The Merton model is an analysis model used to assess the credit risk of a company’s debt. Analysts and investors utilize the Merton model to understand how capable a company is at meeting financial obligations, servicing its debt, and weighing the general possibility that it will go into credit default.
Level-premium insurance is term life insurance for which the premiums are guaranteed to remain the same throughout the contract, while the amount of coverage provided increases. As a result, the coverage can be advantageous over time as a policyholder keeps paying the same amount but has access to increased benefit coverage as the policy matures.
Hyperdeflation is an extremely large and relatively quick level of deflation in an economy. Hyperdeflation occurs when the purchasing power of currency rises drastically in a relatively short period of time. This increase results in debts being more pronounced, as the real value of goods and services increases and the value of the currency falls.
In a broad analytical context, noise refers to information or activity that confuses or misrepresents genuine underlying trends. In the financial markets, noise can include small price corrections in the market as well as price fluctuations–called volatility–that distorts the overall trend. However, market noise can make it challenging for investors to discern what’s driving the trend and whether a trend is changing or merely experiencing short-term volatility.
Microcredit is a common form of microfinance that involves an extremely small loan given to an individual to help them become self-employed or grow a small business. These borrowers tend to be low-income individuals, especially from less developed countries (LDCs). Microcredit is also known as microlending or microloan.
Mergers and acquisitions (M&A) is a general term used to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. The term M&A also refers to the desks at financial institutions that deal in such activity.
Organic reserve replacement is the supply of oil reserves which an oil company acquires through exploration and production, rather than by purchasing a proven reserve. Recoverable reserves are oil and gas reserves which are economically and technically feasible to extract at the existing price of oil, within current economic conditions, operating methods, and government regulations.
The net interest rate spread is the difference between the average yield that a financial institution receives from loans—along with other interest-accruing activities—and the average rate it pays on deposits and borrowings. The net interest rate spread is a key determinant of a financial institution’s profitability (or lack thereof).
An IBAN, or international bank account number, is a standard international numbering system developed to identify an overseas bank account. The number starts with a two-digit country code, then two numbers, followed by up to third-five alphanumeric characters. However, an IBAN does not replace a bank’s own account number, as it’s only meant to provide additional information that helps in identifying overseas payments.
A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’s (franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name. In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing fees.