Average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market
Algorithmic trading in forex
Ashok Niroula
Algorithmic trading in forex
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. There is much confusion about the technique. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.
Mortgage Loan!
Tuesday, February 26, 2008,
Ashok Niroula
A mortgage loan is a loan secured by real property through the use of a mortgage (a legal instrument). However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secured against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
Mortgage loan basics
asic concepts and legal regulation
According to Anglo-American property law, a mortgage occurs when an owner (usually of a fee simple interest in realty) pledges his interest as security or collateral for a loan. Therefore, a mortgage is an encumbrance on property just as an easement would be, but because most mortgages occur as a condition for new loan money, the word mortgage has become the generic term for a loan secured by such real property.
As with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time; typically 30 years. All types of real property can, and usually are, secured with a mortgage and bear an interest rate that is supposed to reflect the lender's risk.
Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. For commercial mortgages see the separate article. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:
- Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
- Mortgage: the security created on the property by the lender, which will usually include certain restrictions on the use or disposal of the property (such as paying any outstanding debt before selling the property).
- Borrower: the person borrowing who either has or is creating an ownership interest in the property.
- Lender: any lender, but usually a bank or other financial institution.
- Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
- Interest: a financial charge for use of the lender's money.
- Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.
Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements, for example) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities). Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system.
Mortgage loans are generally structured as long-term loans, the periodic payments for which are similar to an annuity and calculated according to the time value of money formulae. The most basic arrangement would require a fixed monthly payment over a period of ten to thirty years, depending on local conditions. Over this period the principal component of the loan (the original loan) would be slowly paid down through amortization. In practice, many variants are possible and common worldwide and within each country.
Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds). The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security (by means of a securitization). In the United States, the largest firms securitizing loans are Fannie Mae and Freddie Mac, which are government sponsored enterprises.
Mortgage lending will also take into account the (perceived) riskiness of the mortgage loan, that is, the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower); that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital; and the financial, interest rate risk and time delays that may be involved in certain circumstances.
[edit] Mortgage loan types
There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements.
- Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
- Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
- Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
- Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.
The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In many countries, floating rate mortgages are the norm and will simply be referred to as mortgages; in the United States, fixed rate mortgages are typically considered "standard." Combinations of fixed and floating rate are also common, whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.
In a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan. In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although longer terms may be offered in certain circumstances. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan, although ancillary costs (such as property taxes and insurance) can and do change.
In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Common indices in the U.S. include the Prime Rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill"); other indices are in use but are less popular.
Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.
Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.
A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a "balloon payment" or bullet payment. The interest rate for a balloon loan can be either fixed or floating. The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.
Other loan types:
The Nepal Problem
Monday, February 25, 2008,
Ashok Niroula
"The Nepal Problem",
John Norris in The Asian Wall Street Journal
It's now more than 100 days since King Gyanendra unleashed his assault on democracy. On Feb. 1, backed by the Royal Nepalese Army, he shut down telephone services and the Internet, jailed hundreds of political leaders and human-rights activists and instated emergency powers that made Nepal effectively an absolute monarchy. At times, the situation veered into the absurd: army colonels literally sat across the desk from newspaper editors in Kathmandu, telling them what could be published and what could not be; a number of editors responded with impressive fortitude and ran blank spaces on their editorial pages to signify the government's new muzzle.
The king justified his move as warranted by Nepal's ongoing, and often brutal, Maoist insurgency. Yet, almost all observers rightly questioned the logic of locking up democratic leaders, reporters and human-rights activists that had nothing to do with the armed conflict. International condemnation of the king's move was sharp, and sharper than many in the royal palace anticipated. India and Britain announced in fairly short order that they would cut off military aid to the Nepalese government, while the Bush administration said that it would take the matter under consideration.
In an effort to stave off even greater isolation and condemnation, the king quickly assured the U.S., British and Indian ambassadors that he needed only 100 days to get his house in order, and that after this 100 days the king would not only present a comprehensive plan for restoring democracy, but for defeating the Maoists insurgency as well. But the king, when asked directly about his takeover, offered these hardly reassuring words, "There really was no plan. It was just something on the cards."
So where does Nepal stand after more than 100 days of royal rule? The answer: The king's move looks every bit as dubious as it did at the time it was announced. The Maoist rebellion has continued largely unabated, and while the government has issued a series of sunny dispatches claiming that it is making great progress in the field against the insurgents, these accounts are impossible to take seriously. Indeed, the situation in the villages appears ever more desperate, with the Maoists and the government military seeming to be in virtual competition to see who can conduct the more egregious human-rights abuses. The conflict has taken an even uglier turn with efforts by the royal government to encourage local "militias," sometimes little better than mobs, to destroy the homes of people suspected of being Maoist sympathizers.
In late April, the government "lifted" the state of emergency, but this effort was largely rhetorical. At almost the same moment the emergency was supposedly being rescinded, the king had the democratically arrested prime minister arrested -- yet again -- after he refused to appear before a handpicked royal commission investigating corruption. Large numbers of political prisoners and some key student leaders remain in jail. Journalists still regularly face intimidation by military officers, even if they are no longer sitting across the desk from them. The king's promise to restore democracy? Well, it turns out that rather than restoring parliament, returning the prime minister to office or letting the parties function normally, the international community will have to settle for some hazy promise of municipal elections in April 2006 or later.
Perhaps the only bright note of the 100 days was that the Maoists and the royal government both agreed to allow the United Nations to deploy a relatively robust human-rights monitoring mission in the field. At least so far, the U.N. appears to understand how absolutely critical this effort will be to protecting the innocent civilians that continue to bear the brunt of the war.
Now comes the hard part for the international community. Nobody wants Nepal to collapse under a Maoist onslaught, and the king has done everything he can to paint himself as the last bastion of defense against the Maoists. But the simple fact of the matter is that the royal government continues to pick all the wrong fights, and soldiers should be deployed against insurgents rather than repeatedly arresting peaceful democratic leaders in Kathmandu.
Yet, after an intense internal squabble on the issue, India has announced that it will resume military aid to Nepal. Not a dollar of U.S. or Indian military assistance should go to Nepal until the king is no longer an absolute monarch and a semblance of functioning democracy has been restored. One hundred days of royal rule have proven that the king was being honest when he said he did not have much of a plan, and this is no time to go wobbly on democracy in South Asia.
(source: 23 May 2005 The Asian Wall Street Journal?
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