Decoding Finance
MEANING OF COVERED INTEREST ARBITRAGE Under Covered Interest Arbitrage (CIA) arbitrageur takes the advantage of interest rate differential between two countries by hedging himself under forward contract to earn riskless profit. The term ‘Covered’ means hedging through forward contract in…
MEANING Net Asset Value (NAV) is the value of a unit of a mutual fund. It is a price at which an investor can buy or redeem the units of mutual funds. In other words, we can say that it…
MEANING Expense ratio is an annual fee charged by the mutual funds to meet its expenses which are incurred for managing the funds. A mutual fund is a trust that pools money from a number of investors who share a…
MEANING Mutual Funds are trust that pools money from a number of investors who share a common financial goal and invests the same in equities, bonds, money market instruments and/or other securities. Mutual funds are the most suitable investment for…
What is Put Option? Put Option is a contract between two parties under which option buyer gets the right to sell the underlying or original asset (Stock, bond, index, commodity) at pre-determined price (Strike Price) within a specified period. But…
What is Call Option? Call Option is a contract between two parties under which option buyer gets the right to buy the underlying or original asset (Stock, bond, index, commodity) at pre-determined price (Strike Price) within a specified period. But…
What is option Contract? Option is a contract between two parties to buy or sell an underlying asset. This derivative contract provides buyer a right to buy or sell specified quantity of an underlying on or before a specific date…
DISCUSSION AT A GLANCE Meaning- Derivative is a product or contract or instrument, which get its value from the value of an original or underlying asset or group of assets. Use of Derivative- hedging, speculation, arbitrage or leveraging trades Market…
What is International Fisher Effect Theory ? International Fisher Effect theory is combo of two theories, fisher effect and relative Purchasing Power Parity. According to this theory exchange rate differential between two countries over period of time would be approximately…
What is Fisher Effect Theory? Fisher Effect theory is created by economist Irving Fisher. According to this theory real interest rate equal to nominal interest rate minus expected inflation rate but this is an approximate estimation. This theory decomposes nominal…