International Business Finance

Modes of Transferring Capital or Funds from Savers to Borrowers

In economics, a financial market refers to a media that allows people to buy, sell, create and exchange financial securities such as share and bonds, commodities such as basic agricultural goods and precious metals, and other fungible items of value at low transaction costs and at prices that reflect the efficient-market.

Both general markets where many commodities are traded and specialized markets where only one commodity is traded exist in financial market. Markets work by placing many interested buyers and sellers in one media, thus making it easier for them to find each other. The financial markets can be divided into different types such as capital markets, commodity markets, money markets, insurance market and foreign exchange market.… Read the rest

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Key Differences Between GAAP and IFRS

The differences between International Financial Reporting Standards (IFRS) and GAAP are numerous. International Financial Reporting Standards (IFRS) are principles-based accounting Standards, Interpretations and Framework adopted by the International Accounting Standard Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). Generally Accepted Accounting Principles (GAAP) is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statement.… Read the rest

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International Accounting Standard 37 (IAS37)

The International Accounting Standards Committee (IASC) issued IAS37 Provisions, Contingent Liabilities and Contingent Assets in September 1998. It replaced parts of IAS10 Contingencies and became operative for annual financial statements covering periods beginning on or after 1 July 1999.

Before the announcement of IAS37, different countries use various ways to verify their provisions, which bring the problem of inconsistency. Some enterprises confirm their provisions, depending on whether to undertake current obligation or not. While some other enterprises are according to managers’ willingness of proceeding future payments to confirm their preparations. Therefore, the results are:

  • Different types of business enterprises have different classification of provisions, so it creates inconsistency.
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Important Perspectives on Asset Securitization

Asset securitization is the transformation of a mix of illiquid individual loans that are combined into relatively similar pools and transformed into highly liquid bonds traded in securities markets and usually, when securities are backed by non-mortgage loans, they are referred to as asset-backed securities (ABS). Securities issued exclusively against credit and loans with mortgage guarantees are referred to as mortgage-backed securities (MBS). Assets like ABS, MBS and it likes are now widely spread in fixed income portfolios at both the institutional and individual investor level. Although the largest and most well known example of asset securitization is the residential mortgage market.… Read the rest

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The Role of Asset Securitization in Financial Crisis

The financial crisis showed its first signs in the first quarter of 2006 when the housing market turned. A number of subprime mortgages, that were designed with a high interest payment began to default. Many of the loans were highly risky and only possible due to the clever creation of products like “2/28” and “3/27” adjustable rate mortgages (ARMs). These loans offered a fixed rate for the first two or three years, and then adjustable rates for the remaining twenty- eight or twenty-seven years, respectively. After the first two or three years, the adjustment of rates would be substantial enough as to be unaffordable for the subprime borrowers; thus, the mortgages were designed to be refinanced.… Read the rest

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Implications of Asset Securitization

Asset securitization can be defined as the partial or complete segregation of a specific set of cash flows from a corporation’s other assets and the issuance of securities based on these cash flows, i.e exchanging one asset for another. The types of financial assets involved in asset securitization transactions are often receivables. The practice of securitization originated with the sale of securities backed by residential mortgages, but the framework of asset securitization has rapidly expanded from its initial root of mortgages and receivables to other more variable cash flows in home equity loan markets, commercial loan markets, credit card receivables, auto loans, small-business loans, corporate loans, state lottery winnings, and litigation settlement payments and other types of loans.… Read the rest

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