Market value transactions

In market value transactions, the portfolio manager s ability is key, since the performance of the underlying portfolio is critical to the structure s success. The originator s procedure for reviewing credit approvals of the borrowers of the underlying loans and monitoring the loans is another factor to consider. The better the credit-assessment and monitoring proce-... 

Each element of the go-to-market value delivery system is likely to require the development of new tools and techniques that enable enhanced transparency and faster and improved fact-based decision making. This starts with enhancing the transparency of customer profitability, to gain an understanding that goes deeper than annual overall profitability by customer and provides transparency by customer, by product, and by transaction. Averages quite often disguise improvement opportunities - 50 percent of transactions are below the annual customer profitability. 

The Second World War saw not only the destmction of cultural property, but also the systematic pillage of works of art from the occupied territories. Often transactions were cloaked with a veneer of legality with owners forced to agree to part with their possessions and paid only a fraction of their market value. In the Inter-Allied Declaration against Acts of Dispossession Committed in Territories under Enemy Occupation or Control of 5 January 1943 (the 1943 Joint Declaration) the 18 Alhed Powers included the following provision ... 

In both classic repo and sell/buyback, any initial margin is given to the supplier of cash in the transaction. This remains true in the case of specific repo. For initial margin the market value of the bond collateral is reduced (or given a haircut ) by the percentage of the initial margin and the nominal value determined from this reduced amount. In a stock loan transaction the lender of stock will ask for margin. 

As discussed, CDOs are generally categorised as either balance sheet CDOs or arbitrage CDOs depending on their intended purpose. In terms of operating mechanics, balance sheet CDOs are almost exclusively cash-flow-based while, arbitrage CDOs are structured either as cashflow-based or market-value-based. A later development, synthetic CDOs, now account for a growing number of transactions. 

In some versions of a TRS the actual underlying asset is actually sold to the counterparty, with a corresponding swap transaction agreed alongside in this type of TRS, the protection seller will make an upfront payment for the market value of the reference asset to the protection buyer. Yet another variation involves no change in physical ownership but still involves an upfront payment of the market value of the reference asset an example of this kind of TRS is described in Exhibit 21.4. On occurrence of a credit event the TRS will be terminated using physical settlement, so that the reference asset is delivered to the protection seller. 

The second part of the balance sheet in Table 16.3 lists the liabilities and stockholders equity. Current liabilities include all payments that must be made by the company within one year. The total for U.S. Chemicals is 4,153,(XX),0(X). Long-term debts, often in the form of bonds, are due after more than one year from the date of the balance sheet. They total 3,943,(XX),000. Other noncurrent liabilities total 1,754,(XX),(XX) and include pension and other postretirement benefits as well as reserves for any company operations that are discontinued. Total liabilities are 9,850,000,000. We note that liabilities are less than assets by 4,361,(XX),0(X). Thus, by Eq. (16.1), this difference must be the stockholders equity. This equity includes the par value of issued common stock, which totals 1,(XK),000,(X)0. The par value of a share of stock is an arbitrary amount that has no relationship to the market value of the stock, but is used to determine the amount credited to the stock account. If the stock is issued for more than its par value, the excess is credited to the account shown as capital in excess of par value. In Table 16.3, the par value is 1.00 per share but the stock was issued at 4.23 per share. Companies frequently repurchase shares of their common stock, resulting in a reduction of stockholders equity. Because the shares are placed in a treasury, the transaction appears as treasury stock at cost. In Table 16.3, that amount is 3,428,000,000. The other account under stockholders equity is retained earnings, which is the accumulated retained earnings that is increased each year by net income. Tte amount of this entry must be such that Eq. (16.1) is satisfied. This is seen to be tte case in Table 16.3, where the net stockholders equity is 4,361,000,000, giving total liabilities plus stockholders equity as 14,211,000,000, which is equal to total assets. 

CDOs of both types are also categorized by the motivation behind their creation. The two main categories are issuer- or balance sheet-dnven transactions and investor-driven or market value arbitrage transactions. 

The revealed preference method is an indirect approach that is used in order to monetize use values. This method observes the real choice between money and the environmental goods. Methods often include observations of consumers or producers behaviour or actions, such as the hedonic price method and the production function method. The hedonic price method determines values from actual market transactions. These transactions are used to see how the price of a market commodity varies when a related environmental good changes, such as the effects of noise or air pollution on house prices. The production function method is used to estimate the value of the environmental effects on production. This method is suitable when consumption or production of a private good is affected by the environmental good. An example is the valuation of ground-level ozone levels by valuing the impact on the production of wheat or timber, which has market prices. The problem with the revealed preference method is that it does not contain all the individuals values that affect the WTP. 

In order to reflect these lead times, the concept of a timestamp is introduced. Timestamp is used in computer science documenting the system time when a certain event or transaction occurs e.g. for logging events (N.N. 2007). In the context of future inventory value planning, the time-stamp marks the period, when the first raw material has reached a certain stage in the value chain network included into a specific product. In the example illustrated in fig. 57, the raw material is processed in the same period to be converted into product 1. Therefore, all four value chain steps indexed from one to four occur in the same period and have the same time-stamp one. Conversion into product 2, however, requires additional time caused by production lead times, safety inventory and/or transportation time, that the steps indexed with five and six have a time stamp of two. The timestamp reflects that the inventory value of product 2 is not based on the raw material costs from the same period but based on the raw material costs from the previous period in order to reflect the lead time. Consequently, value chain indices and timestamps are defined for all steps and can cover multiple periods reflecting that raw materials in a global complex multi-stage value chain network can take several months, until they are sold as part of a finished product to the market. 

Equity or value conflicts involve the initial creation and distribution of property rights. Equity conflicts also arise when some citizens want to alter property rights by majority-rule political decisions instead of market transactions. Equity conflicts cannot be resolved with unanimous consent, while efficiency conflicts can. 

The way to estimate strategic value in the financial sense, in other words the premium paid beyond the enterprise value, is probably the valuation issue which is least amenable to any form of method or systematic analysis. Although previous transactions from external benchmarking or from the company s own experience may give some kind of lead, even if there is true comparability between the benchmark and the valuation subject, differences in market conditions from one day to the next will often have major influences on the price of an asset. The acquisition of Hexal by Novartis Sandoz generic division in 2006 was widely criticized at the time as being too costly, yet immediately thereafter Teva bought Ivax to re-establish their market position... 

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