A normal prisoner’s dilemma played repeatedly by the same participants. An iterated prisoner’s dilemma differs from the original concept of a prisoner’s dilemma because participants can learn about the behavioral tendencies of their counterparty. Taobiz explains Iterated Prisoner's Dilemma Since the game is repeated, one individual can formulate a strategy that does not follow the regular logical convention of an isolated round. "Tit for tat" is a common iterated prisoner’s dilemma strategy.
1. The process of offering securities as an attempt to raise funds. Companies may issue bonds or shares to investors as a method of financing the business. 2. A series of stocks or bonds that have been offered to the public. A bond or stock issue relates to the set of instruments that were released under one offering. Taobiz explains Issue 1. The issuance of securities can take many forms. Companies may have a new issue, where securities are released for the first time, or a seasoned issue, where an established firm offers additional shares. 2. For example, let's say a company sells a group of 10-year bonds to the public. That set of bonds will be referred to as a single issue
The total amount of credit extended to a borrower by a lender. The magnitude of credit exposure indicates the extent to which the lender is exposed to the risk of loss in the event of the borrower's default. Credit exposure can be minimized through purchasing credit default swaps or other types of financial instruments. |||For example, if a bank has made short-term and long-term loans totaling $100 million to company A, its credit exposure to company A is $100 million. In general, a bank will seek to have greater credit exposure to its customers with the highest credit rating, and less exposure to clients with a lower credit rating. If a customer encounters unexpected financial problems, the bank may seek to reduce its credit exposure in order to mitigate the risk of loss arising from a potential default.
A legal entity that develops, registers and sells securities for the purpose of financing its operations. Issuers may be domestic or foreign governments, corporations or investment trusts. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions. The most common types of securities issued are common and preferred stocks, bonds, notes, debentures, bills and derivatives. Taobiz explains Issuer Say ABC Corp. sells common shares to the general public on the market in order to generate capital to finance its business operations. This means ABC Corp. is an issuer, and it's therefore required to file with regulators, such as the Securities and Exchange Commission, disclosing relevant financial information about the company. ABC must also meet any legal obligations or regulations in the jurisdiction where it issued the security. Writers of options are occasionally referred to as issuers of options because they also sell securities on a market.
A method whereby a company attempts to improve its debt or credit worthiness. Through credit enhancement, the lender is provided with reassurance that the borrower will honor the obligation through additional collateral, insurance, or a third party guarantee. Credit enhancement reduces credit/default risk of a debt, thereby increasing the overall credit rating and lowering interest rates. |||Credit enhancement is used to obtain better terms for an outstanding debt. Securitization, posting collateral and obtaining external credit enhancement such as a letter of credit are some basic forms of credit enhancement. Firms may also increase cash reserves or take other internal measures to uphold superior solvency ratios.
The number of authorized shares that is sold to and held by the shareholders of a company, regardless of whether they are insiders, institutional investors or the general public. Also known as "issued stock". Taobiz explains Issued Shares Issued shares include the stock that a company sells publicly in order to generate capital and the stock given to insiders as part of their compensation packages. Unlike shares that are held as treasury stock, shares that have been retired are not included in this figure. The amount of issued shares can be all or part of the total amount of authorized shares of a corporation. The total number of issued shares outstanding in a company is most often shown in the annual report.
An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public. By investing in an IPO ETF, investors hope to gain exposure to IPOs during their initial introduction to the market, while diversifying their investment across a pool of IPOs from varying sectors and industries. Watch: Initial Public Offering (IPO) Taobiz explains IPO ETF The main appeal behind IPO ETFs is that investors want to be in "on the ground floor" of an up-and-coming company, and take advantage of the potential upside growth in the share price. IPOs, however, are not guaranteed to be successful holdings and may even decrease in value in the weeks and months following the initial offering. In addition, expenses and fees associated with ETFs can eat away at earnings accrued by these specialty ETFs.
A method of redeeming bonds using surplus funds provided from an unrelated bond issue. Cross calling occurs when a lender, which repackages its loans into new securities, uses prepayments from low interest rate loans to repay principal on the high-yield securities. |||The practice of cross-calling is seen in the mortgage-backed securities (MBS) market. However, it is seen as taboo because it shifts risk from high-yield investors to low-yield ones.For example, let's examine a simple bank that has issued two mortgages with interest rates of 5% and 10%. The bank converts these into mortgage-backed securities and sells them to investors with coupon rates of 7% and 15%, respectively. Cross calling involves using prepayments from the 5% mortgage to pay principal on the 15% MBS. While this pays off the more risky bond faster, it forces the 7% bondholders to rely on risky payments from the 10% mortgage. The 7% bondholders are not compensated for the additional risk and the bank saves by making smaller interest payments.
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