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Commercial paper: What to Know

Commercial paper: What to Know

What is Commercial Paper?



• Commercial paper, in the global money market, is an unsecured promissory note that possesses a fixed maturity of 1 to 270 days. 
• Commercial paper is a type of money-market investment security sold by large financial institutions and corporations to raise money in order to meet various short term debt obligations (such as payroll). Commercial paper is only backed by an issuing financial institution or company’s promise to pay the face amount when the commercial paper reaches its maturity date. 
• Because commercial paper is not backed by collateral, only companies with excellent credit ratings (credit score must be issued by a recognized credit agency) will be able to sell their commercial paper at a fair price. 
• Commercial paper is typically sold at a discount from face value; in addition to the discount, commercial paper will also carry a higher interest repayment rate than the maturity of bonds. In the majority of instances, the longer the maturity on a note, the higher the interest rate the issuing company or financial institution is required to pay. 
Who issues Commercial Paper?
• In the beginning of 2010, more than 1,700 American companies issued commercial paper. The United States federal Reserve reported the following statistics regarding commercial paper at the end of 2009: there was over $1.7 trillion in total outstanding commercial paper; over $800 bullion was regarded as “asset backed” and nearly $trillion was not; roughly $162 billion of the non-asset backed commercial paper was issued by non-financial corporations and nearly $817 billion was issued by financial corporations. 
What are the Advantages and Disadvantages of Commercial Paper?
• Commercial paper is low cost alternative compared to obtaining a line of credit with a bank. When a business establishes itself and achieves a high credit rating, it is typically cheaper to draw on a commercial paper than pursuit a line of credit from a bank. That being said, a number of companies will still maintain bank lines of credit as “backup.” 
• The following characteristics are regarded as advantages for commercial paper: 
     Commercial paper are only issued to companies with high credit ratings; higher credit ratings always fetch a lower cost of capital
Commercial paper is offered with a wide range of maturity, which provides more flexibility
Commercial paper does not create any liens on assets of the company
The tradability of Commercial paper provides investors with exit options
• The following characteristics are regarded as disadvantages of Commercial Paper:


The usage of commercial paper is typically limited to blue chip companies or those businesses that possess excellent credit ratings
 
The issuance of Commercial Paper decreases bank credit limits
A high degree of control is exercised on issue of Commercial paper
Stand-by credit may become necessary to obtain commercial paper. 

CD’s: Certificates of Deposit

CD's: Certificates of Deposit

What are Cd’s?


• Cds, or certificates of deposits, are financial products commonly offered to consumers in the United States by thrift institutions, credit unions or banks. Cds share a number of characteristics with a common savings account; they both are insured by the Federal Deposit Insurance Corporation and thus, virtually risk free. That being said, CDs are somewhat different from a savings account in that a certificate of deposit has a specific fixed term (typically three months, six months or one to five years) and attached with a fixed interest rate. 
• Similar to other fixed-income investment products, a CD is held until maturity, at which time the money placed in the CD may be withdrawn with the attached interest. As a result of the limited to no risk of CDs, the interest rate attached is significantly less than other fixed-income instruments. 
• In exchange for holding the money on deposit for the specified term, a financial institution will typically grant higher interest rates than they would for accounts where the money may be withdrawn on demand—i.e. a savings account.  Although fixed rates are common with a  certificate of deposit, a number of CDs are attached with variable rates. 
Characteristics of Interest Rates:
• The following characteristics of interest rates act as guidelines for investors in CDs:
o A larger principal payment will typically receive a higher interest rate
o A longer term will typically receive a higher interest rate, except in the case of an inverted yield curve present prior to a recession
o Smaller institutions well tend to offer higher interest rates than larger ones
o Personal CD accounts will typically receive higher interest rates than CD accounts of businesses
o Banks and Credit Unions that are not insured by the FDIC or NCUA will typically offer higher interest rates to entice investment
How does a CD work?


• CDs will typically require a minimum deposit (the majority of CDs will pay a higher interest rate for larger deposits). The consumer who opens a CD will receive a paper certificate; this document will affirm the characteristics of the CD, including the maturity date (date at which the money can be redeemed), the attached interest rate and the amount of deposit. 
• An investor may withdrawal their principal prior to the CDs’ maturity date but such a maneuver will be subject to penalty. For example, if an individual redeems his or her 5-year CD prior to the maturity date, they will lose six months’ interest. These penalties ensure that is in the holder’s best interest to wait till the CD matures.
• Although CDs offered a guaranteed return on investment the percentage of interest is drastically low. As a result of this minimal return, the profit often barely climbs past inflation levels. 

SEC: Everything you need to know

SEC: Everything you need to know

What is the SEC?


• The SEC, which stands for the United States Securities and Exchange Commission, is a federal agency of the United States government, responsible for enforcing the nation’s securities laws and regulating the financial markets. More specifically, the SEC is responsible for regulating and overseeing the nation’s stock and options exchanges, as well as the other electronic securities markets in the United States. 
• The SEC was created to regulate the securities industry in the United States. During the Great Depression and after the Stock Market Crash of 1929, private investors were skeptical as to the true nature and motivation of the markets and their participants. Because consumer confidence is a vital to the health of the markets, the Federal Government created the organization to ensure that investment professionals and public corporations acted in a moral fashion.  
• The SEC was created through the passing of the 1934 Securities and Exchange Act; that being said, the SEC also enforces the provisions of the following federal acts: the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Sarbanes-Oxley Act of 1940.
Basic Overview of the SEC:
• The SEC was formally created by the United States Congress in 1934 to operate as independent, quasi-judicial regulatory agency during the Great Depression. The primary reason as to why the SEC was created was to instill government regulations over the stock market and to prevent corporate abuse relating to the offering and sale of stocks. Furthermore, the SEC was responsible for overseeing corporate reporting; prior to the creation of the SEC rules regarding corporate reporting were extremely lax, enabling corporations to smudge or embellish earnings and other key statistics. 
• When created, the SEC was awarded the power to license and regulate stock exchanges, the companies whose securities were listed on them and the security professionals (broker and dealers) who took part in the trading. 
What does the SEC look for?
• The enforcement authority given to the SEC allows the organization to bring civil suits against individuals or companies who are suspected of committing accounting fraud, providing false information, or engaged in insider trading. Furthermore, the SEC works with criminal law enforcement agencies to prosecute individuals and companies for offenses that warrant criminal punishments. 
• To achieve its mandate, the SEC enforces statutory requirements on American companies, the most crucial of which being that public companies must submit quarterly and annual reports to shareholders and the government. In addition to these reports, company executives must provide narrative accounts to outline the previous year of operations and explain how the company fared in that time period. 
Organizational Structure of the SEC:
• The SEC consists of five Commissioners who are each appointed by the President of the United States; the President chooses these individuals based on consent of the United States Senate. Each commissioner will serve a 5-year terms; the terms are staggered so that one Commissioner’s term will end on June 5th of each year. 
• To ensure that the SEC remains unbiased, no more than three Commissioners may belong to the same political party. 
• The President will designate one of the commissioners as the chairman of the SEC. That being said, the President does maintain the authority to fire any of the commissioners. 
• The SEC is organized into the following five branches: Corporation Finance, Trading and Markets, Investment Management, Enforcement and Risk, Strategy and Financial Innovation.

Consider These Facts Before Using Credit Cards

Consider These Facts Before Using Credit Cards

In trying to repair their credit, and with overuse of credit cards being a symptom of foolish consumerism, the natural option for people who have issues with credit card debt is to cut them up and cut them out of their lives completely. Realistically, much as a recovering alcoholic must not be allowed to have another drink ad infinitum, some individuals will need to learn how to live without credit cards in their lives and forgo ownership of them absolutely.
Consequently, then, they will not be able to use any cards in their credit rebuilding agenda. Others, meanwhile, who still may be plagued by overuse but possess a greater degree of strength to hold onto at least (or rather, at most) one card, can use the credit card they keep to boost their credit by simply paying their bills by the requested deadline.
Eventually, though, the time may come when people need or desire a new credit card. Or they may be first-time applicants who are simply using these credit cards to build credit. When severely damaged credit has made securing a major credit card seem out of reach, there may be yet other avenues to which to one can turn.
Two of the easier routes to credit rebuilding through establishing new credit card accounts are soliciting department stores and gas stations. It should be stressed, however, that these options are not without risk. Again, leaving balances month after month will do little to appease creditors and increase one’s credit rating. Furthermore, these balances can incur fairly high interest rates.
If a credit card with a major bank or other comparable lender is still out of reach in using credit cards to rebuild credit or prior to securing one in the first place, a secured credit card may be a viable measure going forward. Compared to normal credit cards, secured credit cards, as the name implies, secure the debtor’s promise to repay charges against an asset such as a bank account from which monies will only be extracted if a payment agreement is not met. This too is a risk, and a particularly grave danger if something such as a house is promised as collateral.

SEC Freezes Assets of Thailand Trader for Insider Trading Ahead of Smithfield Foods Acquisition Announcement

SEC Freezes Assets of Thailand Trader for Insider Trading Ahead of Smithfield Foods Acquisition Announcement

The Securities and Exchange Commission announced an emergency court order to freeze the securities and assets of a trader in Bangkok, Thailand, who made in excess of $3 million by trading in advance of last week’s announcement that Smithfield Foods agreed to a multi-billion dollar purchase by the Chinese holding company,  Shuanghui International Holdings. 

The agency alleges that Badin Rungruangnavarat purchased thousands Smithfield call options and futures contracts from May 21st through May 28th in an account with Interactive Brokers LLC. Rungruangnavarat allegedly engaged these transactions based on nonpublic information regarding the prospective acquisition, and among possible sources is a Facebook friend who is a director at an investment bank to a different company that was debating whether or not to purchase of Smithfield. After securing profits from his aggressive trading, Rungruangnavarat attempted to withdraw more than $3 million from his account earlier this month. 

“The pace in which we were able to execute this action exemplifies the tenacity, talent, and commitment that the agency’s staff possesses to keep our markets and investors safe,” said Andrew Cereseney, the Co-Director of the agency’s Division of Enforcement. 

According to the agency’s complaint filed in a U.S. District Court, Smithfield publicly announced in late May that Shuangui agreed to procure the company for $4.7 billion, which would be the largest ever acquisition of an American company by a Chinese purchaser. Smithfield, which is based out of Virginia, is the world’s largest pork processor and producer. Following the announcement, Smithfield stock surged nearly 25 percent higher than the previous day’s closing price. 

The SEC procured the emergency order late yesterday on an ex parte basis. The order effectively froze the proceeds of Rungruangnavarat’s securities purchases, and prohibits Rungruangnavarat from tampering with evidence. The SEC alleged that Rungruangnavarat violated the Securities Exchange Act of 1934. The SEC is seeking disgorgement of all illegal gains, a financial penalty, and a permanent injunction. 

Source: sec.gov

401k Contribution Limits

401k Contribution Limits

401(K): Brief Overview

A 401(k) is a type of tax-qualified retirement savings account regulated by the Internal Revenue Code in the United States. The 401(k) is a deferred compensation plan that requires an employee to contribute a portion of their wages to the account on a pretax basis. Also referred to as elective contributions, these deferred wages are not subject to income tax withholding at the time of contribution; the wages are not reflected on the employee’s Form 1040 since they are not included in the taxable wages on the individual’s Form W-2. That being said, the wages are subject to Medicare, social security and federal unemployment taxes.
A contributor in a 401(k) may begin to withdraw funds after reaching the age of 59.5 years. The 401(k) is widely regarded as the traditional retirement plan for American workers; the 401(k) was first created in the early 1980s as an alternative to the pension, which was paid by employers. Employer contributions with a 401(K) will vary, but in general the account shifts the burden for retirement savings to the individual worker. 
401(K) Contribution Limits:
The Internal Revenue Service places 401 K contribution limits, which effectively places a cap on the amount of funds a worker can contribute to their retirement plan. Moreover, the employee’s elective contributions may be limited according to the terms of their particular 401(k) plan. All 401(K) contribution limit information is listed under Publication 525 in the Internal Revenue Service’s Taxable Nontaxable Income; employers must refer to Publication 560 (Retirement Plans for Small Business).
The maximum limit on the total yearly pre-tax—a figure known as the 402(g) limit—was $15,500 in 2008 and $16,500 for the taxable years of 2009 to 2011. This figure will be increased to $17,000 in 2012; 401(k) contribution limits are indexed for inflation, which increases the increments by $500. 
Employees over the age of 50 can provide “catch up” contributions of up to $5,000 for 2008 and $5,500 for the following years up to 2011. Limits for future “catch up” contributions are also adjusted for inflation in increments of $500. For eligible plans, an employee may elect to contribute a percentage of their salary as a Roth 401(k) contribution, on a pre-tax basis, or a combination of the two; however, the total of the two contributions amounts cannot exceed the 401(k) contribution limits in a single calendar year. The 401(k) contribution limits do not apply to post-tax non-Roth elections. 
If an employee contributes over the maximum pre-tax/Roth limit to a 401(k) account in a given year, the excess—along with the deemed earnings for the contribution—will be withdrawn or corrected by April 15th of the following year. Violating 401(k) contribution limits typically occurs when an individual switches jobs mid-year and the most recent employer does not enforce the 401(k) contribution limits on behalf of their employee. If the violation of the 401(k) contribution limits is not noticed in time, the employee will be required to pay tax on the excess contribution and the tax will effectively be doubled as the late corrective contribution is required to be reported again as income. 
There are also maximum 401(k) contribution limits that apply to all employee and employer 401(k) contributions in a calendar year. These 401(k) contribution limits—which are established in section 415 of the IRS tax code—are the lesser of 100% of the employee’s total pre-tax pay or $46,000 for 2008 and $49,000 for 2009 to 2011. Government employers in the United States are barred from offering a 401(k) plan to their employees, unless they were established before May of 1986. 

FINRA

FINRA

What is FINRA?
• FINRA, or the Financial Industry Regulatory Authority, is a private corporation in the United States that acts as a self-regulatory organization for broker-dealers. Although it is commonly mistaken for a government agency, FINRA is a non-governmental organization that institutes financial regulation on American brokerage firms and exchange rates. 
• FINRA is the largest regulator for security firms in the United States; the mission of the agency is to protect investors by ensuring that the securities industry operates fairly and honestly. In total, FINRA oversees over 4,500 brokerage firms, roughly 165,000 branch offices and over 630,000 registered security representatives. 
• FINRA has over 3,000 employees and is headquartered in Washington, D.C. and New York, New York. FINRA maintains over 20 regional offices, located throughout the United States of America. 
• FINRA was formed by a consolidation of the enforcement branch of the New York Stock Exchange and the NASD. 
History of FINRA:


• As stated before, FINRA is the result of a merger between the NYSE and the NASD. The NASD was established in 1939 in response to the Securities Exchange Act of 1934, which allowed the agency to supervise conduct of its members. In 1971, the NASD launched NASDAQ—a revolutionary computerized stock trading system. The NASDAQ eventually merged with the AMEX in 1998. Two years later, the NASDAQ separated itself from the NASD. 
• In July of 2007, the SEC approved the formation of FINRA—a consolidation of the enforcement and arbitration branches of the NYSE and the NASD. 
What does FINRA do?
• FINRA maintains regulatory oversight over all securities firms that conduct business with the general public. In addition to these firms, FINRA also maintains authority over those institutions who offer professional training, arbitration and mediation, market regulation by contract for the NASDAQ and the New York Stock Exchange, testing and licensing of registered security professionals (FINRA administers the Series 7 and Series 63 etc.) and all industry realities associated with the markets, including Trade Reporting Facilities and various over-the-counter operations. 
• FINRA regulates trading in corporate bonds, securities futures, options and equities; the agency possesses authority over the activities of any brokerage firm, branch office and registered representative that provides investment advice or offers investment vehicles to the public.
• As stated before, FINRA licenses investment professionals and admits firms to engage in investment practices. When doing this, FINRA will institute rules to govern these entities behavioral patterns, as well examine them for regulatory compliance. 
Arbitration Role:
• FINRA currently operates the nation’s largest arbitration forum for the resolution of disputes between member firms and their respective customers, as well as between employees of brokerage firms and the underlying company. 
• FINRA employs over 2,800 arbitrators and over 3,500 individuals classified as non-industry panelists to govern the aforementioned relationships. 
• In general, FINRA is the regulatory agency that provides assistance and enforcement for all agreements structured between investors and their respective brokerage firms and stockbrokers. 

Guide to the Series 7

Guide to the Series 7

What is the Series 7 License?


• The Series 7 license is awarded to an investment professional when he or she passes the General Securities Representative Exam (more commonly known as the Series 7 examination). The obtainment of the series 7 license is mandated (enforced by the SEC and FINRA) to become a Registered Representative of a broker dealer in the United States. When obtained, the license will enable the individual to talk to prospective clients (or clients) in regards to investment advice. 
• The Series 7 license is the most comprehensive of the licenses that permit an individual to communicate with retail investors. As a result of the privileges granted by the Series 7 license, the majority of analysts, account managers and other professionals employed with a registered Broker-Dealer, hold the certificate.  
What is a Registered Representative?
• A registered representative is a stock broker or account executive; the individual who holds this title is granted permission, by the United States Federal Government and coordinating agencies, to sell securities to investors. 
• A registered representative will typically work for broker-dealers licensed by the Self-Regulatory Organizations of the New York Stock Exchange, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC). 
• To become a Registered Representative, an individual must obtain sponsorship from his or her employer, typically a broker-dealer firm, and subsequently pass the FINRA-administered Series 7 examination. In addition to obtaining the Series 7 license, a number of states will also require broker-dealers to pass the Series 63 examination.  
What is on the Series 7 Examination?
• The Series 7 examination is a six-hour, 260 question test that is administered and owned by the Financial Industry Regulatory Authority (FINRA). Of the 260 questions, 250 will count towards the participants final score. 
• The Series 7 examination covers a number of finance subjects and a wide range of investments, including: stocks, options, investment company products, bonds and limited partnerships.
• To pass the test and obtain the Series 7 license the participant must score above a 70%; if the individual scores above a 70%, they will be immediately granted the Series 7 license (General Securities license).
• The average score on the Series 7 examination is roughly 73%, with approximately 65% of test-takers achieving a passing mark. When the candidate receives sponsorship from their respective employer, they will be provided with a comprehensive study binder issued by FINRA. 
• As of November of 2010, registration costs for the Series 7 examination totaled $265.

Currency Symbols

Currency Symbols

What are currency symbols?
Although we may be familiar with the dollar sign($), may other symbols denote currency in other parts of the world.  Although the dollar sign enjoys wide use, one will easily recognize the Euro, Yen and Yuan currency symbols.

What are some notable currency symbols?
Dollar sign ($)
– Used: US dollar, Canadian Dollar, Mexico Peso, Australian Dollar, New Zealand Dollar, Hong Kong Dollar, most countries with pesos, except Chile and the Philippines, some African and Asian Countries.
– First used to refer to the Spanish American peso which had currency denominated in “eights,” hence the shape of this currency symbol.  Alternative explanations include a resemblance to the Spanish coat of arms and the letters “U” and “S” superimposed on each other on bags of money from the early US Mint.
– Alternate currency symbol has two vertical strokes, called the cifrão and primarily used in Portuguese-speaking countries such as the Brazil real and the now defunct Portuguese escudo.
Cent sign (¢)
– Used: Nations that use dollars ($), Euro cents, some countries that use shillings and pesos
– Currency symbol that represents an amount between 1 and 99 cents
Pound Sign (£ or ₤)
– Used: British Pound, Gibraltar Pound, formally used for Irish (2002) and Australian (1966) Pounds, occasionally used for the now defunct Italian Lira
– This currency symbol originates from the unit of weight in the Roman Empire, the initial value of the Pound was one “tower pound” (334 grams) of silver.
Euro Sign (€)
– Used: The entire Eurozone, adoption starting in 1996 and up to 2002
– This currency symbol was designed to resemble the sign for the defunct “European Currency Unit.”
– Resembles the Greek letter “epsilon,” with two lines through it to represent stability
Yen/Yuan Sign (¥)
– Used: Japanese Yen, Chinese Yuan
– This currency symbol represents the Chinese character for currency
Rupee Sign ( )
– Used: Indian Rupee
– This currency symbol is new, introduced in 2010.  It is a combination of the Latin letter R and the Devanagari script for “Ra.”
– Old symbol was Rs or Re, still in use for Sri Lanka, Nepal and Pakistan, new symbol represents standardization of the currency symbol.
Other currency symbols include the 
Norwegian/Swedish Krone (kr)
South Korean Won (₩)
Swiss Franc (Fr) and 
South African Rand (R)

Cash Management

Cash Management

What is Cash Management?
In banking, cash management is a marketing term for services offered to large business customers or institutions. As a broad term, cash management may be used to describe bank accounts provided to a business or may be used to describe more specific services, including accounting practices. 
Cash management is a crucial practice for businesses of all sizes. Tracking expenses and liquidity enables a business (or individual) to appropriately formulate a budget. This step enables a business to ensure them that debt obligations will be fulfilled. If cash management is undertaken in a haphazard manner, the company may be stricken with short-term deficits. 
The Basics of Cash Management
As a broad field of practice, cash management can be compartmentalized into a few basic procedures:
Determining Cash Flow: If a business entity’s definition of cash flow is fundamentally flawed they will be impeded from tracking the right figures. In this situation a company may devolve into a cash crisis—illiquidity will spark short-term deficits. 
Cash refers to tangible currency and does not include the value of accounts receivable, inventory or other items that can be easily converted into cash. As such, if one subtracts expenses from revenues, they will realize their profit and not their available cash. This simply means that even a profitable business model can face problems if cash is managed poorly. 
Cash flow is a term used to define the relationship of how cash moves in and out of a business model. When cash is spent on debt payments, wages, facilities and inventory/materials it is referred to as “outflow”. When cash comes into the business model, from customers or lenders it is called “inflow.” The basics of cash management stem from balancing the inflow and outflow of cash. 
The goal of cash management is to manage the inflow and outflow so that a business always has enough cash reserves to cover all day-to-day–as well emergency or unforeseen–costs. 
When a business model has a higher cash inflow than outflow they are said to be experiencing a positive cash flow. Typically, businesses with positive cash flows are deemed financially stable. In turn, if a business has a lower cash inflow than outflow, they will be operating under a negative cash flow. An entity with negative cash flow is forced to borrow funds (exposure to interest) to pay for day-to-day costs. 
Components of Cash Management:
Business managers and accountants are typically the parties typically responsible for implementing cash management techniques. These professionals will divide cash management into the following categories:
• Investing Cash Flow: Generated from investments and internally from non-operating activities and expenditures not related to the business formation’s normal operation
• Financing Cash Flow: An aspect of cash management that consists of cashing flowing to and from the entity’s lenders and other external sources
• Operating Cash Flow: Referred to as working capital; this area of cash management consists of cash generated from the company’s sales. 
Practicing Sound Cash Management Principles: 
Sound cash management involves the following factors:
1. A business executive must understand their company’s cash needs and when, where and how they will arise
2. Cash management professionals will know how to access additional cash when it is needed by the company
3. Cash management professionals will keep positive relationships with financial institutions and sources of cash to better prepare themselves. 
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