Economics

Credit Default Swaps (CDS)

Credit default swaps (CDS) were largely unknown until the ballooning CDS market eventually brought global financial markets unstuck, resulting in the global financial meltdown of 2008. Credit default swaps enabled banks to issue complex debt securities by reducing the risk to buyers. Before the financial crisis, the institutions that offered credit default swaps saw it…

BRIC

While the term was first coined in the paper “The World Needs Better Economic BRICs” published in 2001 by Jim O’Neill, global economist at Goldman Sachs, the acronym has come to prominence ever since the 2003 Goldman Sachs report predicting that BRICs would become the leaders of world economy. According to Goldman Sachs, by 2050,…

Cash Rate

Share market investors also have to keep a close eye on Reserve Bank announcements. Any rate change by the Reserve will flow through to the money markets immediately via a move in the cash rate but stocks will also rise or fall as strategists assess whether shares are more attractive investments than cash and bonds….

Mezzanine Finance

Mezzanine finance is raised by property stgelopers to finance large scale property stgelopments such as building residential units. Mezzanine finance is used in conjunction with bank loans and the property stgeloper’s own equity to fund the stgelopment. In the event that the stgeloper goes bankrupt, mezzanine finance investors stand second in line to the banks…

Efficient Market Hypothesis

For some share enthusiasts, the EMH is not a nice thought. The theory argues that careful share selection based on myriad factors, including analysing company financials, reading news and analyst opinions or charting historical share prices is pointless. The concept of analysing whether a company is under-or over-valued relative to its current market price is…

Inflation

Inflation is the true enemy of building wealth and investors should put measures in place to protect against inflation’s corrosive downside. “Inflation” can be defined as “the state of affairs when the value of money falls and the prices of goods and services increase, other things being equal”. Interest rates move up and down from…

Monetary policy

Since monetary policy affects the rates levied on our borrowings and savings, and pretty well underpins every financial transaction we make on a daily basis, it’s worth understanding the basics. It works simply enough: just as you hold an account at a bank, every bank in turn holds an account at the RBA, technically termed…