Fair value accounting is the measurement of assets and liabilities of business on the basis of estimation of current market values. It means the assets can be sold or a liability settled in an orderly transaction to a third party under current market conditions. Therefore this method of accounting is also known as ‘mark to…
When borrowers unable to pay interest on time, it will add to principal amount of the borrower’s loan account at regular frequency. In the other words Capitalization frequency is the addition of unpaid interest to the principal balance of your loan. That means it is added to borrower’s Current Principal and interest will now be…
We all know ‘Sample’ means a small part or quantity intended to show what the whole is like. Similarly, the ‘Random Sampling’ is a way of selecting a portion chosen from the population in order to make inferences about the whole population. For example, pre-polls or exit polls results obtained from random voters aims to…
A statistical hypothesis is also known as confirmatory data analysis which is testable on the basis of observing a process that is modeled via a set of random variables. Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a population parameter. There are two different hypothesis viz. Null hypothesis and…
Regression analysis is a form of inferential statistics. It is a measure of the relation between the mean* value of one variable (e.g. output) and corresponding values of other variables (e.g. time and cost). Regression model can help predict sales for a company based on weather, previous sales, GDP growth or other types of conditions.…
In statistics, the correlation coefficient r measures the strength and direction of a linear relationship between two variables on a scatterplot. The value of r is always between +1 and –1. The closer the value of r is to +1, the stronger the linear relationship. For example, suppose the value of Diesel prices are directly…
The Pillar 3 of the Basel frame work aims to promote market discipline through regulatory disclosure requirements. BCBS has set out following five guiding principles for banks’ Pillar 3 disclosures. Principle 1: Disclosures should be clear: The disclosure shall be in a simple language understandable to all the stake holders along with presentation of risk…
Modified duration is a concept that interest rates and bond prices move in opposite directions. It tells you how sensitive a bond is to interest rate changes. It is expressed in a formula that expresses the measurable change in the value of a security in response to a change in interest rates. Key points about…
‘Duration’ or Macaulay duration measures the price volatility of fixed income securities. As the term suggests, duration is expressed as a number of years and measures a bond’s sensitivity to change in interest rates. Usually, the higher the duration, the more is the volatility in the prices. To be precise, it measures the change in market…
The term capital reserve is sometimes used for the capital buffers that banks have to establish to meet regulatory requirements which are different from cash reserves that banks to maintain as per Central Bank (RBI) regulations. In general terms, a capital reserve is an account on the balance sheet of a company that can be…