FINANCIAL ARTICLES

For years the old continent has not had any substantial growth and is struggling to remain competitive with the rest of the world.

There is one word that can summarize the root cause: vacations.

Not there

Is there a European citizen who was not faced with this kind of answers when trying to reach by phone the public administration:

Forecasting a Yield

Forecasting the yield on a given asset class is possibly one of the most difficult things to do when deciding where and when to invest.

Economists evaluate economic date to decide whether or not Treasury bond yields will rise or fall (as well as what the shape of the yield curve will be).

Corporate bond analysts scour balance sheets and other financial information to decide if a company’s cost of borrowing will rise or fall.

Microfinance, the concept

The concept of microfinance is to reach a large portion of the poor people who do not have access to regular banks either because such banks do not exist in their territory or even if they did they would not lend money to them as no suitable collateral assets exist.

A suitable collateral has to have a market value but also be easily tradable. Nobody can imagine your next-door banker going around trying to rescue a cow or farming tools to recover their investment, it would just be let die or stolen and then written off.

The Role of Finance

The latest financial crisis which dragged the world into an economic recession has been extensively analyzed and by and large understood.

In summary, though, the combination of artificial and not well understood and wrongly rated financial products and lack of trust among financial institutes created large credit problems, sudden depreciation of assets and withdraw of capital from major banks, leading the economic world towards collapse; which obliged governments to take actions, i.e., print unprecedented amounts of money and offer guaranties, while worsening their already delicate country budgets.
Many predict we will have high inflation rates as a result.

If you’re being troubled by your intolerable debt burden, you are not the only one. Studies have shown that the average credit card debt borne by an individual is around $8,000. The majority of people have mortgage loans, automobile loans, student loans and so on. Paying off debt has to be your main concern. You should try to pay off your credit cards that usually carry high interest rates. Following are some useful ways to pay off debt...

Price dynamics

The term inflation refers to a general increase of prices of goods and services over a sustained period of time. Conversely, we talk about deflation in case of falling prices.

Inflation, by far the most common situation, occurs when demand for goods tends to outstrip supply, or when more money is introduced in the economy (by printing it, by positive balance in the import/export currency flows, or other more complex market and monetary conditions).

Positive vs. Negative Economy

A traditional electric company exploiting a fuel based central, although supposed to produce energy, actually depletes our planet Earth resources, has a low efficiency (about 70% goes on wasted heat) and contributes to accumulate CO₂ in the environment. By considering our planet as a whole system or capital this kind of “production” has a negative budget on the domains of the energy, climate, resources, health and biodiversity.

The same is for our cars (down to 1% overall efficiency if we consider the weight of the car!), our houses, travels, vacations, for the agriculture and the industry in general.

A Goal and a Strategy

The first thing is to have a clear goal in mind and define your strategy accordingly.
The goal shall not be, realistically, “to get rich” as this will not happen to most of you, this is not a lottery game.
Instead, a realistic, yet ambitious goal is to beat the inflation by, say, 5% margin on average.
The more aggressive you are the more shares and exotic assets your portfolio shall contain and be ready for lots of volatility. That is why I said “on average”, ‘cause there will be years where you will be well below that and even lose money. Remember: there will always be periods of expansion (boom) followed by recession, on any market. This is part of another chapter in macroeconomy, just take it for granted.

Remarkable differencesBefore globalization there were and there still are national economies. Each country has developed and regulated its own accounting standards with remarkable differences which are a consequence of local cultures and history. For instance, the Anglo-Saxon countries are inspired by principle of seeking to report “true and fair” value of assets and liabilities and strict adherence to the matching principle. It requires judgment when applying it to not codified situations. Europe instead follows the principle of conservatism, which tends to underestimate assets and income, which can lead to substantial underestimation in certain industries. The Latin American systems include particular attention to the effects of inflation into reporting accounts. But why are Accounting Standards important?The main reason for countries to regulate...

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Part 1: Transaction Risk Of the various exposures to forex risk the transaction exposure is the simplest one to understand and manage. For instance, let’s suppose we are a manufacturing company in the eurozone and we order a new machine from US in US dollars. If we pay the machine when it will arrive, say in 6 months, we will pay the amount of euros equivalent to the price of the machine, price established at the moment of buying it, i.e., 6 months earlier. The uncertainty of the amount of equivalent euros is called forex transaction risk. As a consequence, when we make such transactions we are exposed to such risk. By risk we mean its financial definition, of course, which implies the fluctuation potential or uncertainty of the amount or value. In engineering or day-to-day terms we refer at risk as the possibility of an accident or failure.

How do we manage forex transaction...

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Directors of organisations are given the mandate to manage funds on behalf of shareholders for the achievement of the organisational purpose. In doing so directors are delegated (Jensen and Meckling, 1976) to manage the conflicting interests of several stakeholders. Directors are compensated for their role. Such compensations, though, may not be necessarily aligned with organisation’s success, thus preventing the best choice of strategy for the purpose and increasing rather than diminishing the role of self-interests.

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What is it?Investing offshore, as the name implies means taking your money outside the borders of your own country and investing it in overseas markets. BenefitsThe main reason for wanting to do this is to spread the risk of your investment over more than one economy.Besides, if you're living and working overseas, investing offshore may save you tax. All returns on offshore investments are currently paid without the deduction of tax.You may also be able to reduce your tax liability in your home country by transferring savings and investments to an offshore bank. In addition to the tax savings, offshore banking offers confidentiality, security and greater global access and convenience. Who can benefit from offshore investing?Anyone living and working overseas for at least one full tax year may be able...

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Cheap energy is gone forever Let’s face it: the era of cheap energy, in particular the one deriving from oil, is gone forever. Prices in those countries importing oil will never return to the level of the nineties. It is not only due to the law of supply and demand where more and more countries need energy to sustain their growth while extraction and distribution of oil becomes more difficult and expensive. There are long-term political and economic situations which all pull in the same direction:

Chronic instability in the Middle East, located in the centre of the world biggest reservoir: the amount of money involved represent billion and trillion of dollars which get into the pockets of few powerful individuals and oligarchic regimes. It is in their interest to keep the situation unstable enough to make us worry of oil supply on...

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Does this refer to me? This note applies to individuals and holders of joint accounts who are residents of European Union (“EU") Member States. Individuals resident outside EU are generally not effected, although if you hold a passport issued by an EU Member State you should also read on. What is the European Union Savings Tax Directive (“EUSD” or “the Directive)? The EUSD is an agreement between the EU Member States to automatically exchange information with each other about customers who earn savings income in one EU Member state but reside in another. It was approved by the EU Council of Ministers on 2nd June 2003 and is came into effect on 1st July 2005. 

The Directive can be applied in two ways: Exchange of information: This means that for example, where a resident of France holds a bank account in Germany,...

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An outstanding pay riseIn a 2007 special report The Economist had analysed the phenomenon of the ever increasing pay of CEOs in the top 50 companies of the S&P 500. This summary intends to give the main findings for our readers and spare them the long reading.Two examples above all: Robert Nardelli received $210M when he lost his job at Home Depot. Carly Fiorina, HP, received $180M at the end of her mandate. None of them performed extremely well to justify that money; on the opposite, the shares of their respective managed companies performed poorly during their reign.Despite arguable performance the trend for CEOs is to increase their pay at fast rate. In the 70’s the ratio of the CEO pay relative to the average worker...

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