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What is Form 4563: Exclusion of Income for Bona-Fide Residents of American Samoa?
IRS Link to Form — Found Here Residents of US Territories will sometimes have to file their taxes with their resident territory as well as the US Department of Revenue. For those who are bona-fide citizens, they are more likely to be able to exclude their income from US taxation. Bona-fide residency of a territory is most easily defined by the 183-day rule: if the person is physically present and living in the territory for 183 days out of the year, he or she is a bona-fide resident of the territory (in most cases). Beginning or ending bona-fide residency requires form 8898. American Samoa is the only place that can exercise the “possession exclusion,” as defined in IRC Section 931. Continue reading...
What Does Market Risk Premium mean?
Market Risk Premium refers to the expected return on a risk asset, minus the risk-free rate. A good barometer for the risk-free rate is using a U.S. Treasury bond, which is largely considered a risk-less asset if held to maturity. To give an example, let’s say the annual expected return on Stock ABC is 11%, and a 1-year U.S. Treasury pays 2%. In this case, the market risk premium is the difference between the two, or 9%. Continue reading...
What is a Debenture?
A debenture is a non-secured loan, meaning that it is not backed by collateral or other assets. In other words, it is a loan backed by general credit. Corporations and governments issue debentures regularly, and an example of a government debenture would be a U.S. Treasury. Continue reading...
What is a Treasury Note?
Treasury notes are government-issued coupon bonds with maturities between 1 and 10 years. A large secondary market exists for Treasury Notes, and they can be acquired at issue in a competitive bid or a noncompetitive bid auction. They are extremely popular for their marketability and six-month interest payment schedule. They do have interest rate risk, since treasuries issued with higher interest rates will make the ones already issued with lower rates less valuable. Continue reading...
What is the Size of our National Debt?
The total United States national debt is $19.3 trillion as of fiscal year (FY) 2016. Total debt is near what the U.S. produces in annual GDP, and a majority of our national debt is public debt — money owed to those who have Treasury obligations. The U.S. also owes a large amount of money to foreign countries (foreign debt), but a majority of U.S. debt is held domestically. As of June 2012, the three countries who hold the most of our national debt are: Continue reading...
What Does Opportunity Cost Mean?
Opportunity cost is a fundamental concept in economics and decision-making. It refers to the potential loss of choosing one option over another and helps individuals and organizations make informed decisions by considering the potential benefits and costs of each option. Opportunity cost also plays a significant role in macroeconomics, trade, and determining the price of goods and services. Understanding opportunity cost is essential for making trade-offs, allocating resources, and achieving long-term success. Continue reading...
What are Mortgage-Backed Securities?
Mortgage-backed securities (MBS) are products that bundle mortgages together and are traded like securities for sale on the markets. Typically investment banks build these products by bundling mortgages with different interest rates and risk premiums, with the hope of the investor gaining a higher yield than can be found from traditional risk-free products, like U.S. Treasuries. Mortgage-backed securities got an infamous name during the 2008 financial crisis, as many of the packaged loans were subprime in nature. Many MBS products lost incredible value during the crisis, particularly following ruling FAS 157, which required banks to mark their value to market. Continue reading...
What is the “Riskless” (or Risk-Free) Rate of Return?
For comparisons of the risk/return ratio of an investment, one must start with a benchmark of a risk-free rate of return in the current market. Since U.S. Treasury bills are backed by the full faith, credit, and taxing power of the U.S. Government, they are considered “riskless,” or as close to riskless as we can get. The current yield on a 10-year Treasury note is generally considered the risk-free rate of return. Continue reading...
What are TIPS?
Treasury Inflation Protected Securities (TIPS) are coupon-paying treasuries issued by the US Government whose principal amount adjusts with inflation. When a consumer buys Treasury Inflation Protected Securities (TIPS), they experience a few benefits when compared to other investment options. One benefit is that the security is backed by the full faith and credit of the US Government. Another benefit is that the principal amount adjusts automatically for inflation with the Consumer Price Index. Continue reading...
What is a Settlement Date?
The length of time after a trade is executed that the securities are due delivered and the payment is due paid varies for different types of transactions, but the date on which this occurs is the settlement date. Most exchange-traded corporate securities in the United States are required to be settled three days after the trade order is entered, which is called T+3. That date is the settlement date, and is the final date on which the transaction must be finalized by both parties involved. Continue reading...
What is a Fixed Income Security?
A fixed income security is one designed to pay interest/coupon payments on a predetermined basis, or a fixed schedule. Fixed income securities are often used by late stage retirees who need safe, reliable income streams. Fixed income securities still have risk, such as interest rate risk where if interest rates rise the price of a fixed income security can fall. Examples of fixed income securities are U.S. Treasuries, municipal bonds, or CDs. Because fixed income products carry relatively low risk, it generally translates into relatively lower returns. Continue reading...
What is the ‘Risk-Free Rate of Return’?
The risk-free rate of return is the rate an investor can get on a risk-free asset at a given time. It is usually the current yield on a 10-year treasury, which is backed by the full faith and credit of the US Government and is considered risk-free. The risk-free rate is used in several calculations and considerations in finance, to show what return can be earned in the current market environment without being exposed to any risk. Continue reading...
How Do Embargoes Impact Global Trade and Diplomacy?
Delve into the multifaceted realm of embargoes, powerful economic instruments wielded by nations and global entities. From their historical roots, like the Arab oil embargo, to their diverse forms, including trade and sanitary restrictions, embargoes have left indelible marks on the world stage. While they aim to enforce political or humanitarian objectives, their effectiveness and unintended consequences spark debate. Whether it's the longstanding U.S. embargo on Cuba or sanctions against Iran, these measures influence not just targeted nations but the entire global economy. Dive in to unravel the complexities and nuances of embargoes in international diplomacy. Continue reading...
What is the U.S. Dollar (USD) and Why Does It Dominate the Global Economy?
The U.S. Dollar (USD) isn't just a currency; it's a symbol of global economic dominance. As the official currency of the United States, the USD has evolved over centuries to become the world's primary reserve currency, influencing global trade, forex markets, and international reserves. From its early days anchored to the gold standard to its modern-day status as a free-floating fiat currency, the journey of the USD is a testament to the economic prowess of the USA. Its stability, global acceptance, and role in oil trade (petrodollars) further amplify its significance. Moreover, with the advent of digital currencies, the USD continues to adapt, as seen with the USDCoin. As we navigate the intricate world of finance, the USD stands tall as a beacon of trust, stability, and strength, shaping the financial destinies of nations and individuals alike. Dive in to unravel the story of the world's most influential currency. Continue reading...
What is the FCC?
The Federal Communications Commission is a bipartisan regulatory body that oversees interstate communications media, grants licenses to entities which plan to use the bands available, and to some extent regulates the content of these communications in the public interest. Communications media, including radio, satellite, cable, telephone, and others, are overseen and regulated by the FCC. They help to standardize measures and regulate the commercial activity of the entities which seek to use these media, including licensing and content regulation. Continue reading...
What is the definition of USD (United States Dollar)?
Unlock the secrets of the United States Dollar (USD) - from its intriguing origins as the "greenback" to its global dominance today. Dive into its complex relationship with gold, international significance, and evolving role in the modern economy. Discover the power behind the $1 bill's nicknames and unravel the USD's captivating journey through history and finance. 🌐💰 #USDExplained Continue reading...
What is foreign exchange risk?
Foreign Exchange Risk is the possibility that exchange rates will move against you when you have pending payment on transactions in another currency or other investment positions in foreign currencies or foreign assets which will be affected by Forex fluctuations. Foreign Exchange Risk can also be called Forex risk, and it is the potential loss to an investor or institution when doing business in a foreign currency if the exchange rate swings unfavorably. Companies and countries take various measures to hedge against exchange rate risk, including holding reserves of other currencies and buying derivative contracts on various currency pairs. Continue reading...
How Can I Enter Profitable Territory Using the Average True Range Indicator?
Are you tired of relying on gut feelings and hope when it comes to your trades? If you're seeking a data-driven approach to trading that can significantly improve your results, then it's time to get acquainted with the Average True Range (ATR) indicator. This powerful tool has been a staple in professional traders' arsenals for decades, and for a good reason. In this article, we'll explore what ATR is, how to use it effectively, and why it's a must-try for traders of all levels. Continue reading...
What are the top brokers for international trading?
Best Brokers for International Trading in 2023 Explore global markets with the best brokers. Interactive Brokers excels for seasoned investors, offering a vast array of assets and advanced tools. Fidelity, ideal for beginners, provides a user-friendly platform and low costs. Learn more about their features and factors to consider when choosing an international broker in our comprehensive guide. Don't miss out on global investment opportunities! #InternationalTrading #Investing2023 Continue reading...
What Is the Earned Income Tax Credit (EITC)?
In a country where the tax code can often be complex and intimidating, the Earned Income Tax Credit (EITC) stands out as a beacon of simplicity and direct financial assistance for low to moderate-income earners. This refundable tax credit has been instrumental in alleviating the financial burden on hardworking Americans. In this article, we will delve into what the EITC is, who qualifies for it, and how it can provide much-needed relief to eligible taxpayers. Continue reading...