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What Is False Diversification? False diversification is the state of having many positions in a portfolio but little actual diversification due to the high level of correlation between positions. Example of False Diversification Let’s say a trader is employing the following book: Long Brazilian Real vs US Dollar Long industrial commodities Long oil Short Treasuries […]

What Is Transfer Pricing? Transfer pricing is a method of determining prices for goods and services that are exchanged between related parties, such as international affiliates of a single company or corporate entities within the same group. By setting transfer prices, companies can allocate costs and profits across disparate entities, allowing them to reduce their […]

The 401(k) is a retirement plan that provides tax incentives to individuals. The IRA, or Individual Retirement Account, is another retirement plan available to individuals. Both of these plans offer tax benefits and the ability to save for retirement. While each has its own advantages, there are several similarities between them. Both 401(k)s and IRAs […]

What Are Diseconomies of Scale? Diseconomies of scale are the opposite of economies of scale, and they refer to an increase in a company’s average costs when its size increases. This can be due to internal factors such as increased bureaucracy, inflexibility, or communication difficulties. It can also be caused by external factors such as […]

What Is Window Dressing? Window dressing is a practice used by corporations and businesses in their financial reports to make the company appear more profitable than it actually is. It involves manipulating accounting numbers or hiding certain information, such as debt or expenses, so that the overall financial picture looks better. Window dressing can be […]

What Is a Deferred Tax Asset? A deferred tax asset is an accounting term that refers to a situation when a taxpayer has overpaid taxes, or paid taxes in advance, and is entitled to receive a refund of the amount paid. It is created when taxable income is reported on an income statement but the […]

What Is a Reverse Stock Split? A reverse stock split is a corporate action in which a company reduces the total number of its outstanding shares and increases the share price proportionally. It is usually done to boost investor confidence or comply with exchange listing requirements. For example, if a company performs a 1-for-10 reverse […]

Social Impact Bonds Meaning Social impact bonds are a type of public-private partnership that enables private investors to fund social projects, and be repaid if the project meets certain predetermined outcomes. They are designed to bring together government, philanthropy, and private capital to address key social challenges. Social impact bonds typically involve a contract between […]

What Is Adverse Selection? Adverse selection refers to a type of outcome in a market where buyers or sellers have more information than the other. This can create an asymmetry in the market, which favors one party over another. In insurance markets, for instance, adverse selection may occur when people with a higher risk of […]

What Is Austerity? Austerity is the act of a government cutting spending in order to reduce its deficit. It is usually done in response to a financial crisis. Austerity measures are typically unpopular with the public, as they involve cuts to government services and benefits. However, supporters of austerity argue that it is necessary in […]