A currency forward contract is a customized, written contract between two parties that sets a fixed foreign currency exchange rate for a transaction, set for a specified future date. Currency forward contracts are used to hedge foreign currency exchange risk. They are most commonly made between importers and exporters headquartered in different countries. A forward…
Duration is a key financial metric used to measure a bond’s sensitivity to interest rate changes, also reflecting the risk of retirement liabilities. In investing, duration represents the number of years required to recover a bond’s true cost, calculated based on the present value of all future coupon and principal payments. Key Properties of Duration…
The Reserve Bank of India (RBI) has released a Master Direction consolidating guidelines for banks and financial institutions regarding credit information reporting. Issued on January 6, 2025, this directive aims to establish a standardized framework for reporting and disseminating credit information while safeguarding the confidentiality and security of sensitive credit data. Key Highlights of the…
The Current Yield on a bond represents the percentage return an investor can expect to earn over the next year if they purchase the bond at its current market price. It provides a snapshot of the bond’s income-generating potential relative to its market value. Formula for Current Yield The current yield is calculated using the…
Bonds: A bond is a debt instrument issued by a company or the government to raise capital by borrowing from investors. The investors in bonds are debt holders (lenders/creditors). The bond issuer is obliged to pay bondholders interest (the coupon) at a pre-decided rate and to repay the principal on a due date known as…
What is Debt? Debt refers to an amount of money borrowed by one party from another. It typically involves a borrower who owes money to a lender. While the terms “loan” and “debt” are often used interchangeably, a loan is a specific type of debt with defined repayment terms. Common Forms of Debt Types of…
Debt repayment refers to the process of returning money that has been borrowed, along with any interest and fees that have accrued. It involves repaying the principal amount and any applicable interest as per the terms agreed upon with the lender. Repaying a loan means returning the borrowed funds within the agreed timeframe. Loan repayment…
The Product Method is a way to calculate interest on loans or deposits by multiplying the outstanding balance by the number of days it remains in the account. The daily product is the balance amount multiplied by the number of days it was outstanding. Summing these daily products over 30 or 31 days yields the…
Front-end interest rate refers to the advertised nominal interest rate on a loan. This rate represents the base cost of borrowing and does not include additional fees or charges associated with the loan. It excludes expenses such as loan processing fees, legal fees, valuation fees, mortgage fees, and other related costs. Back-end interest rate, also…
Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation comprises calculating the present value of future interest payments and face value to determine a bond’s theoretical fair value. The bond’s future interest payments also known as its cash flow, and the bond’s value upon maturity also known…
