On The Run Finance

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Finance is a domain that is related to the research of investments. It consists of the dynamics of assets and liabilities over a period under scenarios of varying proportions of insecurity and risk.

It is also defined as the process of money management. A critical feature of the finance is the time value of money. Finance can be further categorized as public finance, corporate finance, and personal finance.

On the run finance (security or contract) is the one that has been issued most lately, and therefore extremely liquid with regard to an intermittently issued security. They usually trade at a premium in comparison to the other securities.

If a new security is allotted, thereby becoming the latest on-the-run security, purchasing the recently issued contract and selling the previous one is known as rolling the contract.

On-the-run bond is the most regularly traded treasury security. They trade at a slender premium and hence their yield is slightly lesser than off-the-run counterparts.

Certain dealers take advantage of price variation via arbitrage plan that includes selling (taking a short position) on-the-run treasuries and purchasing off-the-run treasuries.

Some examples of on-the-run-finance are:

The United States Treasury Securities
The US treasury securities have regular auctions; the treasury of a particular time, for e.g., 30 years, which has witnessed an auction most lately is on-the-run security, while previous treasury of the particular time is off-the-run security.

Credit Default Swaps
The contract (5-year period) that has been delivered recently (IMM date) is on-the-run security. It would have an outstanding maturity between 4 years, 9 months and 5 years.

Holding On-The-Run Contracts
Several indices would only hold on to on-the-run contracts to simplify trading.

There are many reasons for higher prices/lower yields of on-the-run Treasuries. A key factor is a supply.

Since there is a huge amount of distinct kinds of treasuries in transmission, the on-the-run issue would be of restricted dimension, hence, buyer demand for the latest treasury issue would increase the price.

Again, financial firms short-run dealing of treasuries for interest rate modifications is mainly carried out with on-the-run issues.

A knowledgeable investor must seek information from the broker on various treasury issues with similar maturity before deciding on which treasury to invest on.

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The Gold Rush

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Of all the metals, gold is the most prominent metal as an investment option. Investors purchase gold to diversify risk, particularly via futures contract and derivatives.

Gold trading is also prone to speculation and fluctuations similar to other markets. Gold is considered a safe investment option, especially during periods of economic downturn.

Historically, gold has been used as a monetary standard until the dollar became the global reserve currency.

The rate of gold is determined by supply and demand, which includes speculative demand. Again, saving and transfer plays a vital role in influencing its rate.

Decisions taken by Central banks and the IMF also impact gold price. The gold price is linked to interest rates. If interest rates increase, the gold price would fall while if interest rates fall, the gold price would increase.

Hence, the gold price could be connected to central banks through the monetary policy implemented by them with regard to interest rates.

At present, market experts believe gold is an excellent investment in the short-run. There are many causes, including negative interest rates in several nations that have led to a demand for gold.

Negative interest rates decrease the cost of maintaining gold, and fundamentally, it is inflationary. However, the “cost of carry” is the most convincing motive to hold gold.

A high rate of interest and robust currencies are usual restraints on holding gold, which does not provide any yield and tends to decrease in worth if paper currencies are rising.

Apart from the Japanese yen, there are not many currencies that are appreciating and there are fewer nations having high-interest rates that would provide excellent yields. Hence, investors are considering gold as an investment option in the near future.

There are other correlated technical indicators that confirm gold can extend its current returns. The present, ascending movement in gold proved by increases in metals such as silver, platinum, and copper.

The projections for US development continues to be downgraded, the Fed is not expected to increase rates against a background of a weak global economic environment.

Other measures of market performance like a sinking dollar and reduced interest rates indicate an economic scenario that does not merit any policy decision from the Fed.

Therefore, these circumstances along with negative rates globally would ensure gold, gold stocks and ETFs are in the investors radar in the short-term.

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Revamping Forex Markets

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Regulators across the globe are developing comprehensive procedures to ensure foreign exchange stakeholders don’t function inappropriately. They recommend “time stamping” of transactions and modifications to “last look,” a concept wherein market makers have a final opportunity to take/turn down orders if a client wants to trade with regard to a quoted price. Corporations would look for opportunities to receive the most optimal rate.

According to Guy Debelle, Assistant Governor of the Reserve Bank of Australia, “We are not trying to reinvent the wheel and we are not just harmonizing existing codes, but identifying gaps that need filling and explaining what we regard as good practice”.

It is estimated that banks across the globe have paid over $10 billion in fines and settlements pertaining to FX rate rigging functions.

According to David Gilmore, Partner and Economist at Essex, Connecticut – based Foreign Exchange Analytics, “This new global code of conduct is necessary and long overdue. Since the foreign exchange business crosses borders, it’s logical that it should operate under a global code of conduct”.

Unfortunately, there has not been an international agency to establish/impose regulatory reform. There have been several modifications that have impacted the Forex market in the recent past.

Normally, volumes in the Forex market were denoted by a concept – inter-dealer market (trading among dealers). However, as per the BIS Triennial Survey on foreign exchange market activity (2010), the maximum number of volumes disclosed by dealers was with regard to transactions with other financial institutions, which includes non-reporting banks, other financial institutions (institutional investors, hedge funds, proprietary trading firms and official sector institutions).

The fact that “other financial institutions” were responsible for over 50% of reported volume, while non-dealers managed greater volumes, reconfirmed the theory of a broadening in foreign exchange trading. The data interpreted that non-reporting banks accounted for 45% of the trading volume, while institutional investors, hedge funds, trading firms accounted for around 20%. Considering a market with trading volume in excess of $5 billion on a daily basis, it is further proof of the increase in participation by non-dealers in the Forex market.

A vital reason for an increase in the presence of non-dealers in the Forex market has been a relaxation in the rules of entry into the market due to an increase in the number of execution platforms and services. It has also been assisted by advancements in technology which have resulted in decreasing trading costs.

Electronic trading functions in Forex markets have also played a significant role. Technology is also contributing to stakeholder engagement by way of single and multi-dealer platforms.

For e.g., previously institutional customers were able to engage with the market through the dealing bank, but the interface between technology and prime brokerage along with the amalgamation of investor services (trade execution, settlement, financing, and custody) have resulted in direct connect with the inter-dealer market in ways that were not probable before. The capital investments required to bolster the technological changes have also increased.

The modifications in market structure are critical for the operation of the market, but market integrity depends on factors other than the capability to execute. It is mandatory that stakeholders functioning in the market perform as per relevant standards of ethics. There is scope for improvement in this domain in order to reconstruct the market integrity.

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Medical Tourism

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Medical tourism denotes to the travel of individuals from one nation to another for the intent of receiving medical treatment in the foreign nation. Traditionally, patients would travel from developing nations to prominent health care centres in developed nations.

However, there is a shift in the trend toward travel to developing nations for medical treatments due to cost factor. Again, certain treatments may not be allowed as per law in the home nation, and therefore, individuals would have to travel abroad.
The most accepted medical treatment includes cosmetic surgery, dentistry, heart surgery, orthopaedic surgery, organ transplantation, and eye surgery among others.

Types of Patients
Temporary Visitors Abroad

It consists of individuals on a holiday overseas who use the services locally for a medical emergency (unexpected illness or accident).

Common Borders
Nations having common borders may work together in delivering cross-national finance for health care services.

Outsourced Patients
Patients may be sent overseas by medical agencies through cross-national purchasing agreements. The agreements are steered by the time taken to receive care and non-availability of specialists in the country of residence.

Impact of Globalization
•    Changes in the regulatory environment.
•    Acceptance of transnational disease forms.
•    Increase in patient movement.
•    Growth in the health care sector.

Some of the prominent global locations
There is a trend globally for medical tourism. Some nations may have historical agreements. For e.g., patients seeking medical treatment in Hungary are usually from Western Europe.
The regions like Asia (India, Malaysia, Singapore, and Thailand), Africa (South Africa), Latin America (Brazil, Costa Rica, Cuba and Mexico), Middle East (Dubai), Western, Scandinavian, Central & Southern Europe, and Mediterranean have established themselves in the global medical tourism map.

Risks of Medical Tourism
•    Communication could be an issue. If you don’t speak the local language, it could lead to misunderstandings.
•    Hospitals could reuse needles or follow other unsafe practices in some nations.
•    Medicine could either be not genuine or of poor quality.
•    Antibiotic resistance is an international concern.
•    The blood supply in certain nations may not be properly checked.
•    Travelling after surgery enhances the probability of blood clots.

Precautions to be taken
•    Consult a travel medical practitioner at least one month prior to the trip to seek information on the process of treatment.
•    Verify the qualifications of doctors and confirm the credentials of the health care facility.
•    Enter into a written contract with the hospital or the organization, scheduling the trip, validating if methods, supplies, and care are included in the overall costs.
•    Identify legal action that can be taken if the treatment doesn’t proceed as planned.
•    Maintain copies of medical records.
•    Formulate copies of prescriptions, a list of medications (brand, generic, companies, and dosages).
•    Receive copies of all medical records before travelling back to the home nation.

Medical tourism is not only excellent business for hospitals located abroad but also for a nation’s overall tourism sector. Currently, many nations globally have accepted medical tourism as a vital sector.

It would be appropriate to conclude that medical tourism will have a tremendous prospect in the future as more and more individuals travel abroad for treatment. This would result in quantitative and qualitative achievements for global as well as national clients.

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International Contactless Payments

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Contactless payment systems consist of credit cards, debit cards, key fobs, smart cards and devices such as smartphones. They utilize radio-frequency identification (RFID) and near field communication (NFC) for ensuring protected payments.

The embedded chip and antenna ensure consumers pass their card in front of a reader during the sales process. Transactions are extremely fast.

Contactless smart cards that operate as stored-value cards are increasingly being used as transit system fare cards (the Oyster card or RioCard).

According to an international market study by Juniper Research, the deal value for online, mobile and contactless is estimated to reach $4.7 trillion by 2019.

At present, contactless payments are witnessing a 200% rise in the UK. NFC contactless payments are broadly estimated to develop robustly.

Apple Pay has been projected as the driving effort in placing contactless in the minds of consumers and vendors. It is a mobile payment and digital wallet offering that allows consumers to facilitate payments using the iPhone 6, 6 Plus and Apple Watch-compatible devices (iPhone 5 and later models), iPad Air 2, iPad Pro and iPad Mini 3.

Contactless payments do not carry any additional fees because they are not very expensive to process for the vendor.

Contactless payments are projected to become mandatory by 2020 and there would be no minimum expenditure on deals.

A number of contactless payments are forecasted to increase nearly nine times to 12.2 billion in 2020.

According to a study by RBR, “we should not be carried away by them just yet as contactless transactions still represent just two percent of the overall volume of card payments in the region and 0.5 percent of their value.”

According to Owen Britton Jennings, Head of Business Intelligence at Square, “More and more people want to pay with contactless and checkout faster. I think the NFC is the future.”

Globally, contactless payments are expected to increase exponentially in the long-term. Retailers must be prepared for the change as increasingly consumers are shifting to contactless payments.

Companies must identify the offerings that would ensure a positive customer experience as they expand and scale transactions.

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Day Trading

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Day trading is the process of purchasing and selling a stock within the same trading day. Day traders look to book profits by using huge quantities of capital to benefit from the marginal price fluctuations in extremely liquid stocks or indexes.

Some of the normal day-traded financial instruments are stocks, options, currencies, future contracts (equity index futures, interest rate futures, and commodity futures).

Day Trading Strategies

Identify supply and demand mismatches
The capital market is impacted by the law of supply and demand. If supply is collapsing and there are buyers willing to purchase, the price is expected to move upwards.
If supply is abundant and there are no buyers, the price would crash. Stock analysts must identify the changing points on a price chart.

Determine Price Targets
If an investor is purchasing a long position, it would be prudent to determine beforehand the acceptable profit level along with the stop-loss level if the trade turns against the investor.
This restricts the probable loss.

Risk-Reward Ratio
One of the critical lessons in stock trading is to finalize an efficient risk-reward ratio. This ensures the trader would “lose small and win big”.

Patience is the key
Efficient day traders do not trade on a daily basis. If they cannot perceive any opportunities that meet their expectations, they will not implement a trade that day. This strategy is advisable instead of an impatient decision.

Trading Integrity
The trader must establish a trading plan and follow it. A spontaneous behaviour is extremely dangerous.

Have the confidence to push the order button
Traders get enwrapped in monitoring the candles and the Level 2 columns on, thereby not being in a position to act expeditiously when an opportunity arises.

Trading with money
Always trade with money that you can afford to lose. It would be advisable to use the money for day trading, provided the trader is confident of positive results.

Risk Management
An efficient risk management strategy would be to spread the capital across various trades.

Diversify to other asset classes
Do not restrict to just stocks. Forex, futures and options are the three asset classes with potential.

During the day trading, positions are closed before the close of the trading day, bulletins and proceedings that impact the trading day’s opening process the next day do not impact the investor’s portfolio.

Day traders have an improved leverage on the trading capital due to lower margin needs since their trades are secured on the same market day.

The improved leverage could enhance profits. Day trading, as a strategy could be used during risky market environments.

The trades and their high-frequency trading strategies would book profits until the markets get unpredictable once more.

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Simple Approach to Understand Straddle Strategies

The long straddle, also called the buy straddle or straddle is an impartial strategy related to options trading. It includes the concurrent buying of a put and a call of the similar base stock, striking rate and termination period.

There are two types of straddle:

Long Straddle

The long straddle is developed with regard to purchase of a put and a call at the precise strike rate and termination period. The long straddle tries to benefit from market price transformation by manipulating enhanced instability.

Irrespective of the direction of market price movement, a long straddle position would enable the investor to benefit from it.

Demerits of Long Straddle

  • High probability of loss.

Short Straddle 


The short straddle needs the trader to sell the put as well as the call option at a similar strike rate and termination period. The process of selling the options ensure the trader can receive a premium (profit).

A trader prospers only if a short straddle exists in a market with no instability.

The chance to book profits would depend completely on the markets in capability to transit upwards or downwards.

If there is any kind of bias in the market, the cumulative premium accumulated is at risk.

The performance of a straddle depends on basic restrictions that options normally have, along with the general movement in the market.

A short straddle’s firmness could also be its downside. A put and a call are sold to enhance revenue from premiums.

The huge amount spent by put and call purchasers goes to the trader’s account. This could be of immense benefit to a trader. However, if the option is sold, the investor is exposed to unrestricted risk.

The traders are under pressure to either buy or sell, receive premium or reimburse premiums, though the straddle is a perfect leveller.

The straddle ensures the trader is guided by the market. It would be prudent for traders to benefit from being at two different points concurrently – a put and a call.

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What is Petrodollar?

A Petrodollar is an estimated unit of currency received by a nation from the export of petroleum.

It usually denotes to the fact of key petroleum-exporting countries, essentially the OPEC nations and Russia, generating revenue through export of crude oil than they could practically invest in their internal markets.

The subsequent international mutual reliance and monetary flows from oil producers to oil buyers could reach a magnitude of huge quantities (US dollars) year-on-year covering various currencies. The movement of the petrodollar is greatly determined by decisions of oil-producing governments.

The occurrence is extremely distinct during phases when oil price is traditionally high. Internal political dynamics in Saudi Arabia is going to affect the petrodollar.

Fall in oil prices in recent times has forced the Saudi government to strategize a new path for economic growth – reducing oil reliance and diversifying into other sectors (healthcare, tourism), but experts believe it would be difficult for Saudi Arabia to make the paradigm shift.

The Kingdom has placed a five-year syndicated loan valued at $10bn (short-term fundraising, revenue generated through oil and sales of US Treasuries). This move by Saudi Arabia could result in a breakdown of the US bond market and the dollar.

This could result in another global meltdown and central banks are trying to avoid it. According to market experts, China’s financial strength (huge amount of dollar to dispose of), political clout (increasing political interests in Asia), along with Saudi Arabia’s position as an energy supplier could result in an agreement (between China and Saudi Arabia) which could be mutually beneficial in the long run.

The indebted US is not able to compete with China economically. Hence, it is only a matter of time before the Saudi riyal would ultimately get de-pegged from the US dollar and managed according to a basket of its oil currencies, influenced by the yuan.

Therefore, any currency strategy followed by China and Saudi Arabia could impact the dollar.

The Chinese government would provide dollar loans to Saudi Arabia against the sale of oil in the future that would be repaid in yuan, probably at a prearranged rate of exchange.

Saudi Arabia would receive dollars to spend, and China might balance supply and demand for yuan in the future. Hence, a significant portion of the petrodollar pile would crash in the future.

Over a period, the US has taken advantage of the dollar’s reserve currency status, resulting in a huge amount of dollars in intentional ownership. However, at present, the geopolitical dynamics that supported the dollar previously has changed.

There is a market opinion, which is moving towards gold. Hence, the purchasing power of the dollar would keep decreasing in the long run.

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Why IMF Seeks Growth Oriented Expenditure?

The IMF’s steering committee in the last week of April asked member nations to bolster “growth oriented” expenditure. It said the Fund would examine modified preventive lending tools to assist nations to overcome a slowdown in the international economic development.

According to the International Monetary and Financial Committee, “Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull back of capital flows. A more forceful and balanced policy mix was needed to stimulate growth and avoid deflation. A growth-friendly fiscal policy is needed in all countries.”

An accommodative financial policy was vital for growth in many developed nations. It also recommended the implementation of structural reforms to assist demand.

Financial stakeholders are looking for methods to improve cooperation to negate several economic contingencies.

The IMF is requesting member nations to execute new public infrastructure projects. It feels greater government expenditure would bolster development. However, in a period of significant budget deficits, the request from the IMF has not received a positive response.

The key stakeholders representing the IMF and the World Bank are stressing on the requirement for initiatives to bolster development and prevent the global economy from sliding into another recession.

A series of stronger procedures need to be initiated to overcome any increasing risks.

According to Christine Lagarde, the Managing Director of the International Monetary Fund, “The recovery from the 2008 financial crisis and the deep recession that followed was still too slow and too fragile. The IMF has once again had to reduce its estimate for global growth, cutting the projection to 3.2 per cent for this year, down from a 3.4 percent forecast made just three months ago.”

The IMF felt risks have enhanced due to turbulent financial markets and reduced commodity prices. Again, the general feeling was that decision makers in many nations had run out of options.

A combined effort globally would assist in leveraging distinct nations actions, thereby ensuring the international monetary system is more robust.

A prolonged low international demand and adverse interface between actual economy and markets would increase deflationary pressures. This could lead to secular stagnation.

International economic recovery is happening at a slow pace. This is the period to initiate decisive measures to put the international economy back on track.

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The US Response to Saudi Threat

The government of Saudi Arabia has threatened to sell its US assets worth US$ 750 billion if the Congress approves a bill that would hold independent governments responsible for their involvement in the Sept 2011 attacks. Due to the oil money, Saudi Arabia is one of the largest holders of US debt.

Though the government in Saudi Arabia or its senior representatives have not been connected with the September 2011 attack, certain terrorists were from Saudi Arabia. There are unconfirmed reports that some junior government representatives could be implicated.

The White House is contemplating to veto the bill. Representatives from the State Department as well as the Pentagon have cautioned senators of the political and economic outcome from the legislature. However, if approved, it would take courage for the Saudi Arabian government to dump the US assets, if proven of their involvement.

According to Michael Hiltzik, a columnist at the Los Angeles Times, “The Saudi threat to dump assets, particularly Treasury bonds, is an empty one, given that the kingdom may not own anywhere near that amount of Treasury’s in the first place, let alone other assets that would be easily sold.”

The US should not tremor over the Saudi threat. In spite of the success in re-gaining control over the petroleum sector, the Saudi Arabian government is under pressure due to intense competition from energy suppliers in the US.

Their plan to oversupply the market with oil has pushed frackers in the US to reduce production. The cumulative US oil production is projected to be around 9 million barrels per day, a decline from the high point of 9.7 million barrels in April 2015. Some market experts believe this trend to be for a short term.

At the same time, the US must pursue an aggressive foreign-policy and issue a counter threat to silence the Saudi leadership.

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