Fair value is used in the valuation of an asset and is the value at which an asset is exchanged between the parties. In other words, the fair value is the transaction amount paid between parties in the open market. It is also used in stock or share price.Market value is the value of assets decided by market. Market value is calculated based on present market price or stock price. Market value depends on demand & supply and willingness of investors. Not always market price and fair value are the same.Fair value of calculated based onMarket priceComparable prices of similar ... Read More

Let us learn about mutual funds and exchange traded funds before understanding the differences between them.Exchange traded fundsIt is a fund which is traded on the stock exchange. Stocks and bonds come under exchanged traded funds. Price in the exchange traded funds varies throughout the day. Generally, fees in exchange traded funds are low and high liquidity.Exchange traded funds are used in hedging, arbitrage and equitizing cash. Exchange traded fund shareholders get part of profit in terms of dividends and interest earned. In liquidation they get residual value.In exchange traded funds, the following is applicable−No minimum investment is required.Broker fee ... Read More

Cash flow risk is defined as the variability of cash flows for an existing asset or liability of future transactions due to particular risk. Cash flow hedges protect margins, revenues and expenses of companies from foreign exchange riskFacts to know about cash flow hedges are as follows −To receive special accounting treatment, hedged exposures must meet specific guidelines.Exposure Timing and probability are very important.Birth of cash flow exposure.Reduces derivative trading volume for exposure maturity of hedging cash flows.Account for cash flow hedgeStep 1 − At reporting date gain or loss on hedging instrument and hedged item is determined.Step 2 − Both effective ... Read More

Cash flow hedge is an investment method used to control and mitigate any sudden change in either cash inflow or cash outflow of an asset/liability/forecasted transaction. Sudden change is due to various reasons like change in interest rate, change in prices, fluctuations in foreign exchange rates. Transaction with another party on a future date is called a forecasted transaction.Accounting for cash flow hedgeHedging item (effective portion of loss or gain recognized in other comprehensive income and ineffective portion of loss or gain is recognized in earnings).Hedged item (effective portion of loss or gain is recognized in other comprehensive income initially, ... Read More

It is an investment position taken by an investor or by a company to protect fair value of their specific asset/liability/unrecognised commitment from risk which can affect their profit and loss account.In other words, it is a derivative instrument to balance their risk in other investments to offset potential losses in fair value of their assets/liability/unrecognised commitments.Accounting for fair value of hedge For derivatives of hedging instruments loss or gain is measured according to IAS 21 and for non-derivative hedging instruments is recognized as immediate loss or gain.Carrying amount of the hedged item is adjusted through gain or loss on the ... Read More

People have different goals in terms of investments, some will go for financial securities and some may go for extra income and others may save for retirements etc. to reach their goals people invest in different options like hedge funds, Exchange traded funds, bonds etc.In this, we will compare hedge funds and exchange traded funds.Hedge fundsThese are private portfolio investments, to generate returns it uses management strategies and risk investments. These are open to limited persons and preferences will be given to high net worth investors. Leverages, even short selling and options are different investment strategies used in hedge funds.CharacteristicsOnly ... Read More

Private equity term is used when investors use their funds for acquisition of public entities or in investment in private companies whereas hedge funds are privately owned entities that used to raise funds from investors and invest them back in financial instruments.Private equity funds are used in company acquisition, expansion or to strengthen the balance sheet whereas private equity is used for fundraising.Private equitySignificant parts of private equity are accredited and institutional investors because they can commit large amounts for a longer period of time. Private equity also converts public companies into private companies.Hedge fundsProtecting from financial losses is called ... Read More

Investment is nothing but investors hold the asset or security for a long period of time whereas speculation is for profit making and used usually for a shorter period of time.In other words investments assure amount safety and good returns whereas speculation is opposite to investment that means amount safety and return is not assured. Amount in investment is consistent and the amount in speculation is inconsistent.InvestmentInvestment involves purchase of assets or security hoping it will generate income or expected to appreciate in future. Financial investments include purchasing of bonds or stocks, mutual funds etc. the word investment is not ... Read More

Financial markets are complex and large in size. Before going for differences let us try to understand the terms hedging and forward contract in brief.HedgingIt is the technique which is used to reduce the risk of financial assets. Risk of uncertainty of future income is involved. By hedging they can be certain about future value and date.Some of hedging instruments are as follows −Exchange traded instruments: only traded with standardized investment sizes in organized exchanges.Over the counter instruments: structured exchange is not present or no structured exchange.Commonly used hedging instruments are forwards, futures, options and swaps.Forward contractLet us try to ... Read More

Hedging and speculators play an important role in markets. Hedgers protect themselves against reduced risk of commodities by hedging and by speculation speculators earn profits from changes.HedgingThe term hedging is used to minimize risk of loss due to price movement in the market.This is done by holding two different positions in different markets. In most cases, Loss or gain in one market offset price movements in another market.Some of the advantages are increases liquidity, lowers margin, can invest in various assets, offers flexible price mechanism.Hedging strategies − Forward contract, future contract and money markets.Investors hedge by asset allocation, structure and ... Read More