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Modified duration is defined above as a derivative (as the term relates to calculus) and so is based on infinitesimal changes. Modified duration is also useful as a measure of the sensitivity of a bond's market price to finite interest rate (i.e., yield) movements. For a small change in yield, ,
Although banking at the time was not a new concept, what had changed was that deposits had become the primary liability of banks. In 1830 the capital of banks was about three times the deposits, but less than one hundred years later depositors had come to represent approximately 68 percent of the equity in banks.
Formally, the duration gap is the difference between the duration - i.e. the average maturity - of assets and liabilities held by a financial entity. [3] A related approach is to see the "duration gap" as the difference in the price sensitivity of interest-yielding assets and the price sensitivity of liabilities (of the organization) to a change in market interest rates (yields).
Financial law is the law and regulation of the commercial banking, capital markets, insurance, derivatives and investment management sectors. [1] Understanding financial law is crucial to appreciating the creation and formation of banking and financial regulation, as well as the legal framework for finance generally.
As banking regulation focusing on key factors in the financial markets, it forms one of the three components of financial law, the other two being case law and self-regulating market practices. [5] Compliance with bank regulation is ensured by bank supervision.
In 1988, economist James Parthemos, a former senior vice president and director of research at the Federal Reserve Bank of Richmond, wrote for the bank's Economic Quarterly, "This so-called commercial loan theory or real bills doctrine was a basic principle underlying the money functions of the new system. The essential fallacy in the doctrine ...
The credit cycle is the expansion and contraction of access to credit over time. [1] Some economists, including Barry Eichengreen, Hyman Minsky, and other Post-Keynesian economists, and members of the Austrian school, regard credit cycles as the fundamental process driving the business cycle.
In modern contract theory, the “theory of the firm” is often identified with the “property rights approach” that was developed by Sanford J. Grossman, Oliver D. Hart, and John H. Moore. [ 45 ] [ 46 ] The property rights approach to the theory of the firm is also known as the “Grossman–Hart–Moore theory”.