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Monthly Archives: February 2017

Types of Financial Markets

Stock Markets
A market in which shares of stock are bought and sold is called stock market. The word ‘stock’, in American usage, means equity or ownership in a corporation. A share is the basic unit of a company’s capital, which it tries to raise from the stock market. When you own a stock, you are referred to as a share or stockholder. A stock shows that you own a small fraction of a corporation; hence if you buy stock in the Pepsi Corporation and they come out with a ‘cool’ new drink that becomes a hit, then you get to share the profits. A stock also gives you the right to make decisions that may influence the company. Therefore, the more stocks you own, the more decision-making power you have.

FOREX Market
Foreign Exchange is the simultaneous buying of one currency and selling of another. The foreign exchange market is the largest financial market in the world. The world’s currencies are on a floating exchange rate and are always traded in pairs. Here, settlement is made for international purchases and sales, i.e., for exports and imports, as also for payments international purchases and sales of assets. Operating virtually round the clock, the forex market trades enormous amounts of money, estimated at several trillion dollars daily.

The forex market is not centrally located. It is an over-the-counter market where business is conducted through telephones, computers, fax machines etc. Among its members are large corporations, commercial banks, money centers, pension funds and investment banking firms. As individuals or companies from one country trade across borders, the need for foreign currency arises. The resultant trading differential generates profits and keeps the forex market in animation.

Debt Market
Debt is the liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specified date (maturity).

It is one in which mainly debt is transacted which could be in the form of debt instruments or cash. In the first place, there is the money market a huge market trading in debt instruments with an original maturity of one year or less. Typical instruments here include Treasury Bills, bank certificates of deposits etc. Secondly, there is the bond market in which long-term debt obligations are traded. As such, the bond market is the long-term complement to the money market.

I. The Money Market:
In this, the short-term surpluses of financial and other institutions and individuals are bid by borrowers, comprising institutions and individuals and also by the Government. In other words, a money market is one in which short-term funds are borrowed and lent. The borrowers are traders, speculators, brokers and producers of various commodities as well as government and institutional borrowers. The lenders include commercial banks, insurance companies and other institutional borrowers.

II. The Bond Market:
Bond market is the market for all types of bonds, whether on an exchange or over-the-counter. A bond is a debt instrument. An example of a bond can be a debenture. The following are the terms mostly used in the bond market.
Bond Term: The term of the bond is the number of years between the date it was initially issued and the date it matures.
Current Yield: A current yield is simply the yearly amount you receive in coupon income, divided by the market value of your bond. The current yield does not take into account the timing of coupon interest or the interest you might earn when you invest your coupon income.

Equilibrium in Financial Markets
Financial markets are said to be perfect when the following conditions are met:
1. A large number of savers and investors operate in markets.
2. The savers and investors are rational.
3. All operators in the market are well-informed and information is freely available.
4. There are no transaction costs.
5. The financial assets are infinitely divisible.
6. The participants in the market have homogeneous expectations.
7. There are no taxes.

On the whole it can be stated that equilibrium is established in the financial markets when the expected demand for funds for short-term and long-term investments matches with the planned supply of funds generated out of savings and credit creation.

Fund Manager

Managing investments is not an easy job. Fund managers need to know the pulse of the market and ensure that clients get good returns on their investments. Engaging in extensive market research is an integral part of the job. Some individuals or firms specialize in certain kind of investments like equities, bonds, etc. Large private investors also hire fund managers and refer to them as wealth managers. The basic objective of these professionals is to invest money for the clients and make them a profit.

Duties

Fund managers are mostly employed by asset management companies, financial institutions, and specialist stock investing firms. Eligible candidates who have an educational background in business schools and have certification from the American Academy of Financial Management will be preferred. Fund managers are in demand, especially during these times of economic turmoil. The job description can vary a bit for the different specialties. Here are a few.

Hedge Fund Manager
Hedge funds are unregulated and therefore have large sums of money invested in low risk and high risk return options. Keen market acumen, an ability to predict market trends, and doing lots of research is the main task of the hedge fund manager.

The salary, according to statistics, ranges around four billion US dollars. A person working as a hedge fund manager also needs to track global interest rates and the changing economic policies of different countries. You need to at least have a degree from a business school with a major in finance to be eligible for the job.

Mutual Fund Manager
They are mostly hired by asset management companies to take care of investments made on behalf of the clients in mutual funds. As mutual funds are professionally-managed collective funds, managers will have to carefully invest these funds in stocks, securities, commodities, etc. They will also have to keep track of the international market and prevailing political conditions that might affect the financial markets.

Investment Fund Manager
Organizations and individuals hire investment fund managers for financial advice and to wisely invest their money to make a profit. Investment fund managers will have to research the stock market to find opportunities to profit, by investing in company shares. They will also identify real estate, which can be bought and sold later to make a profit. These managers will also have to liaison with clients and managers from different companies to investigate investment opportunities.

Equity Fund Manager
This job profile requires individuals to manage the funds within one or multiple equity funds. They will also have to interact with investors and liaison with clients for financial planning. They will also have to implement strategies that will help manage the organization’s investment portfolio. Monitoring the markets and preparing reports regarding the performance of equity funds on a quarterly basis or as stipulated by the firm, is one of their tasks. They will also have to oversee international equity funds and keep an eye on foreign policies and international political environment.

Facts About Gross Payment

The definition of gross payment says that, it is the total amount of salary or wages paid to any employee by the employer before any kind of deductions made. It is nothing but the total amount offered by the employer for the services being given by the employee in a full year. Your gross pay reflects how much amount is being paid to you by your employer in every pay period.

While trying to understand this concept, you need to be aware of two terms – hourly gross pay and salaried gross pay. For calculating the hourly gross pay, you need to multiply the fixed hourly pay rate with the number of hours served by the employee in the pay period under discussion. The technique of calculating gross pay for salaried employees of corporations is slightly different. Every employee working in a firm has a fixed total remuneration. If this amount is divided by the total number of pay periods, you will get the salary gross payment.

When some items are deducted from the gross pay, the amount which is left is the net pay or in-hand salary of the employee. The deductions are compulsory and are made from every payment made to the employees. The taxes to be paid to the government authorities are the most important deductions from the salary. These taxes can include the national taxes, taxes to be paid to the respective states in which the employee works and also the local taxes.

The second major deduction would be that of the health insurance costs as the health insurance cover is provided by the employer. This too will be deducted on a monthly basis. Social security deductions are also considered while calculating the net income of a person for a year from the gross income. Given below is the formula that will help you calculate the net pay.

Net Payment = Gross payment – (social security + tax deductions + state and local taxes).

Taking Financial Decisions Based on Gross and Net Pay

Whenever an employer advertises about job vacancies and mentions the salary which he is offering, it is the gross salary most of the time. So, that is why you get a paycheck of an amount which is little less than the promised amount at the end of the month.

Whenever you consider decisions of opting for a loan or buying anything big, it has to be on the basis of the net income and not the gross salary. This is because in case of a loan availed, you will have to pay the monthly installments from the net salary. Taking an investment call on the basis of the gross income could be a wrong decision that can stress your finances greatly.

Steps to Set Financial Goals

  • Create a Plan

The best way to set your financial goals is to first set the plan you will need to achieve the goals. This includes understanding how much of an income you are getting per month which includes your regular job, other small incomes, where you are spending and how much etc. Once you are conscious of all these details, you will be more aware of how to go about your plan to achieve your financial goals. You can also set a time limit has to how long you will need to achieve these goals when needed.

  • Managing your Finances

Once you have set your plan, you must learn how to manage the finances for it. That means curbing on unnecessary spending, ensuring that you stay within budget every month and take measures to save with every opportunity. One way of managing your account is to divide your income into three parts where each part can be used for different purposes like spending, saving and investing. If you have a credit card, you can switch to a more advantageous debit card as this will not only allow you to reduce you’re spending, it will also limit it to a fixed amount.

  • Setting limits for Spending

If you are an impulsive spender, be it clothes, food or even luxury items the best way to prevent this from affecting your finances is to set limits for spending. This is best done through the prepaid card as there is a certain limit to where you can use the card. The atm cardis an ideal way to spend your limitations by just removing the right amount of finance you will be using for the month, rather than withdrawing funds multiple times. The debit card is also one way to curb impulsive spending as you can use only a certain limit in the account.

  • Cutting Down on Costs and Save

The best to set your goals is to cut down costs when possible. Instead of using cash for retail purchases, you can use the credit or debit card to gain points which can be redeemed for purchases later. You can also use the atm card to withdraw a limited amount of cash and spend only within that amount. It also eliminated the need to withdraw multiple times and increase the charge for every additional withdrawal.