IntroductionBasic exchange rate arithmetic involves converting one currency to another using the exchange rate. The fundamental formula for currency conversion is: a × b = cWhere: These transactions occur on the foreign exchange market (Forex market), where foreign currencies and coins are exchanged for the home currency. Exporters and importers needing foreign currency for business…
A Special Non-Resident Rupee (SNRR) Account is opened with Authorized Dealer (AD) banks in India for specified transactions related to trade, foreign investments, External Commercial Borrowings (ECBs), and more. It serves as an alternative to executing inward/outward remittances in convertible foreign currency for each transaction with residents in India. This account allows non-residents with business…
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…
(This article explains the method of calculating the value of a coupon bond factors in the annual or semi-annual coupon payment and the par value of the bond.) Bond valuation is the process by which an investor estimates the theoretical fair value, or intrinsic worth, of a bond. Like any security or capital investment, a…
Definition of Optionality in Bonds Optionality in bonds refers to the option-like features embedded within certain bonds. These features, known as embedded options, provide either the bond issuer or the bondholder with specific rights, though not obligations, to take certain actions in the future. What Are Embedded Options in Bonds? Embedded options are integral components…
A bond is a debt instrument issued by a company or the government to raise capital by borrowing from investors. Bond investors are debt holders (lenders/creditors), while the bond issuer is obligated to pay bondholders interest (the coupon) at a predetermined rate and repay the principal on the maturity date. Like bank deposit receipts, bond…
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…