Sunday, 28 February 2016

Company car insurance

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If you're a company car driver, insurance might be a hassle. Many businesses lease vehicles for their drivers and you may be left to arrange private insurance on your company car.

Sunday, 26 July 2015

8 Ways to get Travel Insurance Online in India for Free

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Travel Insurance, also referred to as visitor insurance or overseas medical insurance is a special facility offered by insurance companies in India to cover you against the following unforeseen situation while travelling abroad:
  • Personal Accident
  • Medical Expenses*
  • Loss of Passport
  • Trip Delay
  • Trip Cancellation
  • Baggage Loss
  • Risks while travelling abroad

* Any claim due to or arising out of pre-existing medical condition/ailment whether declared or undeclared is not covered under the policy.

It would not be wrong to say that travel insurance online  is the backbone of every travel plan. You cannot be at peace without having one in hand. The plan will help you get compensation in case of any unforeseen event occurring during a trip.


Investing in an appropriate travel insurance plan is beneficial. With the frequency of unforeseen events increasing on a daily basis, it has become crucial to keep a backup plan that helps you handle emergencies with ease. Uncertain events such as terrorist attacks, thefts, and robbery are some of the most common ones a traveller comes across. You don’t have an idea how bad it can get when you are encountered with such events in an alien destination.

Having a travel insurance policy in hand will help you ensure complete protection all through the trip and even offers you compensation when an emergency strikes. No wonder investing in a good travel insurance plan tops the list of any travel plan. Remember that a vacation package is incomplete without travel coverage.

Unfortunately, there is a significant percentage of population who don’t believe in buying travel insurance online  policy. They feel that the policy is a waste of money and leads to a lot of time and money wastage. This is not true. In fact, the plan works towards saving your valuable investment in case an emergency strikes on a trip. Time is certainly not wasted as most insurance companies offer Travel Insurance policies online. All need to do is log on to the World Wide Web from the comfort of your home and buy a plan that ideally suits your specific needs and budget. If you are all set to go on a trip this holiday, get a travel insurance plan now.

Medical Expenses


Well, the most crucial reason to buy a comprehensive travel insurance plan is to cover medical expenses while travelling abroad. In the event of an accident or unforeseen sickness, instant medical assistance is required. Now the medical care cost can vary from one country to the other. In some countries these expenses can break your bank. An insurance policy will take care of all exorbitant expenses you may come across including air ambulance and repatriation.
Travel Insurance Online
Travel Insurance Online

Trip Cancellation


This can happen due to many reasons. Sudden illness, physical injury, an accident, illness of travelling companion, death or illness in the family are certain incidents that force you to cancel your trip. This usually results in heavy financial losses. In the event where illness occurs just days before a trip, you may have payments made in full for various arrangements including tickets, flights, accommodation, etc. cancelling the trip means heavy loss and disappointment. Having a travel insurance policy will cover the losses.

Missed Flights


This is not an unusual event. Many a times, travelers tend to miss their flights. This incident occurs due to a number of reasons such as vehicle breakdown on the way to the airport, a traffic jam, accident etc. With a travel insurance plan in hand, you can handle the cost of an additional flight. Expenses incurred in reaching your destination will be fully covered.

Theft or Loss of personal belongings


Tourists are prone to attacks, theft, loot, etc. in a foreign land. Travel insurance is crucial to balance the loss due to the above stated emergencies. Insurance companies usually reimburse these losses.

Curtailment


This is a common travel insurance term. It defines the curtailment of a trip due to certain events such as serious illness or death of a close relative at home while you are travelling overseas. In case of such an emergency, the overall cost of trip curtailing will be covered by the company.

Checklist



Preparing a checklist is important before buying Travel Insurance Online. This is especially important if you are not covered against medical expenses. Sickness doesn’t come knocking at your door or taking prior experience. Make sure that the travel insurance policy you buy covers all hospital bills in conjunction with prescription costs incurred by you overseas.

Accidental Cover


It is not uncommon to face accidents during travel. In fact, accidents on holidays are common as you participate in various adventure activities. Having insurance will give you cover protection dangers posed by these activities.

Flight Cancelled!


What if your flight gets cancelled due to strike, bad weather, technical problems, airline insolvency, etc.? You would be surprised to know that each year; many thousands of flights are cancelled by airlines. This tends to affect vacation plans and even results in heavy monetary loses. By having a travelling insurance plan in hand that covers sudden flight cancellation by airlines, the expenses incurred by you in buying alternative flight tickets will be reimbursed by the company.

Cancel Holiday!



Imagine a situation where have booked a destination for holiday, just before the scheduled travel date. Your companion is sick. Cancellation of trip indicates that the insured individual has to bear all the losses. What would you do? Since you have already bought non refundable air tickets, booked a hotel, and made other necessary arrangements for a holiday, cancellation would mean money loss. The trip cancellation cover must be included in your insurance policy documents.

Keeping above stated points in mind is very important to get the best insurance policy in hand when setting out on a trip. Hence, these rules should be followed strictly prior to buying just about any travel insurance policy. Considering these points will let you enjoy a safe, stress free and enjoyable journey. Bon Voyage!

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Thursday, 19 February 2015

Summary of Required Rate of Return

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Summary of Required Rate of Return


The overall required rate of return on alternative investments is determined by three variables:

(1) The economy’s RRFR, which is influenced by the investment opportunities in the economy (that is, the long-run real growth rate);

(2) Variables that influence the NRFR, which include short-run ease or tightness in the capital market and the expected rate of inflation (notably, these variables, which determine the NRFR, are the same for all investments); and

(3) The risk premium on the investment.

In turn, this risk premium can be related to fundamental factors, including business risk, financial risk, liquidity risk, exchange rate risk, and country risk, or it can be a function of systematic market risk (beta).

1. The measures of risk for an investment are
2. Variance of rates of return
3. Standard deviation of rates of return
4. Coefficient of variation of rates of return (standard deviation/means)
5. Covariance of returns with the market portfolio (beta)

The sources of risk are:

1.Business risk
2.Financial risk
3.Liquidity risk
4.Exchange rate risk
5.Country risk

Fundamental Risk versus Systematic Risk

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Fundamental Risk versus Systematic Risk

Some might expect a conflict between the market measure of risk (systematic risk) and the fundamental determinants of risk (business risk, and so on). A number of studies have examined the relationship between the market measure of risk (systematic risk) and accounting variables used to measure the fundamental risk factors, such as business risk, financial risk, and liquidity risk. The authors of these studies have generally concluded that a significant relationship exists between the market measure of risk and the fundamental measures of risk. 10 Therefore, the two measures of risk can be complementary.

This consistency seems reasonable because, in a properly functioning capital market, the market measure of the risk should reflect the fundamental risk characteristics of the asset. As an example, you would expect a firm that has high business risk and financial risk to have an above average beta. At the same time it is possible that a firm that has a high level of fundamental risk and a large standard deviation of return on stock can have a lower level of systematic risk because its variability of earnings and stock price is not related to the aggregate economy or the aggregate market.

Therefore, one can specify the risk premium for an asset as:

Risk Premium = f (Business Risk, Financial Risk, Liquidity Risk, Exchange Rate Risk, Country Risk)

Or

 Risk Premium = f (Systematic Market Risk)

Risk Premium and major sources of uncertainty.

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Risk Premium
A risk-free investment was defined as one for which the investor is certain of the amount and timing of the expected returns. The returns from most investments do not fit this pattern. An investor typically is not completely certain of the income to be received or when it will be received. Investments can range in uncertainty from basically risk-free securities, such as T-bills, to highly speculative investments, such as the common stock of small companies engaged in high-risk enterprises
Most investors require higher rates of return on investments if they perceive that there is any uncertainty about the expected rate of return. This increase in the required rate of return over the NRFR is the risk premium (RP). Although the required risk premium represents a composite of all uncertainty, it is possible to consider several fundamental sources of uncertainty. In this section, we identify and discuss briefly the major sources of uncertainty, including:
(1) Business risk,
(2) Financial risk (leverage),
(3) Liquidity risk,
(4) Exchange rate risk, and
(5) Country (political) risk

Business risk is the uncertainty of income flows caused by the nature of a firm’s business. The less certain the income flows of the firm, the less certain the income flows to the investor. Therefore, the investor will demand a risk premium that is based on the uncertainty caused by the basic business of the firm. As an example, a retail food company would typically experience stable sales and earnings growth over time and would have low business risk compared to a firm in the auto industry, where sales and earnings fluctuate substantially over the business cycle, implying high business risk.

Financial risk is the uncertainty introduced by the method by which the firm finances its investments. If a firm uses only common stock to finance investments, it incurs only business risk. If a firm borrows money to finance investments, it must pay fixed financing charges (in the form of interest to creditors) prior to providing income to the common stockholders, so the uncertainty of returns to the equity investor increases. This increase in uncertainty because of fixed-cost financing is called financial risk or financial leverage and causes an increase in the stock’s risk premium.

Liquidity risk is the uncertainty introduced by the secondary market for an investment. 6 When an investor acquires an asset, he or she expects that the investment will mature (as with a bond) or that it will be salable to someone else. In either case, the investor expects to be able to convert the security into cash and use the proceeds for current consumption or other investments. The more difficult it is to make this conversion, the greater the liquidity risk. An investor must consider two questions when assessing the liquidity risk of an investment:
(1) How long will it take to convert the investment into cash?
(2) How certain is the price to be received?

Similar uncertainty faces an investor who wants to acquire an asset: How long will it take to acquire the asset? How uncertain is the price to be paid?

Uncertainty regarding how fast an investment can be bought or sold, or the existence of uncertainty about its price, increases liquidity risk. A U.S. government Treasury bill has almost no liquidity risk because it can be bought or sold in minutes at a price almost identical to the quoted price. In contrast, examples of illiquid investments include a work of art, an antique, or a parcel of real estate in a remote area. For such investments, it may require a long time to find a buyer and the selling prices could vary substantially from expectations. Investors will increase their required rates of return to compensate for liquidity risk. Liquidity risk can be a significant consideration when investing in foreign securities depending on the country and the liquidity of its stock and bond markets

Exchange rate risk is the uncertainty of returns to an investor who acquires securities denominated in a currency different from his or her own. The likelihood of incurring this risk is becoming greater as investors buy and sell assets around the world, as opposed to only assets within their own countries. A U.S. investor who buys Japanese stock denominated in yen must consider not only the uncertainty of the return in yen but also any change in the exchange value of the yen relative to the U.S. dollar. That is, in addition to the foreign firm’s business and financial risk and the security’s liquidity risk, the investor must consider the additional uncertainty of the return on this Japanese stock when it is converted from yen to U.S. dollars. As an example of exchange rate risk, assume that you buy 100 shares of Mitsubishi Electric at 1,050 yen when the exchange rate is 115 yen to the dollar. The dollar cost of this investment would be about $9.13 per share (1,050/115). A year later you sell the 100 shares at 1,200 yen when the exchange rate is 130 yen to the dollar. When you calculate the HPY in yen, you find the stock has increased in value by about 14 percent (1,200/1,050), but this is the HPY for a Japanese investor. A U.S. investor receives a much lower rate of return, because during this period the yen has weakened relative to the dollar by about 13 percent (that is, it requires more yen to buy a dollar—130 versus 115). At the new exchange rate, the stock is worth $9.23 per share (1,200/130). Therefore, the return to you as a U.S. investor would be only about 1 percent ($9.23/$9.13) versus 14 percent for the Japanese investor. The difference in return for the Japanese investor and U.S. investor is caused by the decline in the value of the yen relative to the dollar. Clearly, the exchange rate could have gone in the other direction, the dollar weakening against the yen. In this case, as a U.S. investor, you would have experienced the 14 percent return measured in yen, as well as a gain from the exchange rate change.

The more volatile the exchange rate between two countries, the less certain you would be regarding the exchange rate, the greater the exchange rate risk, and the larger the exchange rate risk premium you would require.

There can also be exchange rate risk for a U.S. firm that is extensively multinational in terms of sales and components (costs). In this case, the firm’s foreign earnings can be affected by changes in the exchange rate. As will be discussed, this risk can generally be hedged at a cost.

Country risk , also called political risk, is the uncertainty of returns caused by the possibility of a major change in the political or economic environment of a country. The United States is acknowledged to have the smallest country risk in the world because its political and economic systems are the most stable. Nations with high country risk include Russia, because of the several changes in the government hierarchy and its currency crises during 1998, and Indonesia, where there were student demonstrations, major riots, and fires prior to the resignation of President Suharto in May 1998. In both instances, the stock markets experienced significant declines surrounding these events.  Individuals who invest in countries that have unstable political- economic systems must add a country risk premium when determining their required rates of return.

When investing globally (which is emphasized throughout the book), investors must consider these additional uncertainties. How liquid are the secondary markets for stocks and bonds in the country? Are any of the country’s securities traded on major stock exchanges in the United States, London, Tokyo, or Germany? What will happen to exchange rates during the investment period? What is the probability of a political or economic change that will adversely affect your rate of return? Exchange rate risk and country risk differ among countries. A good measure of exchange rate risk would be the absolute variability of the exchange rate relative to a composite exchange rate. The analysis of country risk is much more subjective and must be based on the history and current environment of the country.
This discussion of risk components can be considered a security’s fundamental risk because it deals with the intrinsic factors that should affect a security’s standard deviation of returns over time. In subsequent discussion, the standard deviation of returns is referred to as a measure of the security’s total risk, which considers the individual stock by itself—that is, it is not considered as part of a portfolio
Risk Premium = f (Business Risk, Financial Risk, Liquidity Risk, Exchange Rate Risk, Country Risk)

Real Risk- Free Rate Explained

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What is Real Risk- Free Rate ?

The real risk-free rate (RRFR) is the basic interest rate, assuming no inflation and no uncertainty about future flows. An investor in an inflation-free economy who knew with certainty what cash flows he or she would receive at what time would demand the RRFR on an investment. Earlier, we called this the pure time value of money, because the only sacrifice the investor made was deferring the use of the money for a period of time. This RRFR of interest is the price charged for the exchange between current goods and future goods. 

Two factors, one subjective and one objective, influence this exchange price. The subjective factor is the time preference of individuals for the consumption of income. When individuals give up $100 of consumption this year, how much consumption do they want a year from now to compensate for that sacrifice? The strength of the human desire for current consumption influences the rate of compensation required. Time preferences vary among individuals, and the market creates a composite rate that includes the preferences of all investors. This composite rate changes gradually over time because it is influenced by all the investors in the economy, whose changes in preferences may offset one another. 

The objective factor that influences the RRFR is the set of investment opportunities available in the economy. The investment opportunities are determined in turn by the long-run real growth rate of the economy. A rapidly growing economy produces more and better opportunities to invest funds and experience positive rates of return. A change in the economy’s long-run real growth rate causes a change in all investment opportunities and a change in the required rates of return on all investments. Just as investors supplying capital should demand a higher rate of return when growth is higher, those looking for funds to invest should be willing and able to pay a higher rate of return to use the funds for investment because of the higher growth rate. Thus, a positive relationship exists between the real growth rate in the economy and the RRFR.

Definition of Investment

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Definition of Investment

From our discussion, we can specify a formal definition of investment. Specifically, an investment is the current commitment of dollars for a period of time in order to derive future payments that will compensate the investor for
(1) the time the funds are committed,
(2) the expected rate of inflation, and
(3) the uncertainty of the future payments.

The “investor” can be an individual, a government, a pension fund, or a corporation. Similarly, this definition includes all types of investments, including investments by corporations in plant and equipment and investments by individuals in stocks, bonds, commodities, or real estate. This text emphasizes investments by individual investors. In all cases, the investor is trading a known dollar amount today for some expected future stream of payments that will be greater than the current outlay. At this point, we have answered the questions about why people invest and what they want from their investments. They invest to earn a return from savings due to their deferred consumption. They want a rate of return that compensates them for the time, the expected rate of inflation, and the uncertainty of the return. This return, the investor’s required rate of return , is discussed throughout this book. A central question of this book is how investors select investments that will give them their required rates of return.

This value will always be zero or greater—that is,it can never be a negative value. A value greater than1.0 reflects an increase in your wealth, which means that you received a positive rate of return during the period. A value less than 1.0 means that you suffered a decline in wealth, which indicates that you had a negative return during the period. An HPR of zero indicates that you lost all your money. Although HPR helps us express the change in value of an investment, investors generally evaluate returns in percentage terms on an annual basis. This conversion to annual percentage rates makes it easier to directly compare alternative investments that have markedly different character-is tics. The first step in converting an HPR to an annual percentage rate is to derive a percentage return, referred to as the holding period yield (HPY). The HPY is equal to the HPR minus 1