Archive for the ‘Levels’ Category

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What’s the difference between futures and options?

Wednesday, October 21st, 2009

Options and futures are both contracts under which you agree to buy or sell an asset at a later date, but the main difference is that options offer you just that – an option to buy. You have to pay a premium for an option, but in return you are not obligated to do anything: you can choose to buy the agreed-upon assets at any time during the period set out in the contract, but you are never required to do so.

Futures contracts come with no premium attached, but they do impose obligations on both buyer and seller. When the predetermined time comes, the buyer absolutely must buy the assets, and the seller must sell them. In addition, the value of the assets used in futures contracts are usually greater than those used for options, so there’s much more risk in a futures contract: by the time you have to buy (or sell) your assets, their value may have changed dramatically, for better or for worse, but you still have to buy (or sell) at the price agreed upon when the futures contract was drawn up.

When is a pig better than cash?

Wednesday, October 21st, 2009

For many of the poorest people around the world, holding onto cash is just as difficult as getting their hands on it in the first place. For one thing, lacking food or basic necessities, there are immediate needs that cash will go to right away. Nothing is invested, which makes it harder for a person to make more money and eventually, escape from poverty. Too many hungry children or parents in desperate need of medicine siphon off cash as soon as it appears, trapped in an endless cycle of poverty.

For this reason, many microfinance and poverty-alleviation institutions are making loans of durable goods like pigs, bicycles, or refrigerators rather than cash. These are called in-kind loans. It’s much harder to give away pieces of a pig (until it’s eventually butchered of course), so it tends to last longer – hopefully long enough to grow from a small, inexpensive piglet to a fat hog that will fetch a good price at the market and allow its owner to repay the loan and, hopefully, reinvest the profit.

This isn’t to say that cash loans don’t help – they can save lives – but it’s also important that the people receiving the loan know how and are able to turn that cash into a durable asset that will reap greater returns and profit in the long term.

Money Laundering is…

Tuesday, October 20th, 2009

Money laundering is when someone passes illegally received money through banks, businesses, or other institutions so that it appears to have been acquired legally. You launder dirty money to make it appear clean.

Regulation is…

Tuesday, October 20th, 2009

Regulation is when government or other agencies supervise companies to control certain behaviors and activities. For example, the Environmental Protection Agency supervises companies and organizations to make sure their activities don’t negatively impact the environment through pollution or irresponsible use of resources.

Overdraft Protection is…

Tuesday, October 20th, 2009

Overdraft protection is a service offered by some banks that can prevent you from bouncing checks and incurring fees (not to mention annoying anyone you write checks to). Normally, if you spend more money than you currently have in your account using a check or debit card, your check might bounce or payment might otherwise not go through and the institution you’re paying can charge you a fee (not to mention getting mad and maybe not wanting to do business with you in the future).

If you have overdraft protection, though, your bank will automatically pay the bill on your behalf (usually up to a certain limit) so the people you do business with won’t charge you or get mad. You will, of course, have to pay the bank’s fees for the service, so it’s better to know how much you have in your account before you go on any spending sprees.

A Parent Company is…

Tuesday, October 20th, 2009

A parent company is a company that owns a smaller company, called a subsidiary. The parent company can exercise some control over the subsidiary but also provide it benefits, much like a parent does with their children. When you’re a kid, your parents might give you a curfew, but they also do things like buy you food and clothes. Fortunately for kids, however, parents can’t liquidate their children for cash!

What happens when you pay your credit card bills late?

Tuesday, October 20th, 2009

When you don’t pay credit card bills on time, your credit score takes a hit, and a low credit score makes your life difficult in multiple ways. Your credit score basically reflects how trustworthy you are when it comes to paying back credit, and any time you need credit or insurance, the lenders involved are going to look at your credit score. A low credit score may be enough reason for a lender to refuse you a loan outright or for an insurer to decide you’re too risky, and even if you are granted credit, it may be at a higher interest rate or with stricter terms and conditions.

Although different companies calculate credit scores differently, paying your bills late is one thing that’s basically guaranteed to lower it. Paying on time, however, has the opposite effect, and the longer you go without missing a payment, the better your credit score looks. Basically, a high credit score tells credit and insurance companies that you’re a responsible person, and they’ll treat you better for it – it’s a way to make a good impression from the start.

A Stakeholder is…

Tuesday, October 20th, 2009

A stakeholder is someone who has a financial interest in something, like a business, and is involved in the success or failure of the company.

Who is Warren Buffet?

Tuesday, October 20th, 2009

Warren Buffet, a.k.a. the “Oracle of Omaha,” has become famous and extremely rich by making very successful investments through his company Berkshire Hathaway, which was a textile firm when he took it over in 1965. Today he owns controlling stakes in insurance companies like GEICO and General Re, utilities like MidAmerican Energy (MDPWK.PK), and food companies like Dairy Queen and See’s Candies, in addition to large stakes in Coca-Cola (KO), Wells Fargo (WFC) and various other companies. In 2008, he was listed as the world’s richest man with more than $60 billion. Berkshire Hathaway’s stock (BRK-A), has the most expensive share price in the world at around $100,000 a share, but lost a bunch of value since 2008, depleting Warren Buffet’s fortune by an astounding $25 billion in just a year. Poor guy only has about $37 billion left with which to scrape by!

Recently however, the famous investor is also a world-class philanthropist, dedicating 85% of his fortune to charity. Most of the money will be going to the Bill and Melinda Gates Foundation, which Bill Gates runs full time having left his job at Microsoft to devote himself to philanthropy. The rest will go to foundations headed by his three kids. He has said that whatever is left of his fortune will go to philanthropy when he dies, if not before. Even if his fortune weren’t to increase in value at all before that time, those $37 billion dollars would be the largest philanthropic contribution in history. Warren Buffet and Bill Gates provide outstanding examples of all the good that can be accomplished when accomplished people dedicate their time and resources to helping others.

A Check is…

Tuesday, October 20th, 2009

A check is a note that is issued from one entity (like a person or business) to another for the purpose of transferring money. The check itself is a piece of paper that represents deposited money in the check-writer’s bank account, that is to be paid out when the check is “cashed” or deposited by the recipient. A checking account gets its name from the fact that funds may be transferred from the checking account to another account using checks.

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