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Public Finance

Public Finance

What is Public Finance
The purpose of public finance is a description that looks at the governmental effects, efficient resource allocation distribution of income, and macroeconomic stabilization of the expenditures and revenue of public authorities. The collection of adequate resources from the economy in a suitable manner along with apportioning and use of these assets efficiently and successfully constitute good financial management. Issues such as resource allocation, resource generation, and expenditure management are some of the necessary components in a public financial management system.
The appropriate role of government offers a starting point for the examination of public finance. Theoretically, under certain conditions private markets will assign goods and services among individuals proficiently, in a way that does not allow waste to occur while allowing for individual tastes to match the productive abilities of the economy. If the private markets had the ability to provide efficient results and if the dissemination of income were publicly acceptable, then there would be very little if not no scope for government. The In many situations, however, the conditions for efficiency in the private market are very often violated. 
In respect public finance, market failure happens when the private markets do not properly allocate goods or services in an efficient manner. The existence of market failures allows for efficiency-based rationale for a collective or governmental provision of services and goods. Public goods, informational advantages, externalities, network effects, and strong economies of scale, all can cause market failures. 
Public finance is very closely connected to various issues of social equity and income distribution. Governments may reallocate income by transferring payments or by creating tax systems that look at treat high-income or low-income households in a different manner.
Government Expenditures and Financing in Public Finance
Economists typically classify government expenditures into three different categories. There are government purchases of services and goods for current use which are called government consumption. The second expenditure is the purchases of services and goods that are intended to make future benefits, like research spending or infrastructure investment, which are government investments. The last government expenditure is the represent transfers of money rather than purchase of services and goods , for example social security payments, which are transfer payments.
In order to pay for these expenditures in public financing, the government finances these expenditures through government non-tax revenue and taxes or through government borrowing. 
The method that a government decides on to finance its government expenditures can have profound effects on the country’s distribution of wealth, income, and income redistribution as well as the efficiency of the country’s markets in terms of the effect of the taxes on efficiency and market prices. The concern of how taxes can affect income distribution is very closely related to tax incidence, which looks at the dispersal of tax loads after-market adjustments are looked at. Research with public finance also looks at the effects of the different types of taxes as well as types of borrowing along with administrative concerns, like tax enforcement.

Currency Conversion

Currency Conversion

What is currency conversion?
Currency conversion is the most basic form of participating in Foreign Exchange markets where two foreign currencies are exchanged at a rate determined by the market.  For example, if the currency conversion rate is 80 Japanese Yen to the US Dollar, then one will receive 80 JPY for 1 USD, before applicable fees taken by the currency conversion broker.  Any time the exchange rate decreases, the base currency is appreciating in value against the other currency.  Anytime the exchange rate increases, the base currency has depreciated against the other currency.
What are buying and selling rates?
Most currency conversion brokers will offer different buying and selling rates and these rates will depend on a number of factors.  Most rates will account for the profit the broker will need to make in order to justify the transaction.  If the rate does not account for this, then there is usually a percentage commission on the transaction that will be quoted before the transaction and usually posted by the transaction rates.  All buying and selling rates depend on the local currency and the broker will usually exchange only in that local currency.
Buying and selling rates may also vary with the type of currency that will be converted.  There are generally surcharges for such electronic payments as the brokers must account for the costs of processing such payments.
Exchange rates will change based on supply and demand for that currency, so when demand is lower than supply the exchange rate will be lowered.  Changes in interest rates can spur speculation in a currency with higher interest rates leading to increased buying of the currency.
What is a peg?
Pegging a currency means to manage a currency rather than having it exposed to the full extent of market forces.  For instance, the Chinese Yuan is pegged to the American Dollar and has been since the end of World War II.  The Breton Woods system was a system of pegged exchange rates between the US Dollar and several Western European countries before being scrapped in the 1970s in favor of the current market based Forex.  Currencies can be over or under valued as a result of pegs, due to trade imbalances.
Where can one conduct a currency conversion?
Banks have been the general standard for typical currency conversion transactions with these financial systems holding large amounts of foreign currency.  Depending on the branch, the foreign currency may have to be requested in advance before the transaction can be carried out.  This retail currency conversion can take place in the US or in the foreign nation and will be very convenient if that bank has a branch in the foreign nation.  More common in tourist areas are Bureaux de Exchange kiosks, which will meet the needs of typical tourists by conducting a currency conversion from foreign currency into the local currency.  The commission or transaction rates are usually slightly higher than a typical bank.  One’s credit cards can sometimes be used abroad, depending on the company and international network.  The card can be used for purchases as well as receiving local currency through ATMs.

Retirement

Retirement

Automated Forex Trading

Automated Forex Trading

What is Automated Forex Trading?
Forex describes the Foreign Exchange Market and is a financial system that trades currencies.  This enables countries to engage in trade with each other as well as investment and speculation in to the value of currencies by investors.  Forex is a popular traded asset due to its high liquidity, low barrier to market entrance and continuous trading.  This is opposed to the restricted trading hours of stocks and the vast number of investment possibilities associated with these investments.  By comparison, there are only a few major currency pairings in Forex.  There are however, different levels of access to the market, with large firms and banks receiving the best access and most accurate rates due to purchasing in high volume, compared to small investors.  Recent developments in software have led to automated Forex trading that enables the trader to set a “robot” to make trades on their behalf.  This saves the Forex trader a significant amount of time that would be spent micromanaging.
What are market forces in Forex?
The majority of trading in Forex is speculation on the future value of the currency.  This means that the majority of traders is not buying the currency for actual use, but will be holding it as an asset, in hopes that factors affecting the currency, such as central bank policies will cause the value of the currency to rise, thus netting the trader a profit.  Other transactions would involve the buying of foreign currency for securities purchases for investors in one nation seeking to invest in another.  Traders will vary in their approach with some constantly trading in the day and emptying all assets by the end of  trading and others holding assets for lengthy periods of time to position themselves to take advantage of favorable conditions.
How does automated Forex trading work?
The trader will program the automated Forex trading tool to make trades based on preset criteria, generally buying a currency when it meets a certain threshold or selling a currency once its value has increased or diminished at a certain level.  More advanced programs may even include algorithms that predict potential market conditions and make trades with a stunningly successful profit/loss rate.  Most automated Forex trading programs tout the ability of the program to make “emotion-free” decisions, which stands in contrast to emotion-based trading where the investor may panic and sell early, trust their intuition and take a significant loss, or make a decision with poor or incomplete information on history trends on that currency.  In ideal circumstances, automated Forex trading takes the guesswork out of currency trading.
What are some dangers of automated Forex trading?
You may not be willing to trust your investments to an automated system, especially as it runs 24 hours a day and is constantly trading without supervision.  While this is advantageous for some, if the “robot” lacks sufficient safe guards to monitor losses, then it may make poor trades.  Many automated Forex trading programs will not account for news and relevant market factors.  Whereas a human trader would be able to factor news of central bank interventions and potential instability, the automated Forex trading program will only catch onto the trend with a constantly analysis of the movement on the asset.  Therefore, a human could theoretically react quicker on tips and new developments than the program could.  Some automatic Forex trading firms will compensate for this by automatically updating the program with these tips and trends, but this will not be the case for all programs.

Your Guide to International Banks

Your Guide to International Banks

What is an International Bank?
An international bank is a banking institution that operates overseas and actively manages foreign accounts. Although the roles and basic functions of an international bank are similar to other banking institutions, the ability to deliver typical functions to customer and business accounts in different countries is the fundamental difference of international banks and smaller regionalized banking systems.
The typical regional bank in the United States possesses the ability to process checking accounts, savings accounts, or lending practices in limited jurisdictions. These banks do not handle accounts that are opened overseas nor do they lend funds to international businesses or customers.
An international bank is a financial entity that offers international companies and individual clients financial services, such as payment accounts and lending opportunities. Although the term ‘foreign clients’ encompasses both international businesses and individuals, every international bank will operate under its own policies that outline how they conduct their particular business.
According to OCRA Worldwide—an international organization that connects individual customers and companies to various international banking systems—an international bank will tend to offer their varied services to companies those wealthy individuals (typically individual clients with $100,000 accounts). That being said, some international banks, specifically banks in Switzerland, will offer their services to customers of any income bracket.
Why would a Business or an Individual Open an International Bank Account?

A company or corporation will open an account with an international bank to help facilitate international business (proposals, lending, or investment strategies executed in foreign countries). The facilitation is necessary due to the ever-changing and complex international laws that regulate international business transactions.
An individual will conduct business with an international bank for a variety of reasons, including tax avoidance. This process, which is most commonly attached to offshore banking, isn’t necessarily illegal, but is complicated due to the variance in tax laws that exist between foreign countries. Additionally, many individuals utilize international bank account to store their home country’s currency or income to take advantage or rates and taxes. As a result, numerous international banks are based in countries with low or no income and estate taxes, such as Belize, the Cayman Islands, Panama, and the Isle of Man.

Individuals will also open an international bank account to invest in the booming economies of particular countries, such as those in developing nations. Foreign banks may also be utilized to achieve a higher interest rate that is found domestically.
Another reason why an individual may store their money in an international bank account is to keep their funds safe from lawsuits or other legal actions.
What is an International Bank Account Number?
An international bank account number is a system that enables a financial institution to recognize a particular bank account regardless of where the account resides. The system was developed to enable the process of managing transactions that involved bank accounts connected with banks that were not located in the country.
The international bank account numbering system was primarily utilized among European nations; however, as international banking services become more popular, the use of the system is becoming more globalized.

Depreciation

Depreciation


What is Depreciation?
As a financial term, “depreciation” refers to the following separate, but related concepts: 
o Depreciation may refer to the decline in the value of assets
o Depreciation may also refer to the allocation of the cost of assets to periods where the assets are used
• The first definition of depreciation affects the values of goods, assets, businesses and entities, while the latter predominantly affects net income. 
Different entities will define depreciation in an assortment of ways; however, in a general sense, the term refers to the diminishing value attached to a good, asset or business organization as a result of the underlying object’s wear and tear, obsolescence or deterioration. For example, if a consumer purchases a television, with the most updated technology, that particular television will invariably undergo depreciation within the next five years, as newer and better televisions hit the market. 
Depreciation in Accounting:
When determining the profits (net income) from a specific activity, the receipts from the activity must be reduced by the appropriate costs. One such cost is the expense of the underlying assets used, but not necessarily consumed, in the activity. The cost of an asset is the difference between the amount paid for the asset and the amount expected to be received upon its forfeiture, sale or disposition. 
Depreciation refers to any method of allocating such net costs to those periods expected to benefit from the use of the asset. As a result, depreciation is a method of allocation and not valuation in accounting. 
Any business using tangible assets may incur costs related to the aforementioned asset groups. When the assets produce a benefit in future periods, the costs must be deferred rather than treated as current expenditures. The business will then record depreciation expenses as an allocation of such costs for financial reporting purposes. When evaluating deprecation as an accounting concept the following criteria must be analyzed: the cost of the asset, the estimated useful life of the asset, a method of apportioning the cost over such life and the expected savage value or residual value of the asset.
How does the IRS define Depreciation?
The Internal Revenue Service defines depreciation as an income tax deduction that allows a taxpayer to recover the cost of certain property. Depreciation, in regards to taxation, refers to the annual allowance for the wear and tear, deterioration or obsolescence of the property.
The majority of tangible property (with the exception of land), such as buildings, vehicles, machinery, furniture and equipment are depreciable. In order for a taxpayer to be allowed a depreciation deduction for a property, the investment must meet all the following requirements:
o The taxpayer must own the property
o The taxpayer must use the property in business or in an income-producing activity.
o The property must possess a determinable useful life of more than one year.   

SEC

SEC

What is the SEC?
The SEC is an acronym for the Securities and Exchange Commission, which is the regulatory body mandated by the Federal government of the United States employed to investigate and regulate matters involving financial and investment activity of the public, commercial market.
The History of the SEC
The SEC was founded in 1934; many historians attribute the formation of the SEC to the stock market crash, which had occurred only years prior in 1929 – this stock market crash is oftentimes referred to as ‘The Stock Market Crash of 1929’. Subsequent to this crash of the stock market, a national depression and economic recession swept over the United States, credited in part to the crash of the stock market. Although no definitive attribution exist with regard to the exact reasons for the Stock Market Crash of 1929, both historians and economists have managed to place the some of the responsibility for the crash – and subsequent economic downturn – to a drastic decline in the valuation of stocks traded within the stock market at the time:
As the stock prices began to fall, a panic swept over a multitude of investors who quickly rushed to exchange their respective stocks prior to further decreases in value
The economic devastation resulting from the Stock Market Crash of 1929 prompted to the Federal Government to create an agency to regulate trade and exchange activity occurring within the open market in order to avoid the repeat of such a catastrophic event; this resulted in the creation of the SEC
What is the Open Market?
Public trading conducted within the realm of the stock market, which is oftentimes referred to as the ‘Commercial Market’ or the ‘Open Market’ must be undertaken in methodologies authorized by the SEC; these guidelines ensure that the activities occurring with regard to both invest and finance are conducted in a manner that is conducive to any and all legality expressed within applicable legislature – the following activities are both regulated and authorized by the SEC:
The commercial trade and exchange of securities, which include bonds, security certificates, and bank notes
The commercial trade and exchange of stock or shares belonging to publically traded companies
The behavior and activities undertaken by both private investors, as well as investors represented by financial and investment firms
The professional activity of financial firms, publically-traded companies, conglomerate organizations, financial firms, and investment institutions
What Does the SEC Do?
The creation of the SEC allowed for the Federal Government to undertake regulation of investment activity with regard to the procedures undertaken by any or all individuals participating in commercial market activity; in theory, SEC regulation is considered to allow for the Federal Government to enact a measure of damage control with regard to addressing legal, financial issues prior to catastrophic development:
The SEC undertakes the regulation of commercial trade activity
The SEC enacts the mandating of any or all lawful and ethical trade and exchange activity taking place
The Sec provides commercial investors and potential investors alike with documented reporting and information with regard to the background, legality, financial history, and legal review of all publically-traded companies
 

Traditional IRA

Traditional IRA

The traditional IRA was established by the Tax Reform Act of 1968.  The purpose of the traditional IRA is to help individuals save for retirement through presently tax exempt contributions to a traditional IRA.  A traditional IRA, like a Roth IRA is an individual retirement account.  
Unlike a Roth IRA, the only requirement for eligibility in a traditional IRA is that the individual have sufficient income to contribute to the traditional IRA.  However, even though you can contribute to the traditional IRA at any point there are requirements in order to take advantage of the tax incentives that go along with a traditional IRA.  In order to have these available an individual must meet income, filing status other requirements of the IRS, including the availability of other retirement plans.
If you qualify for the tax incentives of a traditional IRA you will be able to take advantage of tax exclusions to interest, dividends, and capital gains produced by the traditional IRA.  When contributing to a traditional IRA, all the funds that you allocate from your income to the traditional IRA is not included in your taxable income.  This is a major advantage in that it will lower your currently taxable income.  However, the funds from the traditional IRA will become taxable at their dispersement.  If you feel that your income in the future will be less than it is now then the traditional IRA is a great way to reduce your lifetime tax burden.
The limitations for investing in a traditional IRA are standard.  If you are under the age of 50 you will be allowed to contribute up to $4,000 per year to your traditional IRA.  If you are 50 or over that limit increases to $6,000.  
There are some disadvantages to having a traditional IRA.  At the time you reach 70 and a half you must begin making automatic yearly withdrawals from your traditional IRA.  If you neglect to do so then the IRS will automatically confiscate one half of the mandatory amount.  In addition, if you are below the age of 59 and a half you may not withdraw funds from your traditional IRA without incurring a 10% early withdrawal penalty.
You may rollover your traditional IRA once every 12 months.  This means that you may remover your funds from one traditional IRA account into another without incurring an early withdrawal fine.  The transfer must be made within 60 days of removing the funds from the traditional IRA account.

Student aid

Student aid

What is Student aid?
Student consists of government assistance as well as private assistance through scholarships to help students pay for the costs of education including bachelor’s degrees, graduate and professional degrees and for other forms of continuing education.  Student aid can take many forms including grants, scholarships, loans, tax credits and deductions, and work study programs.  In order to qualify for student aid a student must complete a FAFSA form and submit it to the federal government.  The FAFSA form will contain all information relating to the student, and his, or her, families financial needs and will award government assistance for student aid based on that information.
What kind of federal financial aide can I be eligible for?
Your FAFSA form will allow you to apply for numerous kinds of loans and grants that are funded by the federal government. These include Pell Grants, Federal Supplemental Educational Opportunity Grants, Perkins Loans, Stafford Loans, PLUS loans, and Federal Work Study programs.
A Pell Grant is a form of financial aide furnished by the United States Department of Education that helps students who could not normally afford the luxury of a secondary education, the opportunity to attend college or, in some cases, post-bachelor’s degree education. The federal Pell Grant helps 5.4 million individuals pay for college every year through the United States Department of education, which allots $17 billion a year towards the funding of Pell Grants. Grants, unlike loans, never have to be repaid to the federal government..  A Pell Grant will allow a student to receive student aid in a yearly amount of $4,705 that does not need to be repaid to the federal government.
If the funding from a Pell Grant is not enough for your student aid requirements you may also use your FAFSA form to apply for Stafford loans.
Stafford loans are forms of student aid that are sponsored by the federal government through lending institutions. The way they work is that you apply for a loan, through FAFSA, and upon your approval you will be allotted a certain amount of student aid for you education. 
There are two main types of Stafford loans. The first are subsidized and the second are not. The subsidized loans are the first type you will want to get from the federal government’s department of education.  The amount that will be allotted per student through subsidized loans is low, but usually allows around $12,000 per year. The benefit of these loans is that they do not garner interest until the completion of your education. Federal Stafford Loans are subsidized in that the interest that accumulates while you are pursuing your education is paid for by the federal government. 
In contrast, unsubsidized Stafford loans through the federal governments department of education will begin accumulating interest upon the time that your loans are dispersed to you. Because of this reason it is always beneficial for students to avoid unsubsidized loans through either the federal government department of education or through a private lending institution.
The interest rates that are associated with Stafford loans are relatively low. Due to the guarantee of repayment by the federal government a lending institution will charge a lower interest rate and the loan is almost guaranteed to be granted if you meet the requirements. Under current regulations the annual percentage rate of interest for a federal subsidized Stafford loan is 6.6% annual interest for those students who are enrolled in higher education for at least half time. This is going to change under the 2011 amendments under the Budget Control Act of 2011. Under the Budget Control Act new, starting in July 2012, interest rates for both federally subsidized and unsubsidized Stafford loans will be fixed at 6.8% annual interest. In addition, under the Budget Control Act, individuals who are seeking graduate or professional degrees will be ineligible for subsidized loans as of July 1, 2012.
A Perkins Loan is a form of student aid that operates in much the same way as a federally subsidized Stafford loan in that it is a subsidized loan guaranteed by the federal government. The difference is that where a Stafford loan operates by going through a private lending institution to gather funding for the loan, a Perkins Loan takes its funding directly from your educational institution. So the federal government is borrowing money from your university and guaranteeing repayment upon graduation, or the dropping of the student from at least half time status. Federal Perkins loans have an interest rate of 5% per year that begins to accumulate at the time of graduation, or dropping below half time registration. A Perkins Loan will guarantee an undergraduate student as much as $5,500 per year in student aid with a lifetime allowance of $27,500 in student aid; and post-graduate, and professional, students up to $8,000 per year with a lifetime allowance of $60,000 in student aid.
In addition to loans and grants a student may apply for federal work study programs as another form of student aid. Federal work study is a form of student aid that allows a student to work in the community or in their field of study part time in conjunction with their education to help pay for their education. A student who meets the financial needs requirements may be placed in a federal work study program in which the federal government will pay up to 75% of the salary that the student garners through their work study program.

Straddle

Straddle

What is a Straddle Investment?
In finance, a straddle is an advanced investment strategy aligned with the purchase or sale or a particular option derivative. When executed, a straddle allows the holder of an option derivative to profit according to how much the price of the underlying security fluctuates, regardless of the direction of the movement. The purchase of option derivatives is regarded as a long straddle, while the sale of option derivatives is regarded as the short straddle.  A straddle is typically undertaken if the investor foresees a large move (regardless of direction) in the stock’s price; these movements are typically observed when a company announces earnings or a federal bank announces a shift in policy. A straddle is fulfilled when an investor purchases an identical number of put and call options with a uniform expiration date. 
What is a Long Straddle?
A long straddle requires an investor to go long (purchase a call and put option on the same investment vehicle). The options are bought at the same strike price and will be attached with the same expiration date. A long straddle investor will secure a profit if the underlying asset price moves, in either direction, remotely away from the strike. As a result, investors may assume long straddle positions if they think the market is volatile, but does not the precise movement. This position poses limited risk–because the most a long straddle investor may lose is the cost of both options—and an unlimited profit potential. 
What is a Short Saddle?
A short saddle is another form of non-directional trading strategy that contains the act of simultaneously selling a put and a call of the same security, expiration date and strike price. A short saddle’s potential for profit is limited to the premiums of the call and put, but is riskier than the above straddle technique because severe price fluctuations impose a seemingly limitless potential for loss. The investment will break even if the intrinsic value of the call or put equals the sum of the premiums of the call and put. A short straddle is often classified as a credit spread because sale of the technique results in a credit of the premiums of the call and put. 
The short saddle is risky. The potential for loss is unlimited because of the sale of the put and call options which ultimately expose the investor losses on the call or equal to the strike. At the same time, the profits are capped to the premium secured by the initial sale of the put and calls. 
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