Credit & Loans

Discover Corporate Card

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:44:00 +0000

The standard Discover Corporate Card is one that makes a lot of sense for business owners who want to maximize their company's financial standing. It is well established that business owners benefit from using a good credit card. Business owners often struggle with liquidity, so making purchases with a credit card can help that part of the game. Likewise, the corporate cards out there today provide more than just a line of credit. They provide, as well, a means of getting cash back and a bunch of other programs that can make card ownership a nice idea. So what about the Discover Corporate Card? It offers a nice interest rate, solid rewards, and much more.

Getting to know the Discover Corporate Card

There are some details that you must know if you are going to use the Discover Corporate Card. First and likely most important is the interest rate. This is obviously important because it sets the amount that you would have to pay each month. Lower is always better, but this shouldn't be a huge concern for business owners. Most business owners do not carry a balance on their credit cards if they can help it and they pay off their balances on time. If you do this, then the interest rate doesn't matter. Still, the standard rate on these cards is between 12% and 15%. This can vary depending upon a person's business and creditworthiness.

These cards come with no annual fee, meaning you won't have to add anything to your operating costs. Likewise, the credit limit on these cards will vary depending upon your needs and your credit. A person with great credit can get a Discover Corporate Card with a very high limit to allow for all of the business's purchasing needs.

Taking advantage of introductory offers

One thing to note is that the Discover Corporate card offers a nice introductory offer for people to take advantage of. If you get in at the right time, you can use the 0% APR offer for a period of six months. It doesn't take a business genius to tell you that this is a great offer. It essentially provides your company with an interest free loan for an extended period of time. This is almost unheard of in the business world and can put you at a huge advantage compared to your competitors.

Taking advantage of cash back

Another thing about the Discover Corporate Card to note is that you can get significant cash back on all purchases. Discover generally offers up to 5% cash back on business related purchases. This is a really nice thing that can infuse cash back into your bankroll at the end of the year.

How a Secured Credit Card Works

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:43:00 +0000

Many people with poor credit wonder how they can ever begin to rebuild their credit. After all, it's hard to get approved for loans or credit cards with a poor credit score. A secured credit card is one way of rebuilding a poor credit score.

A secured credit card is not the same thing as the regular credit cards that you get advertisements for in the mail. They are "secured" because you have to support the credit card with funds. For instance, if someone has a secured credit card with a $500 credit limit, they must pay $500 to the credit card company in order to access the funds on their credit card. In that way, it is somewhat like a prepaid debit card. However, the deposit is held as long as you use the card. Your deposit is returned to you when you close the card.

Typically, secured credit cards start out with low credit limits. You can get a higher credit limit in a few different ways. Regularly paying off the card or making consistent, on-time payments may qualify you for a credit limit raise. Some companies require you to add to your initial deposit to get a higher credit limit.

Secured credit cards can help consumers build their credit scores with all three credit bureaus. The entire credit limit is reported to the credit bureaus, and every payment that a consumer makes on a secured credit card is reported to the bureaus. As the on-time payments build up, the credit scores will begin getting higher. To get the most out of secured credit cards, consumers should use it monthly for a few small expenses. Pay it off every month to avoid interest charges; secured credit cards are known for having high interest rates.

Most secured credit cards have a number of fees associated with them. Many cards charge an application fee, although it is possible to search around and find a card that doesn't have an application fee. Every secured card has an annual fee, due to the added work of holding a deposit and giving credit to a credit-poor consumer. Some banks do take advantage of consumers who need secured credit cards; some charge so many fees that the majority of the card's credit limit is used up before the consumer can even use it. To avoid this, consumers should look for cards that do not have an application fee, monthly maintenance fees, or fees for paying online.

When used correctly, secured credit cards are a safe way for consumers to start rebuilding their credit scores. They can help people rebuild their credit without paying high interest rates on a large balance every month.

The Benefits of an Instant Credit Card

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:42:00 +0000

Instant credit cards give you the credit you need in a fast, easy and stress-free way. The process typically takes less than one minute, and it does not involve waiting days, weeks or months for an approval. Nearly all the major credit card companies offer this service, and many retail-based businesses provide instant credit cards as well. There are various ways you can obtain instant credit. Most major credit companies and retail merchants send applications for cards through the mail. Many of these applications provide pre-approval. When you receive an application that has been pre-approved, you can fill out the application online for instant results. Entering the pre-approval information that is provided on the paper application will expedite the process. If you do not receive an application in the mail, you can still apply for a card on the Internet. There are numerous credit card companies offering this quick and easy service. While you may not be pre-approved, you can be rushed through the system if your credit is good. Credit card suppliers base their approvals or rejections on credit history and other information. When you apply for an instant credit card, you must supply your personal information and state whether or not you own your home. You will be asked about your employment history, financial information, and personal contacts. You will need to disclose your income, and you may be asked if you have applied for other cards within the past six months. Once you have provided the necessary information, the credit company will verify it. In most cases, approval or rejection occurs within minutes. If you are approved, your credit limit and card type will be displayed. You will also be informed of when to expect your card in the mail. Once you receive your card, the credit limit may be greater or less than the initial amount. In some cases, retail companies provide instant credit cards that you can use immediately after approval. The use of these cards is only permitted at a specific retailer. Other credit card merchants may provide instant, limited use of the cards as well. However, you may only be able to use the card on a particular website or group of sites. Many credit card providers give special offers like this to return customers as well. Applying for an instant credit card is easy, quick, and beneficial. You can gain access to much-needed credit without having to wait for approval. This is advantageous whether you need to immediately make a big purchase or simply improve your credit history. Instant credit cards eliminate the stress that is usually involved with applying for credit. You can avoid the usual hassles and see immediate results.

Understanding Balance Transfers

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:42:00 +0000

One of the most important things that you can use to further your financial future is a balance transfer. Though most people think that almost all offerings from credit card companies are geared toward favoring the creditor, this isn't exactly true. As more and more competition has popped up in today's credit world, the card providers have to do things to bring in new customers. This is where balance transfers come into play. The card providers offer low or non-existent introductory rates for people who want to transfer their balances. So how does this work and why should people look to balance transfers?

What are balance transfers?

Balance transfers occur when you take an advance from your current credit card to pay off some other credit card or creditor. Some credit card companies send a check directly to you and let you pay off the other creditor. Other credit card providers will ask for the address and they will send a check to the other creditor on your behalf. This is a really nice thing for people who want to knock out their old balances without having to waste a lot of time. You then have a balance on your current card and you don't have to worry about the other creditors.

Balance transfer deals

One of the things to know about balance transfers is that you don't have to make them at a high interest rate. Credit card providers often provide 0% APR on balance transfers for a period of six months to one year. For those who don't provide the non-existent rate, the balance transfer rate is often quite reduced as compared to the normal APR. For instance, you might pay 3.9% on balance transfers instead of the normal 12.9% APR. This makes balance transfers a good idea and can provide tons of savings for people who are worried about that sort of thing. Ultimately you can knock out your old, high interest debt by taking on different debt at a low rate.

Responsibly using balance transfers

Know that people need to understand how to use balance transfers in order to have success with them. They can certainly provide a means of getting out of debt and saving money over time. They are best used to directly pay off that old debt. Some people use balance transfers for personal purposes, but this isn't the best way to make use of the money. When you use balance transfers to pay off old, biting debt that continues to accrue at high interest rates, you help out your credit and you strengthen your financial future. Balance transfers play a huge, important role in the process and you can smartly use them to your advantage.

The Advantages and Pitfalls of Credit Card Transfer

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:42:00 +0000

Credit card transfer is when the balance of one credit card is transferred onto another card. This is done for a number of reasons. A person may decide to transfer a balance in order to consolidate their debts or in an attempt to lower the amount of interest they pay. Before you decide to transfer a balance from one card to another, there is a few things that you need to consider.

The Potential Advantages of Credit Card Transfer

The best time to transfer a balance is after you've obtained a credit card with a 0% introductory APR. Consolidating balances onto this card will reduce the amount of interest you pay during the introductory period. For this to be beneficial, you want to look for a card that offers a long introductory period of 12 months or more. This will give you at least one year to reduce your credit card debt, which can be difficult if most of your monthly payments are going to pay interest.

Credit card transfer also helps consumers consolidate their unsecured debts into one account. Instead of paying three different credit card bills each month, you can transfer those balances onto your new card, assuming your credit limit allows this. This will help you simplify your bills and avoid making late payments. Keeping track of several credit card bills can be difficult. To efficiently reduce debt, it's best to consolidate.

Important Mistakes to Avoid

While credit card transfer can be a beneficial debt reduction tactic, consumers sometimes make a few mistakes. The first mistake is failing to consider balance transfer fees. Some credit card companies offer cards with no balance transfer fees, while others charge up to 4%. If you were to transfer $3,000 at 4%, it would cost you $120 just to transfer the balance. While your savings will probably make up for that charge, you do need to consider it before making the transfer.

You also need to make sure that your APR isn't going to drastically increase after the introductory period. You will not want to be left with a 20% APR after the introductory period is over. Even if you intend to have the balance paid off before your APR increases, you need to keep this in mind. Sometimes in life, unexpected expenses do arise.

When performing a credit card transfer, you want to make sure that the transfer is actually going to save you money. Before transferring your balances, determine how much you are going to save both during the introductory period and after your APR increases. If you'll be saving money, even after paying balance transfer, annual, and other fees, credit card transfer may be right for you.

Capital One Credit Cards

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:40:00 +0000

Capital One is one of the most popular credit card providers out there today, so people who are looking for good card options should definitely give them a look. There are lots of different Capital One credit cards, though, so you shouldn't think that you'll only have one or two to choose from. They are well known for providing a wide array of cards for people with variable needs. Perhaps you need a student card or maybe you need a business card. What if you are in the market for a rewards card? Regardless of your individual needs, you will have a chance to take advantage of one of their many options.

The Platinum Prestige Card

One of the best cards out there for prospective card holders is the Platinum Prestige Card. As Capital One's top offering, this card has consistently made card holders very happy over the years. The thing to know about this card is that it's not for the faint of heart or those with poor credit. It requires excellent credit because of the favorable terms that buyers get to enjoy. For instance, there is a year long 0% APR introductory period on all purchases. Likewise, individuals can transfer balances at that same 0% rate for one year. With no annual fee, this ranks as a card with a number of positives and very few negatives.

The VentureOne Rewards Card

Another great card option for prospective Capital One card owners is the VentureOne Rewards Card. As you might expect, this card offers excellent rewards for people who want to get a little bit more out of their credit card. Though this card features a slightly higher than average interest rate, it makes up for that by offering 1.25 rewards miles for every dollar that's spent on the card. This is a really good thing for people who like to pay off their balance each month. It is easy to build up possible airline rewards when you shop with the VentureOne Rewards Card.

The Cash Rewards Card

There is a really nice option out there for people who might not have elite credit. If you aren't sitting with a sterling credit score of over 700, then it is possible to take advantage of the Cash Rewards Card. This card offers a nice 2% cashback rate on all gas and grocery store purchases. This provides an obvious incentive for people who use their credit card to pay for the necessities in life. If you are going to pay for the monthly expenses of a family with your credit card, then you can use this Capital One option to get a nice little kickback at the end of each month.

Types of Credit Cards of U.S. Bank

noreply@blogger.com (Unknown) — Sun, 24 Jul 2011 11:39:00 +0000

U.S. Bank offers several types of credit cards to meet the needs of different customers.

Basic Credit Cards

The basic U.S. Bank credit card is suitable for people who have already established a fair credit history. This card does not come with any extra benefits or specified conditions. The basic card generally comes with larger credit lines and lower APRs. U.S. Bank offers 0% APR on all purchases and balance transfers made within the first six months of signing up, and no annual fee.

Student Credit Cards

U.S. Bank offers two kinds of student credit cards: The U.S. Bank College Visa Card and the U.S. Bank Young Adult Visa Card. Both are geared toward young adults who need to establish credit. There are no annual fees, but also no promotional discounts. The main difference between the cards is that the Young Adult Visa Card (for those not in college) requires a co-signer, such as a parent or other adult with an established credit history.

Rewards Credit Cards

U.S. Bank rewards credit cards come in three types:

1. Cash Rewards. The FlexPerks Cash Rewards Visa Card earns 1% cash back on purchases. This card also comes with no annual fee and 0% APR on balance transfers for the first six months.

2. Retail Rewards. U.S. Bank offers a variety of retail rewards cards. When customers purchase with these cards, they earn rewards such as gift certificates, rebate offers, or free merchandise with whichever retail store the card is associated with. There are no annual fees.

3. Travel Rewards. These cards are similar to the retail rewards cards, except the customer earns rewards with airline companies instead of retail stores. Some of these cards do come with annual fees, but they can be a good option for customers who travel frequently.

Credit Cards to Build or Re-establish Credit

U.S. Bank offers several credit cards that may a good option for applicants who need to build or re-establish their credit. These cards tend to come with annual fees and higher variable APRs, but come in either the basic or rewards types. The main difference here is that these cards are "secured," meaning that they are attached to the customer's savings account and the credit line is usually matched to that account. If customers handle these cards well, thereby building a good credit history, they can then earn lower fees and APRs, or apply for unsecured credit based on their good standing.

Payment and Debt Ratios

noreply@blogger.com (Unknown) — Wed, 29 Jun 2011 09:27:00 +0000

In most countries, a number of more or less standard measures of creditworthiness may be used. Common measures include payment to income (mortgage payments as a percentage of gross or net income); debt to income (all debt payments, including mortgage payments, as a percentage of income); and various net worth measures. In many countries, credit scores are used in lieu of or to supplement these measures. There will also be requirements for documentation of the creditworthiness, such as income tax returns, pay stubs, etc; the specifics will vary from location to location.

Some lenders may also require a potential borrower have one or more months of "reserve assets" available. In other words, the borrower may be required to show the availability of enough assets to pay for the housing costs (including mortgage, taxes, etc.) for a period of time in the event of the job loss or other loss of income.

Many countries have lower requirements for certain borrowers, or "no-doc" / "low-doc" lending standards that may be acceptable in certain circumstances.

Loan to Value And Downpayments

noreply@blogger.com (Unknown) — Wed, 29 Jun 2011 09:25:00 +0000

Upon making a mortgage loan for the purchase of a property, lenders usually require that the borrower make a downpayment; that is, contribute a portion of the cost of the property. This downpayment may be expressed as a portion of the value of the property (see below for a definition of this term). The loan to value ratio (or LTV) is the size of the loan against the value of the property. Therefore, a mortgage loan in which the purchaser has made a downpayment of 20% has a loan to value ratio of 80%. For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.

The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan: the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.

Counterparty risk

noreply@blogger.com (Unknown) — Wed, 29 Jun 2011 09:24:00 +0000

Counterparty risk, otherwise known as default risk, is the risk that an organization does not pay out on a bond, credit derivative, credit insurance contract, or other trade or transaction when it is supposed to.Even organizations who think that they have hedged their bets by buying credit insurance of some sort still face the risk that the insurer will be unable to pay, either due to temporary liquidity issues or longer term systemic issues.

Large insurers are counterparties to many transactions, and thus this is the kind of risk that prompts financial regulators to act, e.g., the bailout of insurer AIG.

On the methodological side, counterparty risk can be affected by wrong way risk, namely the risk that different risk factors be correlated in the most harmful direction. Including correlation between the portfolio risk factors and the counterparty default into the methodology is not trivial

Sovereign risk

noreply@blogger.com (Unknown) — Wed, 29 Jun 2011 09:23:00 +0000

Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees.The existence of sovereign risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country. Firstly one should consider the sovereign risk quality of the country and then consider the firm's credit quality.

Five macroeconomic variables that affect the probability of sovereign debt rescheduling are:

Debt service ratio
Import ratio
Investment ratio
Variance of export revenue
Domestic money supply growth

The probability of rescheduling is an increasing function of debt service ratio, import ratio, variance of export revenue and domestic money supply growth. Frenkel, Karmann and Scholtens also argue that the likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains. Saunders argues that rescheduling can become more likely if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries/investors.

Assessing credit risk

noreply@blogger.com (Unknown) — Wed, 29 Jun 2011 09:22:00 +0000

Significant resources and sophisticated programs are used to analyze and manage risk. Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit (or not) accordingly. They may use in house programs to advise on avoiding, reducing and transferring risk. They also use third party provided intelligence. Companies like Standard & Poor's, Moody's Analytics, Fitch Ratings, and Dun and Bradstreet provide such information for a fee.

Most lenders employ their own models (credit scorecards) to rank potential and existing customers according to risk, and then apply appropriate strategies. With products such as unsecured personal loans or mortgages, lenders charge a higher price for higher risk customers and vice versa. With revolving products such as credit cards and overdrafts, risk is controlled through the setting of credit limits. Some products also require security, most commonly in the form of property.

Credit scoring models also form part of the framework used by banks or lending institutions grant credit to clients. For corporate and commercial borrowers, these models generally have qualitative and quantitative sections outlining various aspects of the risk including, but not limited to, operating experience, management expertise, asset quality, and leverage and liquidity ratios, respectively. Once this information has been fully reviewed by credit officers and credit committees, the lender provides the funds subject to the terms and conditions presented within the contract (as outlined above).

Credit risk has been shown to be particularly large and particularly damaging for very large investment projects, so-called megaprojects. This is because such projects are especially prone to end up in what has been called the "debt trap," i.e., a situation where – due to cost overruns, schedule delays, etc. – the costs of servicing debt becomes larger than the revenues available to pay interest on and bring down the debt.

Quicken Loans

noreply@blogger.com (Unknown) — Sat, 21 May 2011 13:10:00 +0000

Quicken Loans Inc., headquartered in Detroit, Michigan, is the largest online mortgage lender and the 5th largest retail mortgage lender overall in the USA. The company consists of the QuickenLoans.com online lending site, the Rock Financial brand in southeast Michigan, One Reverse Mortgage,[1] based in San Diego, California, and Title Source, a mortgage settlement service provider. In 2010, Quicken Loans processed approximately $29 billion in residential mortgage loans.

The company employs about 3,700 people and is listed as one of the Top 30 Best Places to Work in America by Fortune magazine, a notable mention it has held for several years.

Insurance

noreply@blogger.com (Unknown) — Sat, 21 May 2011 13:09:00 +0000

The Insurance segment activities include offering property, casualty, life and credit insurance as an underwriter and as an insurance agency, and providing reinsurance coverage to primary mortgage insurers, through two business units: Balboa Life and Casualty Operations, and Balboa Reinsurance Company.

Balboa Life and Casualty Group underwrite property, casualty, life and credit insurance in all 50 states through the Balboa Life and Casualty Group. Its products include Lender-Placed Property and Auto, which includes lender-placed auto insurance and lender-placed, real-property hazard insurance; Voluntary Homeowners and Auto, which underwrites retail homeowners insurance and home warranty plans for consumers, and Life and Credit, which underwrites term life, credit life and credit disability insurance products.

Balboa Reinsurance Company provides a mezzanine layer of reinsurance coverage for losses between minimum and maximum specified amounts to the insurance companies that provide private mortgage insurance (PMI) on loans in its servicing portfolio. It provides this coverage with respect to substantially all of the loans in the Company's portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80% of the property's appraised value. In return for providing this coverage, it earns a portion of the PMI premiums.

Bank of America Home Loans

noreply@blogger.com (Unknown) — Sat, 21 May 2011 13:07:00 +0000

Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:
Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion. In 2006 Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of United States GDP, a proportion greater than any other single mortgage lender.
Banking, which operates a federally chartered thrift that primarily invests in mortgage loans and home equity lines of credit primarily sourced through its mortgage banking operation.
Capital Markets, which operates as an institutional broker-dealer that primarily specializes in trading and underwriting mortgage-backed securities.
Global Operations, which provides mortgage loan application processing and loan servicing.

During the year ended December 31, 2005, for example, the Mortgage Banking segment generated 59% of the company's pre-tax earnings.

On January 11, 2008, Bank of America announced that it planned to purchase Countrywide Financial for $4.1 billion in stock. On June 5, 2008, Bank of America Corporation announced it had received approval from the Board of Governors of the Federal Reserve System to purchase Countrywide Financial Corporation. Then, on June 25, 2008, Countrywide announced it had received the approval of 69% of its shareholders to planned merger with Bank of America. On July 1, 2008, Bank of America Corporation completed its purchase of Countrywide Financial Corporation. In 1997, Countrywide had spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank.[1] Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run

Arguments against debt

noreply@blogger.com (Unknown) — Sat, 21 May 2011 12:59:00 +0000

Some argue against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Islam forbids lending with interest even today, while the Catholic Church allowed it from 1822 onwards, and the Torah states that all debts should be erased every 7 years and every 50 years (in the Jubilee year, as described in the Book of Leviticus).

Debt will increase through time if it is not repaid faster than it grows through interest. This effect may be termed usury, while the term "usury" in other contexts refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted.

In international legal thought, Odious debt is debt that is incurred by a regime for purposes that do not serve the interest of the state. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state.

In an economy with high interest rates, debt will be more costly to a business than more flexible dividends on equity investment. It may be easier for a struggling business to be financed through equity investment as it may be possible to avoid paying a dividend if times are hard.

At the household level, debts can also have detrimental effects. In particular when households make spending decisions assuming income to remain the same -or increase- for the years to come. When households take-on credits based on this assumption, life events can easily change indebtedness into over-indebtedness. Such life events include unexpected unemployment, relationship break-up, leaving the parental home, business failure, illness or home repairs. Over-indebtedness has severe social consequences, such as, financial hardship, poor health (physical and mental), family stress, stigma, barriers to obtaining employment, exclusion from basic financial services (European Commission, 2009), work accidents and industrial disease, a strain on social relations (Carpentier and Van den Bosch, 2008), absenteeism at work and lack of organisational commitment (Kim et al, 2003), feeling of insecurity, and relational tensions.

Effects of debt

noreply@blogger.com (Unknown) — Sat, 21 May 2011 12:59:00 +0000

Debt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources).

Excesses in debt accumulation have been blamed for exacerbating economic problems.[3] For example, prior to the beginning of the Great Depression debt/GDP ratio was very high. Economic agents were heavily indebted. This excess of debt, equivalent to excessive expectations on future returns, accompanied asset bubbles on the stock markets. When expectations corrected, deflation and a credit crunch followed. Deflation effectively made debt more expensive and, as Fisher explained, this reinforced deflation again, because, in order to reduce their debt level, economic agents reduced their consumption and investment. The reduction in demand reduced business activity and caused further unemployment. In a more direct sense, more bankruptcies also occurred due both to increased debt cost caused by deflation and the reduced demand.

It is possible for some organizations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the creditor hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt.

Debt, inflation and the exchange rate

noreply@blogger.com (Unknown) — Sat, 21 May 2011 12:58:00 +0000

As noted below, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common[citation needed] to agree to "US dollar denominated" debt.

The form of debt involved in banking accounts for a large proportion of the money in most industrialised nations (see money, broad money, and demand deposits for a discussion of this). There is therefore a relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide.

Inflation indexed debt
Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS) and I-bonds. These are one of the safest forms of investment available, since the only major source of risk — that of inflation — is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government.

In countries with consistently high inflation, ordinary borrowings at banks may also be inflation indexed.

Types of debt

noreply@blogger.com (Unknown) — Sat, 21 May 2011 12:57:00 +0000

A company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into: 1) secured and unsecured debt, 2) private and public debt, 3) syndicated and bilateral debt, and 4) other types of debt that display one or more of the characteristics noted above.[1]

A debt obligation is considered secured, if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.

Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions.

A basic loan is the simplest form of debt. It consists of an agreement to lend a principal sum for a fixed period of time, to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date.

In some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid; the additional principal has the same economic effect as a higher interest rate (see point (mortgage)), and is sometimes referred to as a banker's dozen, a play on "baker's dozen" – owe twelve (a dozen), receive a loan of eleven (a banker's dozen). Note that the effective interest rate is not equal to the discount: if one borrows $10 and must repay $11, then this is ($11–$10)/$10 = 10% interest; however, if one borrows $9 and must repay $10, then this is ($10–$9)/$9 = 11 1/9 % interest.[2]

A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum. Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity.

A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investors in a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond's life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond. Bonds may be traded in the bond markets, and are widely used as relatively safe investments in comparison to equity.

Debt