Hedge fund is a type of private and unregistered investment-pool that employs sophisticated hedging and arbitrage techniques in both domestic and international markets to generate high returns.
Traditionally Hedge funds have been limited to sophisticated, wealthy investors because they required a large initial investment.
Earlier most of the hedge funds strategies such as leverage, long, short and derivative positions were focused on corporate equity markets. But now hedge funds new focus areas are commodities and money markets.
Because hedge funds are unregistered, they can use securities and strategies that are either prohibited or restricted in registered funds. Continue reading “What is a Hedge fund”
After a long time I am putting few basic quiz questions, Lets check out who hit the bull’s eye. You can provide your answers by putting up the comments , there are only two questions but they will help to understand the basics OTC derivative market:
- What is correct about a credit default swap (CDS)?
- A CDS is the exchange of two cash flows: a fee payment and a conditional payment, which occurs only if certain circumstances are met.
- The CDS will have value for the protection seller only if defined credit conditions are met
- The protection seller will always receive the premiums.
- CDS is a type of insurance in which default of an asset triggers payment Continue reading “CDS & SWAPS”
Off late most investors of below investment grade debt – be it leveraged loans or high yield bonds – are intently focused on three specific questions, two of which are fairly straight forward, while the third is more complex:
Q1. What is the state of the credit fundamentals and tangentially, what are current underwriting standards like?
A1. Solid and reasonable, respectively
Q2. What are valuations like in the market?
A2. The current and forecasted benign default environment is supportive of current valuations and spread levels; however, macro influences could lead to bouts of volatility Continue reading “Leveraged loans or High yield bonds”
Leveraged finance is funding a company or business unit with more debt than would be considered normal for that company or industry. More-than-normal debt implies that the funding is riskier, and therefore more costly, than normal borrowing. As a result, levered finance is commonly employed to achieve a specific, often temporary, objective: to make an acquisition, to effect a buy-out, to repurchase shares or fund a one-time dividend, or to invest in a self-sustaining cash-generating asset.
Although different banks mean different things when they talk about leveraged finance, it generally includes two main products – leveraged loans and high-yield bonds. Leveraged loans, which are often defined as credits priced 150 basis points or more over the London interbank offered rate, are essentially loans with a high rate of interest to reflect a higher risk posed by the borrower. High-yield or junk bonds are those that are rated below “investment grade,” i.e. less than triple-B. Continue reading “Leverage and its various forms :”
Generally, companies have two options when they wish to raise money. They can issue shares of stock, which are also
known as equities. Alternatively, they can issue bonds, which are also known as debt instruments. Leverage ratios tell investors how much debt a company has outstanding relative to the equity in their capital structure. I will write the above soon, lets discuss about Leverage and debt now.
Recently Sen. Rob Portman (R-Ohio) with Politico said, “Let’s use the debt limit, yes, as leverage.” As a practical matter, what he meant was, congressional Republicans should threaten to hurt Americans on purpose unless President Obama agrees to slash public investments. Because the White House won’t want such a catastrophe, Republicans will have “leverage” that Portman wants to see his party “use.”
In the finance world, debt and leverage are used interchangeably. Continue reading “Debt Vs Leverage”