RIPSINK.COM - FINANCIAL SECTION
--- INFORMATION TO HELP YOU MAKE CRITICAL FINANCIAL DECISIONS ---
WHAT DO YOU KNOW ABOUT GOLD?
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to fiat currencies during the late-2000s financial crisis, suggest that gold behaves more like a currency than a commodity.
Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.
Spot Gold Price
Firstly there is the Spot Gold Price. The spot price of gold refers to the price paid immediately upon delivery of gold on order. The spot price of gold is updated throughout the day around the world.
Gold Futures Price
So the Gold Futures Price is the price to be paid on gold at some future date rather than right now. This is the gold price you often see glibly given in the media as the ‘gold price’. Sometimes they say ‘gold futures’ price but sometimes they omit the word future giving the apparency that this is the actual gold price when it is not.
In pricing gold futures, the futures price is determined using the spot price, the risk free rate and time to maturity of the contract (along with any costs associated with storage or convenience). It also includes the expected change to the price of gold. The Gold futures price, as has been noted frequently by various analysts, is subject to manipulation such as short selling or shorting for example.
Real Gold Price
The real gold price however is what would someone be willing to pay for gold in the open market place? If gold could be bought on the open market (and it can if you know where to go) you can buy all sorts of gold from gold bullion to nuggets, coins to blanks, gold biscuits to gold jewelery. There is invariably a premium to pay but even so the material value people place on gold determines the real price people will pay. Check out the volume and prices of gold in such places as China and Indian and you get a real sense of the value people have in storing their assets in gold.
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WHAT DO YOU KNOW ABOUT THE CHASE FREEDOM CARD?
The Chase Freedom Card might be a better alternative to the Discover Card for some. Since it's a Visa or MasterCard, it's more widely accepted. It also pays higher rewards than Discover.
The Chase Freedom has no annual membership fee. You don’t have to pay any annual fee to enjoy the cash back rewards and other great cardholder benefits of Chase Freedom.
You will receive 10,000 bonus points with this bonus offer, which can be redeemed for a $100 check. To qualify and receive your bonus, you must make purchases totaling $500 or more during the first 3 months from account opening. Purchases do not include using your account for balance transfers or cash advances, or using any checks that access your account. After qualifying, please allow 6 to 8 weeks for bonus points to post to your account. To be eligible for this bonus offer, account must be open and not in default at the time of fulfillment. This one-time bonus offer is valid only for first-time cardmembers with new accounts. Previous and existing cardmembers/accounts are not eligible for this bonus offer.
Receive $100 bonus cash back. This is one of the best deals the Chase Freedom card has to offer. You will receive this $100 cash back bonus after spending just $500 in your first three months of having this card. (Which can be spent in the form of purchases, balance transfers or checks.)
You earn 1% on all purchases and 4% more in bonus categories for a total of 5%. 4% bonus earn is subject to a quarterly maximum. You will be eligible for quarterly bonuses as long as (i) your account is not in default under, and/or you have not violated, the terms of your Cardmember Agreement and Rewards Program Rules and Regulations at the time accounts are selected for the promotional offers, and (ii) your statements are sent to a US address. Quarterly enrollment required.
Receive 5% cash back in quarterly rotating categories, up to $1,500 each quarter. 5% cash back is one of the most attractive benefits this card has to offer. This 5% deal averages out to 2% cash back on every category throughout the year, if you take into account a 1% cash back on 3 quarters for the year! You’ll be notified in advance which categories you will be able to benefit from each quarter and can then plan your spending for that year. It can help you save a lot of money if you use it to your advantage. The catch: you must enroll for each quarterly 5% program!
You will earn 1 point for each $1 of net purchases. You will earn an additional 1 point for each $1 of airfare and hotel accommodation net purchases when you book at chase.com/ultimaterewards. You do not earn points on balance transfers, cash advances, cash-like charges such as travelers checks, foreign currency, and money orders, any checks that are used to access your account, overdraft advances, interest, unauthorized or fraudulent charges, or fees of any kind, including fees for products that protect or insure the balances of your account. There is no maximum number of points that you can accumulate in the program. Bonus/Promotional offers may have a maximum accumulation. A service fee of up to $20 per ticket may be charged for the use of our toll-free number to book or change airline itineraries. Redemptions made online do not have a service fee. See Rewards Program Rules and Regulations which will be mailed after your account is established.
Earn cash back. Chase is offering $100 cash back after new cardholders spend $500 within the first three months of opening an account. After that, all purchases will earn 1 percent cash back, with 5 percent cash back being offered for spending in categories that change each quarter. For example, from July through September, you can earn the 5 percent bonus at gas stations and at restaurants.
Zero-percent promotional financing. New cardholders will also receive a zero-percent promotional APR on both new purchases and balance transfers for 15 months.
Chase’s Blueprint program. Freedom cardholders are eligible to participate in Chase’s Blueprint program, a free option that allows you to choose to pay some purchases in full while carrying a balance on others. No other bank offers this feature, and the Blueprint program also includes powerful budgeting and goal-setting tools.
No annual fee. But there’s a foreign transaction fee of 3 percent on all purchases processed outside of the United States - unlike the Chase Slate card, which has no fee.
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DO YOU KNOW THE THREE C'S OF CREDIT EVALUATION?
This refers to the amount of debt you can realistically pay given your income. Creditors look at how long you’ve been on your job, your income, and the likelihood that it will increase over time. They also look to see that you’re in a stable job or at least a stable industry. So when you fill out a credit application, make your job sound as stable and high-level as you honestly can. Are you a secretary, or are you an “executive assistant” or “office manager”? Present yourself in the best possible light, but don’t mislead or lie. Because employment history and income may not be included in your credit report, creditors may get that information from you, your records, and your employer.
Creditors do use your credit report to examine your existing credit relationships, such as credit cards, bank loans, and mortgages. They want to know your credit limits (you may be denied additional credit if you already have a lot of open credit lines), your current credit balances, how long you’ve had each account, and your payment history-whether you pay late or on time.
Creditors like to see that you have assets they can take if you don’t pay your debt. Owning a home or liquid assets such as a mutual fund may offer considerable comfort to a creditor reviewing an application. This is especially true if your credit report has negative notations in it, such as late payments. A credit report won’t tell a creditor what assets you own. Of course, if your mortgage payments are reported, the creditor will know that you own a home and how much you owe on the mortgage.
Creditors develop a feeling of your financial character through objective factors that show stability. These include the length of your residency, the length of your employment, whether you rent or own your home (you’re more likely to stay put if you own), and whether you have checking and savings accounts. Credit reports will tell creditors how long you have maintained credit accounts and how long you have lived at your current address, and they may have employment information. Some specialty credit reporting agencies include information on whether you have bounced checks.
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WHAT DO YOU KNOW ABOUT PROGRESSIVE'S SNAPSHOT?
Snapshot is a unique insurance program that gives you a personalized rate based on your driving. The better you drive, the more you can save, up to an extra 30 percent off our rate. Test driving Snapshot is an easy way to find out if your good driving would save you any extra money on your Progressive car insurance. It's totally free, and there’s no obligation to buy.
The better you drive, the more you save with Snapshot, our revolutionary usage-based insurance program. Sign up today during your auto quote, and we'll send you everything you need to start saving. The Snapshot device plugs easily into your car's diagnostic port (usually below the steering column) and automatically keeps track of your good driving. Drive like you usually do for 30 days and go online to see your projected savings.
Any Snapshot discount you earn kicks in immediately. So, you can start saving right away! Then, you'll stay plugged in for five more months to set your ongoing renewal discount.
If you’re already a customer, the Progressive Snapshot device can stand to save you money on your existing insurance plan. Progressive clearly states that they won’t raise your rates based on your Snapshot driving report. If you’re signing up with Progressive for the first time, it can reduce the insurance amount that is first quoted to you.
Within 7-10 days of switching to Progressive-or signing up to take a test drive-you'll get a Snapshot device in the mail. Just plug it into your car and drive like you normally do. You can go online to see your latest driving details and projected discount. How often you make hard brakes, how many miles you drive each day and how often you drive between midnight and 4 a.m. can all impact your potential savings.
The reason Progressive tracks what time of day you is simple: if you drive during peak hours for accidents, such as between midnight and 4 a.m., the likelihood you’ll get in an accident is much higher than if you drive during off-peak hours. If the majority of your driving is during less accident-prone hours, you may see a larger discount.
Many insurance companies ask drivers to supply this data, meaning that drivers track their own mileage and report that amount. Because Progressive tracks mileage digitally through the Snapshot device, the chance of an accident can be better predicted. The general idea is that the more miles you drive, the more likely you’ll get into an accident.
A hard brake is when the car’s speed decreases at a rate greater than 7 mph per second. More hard brakes per day may indicate less cautious driving. Progressive will give higher discounts to drivers with fewer hard brakes.
Snapshot is available to car insurance customers in most states, except AK, CA, HI, IL, IN, NC, TN and WA. You can test drive Snapshot in most of the states where Snapshot is available, except AK, CA, HI, IL, IN, MN, NC, NE, NY, OK, TN and WA.
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Ancient Proverb: Enjoy life, catch LIVE fish in a STREAM
RIPSINK.COM™ encourages you to learn all the details of your financial contracts before signing any documents or making any decisions.
DO YOU KNOW:
ABOUT SECURITIES, BONDS AND FINANCIAL MARKETS?
All U.S. government bond issues are subdivided into three segments based on their original
maturities. Treasury bills are negotiable, non-interest-bearing securities with original maturities
of one year or less. Treasury notes have original maturities of 2 to 10 years. Finally, Treasury
bonds have original maturities of more than 10 years.
To sell bills, notes, and bonds, the Treasury relies on Federal Reserve System auctions.
New municipal bond issues are sold by one of three methods: competitive bid, negotiation, or
private placement. Competitive bid sales typically involve sealed bids. The bond issue is sold
to the bidding syndicate of underwriters that submits the bid with the lowest interest cost in
accordance with the stipulations set forth by the issuer. Negotiated sales involve contractual
arrangements between underwriters and issuers wherein the underwriter helps the issuer prepare
the bond issue and set the price and has the exclusive right to sell the issue. Private placements
involve the sale of a bond issue by the issuer directly to an investor or a small group of investors
Note that two of the three methods require an underwriting function. Specifically, in a competitive
bid or a negotiated transaction, the investment banker typically underwrites the issue,
which means the investment firm purchases the entire issue at a specified price, relieving the
issuer from the risk and responsibility of selling and distributing the bonds. Subsequently, the
underwriter sells the issue to the investing public. For municipal bonds, this underwriting function
is performed by both investment banking firms and commercial banks.
The underwriting function can involve three services: origination, risk bearing, and distribution.
Origination involves the design of the bond issue and initial planning. To fulfill the riskbearing
function, the underwriter acquires the total issue at a price dictated by the competitive
bid or through negotiation and accepts the responsibility and risk of reselling it for more than the
purchase price. Distribution means selling it to investors, typically with the help of a selling syndicate
that includes other investment banking firms and/or commercial banks.
In a negotiated bid, the underwriter will carry out all three services. In a competitive bid, the
issuer specifies the amount, maturities, coupons, and call features of the issue and the competing
syndicates submit a bid for the entire issue that reflects the yields they estimate for the bonds.
The issuer may have received advice from an investment firm on the desirable characteristics for
a forthcoming issue, but this advice would have been on a fee basis and would not necessarily
involve the ultimate underwriter who is responsible for risk bearing and distribution. Finally, a
private placement involves no risk bearing, but an investment banker could assist in locating
potential buyers and negotiating the characteristics of the issue.
Corporate bond issues are almost always sold through a negotiated arrangement with an investment
banking firm that maintains a relationship with the issuing firm. In a global capital market
that involves an explosion of new instruments, the origination function, which involves the
design of the security in terms of characteristics and currency, is becoming more important
because the corporate chief financial officer (CFO) will probably not be completely familiar with
the availability and issuing requirements of many new instruments and the alternative capital
markets around the world. Investment banking firms compete for underwriting business by creating
new instruments that appeal to existing investors and by advising issuers regarding desirable
countries and currencies.
In addition to the ability to issue fixed-income securities to get new capital, corporations can also
issue equity securities-generally common stock. For corporations, new stock issues are typically
divided into two groups: (1) seasoned equity issues and (2) initial public offerings (IPOs).
Seasoned equity issues are new shares offered by firms that already have stock outstanding.
An example would be General Electric, which is a large, well-regarded firm that has had public
stock trading on the NYSE for over 50 years. If General Electric decided that it needed new capital,
it could sell additional shares of its common stock to the public at a price very close to the
current price of the firm’s stock.
Initial public offerings (IPOs) involve a firm selling its common stock to the public for the
first time. At the time of an IPO offering, there is no existing public market for the stock, that is,
the company has been closely held. An example would be an IPO by Polo Ralph Lauren in 1997,
at $26 per share. The company is a leading manufacturer and distributor of men’s clothing. The
purpose of the offering was to get additional capital to expand its operations.
New issues (seasoned or IPOs) are typically underwritten by investment bankers, who acquire
the total issue from the company and sell the securities to interested investors. The underwriter
gives advice to the corporation on the general characteristics of the issue, its pricing, and the timing
of the offering. The underwriter also accepts the risk of selling the new issue after acquiring
it from the corporation.
Relationships with Investment Bankers The underwriting of corporate issues typically
takes one of three forms: negotiated, competitive bids, or best-efforts arrangements. As noted,
negotiated underwritings are the most common, and the procedure is the same as for municipal
A corporation may also specify the type of securities to be offered (common stock, preferred
stock, or bonds) and then solicit competitive bids from investment banking firms. This is rare for
industrial firms but is typical for utilities, which may be required by law to sell the issue via a
competitive bid. Although competitive bids typically reduce the cost of an issue, it also means
that the investment banker gives less advice but still accepts the risk-bearing function by underwriting
the issue and fulfills the distribution function.
Alternatively, an investment banker can agree to support an issue and sell it on a best-efforts
basis. This is usually done with speculative new issues. In this arrangement, the investment
banker does not underwrite the issue because it does not buy any securities. The stock is owned
by the company, and the investment banker acts as a broker to sell whatever it can at a stipulated
price. The investment banker earns a lower commission on such an issue than on an underwritten
The secondary market for bonds distinguishes among those issued by the federal government,
municipalities, or corporations.
Secondary Markets for U.S. Government and Municipal Bonds U.S. government
bonds are traded by bond dealers that specialize in either Treasury bonds or agency bonds. Treasury
issues are bought or sold through a set of 35 primary dealers, including large banks in New
York and Chicago and some of the large investment banking firms (for example, Merrill Lynch,
Goldman Sachs, Morgan Stanley). These institutions and other firms also make markets for government
agency issues, but there is no formal set of dealers for agency securities.
The major market makers in the secondary municipal bond market are banks and investment
firms. Banks are active in municipal bond trading and underwriting of general obligation issues
since they invest heavily in these securities. Also, many large investment firms have municipal
bond departments that underwrite and trade these issues.
Secondary Corporate Bond Markets Historically, the secondary market for corporate
bonds included two major segments: security exchanges and an over-the-counter (OTC) market.
The major exchange for corporate bonds was the NYSE Fixed-Income Market where about
10 percent of the trading took place. In contrast, about 90 percent of trading, including all large
transactions, took place on the over-the-counter market. This mix of trading changed in early
2001 when the NYSE announced that it was shutting down its Automated Bond System (ABS),
which had been a fully automated trading and information system for small bond trades-that
is, the exchange market for bonds was considered the “odd-lot” bond market. As a result, currently
all corporate bonds are traded over the counter by dealers who buy and sell for their own
The major bond dealers are the large investment banking firms that underwrite the issues such
as Merrill Lynch, Goldman Sachs, Salomon Brothers, Lehman Brothers, and Morgan Stanley.
Because of the limited trading in corporate bonds compared to the fairly active trading in government
bonds, corporate bond dealers do not carry extensive inventories of specific issues.
Instead, they hold a limited number of bonds desired by their clients and, when someone wants
to do a trade, they work more like brokers than dealers.
In addition to the market for the bonds, a market has developed for futures contracts related to
these bonds. These contracts allow the holder to buy or sell a specified amount of a given bond
issue at a stipulated price. The two major futures exchanges are the Chicago Board of Trade
(CBOT) and the Chicago Mercantile Exchange (CME). These futures contracts and the futures
market are discussed in Chapter 21.
The secondary equity market is usually been broken down into three major segments: (1) the
major national stock exchanges, including the New York, the Tokyo, and the London stock
exchanges; (2) regional stock exchanges in such cities as Chicago, San Francisco, Boston, Osaka
and Nagoya in Japan, and Dublin in Ireland; and (3) the over-the-counter (OTC) market, which
involves trading in stocks not listed on an organized exchange. These segments differ in importance
in different countries.
Securities Exchanges The first two segments, referred to as listed securities exchanges,
differ only in size and geographic emphasis. Both are composed of formal organizations with
specific members and specific securities (stocks or bonds) that have qualified for listing.
Although the exchanges typically consider similar factors when evaluating firms that apply for
listing, the level of requirement differs (the national exchanges have more stringent requirements).
Also, the prices of securities listed on alternative stock exchanges are determined using
several different trading (pricing) systems that will be discussed in the next subsection.
Alternative Trading Systems Although stock exchanges are similar in that only qualified
stocks can be traded by individuals who are members of the exchange, they can differ in their
trading systems. There are two major trading systems, and an exchange can use one of these or
a combination of them. One is a pure auction market, in which interested buyers and sellers submit
bid and ask prices for a given stock to a central location where the orders are matched by a
broker who does not own the stock but who acts as a facilitating agent. Participants refer to this
system as price-driven because shares of stock are sold to the investor with the highest bid price
and bought from the seller with the lowest offering price. Advocates of the auction system argue
for a very centralized market that ideally will include all the buyers and sellers of the stock.
The other major trading system is a dealer market where individual dealers provide liquidity
for investors by buying and selling the shares of stock for themselves. Ideally, with this system
there will be numerous dealers who will compete against each other to provide the highest bid
prices when you are selling and the lowest asking price when you are buying stock. When we
discuss the various exchanges, we will indicate the trading system used.
Call versus Continuous Markets Beyond the alternative trading systems for equities, the
operation of exchanges can differ in terms of when and how the stocks are traded.
In call markets, trading for individual stocks takes place at specified times. The intent is to
gather all the bids and asks for the stock and attempt to arrive at a single price where the quantity
demanded is as close as possible to the quantity supplied. Call markets are generally used
during the early stages of development of an exchange when there are few stocks listed or a small
number of active investors/traders. If you envision an exchange with only a few stocks listed and
a few traders, you would call the roll of stocks and ask for interest in one stock at a time. After
determining all the available buy and sell orders, exchange officials attempt to arrive at a single
price that will satisfy most of the orders, and all orders are transacted at this one price.
Notably, call markets also are used at the opening for stocks on the NYSE if there is an
overnight buildup of buy and sell orders, in which case the opening price can differ from the
prior day’s closing price. Also, this concept is used if trading is suspended during the day
because of some significant new information. In either case, the specialist or market maker
would attempt to derive a new equilibrium price using a call-market approach that would reflect
the imbalance and take care of most of the orders. For example, assume a stock had been trading
at about $42 per share and some significant, new, positive information was released overnight
or during the day. If it was overnight, it would affect the opening; if it happened during the day,
it would affect the price established after trading was suspended. If the buy orders were three or
four times as numerous as the sell orders, the price based on the call market might be $44, which
is the specialists’ estimate of a new equilibrium price that reflects the supply-demand caused by
the new information. Several studies have shown that this temporary use of the call-market
mechanism contributes to a more orderly market and less volatility in such instances.
In a continuous market, trades occur at any time the market is open. Stocks in this continuous
market are priced either by auction or by dealers. If it is a dealer market, dealers are willing
to make a market in the stock, which means that they are willing to buy or sell for their own
account at a specified bid and ask price. If it is an auction market, enough buyers and sellers are
trading to allow the market to be continuous; that is, when you come to buy stock, there is
another investor available and willing to sell stock. A compromise between a pure dealer market
and a pure auction market is a combination structure wherein the market is basically an auction
market, but there exists an intermediary who is willing to act as a dealer if the pure auction market
does not have enough activity. These intermediaries who act as brokers and dealers provide
temporary liquidity to ensure that the market will be liquid as well as continuous.
An appendix at the end of this chapter contains two exhibits that list the characteristics of
stock exchanges around the world and indicate whether each of the exchanges provides a continuous
market, a call-market mechanism, or a mixture of the two. Notably, although many
exchanges are considered continuous, they also employ a call-market mechanism on specific
occasions such as at the open and during trading suspensions. The NYSE is such a market.
National Stock Exchanges Two U.S. securities exchanges are generally considered national
in scope: the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). Outside
the United States, each country typically has had one national exchange, such as the Tokyo
Stock Exchange (TSE), the London Exchange, the Frankfurt Stock Exchange, and the Paris
Bourse. These exchanges are considered national because of the large number of listed securities,
the prestige of the firms listed, the wide geographic dispersion of the listed firms, and the diverse
clientele of buyers and sellers who use the market. As we discuss in a subsequent section on
changes, there is a clear trend toward consolidation of these exchanges into global markets.
New York Stock Exchange (NYSE) The New York Stock Exchange (NYSE), the largest
organized securities market in the United States, was established in 1817 as the New York Stock
and Exchange Board. The Exchange dates its founding to when the famous Buttonwood Agreement
was signed in May 1792 by 24 brokers.8 The name was changed to the New York Stock
Exchange in 1863.
At the end of 2000, approximately 3,000 companies had stock issues listed on the NYSE, for
a total of about 3200 stock issues (common and preferred) with a total market value of more than
$13.0 trillion. The specific listing requirements for the NYSE appear in Exhibit 4.2.
The average number of shares traded daily on the NYSE has increased steadily and substantially,
as shown in Exhibit 4.3. Prior to the 1960s, the daily volume averaged less than 3 million
shares, compared with current average daily volume in excess of 1 billion shares and numerous
days when volume is over 1.3 billion shares.
The NYSE has dominated the other exchanges in the United States in trading volume. During
the past decade, the NYSE has consistently accounted for about 85 percent of all shares
traded on U.S.-listed exchanges, as compared with about 5 percent for the American Stock
Exchange and about 10 percent for all regional exchanges combined. Because share prices on the NYSE tend to be higher than those on other exchanges, the dollar value of trading on the
NYSE has averaged about 87 percent of the total value of U.S. trades, compared with less than
3 percent for the AMEX and about 10 percent for the regional exchanges.9
The volume of trading and relative stature of the NYSE is reflected in the price of a membership
on the exchange (referred to as a seat). As shown in Exhibit 4.4, the price of membership
has fluctuated in line with trading volume and other factors that influence the profitability