norman d rockefeller in the 21st century philanthropy continues to be practiced in many forms by individuals like warren buffett melinda gates and dolly parton as well as corporations technology including social media has also shaped how many individuals give to others benefits of philanthropythere are many benefits to being a philanthropist experts conclude that charitable giving can improve one s emotional and even physical well being and philanthropists have the satisfaction of knowing they have contributed to the greater good 6 in fact some studies show that philanthropists have less depression higher self esteem lower blood pressure and may even live longer than those who don t give 76the benefits of philanthropy are not limited to individuals corporations that support charitable giving receive a wealth of offerings from building a better public image creating more vital brand awareness and attracting new partners and talent who may be attracted to a company that contributes to charities in addition employees who work for companies that give back to society are happier and contribute more to their jobs and because corporations are created to make money a strong philanthropic streak often boosts sales and new customers the charitable contributions deduction allows american taxpayers who make substantial charitable gifts to take generous tax deductions for the year in which their donations were made instructions for this tax deduction can be found on schedule a on the irs website 8philanthropy and taxeswhile it is true that individuals benefit from charitable giving when tax time comes some benefit more than others the irs allows most individuals to deduct around 60 of their adjusted gross income agi 8there are very wealthy individuals who use charitable giving to shield themselves from large tax bills 9 but some say billionaires are dodging paying their fair share of taxes under the guise of charitable giving to the needy 10statistics on givingamericans and u s organizations gave about 484 85 billion to national charities in 2021 that number increased 4 from the previous year s estimated total of 466 23 billion according to giving usa as reported by lilly family school of philanthropy some of the wealthiest americans gave as much as 15 billion during the year which represented 5 of all giving by individuals 11some of the highlights from giving usa s annual report include religious organizations 135 78 billion education 70 79 and human services 65 33 received the most money donations to environmental and animal organizations 11 foundations 9 3 and health 7 7 grew the most these figures were not adjusted for inflation 11although the number rose from 2020 experts at giving usa say the total didn t keep up with inflation these were some of the challenges faced by individuals corporations and nonprofits alike during and immediately after the covid 19 pandemic 11examples of philanthropistsmany people in the united states give money to causes in which they believe the following are just some of the examples of people and corporations that engage in philanthropic activities perhaps the most famous example of philanthropy came from andrew carnegie simply because of the scale of his giving carnegie s wealth helped build more than 2 500 libraries all over the world he also endowed several universities and a charitable trust that still runs 100 years after carnegie s death in 1919 12estimates of his total charitable contributions exceed an estimated 350 million carnegie lived up to his credo that a man who dies rich dies disgraced and the rest of society learned to follow his example the ford foundation s legacy of giving is another example of how philanthropy works the corporation was established by edsel ford the son of ford motor company founder henry ford the foundation focuses on strengthening democracy improving economic opportunity and advancing education 13some of the areas the organization covers include billionaire and microsoft mogul bill gates and his ex wife melinda established the bill melinda gates foundation to support global development and global health programs the organization works globally and in the united states to research and combat disease and to fight poverty according to the foundation s website it has spent almost 54 billion on charitable giving since 2000 15you don t have to be a billionaire or give money away to be considered a philanthropist in fact there are notable individuals who aren t ultra rich and are known for their philanthropic efforts mother teresa is one of the most famous examples the catholic nun set up the order of the missionaries of charity now known simply as the missionaries of charity in kolkata india in 1950 the goal of the organization was to provide vulnerable communities with material and spiritual welfare 16 | |
what is the difference between charity and philanthropy | while some use the words charity and philanthropy interchangeably philanthropy often casts a broader net of giving its role is to help society or groups in the community flourish over a long term period charity is usually based on individual giving and helping in a short term way like donating coats to the homeless in winter helping out or contributing goods to a local food pantry or sending money to a scholarship fund these are all acts of charity but may not be considered philanthropic efforts like building a school or a library or donating millions to a scholarship fund | |
which philanthropist has donated the most money | according to an annual report in forbes magazine warren buffet has donated the most money 46 1 billion over his 91 years as of january 2022 17 | |
how can i become a philanthropist | anyone can become a philanthropist even if they are not wealthy individuals you can donate your time efforts and cash to a specific cause and over time you may become known as a philanthropist | |
what is corporate philanthropy | corporate philanthropy is the act of giving to charitable causes and or organizations by corporations the most common way of giving through a corporation is by donating money but there are other ways to do so some of them include volunteering like when employees donate their time to charities scholarships community investments and sponsorships | |
what are the different types of philanthropy | philanthropy can take on many different forms it can be done by individuals and corporations there can be a combination of both where a company does matching donations whenever someone makes a donation or it can be done by bequest which means instructions are left to give money and other assets to charity in a trust or someone s will people can donate money directly to charity fund scholarships or offer grants and stipends and it isn t just money that falls under the philanthropic umbrella in fact people can donate their time through volunteer work the bottom linemany of the world s billionaires donate a good portion of their wealth to charitable causes and it can be hard to live up to that reputation contrary to what you may think you don t have to be among the ultra rich to be a philanthropist donating some of your monthly income may feel like the only way you can do good in the world but there are other ways to make a difference in the world giving some of your free time to causes you believe in is also a great way to become a philanthropist | |
what is the phillips curve | the phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship developed by william phillips it claims that with economic growth comes inflation which in turn should lead to more jobs and less unemployment the original concept of the phillips curve has been somewhat disproven due to the occurrence of stagflation in the 1970s when there were high levels of both inflation and unemployment 12understanding the phillips curvethe concept behind the phillips curve states the change in unemployment within an economy has a predictable effect on price inflation the inverse relationship between unemployment and inflation is depicted as a downward sloping convex curve with inflation on the y axis and unemployment on the x axis increasing inflation decreases unemployment and vice versa alternatively a focus on decreasing unemployment also increases inflation and vice versa 3the belief in the 1960s was that any fiscal stimulus would increase aggregate demand and initiate the following effects labor demand increases the pool of unemployed workers subsequently decreases and companies increase wages to compete and attract a smaller talent pool the corporate cost of wages then increases and companies pass along those costs to consumers in the form of price increases this belief system caused many governments to adopt a stop go strategy where a target rate of inflation was established and fiscal and monetary policies were used to expand or contract the economy to achieve the target rate however the stable trade off between inflation and unemployment broke down in the 1970s with the rise of stagflation calling into question the validity of the phillips curve 12the phillips curve and stagflationstagflation occurs when an economy experiences stagnant economic growth high unemployment and high price inflation this scenario of course directly contradicts the theory behind the phillips curve the united states never experienced stagflation until the 1970s when rising unemployment did not coincide with declining inflation 4 between 1973 and 1975 the u s economy posted six consecutive quarters of declining gdp and at the same time tripled its inflation 5expectations and the long run phillips curvethe phenomenon of stagflation and the break down in the phillips curve led economists to look more deeply at the role of expectations in the relationship between unemployment and inflation because workers and consumers can adapt their expectations about future inflation rates based on current rates of inflation and unemployment the inverse relationship between inflation and unemployment could only hold over the short run 2 | |
when the central bank increases inflation in order to push unemployment lower it may cause an initial shift along the short run phillips curve but as worker and consumer expectations about inflation adapt to the new environment in the long run the phillips curve itself can shift outward | this is especially thought to be the case around the natural rate of unemployment or nairu non accelerating inflation rate of unemployment which essentially represents the normal rate of frictional and institutional unemployment in the economy so in the long run if expectations can adapt to changes in inflation rates then the long run phillips curve resembles a vertical line at the nairu monetary policy simply raises or lowers the inflation rate aftermarket expectations have worked themselves out 62in the period of stagflation workers and consumers may even begin to rationally expect inflation rates to increase as soon as they become aware that the monetary authority plans to embark on expansionary monetary policy this can cause an outward shift in the short run phillips curve even before the expansionary monetary policy has been carried out so that even in the short run the policy has little effect on lowering unemployment and in effect the short run phillips curve also becomes a vertical line at the nairu 2 | |
why would an economist still believe in the phillips curve | while the phillips curve isn t without its limitations some economists still find it useful to consider 7 policymakers may use it as a general framework to think about the relationship between inflation and unemployment both key measures of economic performance others caution that it does not capture the complexity of today s markets | |
why does ongoing debate about the relevance of the phillips curve matter | disagreements over the dependability of the phillips curve can result in different economic policies for instance a policymaker who believes that lower unemployment is linked to higher inflation may seek to implement measures to keep inflation down such as raising interest rates 8 another policymaker might not agree with such a response | |
why has the phillips curve flattened | there have been periods when unemployment rates have declined even as inflation remained low suggesting a flattening of the phillips curve in part this can be attributed to concerted efforts by the federal reserve to keep inflation low and stable which may have weakened the relationship between inflation and labor market performance 9the bottom linethe phillips curve is an economic theory positing an inverse relationship between inflation and unemployment it resonated with economists in the 20th century but became increasingly disputed in the 1970s which saw rising unemployment and inflation simultaneously today economists have adapted new models to explain the relationship between unemployment and inflation however some economists still maintain that the phillips curve is useful to consider despite its limitations | |
what is physical capital | physical capital is one of what economists call the three main factors of production it consists of tangible human made goods that assist in the process of creating a product or service the machinery buildings office or warehouse supplies vehicles and computers that a company owns are all considered part of its physical capital explaining physical capitalin neoclassical economic theory factors of production are the inputs required to engage in the production of goods or services in pursuit of profit 1 economists generally agree that there are three main factors of production these factors include the land or property on which factories shipping facilities and stores are built natural resources that come out of the ground such as the corn needed to make tortilla chips or the iron ore used to make steel also fall into this category this factor includes labor and other resources that humans can provide education experience or unique skills that contribute to the production process sometimes called simply capital this factor includes human made items or products that make the manufacturing process possible or enable it to run smoothly some types of physical capital are directly involved in the production such as the welding equipment that fuses parts of a car on the factory floor others are indirectly involved such as the computers and printers in the executive headquarters physical capital and startupsnew or startup companies invest in physical capital early in their lifecycle often before they have produced a single good or secured their first client for example a company that manufactures microwave ovens must make several investments before it can sell a single device the firm must build a factory purchase the machinery it needs to manufacture and assemble the ovens and finally it must create some sample devices before any stores carry their product the accumulation of physical capital with established firms and the associated investment required can pose a significant barrier to entry for new companies particularly those in manufacturing intensive industries the diversification of physical capital is a measure of the level of diversification in a particular industry consequently from the perspective of physical capital starting a new law firm is much easier than opening a new manufacturing plant theoretically an attorney would need only an office perhaps just a desk even a phone and a computer the relatively small amount of physical capital is the reason an economist might argue law firms outnumber steel manufacturers by a significant margin example of physical capitalexperts agree that physical capital is an important consideration in a company s valuation oddly however it can also be one of the most difficult assets to evaluate first there can be disagreement over what exactly constitutes physical capital economists often disagree on the exact parameters of the three factors of production for example take the coca cola company s corporate headquarters in atlanta some might deem their campus of office buildings as physical capital since they are human made structures others might consider the corporate plaza as falling into the land real estate category secondly physical capital is often relatively illiquid because it is usually designed to fulfill a particular purpose the machine that puts caps on the iconic coca cola soda pop bottles not going to be of much use to anyone outside of another beverage company and maybe not even then given that the machine is probably designed to fit the size and shape of the unique coke glassware most objects of physical capital are also fixed capital meaning they are not consumed or destroyed during the actual production of a good or service but are reusable as such an item of fixed capital has long term value but that value can change over time usually it declines again manufacturing equipment is a prime example as the machine ages it becomes worth much less that s why fixed capital investments are typically depreciated on the company s accounting statements over a long period often decades on the other hand the value of physical capital can increase in value if the asset itself is upgraded or there are changes to the firm that affect its value | |
what is a pigovian tax | a pigovian also spelled pigouvian tax is a tax assessed against businesses and private individuals that engage in activities that create adverse side effects for society those can include environmental pollution strains on public healthcare systems from the sale of tobacco products or any other side effects that have an external negative impact pigovian taxes were named after english economist arthur pigou a significant contributor to early externality theory pigou also promoted the link between the balance of consumption employment and price known as the pigou effect 1understanding a pigovian taxa pigovian tax is meant to discourage activities that impose a cost of production onto third parties and society as a whole according to pigou these negative externalities prevent a market economy from reaching equilibrium when producers do not take on all costs of production this adverse effect might be corrected he suggested by levying taxes equal to the externalized costs ideally the tax would also give the producer an incentive to reduce the negative externalities they are responsible for negative externalities are not necessarily bad instead a negative externality occurs whenever an economic entity does not fully internalize the costs of its activity in these situations society and the environment can end up bearing those additional costs a common example of a pigovian style tax is a tax on pollution pollution from a factory creates a negative externality because third parties bear part of the cost of production this cost might manifest itself through contaminated property destroyed wetlands and streams or health risks the polluter only takes into consideration the private costs not the external costs once pigou factored in external costs to society the economy suffered deadweight loss from excess pollution beyond the socially optimal level pigou believed that state intervention should correct negative externalities which he considered a market failure he suggested that this be accomplished through taxation advantages and disadvantages of a pigovian taxsome economists favor pigovian taxes because they tend to correct for negative externalities which can be a burden on the public for example air pollution from a factory may result in health issues like lung cancer among the population according to the theory if the polluter were forced to pay a tax that could not only help offset the economic cost of such illnesses but discourage the factory from polluting so much in the first place this means that pigovian taxes benefit society and tend to improve social welfare so long as they are properly applied pigou s externality theories were dominant in mainstream economics for 40 years but lost favor after nobel prize winner ronald coase demonstrated that pigou s examination and solution were often wrong for at least three separate reasons pigovian taxes also encounter what austrian economist ludwig von mises first described as calculation and knowledge problems a government cannot impose the correct pigovian tax without knowing in advance what the most efficient outcome is this would require knowing the precise amount of the externality cost imposed by the producer as well as the correct price and output for the specific market if lawmakers overestimate the external costs involved pigovian taxes can cause more harm than good critics maintain reduce negative externalitiespromote social welfarecan generate tax revenuepigovian taxes are difficult to calculate properlyimposing the wrong tax would be inefficient and costlytaxes like gas taxes can hit low income consumers hardestexamples of a pigovian taxdespite any counterarguments toward pigou s theories pigovian taxes are prevalent in society today one of the most widespread pigovian taxes is the carbon emissions tax some governments impose such taxes on any company that burns fossil fuels when burned fossil fuels emit greenhouse gases which cause global warming damaging the planet in a multitude of ways the carbon tax is intended to factor in the real cost of burning fossil fuels which is paid by society the end role of the carbon tax is to ensure that the producers of the emissions are the ones incurring this external cost another pigovian tax common in europe is a tax on plastic bags and sometimes even paper bags this encourages consumers to bring their own reusable bags from home to discourage the use of plastic and paper plastic is a byproduct of burning fossil fuels and results in damage to marine life while paper bags can exacerbate deforestation by charging even a small amount like a few cents per bag the tax discourages their production taxes on sin items like alcohol and cigarettes can also be construed as pigovian taxes this is because they discourage behavior that can not only harm the individual user but also have damaging effects on others second hand smoke is an obvious example but so too is the financial burden on the healthcare system from smokers who become ill with cancer or emphysema alcohol is responsible for drunk driving accidents including injuries and deaths among innocent others all of the above examples cite negative externalities where the price of a product does not take into consideration the cost to society the respective taxes are meant to redistribute those costs back to the producer or product user that caused the negative externality gasoline taxes can be considered pigovian taxes since they discourage unnecessary driving and proceeds are used to build repair and upgrade transportation infrastructure that benefits society each state has its own gas tax in the u s and the federal government imposes an additional gas tax of 18 4 cents per gallon for unleaded gasoline 24 4 cents for diesel 2 | |
what is a negative externality | in economics a negative externality is a byproduct produced by some individual business or industry that has a negative impact on society but where the entity that created this byproduct does not pay for it instead society pays the price examples include air and noise pollution toxic runoff and the inadvertent killing of pollinators through pesticides among others | |
what is the difference between a pigovian tax and a sin tax | pigovian taxes and sin taxes are quite similar and a specific levy may satisfy both definitions the key difference is that a pigovian tax seeks primarily to minimize negative externalities i e harms to others or society as a whole while sin taxes typically seek to reduce negative internalities i e harms to oneself in the case of cigarettes and alcohol for example there are both potential negative internalities and externalities | |
how do you calculate a pigovian tax | calculating a pigovian tax is notoriously difficult to get right in theory the amount of the tax should be exactly equal to the net cost of the externality it seeks to remedy thus the tax represents the difference between the social cost and the marginal private cost at a given level of production 3the bottom linewhile few consumers except for professional economists may recognize the name pigovian taxes are in wide use today there are however some doubts about their effectiveness | |
what does piigs mean | piigs is a derisive acronym for portugal italy ireland greece and spain which were the weakest economies in the eurozone during the european debt crisis at the time the acronym s five countries garnered attention due to their weakened economic output and financial instability which heightened doubts about the nations abilities to pay back bondholders and spurred fears that these nations would default on their debts 12understanding the piigsduring the u s financial crisis in 2008 the eurozone was comprised of 16 member nations that had adopted the use of a single currency the euro during the early 2000s fueled largely by an extremely accommodative monetary policy these countries had access to capital at very low interest rates 4inevitably this caused some of the weaker economies to borrow aggressively often at levels that they could not reasonably expect to pay back in the event of a financial shock the 2008 global financial crisis was this negative shock that led to economic underperformance which rendered them incapable of paying back the loans they had procured furthermore access to additional sources of capital also dried up 4since these nations used the euro as their currency they were unable to deploy independent monetary policies to help battle the global economic downturn that was triggered by the 2008 financial crisis to reduce speculation that the eu would abandon these economically disparaged countries european leaders approved a 750 billion euro stabilization package to support the piigs economies in 2010 5the piigs acronym is now considered derisive and is rarely used criticism of piigs acronymthe use of the acronym pigs and similar terms dates back to the late 1970s the first recorded use was in 1978 when it was used to identify the underperforming european countries of portugal italy greece and spain pigs ireland did not join this group until 2008 when the unfolding global financial crisis plunged its economy into an unmanageable level of debt 1some argue that the term highlights a return of colonial dynamics within the eurozone it links the stereotyped assumptions about the cultural characteristics of the people of portugal italy ireland greece and spain the use of the term potentially reinforces a perception of those people as lazy unproductive corrupt and or wasteful the roots of these stereotypes harken back to the anti irish and anti mediterranean racism of the british and ottoman empires 2current status of the eurozone economiesthe economic troubles of portugal italy ireland greece and spain reignited debate about the efficacy of the single currency employed among the eurozone nations by casting doubts on the notion that the european union can maintain a single currency while attending to the individual needs of each of its member countries critics point out that continued economic disparities could lead to a breakup of the eurozone 3 in response eu leaders proposed a peer review system for approval of national spending budgets to promote closer economic integration among eu member states 6on june 23 2016 the united kingdom voted to leave the eu brexit which many cited as a result of growing unpopularity toward the eu concerning issues such as immigration sovereignty and the continued support of member economies suffering through prolonged recessions this has resulted in higher tax burdens and depreciation of the euro 78while political risks associated with the euro brought to the fore by brexit remain the debt problems of countries at the european periphery have lightened in recent years reports in 2018 have pointed to improved investor sentiment toward the nations as evidenced by greece s return to the bond markets in july 2017 and increased demand for spain s longest term debt 9 | |
what does piigs stand for | the derisive acronym piigs stands for five countries at the periphery of the eurozone economy portugal ireland italy greece and spain | |
how did the eurozone get the piigs countries out of debt | during the european sovereign debt crisis the european union provided two bailouts to prevent the greek economy from defaulting while greece accepted the first bailout greek voters ultimately rejected the second bailout due to required austerity measures the european central bank also issued a 750 million euro rescue package which was used to prop up greek bonds on the secondary market ireland portugal and cyprus also received bailouts 10 | |
which eu countries supported the piigs bailout | the leaders of france and germany as the core industrial economies of the european union played a key role in providing debt relief for the peripheral economies and restoring the confidence of the international credit markets in addition the european central bank also provided important rescue packages the bottom linepiigs refers to several countries at the periphery of the eurozone economy in the aftermath of the 2008 recession those countries portugal spain greece ireland and italy had high levels of debt that threatened to cause a renewed financial crisis although the crisis has since been averted the acronym is now considered derisive and has fallen out of use | |
what is pimco pacific investment management co | pimco or the pacific investment management company is an american investment management firm founded in 1971 in california the firm focuses on fixed income and manages more than 2 2 trillion in assets the firm primarily handles portfolio management account management and business management 1pimco specializes in fixed income securities it manages the internationally known total return fund 2 the company serves institutional investors high net worth individuals and individual investors with its account services and mutual funds understanding pimcopimco was founded in 1971 in newport beach california by bill gross jim muzzy and bill podlich 3 the firm launched with a total of 12 million in assets and the belief that bonds should be actively traded to enhance returns the firm has since expanded to derivatives mortgage based securities emerging markets and other sectors of the global fixed income market it has grown to be one of the largest asset management firms in the world once a unit of pacific mutual life insurance it is now owned by german financial services firm allianz se 4as of 2014 gross had left the firm for janus capital group inc gross heir apparent mohamed el erian also departed 5 in april 2015 former federal reserve chair ben bernanke was hired as a senior advisor to pimco 6pimco s strategiespimco s investment process integrates insights from its cyclical forums which anticipate market and economic trends over a 6 to 12 month period and the annual secular forum which projects trends over a 3 to 5 year period the company says it believes that an informed macroeconomic outlook over long and short term horizons is key to identifying opportunities and potential risks 7pimco s total return fundthe company s total return fund seeks to maximize capital while preserving capital the fund established in 1987 emphasizes higher quality intermediate term bonds and is more globally diversified therefore aiming to reduce concentration risk the fund also has flexibility that helps respond to changing economic conditions 2the fund pays a monthly dividend and covers the u s investment grade fixed rate bond market with index components for government and corporate securities mortgage pass through securities and asset backed securities 2pimco todayas per the company s website pimco has more than 3 050 employees who work in offices throughout the americas europe and asia the company boasts more than 900 global investment professionals and more than 260 portfolio managers as of june 2021 the company managed more than 2 20 trillion in assets 8the company partners with different institutions from corporations central banks private and public pension funds endowments and foundations as well as retirement plans | |
pink sheets is an outdated term used to describe stocks that trade over the counter otc rather than on a major u s stock exchange these companies cannot or do not want to meet the requirements for listing on a major u s stock exchange like the new york stock exchange nyse they could be too small foreign or choose not to file the necessary paperwork with the securities and exchange commission sec and avoid all the extra costs that entails | the term pink sheet arose as price quotes for these unlisted stocks used to appear on pink colored sheets of paper these securities the majority of which are viewed as highly speculative are now subject to more regulation they also go by a different name the pink sheets were officially renamed pink otc markets in 2008 and then otc markets group in 2011 however the colloquial term is still widely used 123understanding the pink open marketthe pink marker was named for the color of the paper on which quotes of share prices were published today s trades are electronic but whenever otc stocks were mentioned in conversation the name lived on as pink the otc market is a decentralized market where securities not listed on major exchanges are traded directly by a network of dealers who carry inventories of securities to facilitate orders otc securities generally trade on alternative trading systems atss there are two interdealer quotation systems for trading otc securities global otc ats which is part of the nyse group and otc link ats which is operated by otc markets 4otc market group has three regulated main marketplaces for trading otc stocks otcqx otcqb and the pink market 3 each of these markets has varying levels of financial standards and regulatory oversight the pink market is considered the most speculative and loosely regulated tier for trading otc stocks it is an open market with very little in the way of financial standards depending on the quantity and promptness of information they share with investors these companies can be further divided into categories such as current or limited 5there used to be another otc exchange called the otc bulletin board otcbb but it was closed in 2021 6the pink market vs otcqx vs otcqb vs expertunlisted securities either qualify for otc market s otcqx or otcqb or by default trade on pink the otcqx has the most stringent requirements followed by the otcqb the pink open market and then finally the expert market companies in the expert market provide the lowest level of disclosure with trading in this market as a result limited to quotation on an unsolicited basis 5being easy to get into means companies generally don t need to jump over many hurdles to get into the pink market this market is made up of all sorts of companies including foreign ones penny stocks and some shell companies because they face very few listing requirements pink market constituents can be extremely volatile and risky to invest in securities in this category are not required to register with the sec and keep the public informed of everything they are up to that makes it harder for investors to determine who is legit and who might not be companies in the pink market are now required to disclose their financials pink market regulationthe terminology around pink sheets and otc stock trading has changed along with regulations this part of the market has attracted a lot of controversy over the years leading to calls for greater transparency a few requirements have steadily been introduced one change was to remove so called dark securities from the market entirely another was to restrict broker dealers and other market makers from publishing quotations for otc stocks that do not provide publically available information about their financials that was part of an amendment made to rule 15c2 11 45companies can create their own disclosure document or fill out a form once completed and verified they must post the information on the otc markets website for everybody to see not any old information can be published the disclosures must follow the guidelines one guideline is that financial statements while not required to be audited must be prepared according to u s gaap or international financial reporting standards ifrs 7for regular domestic companies the following information must be published requirements for international companies and banks vary slightly pink market tiers current and limitedwithin the pink market exist tiers companies that fully abide by the disclosure rules are dubbed current whereas those who do the bare minimum under rule 15c2 11 and are perhaps late with filings are downgraded to the pink limited market tier 89pink limited is essentially a demotion from the pink current status for those who don t fully abide by rule 15c2 11 that demotion can lead to restrictions and is generally less favorable 9when a company no longer meets the requirements for limited information it will be moved to the expert market where there are no public broker dealer quotations 8pros and cons of the pink marketpink market listings offer small companies a chance to raise capital through the sale of shares to the public and make it easy for an investor to take a stake in the market with transaction costs often low however these securities are prone to fraud and price manipulation due to the lack of financial information required to list and lack of regulation there is less public information and transparency surrounding the companies and shares often trade infrequently making it hard to buy or sell when the investor wants pink market listings provide small companies access to capital funding low share prices leave room for fast gains if the company succeeds transaction costs are lower since companies do not pay expensive exchange listing fees fewer regulations and requirements can lead to outdated or incorrect information given to the investor pink market stocks trade thinly making it hard for an investor to buy or sell shares at will pink market listings are prone to fraud examples of pink securitiesotc markets group lists the most actively traded companies on the pink market they include some large very reputable international companies trade on the pink market they list on their home country exchanges but may find the duplication of regulatory paperwork for a large u s exchange too onerous | |
what is otc link | otc link llc is owned by otc markets group inc which operates otc link ats an alternative trading system ats and electronic inter dealer quotation system that displays quotes from broker dealers for many over the counter otc securities broker dealers who buy and sell otc securities can use otc link ats to publish their bid and ask quotation prices 11 | |
where can i find information on otc bitcoin investing | the sec provides information on otc offerings and states that digital assets and technology bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets | |
what was one of the most successful penny stock offerings | true religion jeans traded under a dollar per share in the early to mid 2000s and in 2013 the company was acquired by towerbrook capital partners for 32 per share netting investors a 5 000 increase 12the bottom linefor many years people used the term pink market to refer to any over the counter otc security meaning any investment not listed and tradable on a major u s stock exchange now there is more transparency about otc investments otc markets group offers a range of different markets for trading otc securities each of them has varying levels of financial standards and regulatory oversight the pink market is the one with the fewest requirements making it fairly easy for companies to get into and risky for investors that said there are legitimate companies in this market including some of the world s biggest moreover disclosure requirements are becoming more stringent which has helped to boost transparency and weed out some of the shadier companies | |
what is the piotroski score | the piotroski score is a discrete score between zero and nine that reflects nine criteria used to determine the strength of a firm s financial position the piotroski score is used to determine the best value stocks with nine being the best and zero being the worst the piotroski score was named after the chicago accounting professor joseph piotroski who devised the scale according to specific aspects of company financial statements aspects are focused on the company s accounting results in recent time periods years for every criterion met noted below one point is awarded otherwise no points are awarded the points are then added up to determine the best value stocks understanding the piotroski scorethe piotroski score is broken down into the following categories reading the scoreif a company has a score of 8 or 9 it is considered a good value if the score adds up to between 0 and 2 points the stock is considered weak piotroski s april 2000 paper value investing the use of historical financial statement information to separate winners from losers demonstrated that the piotroski score method would have seen a 23 annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted 1as a starting point piotroski suggested investors begin with a sample of the bottom 20 of the market in terms of price to book value of course with any investment system looking at past results doesn t mean it will work the same way in the future those interested in learning more about the piotroski score and other financial topics may want to consider enrolling in one of the best investing courses currently available example of the piotroski scoreas an example of the piotroski scoring method in action note the following criteria calculations for the hypothetical company xyz the profitability calculations are as follows the leverage calculations are as follows the efficiency calculations are as follows xyz s total piotroski score was a 6 out of 9 which could make it an average value proposition going forward according to the piotroski method | |
is the piotroski score reliable | the piotroski score is generally considered to be viable in the world of financial analysis and investment it analyzes a company s overall financial health by looking at a multitude of factors it is simple efficient and effective in determining value stocks | |
what does a high piotroski score mean | high piotroski scores are considered to be a good investment those that have good value these usually fall in the range of 8 to 9 low piotroski scores are considered poor investments and have a range between 0 to 2 | |
what is the difference between the altman z score and the piotroski score | the piotroski score assesses financial strength while the altman z score assesses the likelihood of bankruptcy both determine their outcomes by assessing the financial information of a company the bottom linethe piotroski score helps determine good value stocks by assessing the overall financial strength of a company it looks at a variety of metrics from net income to profitability to liquidity to cash flow to margin to debt and more the score can help investors pick stocks or sell off ones that may no longer be a good value | |
what is a pip | a pip is the smallest whole unit price move that an exchange rate can make based on forex market convention a pip is one hundredth of 1 1 100 x 01 and appears in the fourth decimal place 0 0001 most currency pairs are priced out to four decimal places and a single pip is in the fourth decimal place i e 1 10 000th for example the smallest whole unit move the usd cad currency pair can make is 0 0001 or one pip pips used in forex trading should not be confused with bps basis points which are used in interest rates markets that represent 1 100th of 1 i e 0 01 understanding pipsa pip is a fundamental concept of foreign exchange forex forex traders buy and sell a currency whose value is expressed in relation to another currency quotes for these forex pairs appear as bid and ask spreads that are accurate to four decimal places movement in the exchange rate is measured by pips since most currency pairs are quoted to a maximum of four decimal places the smallest whole unit change for these pairs is one pip pip is an acronym for percentage in point or price interest point calculating pip valuea pip s value depends on the currency pair the exchange rate and the trade value when your forex account is funded with u s dollars and usd is the second of the pair or the quote currency such as with the eur usd pair the pip is fixed at 0001 in this case the value of one pip is calculated by multiplying the trade value or lot size by 0 0001 so for the eur usd pair multiply a trade value of say 10 000 euros by 0001 the pip value is 1 if you bought 10 000 euros against the dollar at 1 0801 and sold at 1 0811 you d make a profit of 10 pips or 10 if the usd is the first of the pair or the base currency such as with the usd cad pair the pip value also involves the exchange rate divide the size of a pip by the exchange rate and then multiply by the trade value or lot size for example 0001 divided by a usd cad exchange rate of 1 2829 and multiplied by a standard lot size of 100 000 results in a pip value of 7 79 if you bought 100 000 usd against the canadian dollar at 1 2829 and sold at 1 2830 you d make a profit of 1 pip or 7 79 japanese yen jpy pairs are quoted with two decimal places marking a notable exception to the four decimal place rule 1 for currency pairs such as the eur jpy and usd jpy the value of a pip is 1 100 divided by the exchange rate for example if the eur jpy is quoted as 132 62 one pip is 1 100 132 62 0 0000754 with a lot size of 100 000 euros the value of one pip in usd would be 7 54 fractional pips are smaller than pips and thus are a more precise measurement they may appear as a superscript numeral at the end of a quoted exchange rate or as the fifth digit to the right of the decimal point or third digit on yen pairs the fractional pip or pipette is 1 10 of a pip even though traders may also refer to it as a pip which can be unnecessarily confusing pips and profitabilitythe movement of the exchange rate of a currency pair determines whether a trader makes a profit or loss at the end of the day a trader who buys the eur usd will profit if the euro increases in value relative to the u s dollar if the trader bought the euro for 1 1835 and exited the trade at 1 1901 they would make 66 pips on the trade 1 1901 1 1835 now consider a trader who buys the japanese yen by selling the usd jpy pair at 112 06 the trader loses three pips on the trade if they close out the position at 112 09 they profit by five pips if they close it out at 112 01 while the difference may look small in the multi trillion dollar foreign exchange market gains and losses can add up quickly for example on a 10 million position that closed at 112 01 the trader would make 500 000 in u s dollars that s 4 463 89 500 000 112 01 real world examples of pipa combination of hyperinflation and devaluation can push exchange rates to the point where they become unmanageable in addition to impacting consumers who are forced to carry large amounts of cash this can make trading unmanageable and the concept of a pip loses meaning a well known historical example of this occurred in germany s weimar republic when the exchange rate collapsed from its pre world war i level of 4 2 marks per dollar to 4 2 trillion marks per dollar in november 1923 2another case in point is the turkish lira which reached a level of 1 6 million per dollar in 2001 which many trading systems could not accommodate 3 the government eliminated six zeros from the exchange rate and renamed it the new turkish lira as of february 2024 the average exchange rate was 0 032 lira per dollar tky usd | |
what s a pip | a pip is the smallest whole unit measurement of the difference between the bid and ask spread in a foreign exchange quote a pip equals 1 100 of 1 or 0001 thus the forex quote extends out to four decimal places smaller price increments are measured by fractional pips or pipettes | |
what is the difference between a pip and a pippette | in the context of the foreign exchange market a pip is a standard unit of measure for changes in an exchange rate representing a move of 0 0001 1 10 000 this is the smallest price change increment for most currency pairs a pipette equals 1 10 of a pip and represents a fraction of 1 100 000 a pip therefore relates to movement in the fourth decimal place while a pipette is used to measure movement in the fifth decimal place | |
how are pips used | they are a part of a currency pair s exchange rate market quote pips represent the change in the quote and value of a position in the market you may have taken say hypothetically you bought a currency pair for 1 1356 and sold it for 1 1360 you made four pips on your trade you d have to then calculate the value of a single pip and multiply that by your lot size for the dollar value of your profit | |
does the japanese yen forex rate use pips | yes it does however the yen is an exception a quote for the yen normally extends two decimal places past the decimal point so a single whole unit pip is 01 rather than the 0001 used in other currency pairs | |
what is the spread in a forex | the forex spread is the bid price subtracted from the ask price of a currency pair for example if eur usd has an ask price of 1 1053 and a bid price of 1 1051 then the spread is 0 0002 or 2 pips to calculate the cost of the forex spread you need to multiply the spread by the trade size or volume for example if you trade 100 000 units of eur usd with a 2 pip spread then the cost of the spread is 20 00 0 0002 x 100 000 | |
what is a pitchbook | a pitchbook is a sales document created by an investment bank or firm that details the main attributes of the firm which is then used by the firm s sales force to help sell products and services and generate new clients pitchbooks are helpful guides for the sales force to remember important benefits and to provide visual aids when presenting to clients | |
how a pitchbook works | there are two main types of pitchbooks there is the main pitchbook which contains all the main attributes of the firm and one that contains details about a specific deal such as a company s initial public offering ipo or investment product the main pitchbook provides a general overview of the firm for an investment bank it would show information such as the number of analysts its prior ipo success and the number of deals it completes per year for an investment firm it would feature information such as the financial strength of the company and the many resources and services available for its clients if the pitchbook is being used by a team or individual financial adviser there could be biographical information as well all the details displayed in the pitchbook are points that the sales team should focus on when selling the benefits of the firm to potential clients for start up companies a pitchbook is more commonly known as a pitch deck types of pitch booksfor an investment bank a pitchbook focuses on all the benefits of the issue helping brokers and investment bankers demonstrate how the firm can serve the specific needs of their potential clients it would have more detailed information about how the potential ipo process could playout for the potential client it would also show comparable ipos within the same industry that the investment bank has had success with in the past for an investment firm the pitchbook would be more product oriented it could show the track record of an investment portfolio using charts and comparisons to an appropriate benchmark if the investment strategy is more advanced it would display the method of selecting stocks and other informational data that would help the potential client understand the strategy example of a pitchbookin 2011 the company autonomy was the acquisition target of several larger competitors hewlett packard and oracle were interested but hp eventually became the victor and acquired the software infrastructure company oracle decided to post an ipo pitchbook which was developed by the firm qatalyst partners on its website in the pitchbook qatalyst shows examples of how oracle would benefit from acquiring autonomy showing it would increase its competitive advantage in areas where oracle had no footing it also showed the key financial metrics of the company and how it had both positive revenue and margin growth the book also featured the partners and customers that oracle would immediately acquire once it purchased the company it also went into detail about autonomy s management team and directors | |
what is a pivot point | a pivot point is a price level calculated from previous prices it s used to indicate potential areas of support or resistance that offer attractive reward to risk setups for trades the pivot point itself is simply the average of the intraday high and low and the closing price from the previous trading day trading above the pivot point on the subsequent day is thought to indicate ongoing bullish sentiment trading below the pivot point indicates bearish sentiment the pivot point is the basis for the indicator but it also includes other support and resistance levels that are projected based on the pivot point calculation all these levels help traders see where the price could experience support or resistance it lets the trader know that the price is trending in that direction if the price moves through these levels investopedia dennis madambathe formula for pivot pointsp high low close 3 r 1 p 2 low r 2 p high low s 1 p 2 high s 2 p high low where p pivot point r 1 resistance 1 r 2 resistance 2 s 1 support 1 s 2 support 2 begin aligned p frac text high text low text close 3 r1 p times 2 text low r2 p text high text low s1 p times 2 text high s2 p text high text low textbf where p text pivot point r1 text resistance 1 r2 text resistance 2 s1 text support 1 s2 text support 2 end aligned p 3high low close r1 p 2 lowr2 p high low s1 p 2 highs2 p high low where p pivot pointr1 resistance 1r2 resistance 2s1 support 1s2 support 2 | |
what is plain vanilla in finance | plain vanilla is the most basic or standard version of a financial instrument usually options bonds futures and swaps it is the opposite of an exotic instrument which alters the components of a traditional financial instrument resulting in a more complex security understanding plain vanillaplain vanilla describes the simplest form of an asset or financial instrument there are no frills no extras and it can be applied to categories such as options or bonds plain vanilla can also be used to describe more generalized financial concepts such as trading strategies or modes of thinking in economics for example a plain vanilla card is a credit card with simply defined terms plain vanilla debt comes with fixed rate borrowing and no other features so the borrower has no convertibility rights a plain vanilla approach to financing is called a vanilla strategy calls for this came after the 2007 economic recession when risky mortgages contributed to the housing market collapse during the obama administration many pushed for a regulatory agency to incentivize a plain vanilla approach to financing mortgages stipulating among other tenets that lenders would have to offer standardized low risk mortgages to customers plain vanilla instrumentsa vanilla option gives the holder the right to buy or sell the underlying asset at a predetermined price within a specific timeframe this call or put option comes with no special terms or features it has a simple expiration date and strike price investors and companies will use them to hedge their exposure to an asset or to speculate on an asset s price movement a plain vanilla swap can include a plain vanilla interest rate swap in which two parties enter into an agreement where one party agrees to pay a fixed rate of interest on a certain dollar amount on specified dates and for a specified time period the counterparty makes payments on a floating interest rate to the first party for the same period of time this is an exchange of interest rates on certain cash flows and is used to speculate on changes in interest rates there are also plain vanilla commodity swaps and plain vanilla foreign currency swaps plain vanilla vs exotic optionsin the financial world the opposite of plain vanilla is exotic so an exotic option involves much more complicated features or special circumstances that separate them from the more common american or european options exotic options are associated with more risk as they require an advanced understanding of financial markets in order to execute them correctly or successfully and as such they trade over the counter otc examples of exotic options include binary or digital options in which the payout methods differ under certain terms they offer a final lump sum payout rather than a payout that increases incrementally as the underlying asset s price rises other exotic options include bermuda options and quantity adjusting options plain vanilla and dodd frankthere was a push to make the financial system safer and fairer in the wake of the 2007 global financial crisis this was reflected in the passing of the dodd frank wall street reform and consumer protection act in 2010 which also enabled the creation of the consumer financial protection bureau cfpb the cfpb enforces consumer risk protection in part by regulating financing options that call for a plain vanilla approach 1in 2018 president donald trump signed a bill easing back some of the restrictions on all of the nation s banks except those considered to be the largest this included raising the threshold at which they are deemed too important to fail from 50 billion to 250 billion and allowing the institutions to forgo any stress tests the cfpb was also stripped of some of its power notably its enforcement of cases involving discriminatory lending practices 2 | |
what is a plain vanilla interest rate swap | a plain vanilla interest rate swap is where one party pays a fixed interest rate and the other party pays a floating rate both rates are based on the same notional amount and there is no exchange of principal | |
what are plain vanilla foreign exchange options | plain vanilla foreign exchange options give the holder the right to buy or sell one currency for another currency the option details the specific amount to be exchanged the exchange rate is also agreed upon when the option is bought the goal of plain vanilla foreign exchange options is to protect against adverse movements in foreign exchange rates | |
what is a plain vanilla strategy | a plain vanilla strategy is an investment strategy that is straightforward without any complex additions a plain vanilla strategy might be holding a bond till maturity or purchasing a stock with a long term view it may also include passive investing the bottom lineplain vanilla refers to the most simple standard and basic financial instruments and strategies these instruments or strategies are straightforward and generally less risky when compared with their exotic counterparts instruments or strategies that have been altered in a way that is intended to bring higher returns | |
what is planned obsolescence | planned obsolescence describes a strategy of deliberately ensuring that the current version of a given product will become out of date or useless within a known time period this proactive move guarantees that consumers will seek replacements in the future thus bolstering demand obsolescence can be achieved through introducing a superior replacement model or by intentionally designing a product to cease proper function within a specific window in either case consumers will theoretically favor the next generational products over the old ones understanding planned obsolescenceseveral sectors are more well known for planned obsolescence than others in fashion it s widely accepted that nylon stockings are destined to run thereby requiring routine replacement meanwhile in technology the replacement cycle for personal electronic devices such as smartphones has historically been two to three years because components begin to wear down and new generations of software and operating systems grow less compatible with the aging hardware furthermore software is also often designed to include new features and file types that are incompatible with old versions of the program planned obsolescence differs from perceived obsolescence which is when designers make frequent stylistic changes to their products due to the decrease in the perceived desirability of unfashionable items not to be outdone computer hardware is also a candidate for planned obsolescence because computing power in microprocessors typically follows moore s law which observes that the number of transistors able to fit on an integrated circuit double about every two years and the cost of processing power halves every two years finally planned obsolescence also affects automobile manufacturers who annually roll out new versions of their models special considerationsconsumers often react negatively to planned obsolescence especially if new generations of products offer insufficient improvements over the prior versions brands can be tarnished by artificially stoking demand through this method ultimately driving customers away however planned obsolescence doesn t always receive negative attention companies can engage in this activity solely as a means of controlling costs for example a cellphone manufacturer may decide to use parts in its phones that have a maximum lifespan of five years instead of parts that could last 20 years apple inc has often been at the center of skeptical consumer discourse the company announced a plan to accept direct payments from iphone users for hardware that could be exchanged annually observers noted the company s clear intent to shorten the replacement cycle which was viewed by many as an obvious attempt to stimulate demand at the consumer s expense skeptics doubted apple s ability to engineer meaningful improvements to functionality so quickly a problem that many phone makers already faced with two and three year replacement cycles while apple has refused to acknowledge that it engages in planned obsolescence a harvard university study found that some ios upgrades have slowed down the processor speed of older iphone models but not for the explicit purpose of driving new iphone sales apple recently settled a 2017 class action lawsuit over the issue agreeing to issue payouts to customers and state governments over what has been referred to as batterygate of course while apple is notorious for this practice it has not been proved unequivocally and even if it were the case some economists argue that planned obsolescence drives technological progress besides other manufacturers such as the makers of android phones and tablets also release new versions of their products annually | |
what is platinum | platinum is a chemical element precious metal and commodity that manufacturers use primarily for jewelry electronics and automobiles it appears on the periodic table of elements by the symbol pt and atomic number 78 1 platinum futures are commodities contracts traded on the cme s comex futures exchange under symbol pl and the tokyo commodity exchange 2 3 it is also possible to invest in platinum by purchasing shares of an exchange traded fund that specializes in the commodity understanding platinumspanish general of the navy and scientist antonio de ulloa introduced platinum to europe in 1735 due to its silvery or white appearance ulloa named the metal plantina which means little silver today platinum is mined in south africa which accounts for roughly 80 of the world s production russia is the second biggest producer about half of the mined platinum from china goes into jewelry where it is desirable because it looks silver in color but does not tarnish platinum is also stronger and more durable than gold 4 5 in the united states platinum engagement rings are a popular alternative to white gold engagement rings which are composed of gold alloys and a rhodium plating that gives them a white look but rhodium fades over time requiring white gold rings to be replaced whereas platinum rings maintain their gleam for longer periods of time the auto industry uses platinum for catalytic converters which can help reduce the toxicity of gases and pollutants in the exhaust that an internal combustion engine creates platinum and other platinum grade metals in catalytic converters have led to a secondary market for scrap converters which scrap businesses will buy in order to extract the metal for resale the metal is also used in thermometers laboratory equipment electrodes and dentistry equipment platinum is one of the most valuable elements in the world and considered one of the most costly precious metal commodities however while platinum traded at a significant premium to gold for decades it has not since 2008 as a weak global economy put a damper on demand for the precious metal but investor unease about central bank stimulus and other economic matters sent gold prices higher 6since the financial crisis of 2007 2008 platinum has generally performed worse than other metals like gold silver and palladium market observers believe a crash in platinum markets in 2008 scared the investment class away from the metal leaving the automobile and jewelry industries as platinum s only source of demand in addition south african mines have substantially increased production of platinum since 2014 and added to global supplies | |
what does platykurtic mean | the term platykurtic refers to a statistical distribution in which the excess kurtosis value is negative for this reason a platykurtic distribution will have thinner tails than a normal distribution will resulting in fewer extreme positive or negative events the opposite of a platykurtic distribution is a leptokurtic distribution in which excess kurtosis is positive investors will consider which statistical distributions are associated with different types of investments when deciding where to invest more risk averse investors might prefer assets and markets with platykurtic distributions because those assets are less likely to produce extreme results understanding platykurtic distributionsthere are three basic kinds of statistical distributions leptokurtic mesokurtic and platykurtic these distributions differ depending on their amount of excess kurtosis which relates to the probability of extreme positive or negative events the normal distribution which is a type of mesokurtic distribution has a kurtosis of three therefore distributions with kurtosis greater than three are said to have positive excess kurtosis while those with kurtosis of less than three are said to have negative excess kurtosis though mesokurtic distributions have a kurtosis of three leptokurtic and platykurtic distributions have positive and negative excess kurtosis respectively therefore leptokurtic distributions have a relatively high probability of extreme events whereas the opposite is true for platykurtic distributions the following figures show charts of these three types of distributions all with the same standard deviation although the figure on the left does not reveal much of the differences between these distributions tails the figure on the right gives a clearer view by plotting the quantiles of the distributions against each other this technique is known as a quantile quantile plot or q q for short special considerationsmost investors believe that equity market returns more closely resemble a leptokurtic distribution than a platykurtic one that is while most returns are likely to be similar to the average return for the market as a whole returns will occasionally deviate widely from the mean these dramatic and unpredictable events sometimes referred to as black swans are less likely to occur in markets that are platykurtic for this reason more cautious investors might avoid investing in leptokurtic markets and focus on investments offering platykurtic returns on the other hand some investors deliberately pursue investments with leptokurtic returns believing that their extreme positive returns will more than compensate for their extreme negative returns real world example of a platykurtic distributionmorningstar published a research paper that featured information on the excess kurtosis levels of different types of assets as observed between february 1994 and june 2011 the list included a wide range of investments from u s and international equities to real estate commodities cash and bonds 1the levels of excess kurtosis were similarly varied on the low end of the spectrum were cash and international bonds which had excess kurtosis of 1 43 and 0 58 respectively on the other end of the spectrum were u s high yield bonds and hedge fund arbitrage strategies offering excess kurtosis of 9 33 and 22 59 2asset classes with intermediate levels of excess kurtosis included international real estate 2 61 equities from international emerging economies 1 98 and commodities 2 29 2an investor looking at this data could quickly discern what kinds of assets they wish to invest in given their tolerance for potential black swan events risk averse investors who want to minimize the likelihood of extreme events could focus on low kurtosis investments while investors more comfortable with extreme events could focus on high kurtosis ones | |
what is a pledged asset | a pledged asset is an asset that is used by a lender to secure a debt or loan and can include cash stocks bonds and other equity or securities a pledged asset is collateral held by a lender in return for lending funds pledged assets can reduce the down payment that is typically required for a loan as well as reduces the interest rate charged | |
how pledged assets work | the borrower will transfer the title of a pledged asset to the lender but the borrower will still maintain ownership and use of the valuable possession should the borrower default the lender has legal recourse to take ownership of the asset pledged the borrower retains all dividends or other earnings from the asset during the time it is pledged some loans contain a negative pledge clause or covenant that limits the borrower from using the pledged asset to secure other loans the asset is merely collateral for the lender in the event of borrower default however for the borrower the pledged asset could help considerably with gaining approval for the loan assets can include cash stocks bonds and other equity or securities 1using the asset to secure the note may let the borrower demand a lower interest rate on the note than they would have had with an unsecured loan typically pledged asset loans provide borrowers with better interest rates than unsecured loans 2once the loan is paid off and the debt is fully satisfied the lender transfers the pledged asset back to the borrower the type and value of pledged assets for a loan are usually negotiated between the lender and borrower pledged asset mortgagehomebuyers can sometimes pledge assets such as securities to lending institutions to reduce or eliminate the necessary down payment with a traditional mortgage the house itself is the collateral for the loan however banks usually require a 20 down payment of the value of the note so that buyers do not end up owing more than their home s value 3also without the 20 down payment the buyer must pay a monthly insurance payment for private mortgage insurance pmi without a significant down payment the borrower will likely also have a higher interest rate 4the pledged asset can be used to eliminate the down payment avoid pmi payments and secure a lower interest rate for example let s say a borrower is looking to buy a 200 000 house which requires a 20 000 down payment if the borrower has 20 000 in stocks or investments they can be pledged to the bank in exchange for the down payment the borrower retains ownership of the assets and continues to earn and report interest or capital gains on those assets however the bank would be able to seize the assets if the borrower defaulted on the mortgage the borrower continues to earn capital appreciation on the pledged assets and gets a no down payment mortgage using investments for a pledged asset mortgagea pledged asset mortgage is recommended for borrowers that have the cash or investments available and don t want to sell their investments to pay for the down payment selling the investments might trigger tax obligations to the irs the sale may push the borrower s annual income to a higher tax bracket resulting in an increase in their taxes owed typically high income borrowers are ideal candidates for pledged asset mortgages however pledge assets can also be used for another family member to help with the down payment and mortgage approval qualifying for a pledged asset mortgageto qualify for a pledged asset mortgage the borrower usually needs to have investments that have a higher value than the amount of down payment if a borrower pledges security and the value of the security decreases the bank may require additional funds from the borrower to make up for the decline in the asset s value although the borrower retains discretion as to how the pledged funds are invested the bank may impose restrictions to ensure the pledged assets are not invested in financial instruments that are deemed risky by the bank such risky investments may include options or derivatives further assets in an individual retirement account ira 401 k or other retirement accounts cannot be pledged as assets for a loan or mortgage pros and cons of a pledged asset loan or mortgagethe use of pledged assets to secure a note has several advantages for the borrower however the lender will demand a specific type and quality of investments before they will consider underwriting the loan also the borrower is limited to the actions they may take with the pledged securities in dire situations if the borrower defaults they will lose the pledged securities as well as the home they purchased the borrower must continue to report and pay taxes on any earnings they receive from the pledged assets however since they were not required to sell their portfolio holdings to make the down payment it will not place them into a higher tax income bracket a pledged asset loan allows the borrower to retain ownership of the valuable possession borrower avoids tax penalties or capital gains taxes from selling the assetspledging assets avoids large loan down payments and pmi if applicable the borrower may receive a lower interest rate on the loan or mortgage the borrower continues to earn income and must report the gains from their investments the ability to trade the pledged securities might be limited if the investments are stocks or mutual funds the borrower could lose both the home and the securities in the event of default by not making a down payment loan interest is paid on the full price of the property if the pledged securities decline in value the lender may demand additional funds pledging assets for the loans of a relative carries default risk since there is no control over the borrower s repayment who owns pledged collateral if you pledge your assets as collateral for a loan you will still own the pledged collateral if you fail to make payments according to the terms of the loan the lender could seize the collateral and you would no longer own it at that time 5can i use a car as collateral for a loan you can use a car as collateral for some personal loans you must have equity in the car or value that is paid off if you have trouble getting a personal loan due to bad credit you may consider using your card as collateral however if you cannot make the payments the lender will be able to repossess your car to pay off the loan | |
what are the disadvantages of pledged asset mortgage | the main downside with a pledged asset mortgage is that you risk losing your asset as well as your home to the lender if you cannot make the mortgage payments according to your loan terms the bottom linepledged collateral can provide a number of benefits but there are risks to consider as well if you are considering using collateral for your mortgage consider consulting a financial advisor who can guide you through the options and their impact on your financial situation |
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