Banks don’t always follow basic financial principle

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Banks don’t always follow basic financial principle.

At Bond University, where yours truly still studies and hopes to acquire his 5th degree, we learn about a basic financial principle.  We call it the “matching principle”.

The matching principle is one of the fundamental backbone of a wide range of financial instruments and markets. The principle states that short term assets such as a working capital and inventories should be funded with short term liabilities. For example if a company is purchasing ...

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Commercial banks are not on their own, and the difference between money market and capital market

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Commercial banks are not on their own, and the difference between money market and capital market

I wrote yesterday “The banks in Australia hold a lot of power. Why? Because they hold a considerable amount of assets. When we talk about banks, we need to also consider all the other financial institutions as well.”

Commercial banks still hold the highest percentage of financial assets of all the financial institutions. It is considered to be around 60%. However, this percentage does not represent ...

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How powerful are the Australian banks?

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How powerful are the Australian banks?

The banks in Australia hold a lot of power. Why? Because they hold a considerable amount of assets. When we talk about banks, we need to also consider all the other financial institutions as well.

The distribution of multi hundreds of billions of dollars across the financial institutions has changed over time. During the period 1990 to 2008 securitisation vehicles experienced substantial growth, only to suffer a considerable decline after the GFC. Securitisation vehicles are those ...

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Bank Valuation. Which bank? Part 4. And how to choose your bank for trading and investment (2) – diversification versus risk

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VALUATON. Which bank?  Part 4. And how to choose your bank for trading and investment (2) – diversification versus risk

 

The formula for measuring an unbiased estimate of the population variance from a fixed sample of n observations is the following:  (s2) = Σ [(xi – x̅)2]/n-1

Here’s what the parts of the formula for calculating variance mean: s2 = Variance     Σ = Summation, which means the sum of every term in the equation ...

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Bank Valuation. Which bank? Part 3. And how to choose your bank for trading and investment

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VALUATON. Which bank?  Part 3. And how to choose your bank for trading and investment

Suppose that you, as a risk-averse investor (or trader), wanted a simple rule for choosing the optimum investment decision when it comes to a bank.

Surely you want your money to be outlaid where it will deliver the highest expected return for a given level of risk.

How do you find out what the risk is?

At Bond Uni where I am still study at the age of ...

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Bank Valuation. Which bank? Part 2. Banks take your money (you the depositors) to make profit for their shareholders

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VALUATON. Which bank?  Part 2. Banks take your money (you the depositors) to make profit for their shareholders

In 2008, the US economy and the stockmarket were on a high. Money was flowing freely and the Wolves of Wall Street were getting more on a high due to excessive money, drugs and sex. Meanwhile US population was borrowing and investing in risky products. Banks cowboys became greedy and wanted to follow the other cowboys on Wall Street. Regulators? Where were ...

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Bank Valuation. Part 1 – Earning Analysis

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VALUATON. Part 1. Earning Analysis

Intrinsic value of a stock is an important measurement that helps us to understand whether a stock is over or under valued. According to a general understanding in the academic world, the price of a stock will eventually match its value.

To quote Ben Graham who put it best when he said, “You don’t have to know a man’s exact weight to know that he’s overweight”. So we say that intrinsic value whilst important, cannot be the ...

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