What is a Black Swan?

A black swan is an extremely rare event with severe consequences. It cannot be predicted beforehand, though many claim it should be predictable after the fact. Black swan events can cause catastrophic damage to an economy, and because they cannot be predicted, can only be prepared for by building robust systems.

The term was popularised by Nassim Nicholas Taleb, a finance professor who argued that even though they are impossible to predict due to their extreme rarity, it is important for people to assume that a black swan event is a possibility and plan accordingly.

Example- The financial crash of the U.S. housing market during the 2008 crisis is one of the well-known black swan events. The effect of the crash was catastrophic and global, and only a few outliers were able to predict it happening.

Cash Flow From Operating Activities (CFO)

Cash flow from operating activities (CFO) indicates the amount of money a company brings in from its ongoing, regular business activities, such as manufacturing and selling goods or providing a service to customers. It is the first section depicted on a company’s cash flow statement.

There are two methods for depicting cash from operating activities on a cash flow statement: the indirect method and the direct method.

-The indirect method begins with net income from the income statement then adds back noncash items to arrive at a cash basis figure.

-The direct method tracks all transactions in a period on a cash basis and uses actual cash inflows and outflows on the cash flow statement.

What is Anchor Investor?

It is a concept launched by Securities Exchange Board of India. Anchor investors are institutional investors who are invited to subscribe the shares before the Initial Public Offers (IPOs) opens up so that it jazzes up the popularity of its issue. They are required to take up the share at a fixed price to make other investors confident and improve the demand of the share.

Each anchor investor needs to invest a minimum of 10 crore Rupees in the issue.

What is a Clearing House?

A clearing house acts as an intermediary between a buyer and seller and seeks to ensure that the process from trade inception to settlement is smooth. Its main role is to make certain that the buyer and seller honor their contract obligations. Their responsibilities include settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery of the bought/sold instrument, and reporting trading data.

The clearing house enters the picture after a buyer and seller have executed a trade. In acting as the middleman, a clearing house provides the security and efficiency that is integral for financial market stability.

What Is the Cash Conversion Cycle (CCC)?

CCC is a metric that expresses the time (measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales. This metric takes into account how much time the company needs to sell its inventory, how much time it takes to collect receivables, and how much time it has to pay its bills without incurring penalties.

If CCC is low or negative number, that means working capital isn’t tied up for long, and business has greater liquidity.

What Is a Bubble?

A bubble is a rapid escalation of asset prices followed by a contraction, often created by a surge in asset prices that is fundamentally unwarranted. Changes in investor behavior are the primary causes of bubbles that form in economies, securities, stock markets and business sectors.

Types of Bubbles are-

1- Market Bubble

2- Commodity Bubble

Example- U.S Housing Bubble

What Is Zombie Debt?

It is a debt that has fallen off your credit report but, for various reasons, someone is still trying to collect. Zombie debt has often been long forgotten and has probably been written off as uncollectable. There is no legal obligation to pay back zombie debt, but debt collectors can be aggressive and unscrupulous in their attempts to get people to pay.

What is Mortgage Bond?

A mortgage bond is secured by a mortgage, or a pool of mortgages, that are typically backed by real estate holdings and real property such as equipment. They are tend to be safer than corporate bonds and typically have a lower rate of return.

In the event of a default situation, mortgage bondholders could sell off the underlying property backing a bond to compensate for the default.

What Is a Balloon Loan

A balloon loan is a loan that you pay off with a large single, final payment. Instead of a fixed monthly payment that gradually eliminates your debt, you typically make relatively small monthly payments. But those payments are not sufficient to pay off the loan before it comes due. As a result, you need to make a final “balloon” payment to pay off the remaining loan balance, and that payment may be significant.

What Is an Investment Banker?

An investment banker is an individual who often works as part of a financial institution and is primarily concerned with raising capital for corporations, governments, or other entities.

An investment banker can save a client time and money by identifying risks associated with a particular project before a company moves forward. Businesses and non-profit institutions often turn to investment bankers for advice on how best to plan their development.