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Letter of Credit
Mostly issued by financial institutions, a letter of credit (LC) is a standard document which is primarily used in the trade finances to provide irrevocable payment undertakings. In simple terms, it is a letter from a bank that guarantees that the payment from a buyer to the seller will be for the correct amount and on time. If for any reason, the buyer defaults on the payment, the bank that issued the letter of credit will have to pay the full or remaining amount to the seller.
The are various factors that affect international trade such as the distance between the two parties, differences in the laws of the countries of involved parties and most importantly the possible hurdles of knowing each other personally. Hence, to ensure that the payment will be received, letter of credit is mostly used in international transactions.
Liquidity Ratios
Liquidity Ratios, a class of financial metrics, is the ability of a company to repay its short-term (usually limited to a year) debt obligations. In simpler terms, it measures the ability of a company to pay its bills. It the result of dividing the total cash by the short term borrowings the company has. Generally, the higher the resultant value, the greater the margin of safety the company has to cover its short-term debts. Liquidity ratios is a major indicator of a company’s financial health and can be measured using several ratios that include, quick ratio and the current cash flow ratio.
Current Ratio
The most basic liquidity ratio of all, the current ratio expresses or signifies the company’s ability to pay off short-term creditors out of its total current assets.
Understanding Cash Reserve Ratio and Reverse Repo Rates
Cash Reserve Ratio (CRR)
A Cash Reserve Ration, also known as the Reserve Requirement is a regulation set by Central bank (Federal Reserve or the nation’s governing bank) which dictates the minimum amount (reserves) that a commercial bank (in some cases, any bank) must be held to customer notes and deposits. In simpler terms this is the amount the bank must surrender with/to the Central (governing) Bank.
It is a percentage of bank reserves to deposits and notes. Cash reserve ratio is also known as liquidity ratio or cash asset ratio and is utilized as a tool (sometimes) in monetary policy and as a tool to influence the country’s interest rates, borrowing and economy. The central banks in the western world refrain from altering the reserve requirements or rarely do it as it would result in the banks (that have lower excess reserves) facing immediate liquidity problems and hence to implement their monetary policy, they prefer using open market operations.
Financial Economics
Financial economics is a field of economics that deals with the deployment and allocation of resources, in an uncertain environment, across time as well as spatially and blends the study of finance with the methodology of economics. This branch of economics if further characterized by the heavy presence of monetary activities in which it is said that the money (of any type) is bound to appear on both sides of the trade.
Financial economists are primarily interested in predicting the individual choices of investors and hence they study the interrelations between the financial variables that include shares, interest rates and prices (which are contrary to the real economy). In contrast to finance which studies the markets trading financial products, financial economics focuses on the real or traditional variables of finance using an approach that is consistent with economics.
Urban Economics
In broader terms, urban economics is the study of urban areas. It uses economic tools to analyze the urban issues that include housing, education, public transit, local government finance and crime. In narrower terms, urban economics is a branch of microeconomics that emphasizes on the spatial arrangement of households, firms and capital in a metropolitan area, and the public policy issues that arise from their interplay.
It was William Alonso, von Thunen, Losch and Christaller who initiated the process of spatial economic analysis and rooted urban economics in their location theories. Generally, economics studies the allocation of limited resources effectively and since all economic phenomenons take place within a geographical ‘spatial’ or space, urban economics thus focuses on the allocation of resources across such spatial structures in relation with the urban areas.
Health Economics
A field in applied microeconomics, health economics deals with the issues that relate to the availability of health and healthcare from an economic perspective. On a broader arena, health economists take up the study of operations and functioning of the system of healthcare and the social as well as private causes of health affecting demeanor, like smoking. Examining the economy of healthcare can provide crucial information for such economists in analyzing the effectiveness and efficiency of the healthcare system. Also if there exist wide differences in the health care of a particular region, economic analysis can be an instrumental step to understand the methods of correcting those.
Health economics, according to Alan Williams’ ‘plumbing diagram’ consists of 8 distinct topics.
Public Finance
Public finance is a field in economics that hovers around the subject of government activities, and their administration and design. It primarily concerns with how the governments allocate the resources and spend money for their activities. The broader term for public finance is ‘public economics’, whereas, the narrow term is ‘government finance’. Public finance mainly covers the effects of the government on the allocation (efficient) of resources, macroeconomic stabilization and the income distribution.
The field focuses on role of the government in the society more. Public finance theory expresses that if private markets allocate goods and services effectively to and fairly to everyone, there would not be any need of a government or governing entity. However that is not the case in real scenarios and hence there is a need of a government to ensure that people with very less or no money have access to basic services like food and medical care.