Bankruptcy and Eligibility for Financial Aid

Q:Will a bankruptcy affect a student's future eligibility for student loans and other financial aid?

A:The answer to this question is a complex one because several issues are involved. It depends on the nature of the student loan programs (federal or private) and the type of bankruptcy.

Whatever the circumstances behind the bankruptcy, the student should talk with the financial aid administrator at the school he plans to attend, and explain the situation. The financial aid administrator may be able to guide the student to certain loan programs or lenders that may fit his needs.

Federal Loans

Generally speaking, a bankruptcy should have no impact on eligibility for federal student aid.

A few years ago students who had their federal student loans discharged through bankruptcy were required to reaffirm the debt in order to be eligible for further federal student aid. But the Bankruptcy Reform Act of 1994 (P.L. 103-394, enacted October 22, 1994) amended the FFELP regulations dealing with loans discharged in bankruptcy. As a result of those changes, a borrower who had FFELP loans previously discharged in bankruptcy is no longer required to reaffirm those loans prior to receiving additional federal student aid.

Title IV grant or loan aid (including the Perkins loan program) may not be denied to a student who has filed bankruptcy solely on the basis of the bankruptcy determination. Financial aid administrators are precluded from citing bankruptcy as evidence of an unwillingness to repay student loans. Schools may nevertheless continue to consider the student's post-bankruptcy credit history in determining willingness to repay the loan.

As long as there are no delinquencies or defaults on student loans currently in repayment, the student should be eligible for additional federal student loans, regardless of any past bankruptcies. However, if some of the student's federal student loans are in default and were not included in a bankruptcy, the student will not be able to get further federal student aid until he resolves the problem. Students with loans in default should contact the lender (or servicer or current holder of the loan) to set up a satisfactory repayment plan in order to regain eligibility for federal student aid. (If the loan was discharged in bankruptcy after the borrower defaulted on the loan, it is no longer considered to be in default.)

Parents who apply for a PLUS loan may be denied a PLUS loan if they have an adverse credit history. The definition of an adverse credit history includes having had debts discharged in bankruptcy within the past five years. If this is the case, the parents may still be eligible for a PLUS loan if they secure an endorser without an adverse credit history. If the parents are turned down for a PLUS loan because of an adverse credit history, the student may be eligible for an increased unsubsidized Stafford loan.


Next time, I will tell about the private loan

Invest in Infrastructure Stocks

Q:How to Invest in Infrastructure Stocks?

A:
Before answering the quesiton, we have to know what is "infrastucture".
Generally speaking, infrastructure is the group of facilities that support networks and systems in our society. To be more specific, infrastructure includes things like transportation systems, communication networks and utilities. And while we often attribute the building and ownership of infrastructure to governments, you might be surprised at just how many companies have a hand in the creation, maintenance, and ownership of infrastructure, both domestically and abroad.

Because infrastructure encompasses so many different kinds of networks and areas of expertise, it can be hard to define the types of companies that deal with infrastructure. Of late, there has been a push to invest in companies that control transportation infrastructure (for example, roads and highways), but we will get into those companies in a little bit. For now though, let's look at what makes infrastructure a new "it" investment.

It is really a good play since there are a few factors that help make infrastructure a special investment case. First is the need for the private support of infrastructure. While things like road and sewage systems have, in the past, been supported by public funds, there are a lot of infrastructure elements that we're accustomed to using that are actually private investments.

Short Selling

Q:
What is the concept of short selling?

A:
Short selling is the opposite of "going long." The short seller takes a fundamentally negative, or "bearish" stance, anticipating that the price of the shorted stock will fall (not rise as in long buying), and it will be possible to buy at a lower price whatever was sold, thereby making a profit ("selling high and buying low," to reverse the adage). The act of buying back the shares which were sold short is called 'covering the short'. Day traders and hedge funds often use short selling to allow them to profit on trading in stocks which they believe are overvalued, just as traditional long investors attempt to profit on stocks which are undervalued by buying those stocks.

The short seller owes his broker and must repay the shortage when he covers his position. Technically, the broker usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller.[4]

For example, to establish a 1,000-share short position of a stock trading at $100 per share, a person would borrow 1,000 shares from someone and then immediately sell them at a per share price of $100. If the stock were to drop ten percent in value the short trader could then elect to cover the position by buying back 1000 shares at $90 per share, for a profit of $10 per share, or $10,000.

In the U.S., in order to sell stocks short, the seller must arrange for a broker-dealer to confirm that it is able to make delivery of the shorted securities. This is referred to as a "locate," and it is a legal requirement that U.S. regulated broker-dealers not permit their customers to short securities without first obtaining a locate. Brokers have a variety of means to borrow stocks in order to facilitate locates and make good delivery of the shorted security.

The vast majority of stock borrowed by U.S. brokers comes from loans made by the leading custody banks and fund management companies (see list below). Sometimes brokers are able to borrow stocks from their customers who own "long" positions. In these cases, if the customer has fully paid for the long position, the broker cannot borrow the security without the express permission of the customer, and the broker must provide the customer with collateral and pay a fee to the customer. In cases where the customer has not fully paid for the long position (meaning the customer borrowed money from the broker in order to finance the purchase of the security), the broker will not need to inform the customer that the long position is being used to effect delivery of another client's short sale.

Most brokers will allow retail customers to borrow shares to short a stock only if one of their own customers has purchased the stock on margin. Brokers will go through the "locate" process outside their own firm to obtain borrowed shares from other brokers only for their large institutional customers.

Stock exchanges such as the NYSE or the NASDAQ typically report the "short interest" of a stock, which gives the number of shares that have been sold short as a percent of the total float. Alternatively, these can also be expressed as the short interest ratio, which is the number of shares sold short as a multiple of the average daily volume. These can be useful tools to spot trends in stock price movements.

Cosumer Fnance

Q:
What is the field of Cosumer finance?

A:
Consumer finance covers a wide range of activities, including loans from banks and indirect finance such as hire-purchase agreements, and loans by specialist retail finance companies.

At the most respectable end of the market, consumer finance is an integral part of retail banking and an important source of unsecured loans

However, in many countries some 'consumer finance' companies are little different from loan sharks, offering considerably higher interest rates than those available on other unsecured loans.

On another view, however, such companies are beneficial because they offer credit to sectors of society which are otherwise excluded from financial markets, and the credit offered is no worse than the alternative credit cards.

Types of default

Q:
How many types of default are there?

A:
Default can be of two types: debt services default and technical default. Debt service default occurs when the borrower is unable to make a scheduled payment of interest or principal. Technical default happens when an affirmative or a negative covenant is violated.

Affirmative covenants are clauses in debt contracts that require firms to maintain certain levels of capital or financial ratios. The most commonly violated restrictions in affirmative covenants are tangible net worth, working capital/short term liquidity, and debt service coverage.

Negative covenants are clauses in debt contracts that limit or prohibit corporate actions (e.g sale of assets, payment of dividends) that could impair the position of creditors. Negative covenants may be continious or incurrance based. Violations of negative covenants are rare compared to the violation of affirmative covenants.

With most debt (including corporate debt, mortgages and bank loans) the total amount owed becomes immediately payable on the first instance of a default of payment. Generally, if the debtor defaults on any debt to any lender, a cross default covenant in the debt contract states that that particular debt is also in default.

In corporate finance, upon an uncured default, the holders of the debt will usually initiate proceedings (file a petition of involuntary bankruptcy) to foreclose on the collateral securing the debt.

There is a rich array of financial models for analyzing default risk such as the Jarrow-Turnbull model, Altman Z-score or the structural model of default by Robert C. Merton.

Sovereign borrowers such as nation-states generally are not subject to bankruptcy courts in their own jurisdiction, and thus may be able to default without legal consequences.

MSCI Barra

Q:
What is the backgound of MSCI and Barra?

A:
MSCI Barra provides a broad family of products and services that support our clients' investment processes in major asset classes worldwide. Our goal is to leverage our deep understanding of the world's financial markets to turn data-driven insights into tools that our clients can use to meet their investment process needs.

MSCI and Barra joined together in 2004 when MSCI acquired Barra to create a combined family of companies. Together, we continue to meet increasingly complex client needs, create groundbreaking new products, and offer superior global distribution and support.

Morgan Stanley Capital International Inc. (MSCI) calculates over 80,000 equity, fixed income, multi-asset class, REIT and hedge fund indices, in the aggregate. Since MSCI global equity benchmarks were first launched over 35 years ago, assets benchmarked to MSCI indices have grown to an estimated USD 3 trillion. In addition to benchmarking and performance measurement, MSCI indices are increasingly being integrated into other areas of our clients' investment processes such as research and asset allocation, and used as the basis of derivative products.

Barra, Inc. (Barra) sets the industry standard in financial risk management for the world's largest asset management firms. Since its inception in 1975, Barra has worked to build and continuously improve financial models and analytics that provide insight into the risks behind investment decisions.

Our market-leading brands are trusted by the world's foremost investment organizations:

MSCI Benchmarks: used by 22 of largest 25 firms managing assets globally
Barra Risk Products: used by 23 of largest 25 firms managing assets globally

MSCI Barra is headquartered in New York, with research and commercial offices around the world. Morgan Stanley, a global financial services firm and a market leader in securities, asset management, and credit services, is the majority shareholder of MSCI Barra, and Capital Group International, Inc. is the minority shareholder.

Debt

Q:
What is debt?

A:
Debt securities may be called debentures, bonds, notes or commercial paper depending on their maturity and certain other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".

Corporate bonds represent the debt of commercial or industrial entities. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated check with a maturity of not more than 270 days.

Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, and certain bills of exchange. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid.

Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.

Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks.

Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments.

Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks and others.

Financial leverage

Q:
What is term "leverage" in the field of finance?

A:
Financial leverage takes the form of a loan or other borrowings (debt), the proceeds of which are reinvested with the intent to earn a greater rate of return than the cost of interest. If the firm's return on assets (ROA) is higher than the interest on the loan, then its return on equity (ROE) will be higher than if it did not borrow. On the other hand, if the firm's ROA is lower than the interest rate, then its ROE will be lower than if it did not borrow. Leverage allows greater potential return to the investor than otherwise would have been available. The potential for loss is also greater because if the investment becomes worthless, not only is that money lost, but the loan still needs to be repaid.

Margin buying is a common way of utilizing the concept of leverage in investing. An unlevered firm can be seen as an all-equity firm, whereas a levered firm is made up of ownership equity and debt. A firm's debt to equity ratio (measured at market value or book value, depending on the purpose of the analysis) is therefore an indication of its leverage. This debt to equity ratio's influence on the value of a firm is described in the Modigliani-Miller theorem. As is true of operating leverage, degree of financial leverage measures the effect of a change in one variable on another variable. Degree of financial leverage (DFL) may be defined as the percentage change in earnings (Earnings per share) that occurs as a result of a percentage change in earnings before interest and taxes.

Margin buying

Q:
What is the meaning of margin buying

A:
Margin buying is buying securities with some of one's own cash together with cash borrowed from a broker. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value, i.e. the difference between the value of the securities and the loan, is initially equal to the own cash used. This difference has to stay above a minimum margin requirement. This is to protect the broker against a fall in the value of the securities to the point that they no longer cover the loan.

In the 1920s, margin requirements were loose. In other words, brokers required investors to put in very little of their own money. When stock markets plummeted, the net value of the positions rapidly fell below the minimum margin requirements, forcing investors to sell their positions. This was one important factor contributing to the Stock Market Crash of 1929, which in turn contributed to the Great Depression.

Means of Financing

Q:
What is the means of financing?

A:
Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing (for example issuing Bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs). Trade financing is provided by vendors and suppliers who sell their products to the company at short-term, unsecured credit terms, usually 30 days. Equity and debt financing are usually used for longer-term investment projects such as investments in a new factory or a new foreign market. Customer provided financing exists when a customer pays for services before they are delivered, e.g. subscriptions and insurance.

Asset Revaluation Reserve

Q:
What is asset revaluation reserve?

A:
An asset revaluation reserve is an accounting concept and represents a reassessment of the value of a capital asset as at a particular date. The reserve is considered a category of the equity.
An asset is originally recorded in the accounts at its cost and depreciated periodically over its estimated useful life as a measure of the amount of the asset's value consumed in that period. In practice, the actual useful life of an asset can be miscalculated or an event can cause a change to the useful life. Consequently, assets occasionally need to be revalued in order to reflect a more close approximation to their "worth" in the accounts.

When the asset is revalued, the offsetting entry (in a double entry accounting system) would be either made to the profit or loss accounts or to the equity. The accounting for revaluation increments or decrements and other aspects of asset revaluation is addressed in the Accounting Standards.

Group Financial Statements & Company Financial Stattements

Q:
What is the difference between group financial statements and company financial statements?

A:
Financial Statements in a company can be found as Income Statement, Balance Sheets and Statement of changes in Equity, Cash Flows Statements.

Group Financial statements would just be the same. The difference between group and single company is Group company should prepare Consolidation Financial statements. These are common reports: Consolidated Income statement, Consolidated Balance Sheets and Consolidated Cash Flows Statements of which are according to HK Reporting Standards.

Some single companies or SMEs, just no need to prepare the above except the common reports, such as Income statement, Balance sheet. There is no statutory requirements for such companies except the public company limited. Cash flows would be used for bankers to get credit line, trust between trades etc. While Group's requirements is totally different.

Financial Concept

Q:
What are accouting concepts?

A:
Many of its accounting procedures are operated automatically by people who have never questioned whether alternative methods exist which are just as valid. The procedures in common use imply the acceptance of certain concepts which are by no means self-evident nor the only possible concept. Such accounting concepts have builded up the Accounting framework. One thing is sure to say, accounting framework does not mean to provide a certain true and fair view. it is upon the Financial statement is prepared properly according to the HKAS, FRS or IAS. (Accounting Standards, Reporting Standards) Other countires may vary.