A hedge fund (HF) is a type of alternative investment that seeks to generate high returns by investing in a pool of underlying securities. In other words, it’s a group of investors’ funds pooled together to purchase investments.
Explanation :
Hedge funds implement a range of different strategies, including long and short positions to leverage (hedge)
investment risk and capitalize on investment opportunities. By opening a long position, a HF is buying stocks, whereas by opening a short position, the HF is borrowing the underlying asset, and it sells the stocks to buy them later at a lower price. Hedge fund strategies are classified based on what they seek to achieve and on the investment profile of the investor. Although currently not regulated by the U.S. Securities And Exchange Commission, they may invest in securities, bonds, derivatives, and real estate assets, offering geographical diversification as well as exposure to the domestic markets.
In a nutshell :
- Hedge funds are actively managed alternative investments that typically use non-traditional and risky investment strategies or asset classes.
- Hedge funds charge much higher fees than conventional investment funds and require high minimum deposits.
- The number of hedge funds has been growing by approximately 2.5% over the past five years but they remain controversial.
- Hedge funds were celebrated for their market-beating performances in the 1990s and early 2000s, but many have underperformed since the financial crisis of 2007-2008, especially after fees and taxes are factored in.
GAAP stands for Generally Accepted Accounting Principles. As the name implies, these principles make up the rules and concepts of financial accounting that are generally accepted in the United States. GAAP is the standard in accounting. The entire point of GAAP is to make
financial statements and reporting relevant, reliable, and comparable for people who use the financial information.
Explanation :
Basically, a company or an accountant puts a bunch of numbers down on a form and expects people to understand and trust the numbers are correct. What happens if one accountant does something one way and another does something the complete opposite way? How would anyone be able to compare financial statements of two companies if they were prepared using different standards and assumptions? You won’t be able to.
In a nutshell :
- GAAP is the set of accounting principles set forth by the FASB that U.S. companies must follow when putting together financial statements.
- GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information.
- GAAP may be contrasted with pro forma accounting, which is a non-GAAP financial reporting method.
- The ultimate goal of GAAP is to ensure a company’s financial statements are complete, consistent, and comparable.
Financial accounting is the area of accounting that focuses on providing external users with useful information. In other words, financial accounting is a way of reporting business activity and financial information to investors, creditors, and other people outside the business organization.
Explanation :
Investors and creditors are often called external users because they are people outside of the organization who use the company financial information to make decisions. The most common form of
financial information issued to external users by companies is a general purpose set of financial statements.
In a nutshell :
- Financial Accounting follows either the accrual basis or the cash basis of accounting.
- Nonprofits, corporations, and small businesses use financial accountants.
- Financial reporting occurs through the use of financial statements in five distinct areas.
Earned income represents the taxable income earned from paid employment, business ownership, or from disability payments. In essence, this is payment for labor or services rendered.
Explanation :
In general, earned income includes wages, salaries, and/or tips, union strike benefits, long-term disability benefits received prior to retirement age, and net earnings from employment as a business owner or a statutory employee. On the contrary, earned income does not include dividends from
investment, interest earned on a bank account, social security, retirement income, unemployment benefits and child support/alimony. Eligible beneficiaries can choose if they want their non taxable earned income to appear on their Wage and Tax Statement W-2 Form, depending on whether including the earned income increases or decreases their Earned Income Tax Credit (EITC).
In a nutshell :
- Earned income is any income received from a job or self-employment.
- Earned income may include wages, salary, tips, bonuses, and commissions.
- Income derived from investments and government benefit programs would not be considered earned income.
- Earned income is often taxed differently from unearned income.
Data integrity is the degree in which data sets can remain unaltered after changes or updates have been performed in the database. It is a concept that measures the accuracy of stored data.
Explanation :
The integrity of stored data is essential in the digital environment as most of the records and information produced by companies and organizations is now stored digitally, the risks of losing data even partially must be avoided as much as possible. Systems have many different methods to ensure data integrity, the most popular among them being error checking, validation procedures and backups. On the other hand, all data should be interconnected. This way, if data is partially or entirely lost somewhere, it can be traced back to another point, therefore avoiding a complete loss. Data integrity can be compromised by external intrusions, damaged hardware, malware and viruses, human error, update failures or errors experienced during a transfer or a replication. On the other hand, access to raw data or certain levels of data should be restricted by using authorization structures that allow or deny certain individuals to make changes or to erase data without previous clearance. Databases should be equipped to react properly to any of these scenarios, to protect data integrity.
In a nutshell:
- Data integrity is the overall accuracy, completeness, and consistency of data. Data integrity also refers to the safety of data in regard to regulatory compliance , such as GDPR compliance and security.
- It is maintained by a collection of processes, rules, and standards implemented during the design phase.
- When the integrity of data is secure, the information stored in a database will remain complete, accurate, and reliable no matter how long it’s stored or how often it’s accessed.
A C-corporation is a fictitious legal entity that is created to run a business by common ownership. In other words, one or more people get together and create a C-corporation by creating ownership shares. The corporation itself is nothing more than a legal entity. The corporation can own assets and have liabilities separate from its owners– the shareholders. This is one of the great advantages C-corporations have over Sole proprietorships and Partnerships. The C-corporation’s liabilities cannot pass onto the owners.
Explanation:
This is the main reason why business owners decide to incorporate. The C-corporation provides limited liability protection. The reason I refer to this as “limited liability” instead of unlimited liability is because the owners are always liable for their
investment in the corporation. If the corporation goes bankrupt, the owners will lose the money they paid for their shares. Here’s an example of the advantages of a C-corporation.
In a nutshell:
- A C Corporation legally separated owners’ or shareholders’ assets and income from that of the corporation.
- C corporations limit the liability of investors and firm owners since the most that they can lose in the business’s failure is the amount they have invested in it.
- C corporations are mandated to hold annual meetings and have a board of directors that is voted on by shareholders.
A bank rate is the interest rate at which a nation’s central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.
Types of bank rates :
- Primary Credit
- Secondary Credit
- Seasonal Credit
Explanation:
Bank Rates in India are determined by the RBI. It is usually higher than a Repo Rate on account of its ability to regulate liquidity. The interest rate is charged by a nation’s central financial authority that controls the money supply in the economy as well as the
banking sector. This is usually done quarterly to stabilize inflation and control the country’s exchange rates.
When a bank rate changes it triggers a domino effect that influences every sphere of a country’s economy. For example prices in the stock market change due to fluctuations in interest rate changes. A change in bank rate affects customers as it affects the rates at which they can take loans.
In a nutshell:
- The bank rate is the interest rate charged by a nation’s central bank for borrowed funds.
- The Board of Governors of the U.S. Federal Reserve System set the bank rate.
- The Federal Reserve may increase or decrease the discount rate to slow down or stimulate the economy, respectively.
- There are three types of credit issued by the Federal Reserve to banks: primary credit, secondary credit, and seasonal credit.
- Contrary to the bank rate, the overnight rate is the interest rate charged by banks loaning funds to each other.
The amount due to creditors after acquiring goods or services on credit has to be paid back in a short period. It is a short-term liability that appears on the balance sheet under current liability.
In the IFRS, accounts payable are referred to as trade payables, which are debts created by formal legal documents. Accounts payable are important for a business to keep its cash flow healthy.
Explanation:
Under the current liabilities section of a company’s balance sheet is the amount of accounts payable that the company has owed at a particular time. Defaults can be avoided by making accounts payable. Payables, at an organizational level, are short-term debt payments due to suppliers. One business sends a payable to another business on a short-term basis. As a result, its receivables would increase.
Accounts payable is an essential figure on a company’s balance sheet. When the amount of accounts payable (AP) increases over the previous period, that means that more goods or services are being purchased on credit, rather than paid for with cash. A business’s cash flow is greatly influenced by accounts payable management.
When a company owes money to another company for services rendered or products provided but has not yet paid, a payable is created. In some cases, this will be in the form of purchase on credit from a vendor or a subscription or payments due after the goods or services are received.
In a nutshell:
- Payables are amounts owed to vendors or suppliers for goods or services delivered, but not yet paid.
- In a balance sheet of a company, the accounts payable balance includes all outstanding payments owed to vendors.
- In the cash flow statement, you will see whether the total AP increased or decreased from the prior period.
- To enhance cash flow, management may decide to pay outstanding bills close to their due dates whenever possible.
