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Big data project finance in Financial Management

Big data in finance refers to large, diverse (structured and unstructured) and complex sets of data that can be used to provide solutions to long-standing business challenges for financial services and banking companies around the world. The term is no longer just confined to the realm of technology but is now considered a business imperative. It is increasingly leveraged by financial services firms to transform their processes, their organizations, and the entire industry.

 

How big data is revolutionizing finance

The exponential growth of technology and increasing data generation are fundamentally transforming the way industries and individual businesses are operating. The financial services sector, by nature, is considered one of the most data-intensive sectors, representing a unique opportunity to process, analyze, and leverage the data in useful ways.

Traditionally number crunching was done by humans, and decisions were made based on inferences drawn from calculated risks and trends. However, in recent times, such functionality is usurped by computers. As a result, the market for big data technology in finance offers inordinate potential and is one of the most promising.

 

  1. Real-time stock market insights

Big data is completely revolutionizing how the stock markets worldwide are functioning and how investors are making their investment decisions. Machine learning – the practice of using computer algorithms to find patterns in massive amounts of data – is enabling computers to make accurate predictions and human-like decisions when fed data, executing trades at rapid speeds and frequencies.

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Behavioural finance Notes PDF

Behavioral finance is the study of the effects of psychology on investors and financial markets. It focuses on explaining why investors often appear to lack self-control, act against their own best interest, and make decisions based on personal biases instead of facts. Behavioral finance programs come in many forms. Some are courses and course modules offered by online training firms and universities. Others are professional programs offered by traditional universities. Some universities offer accredited behavioral finance degrees, including bachelor of science, masters of science, and Ph.D. programs.

These programs also have all kinds of names—from “behavioral finance” to “behavioral economics and social health science.” They combine psychology and neuroscience with traditional financial practices. They aim to equip advisors with tools and training to further help their clients make sound financial decisions, maintain emotional competency, and achieve their financial goals.

Behavioral finance concepts

Behavioral finance typically encompasses five main concepts:

  • Mental accounting: Mental accounting refers to the propensity for people to allocate money for specific purposes.
  • Herd behavior: Herd behavior states that people tend to mimic the financial behaviors of the majority of the herd. Herding is notorious in the stock market as the cause behind dramatic rallies and sell-offs.
  • Emotional gap: The emotional gap refers to decision-making based on extreme emotions or emotional strains such as anxiety, anger, fear, or excitement. Oftentimes, emotions are a key reason why people do not make rational choices.
  • Anchoring: Anchoring refers to attaching a spending level to a certain reference. Examples may include spending consistently based on a budget level or rationalizing spending based on different satisfaction utilities.
  • Self-attribution: Self-attribution refers to a tendency to make choices based on overconfidence in one’s own knowledge or skill. Self-attribution usually stems from an intrinsic knack in a particular area. Within this category, individuals tend to rank their knowledge higher than others, even when it objectively falls short.

Some Biases Revealed by Behavioral Finance

Breaking down biases further, many individual biases and tendencies have been identified for behavioral finance analysis. Some of these include:

 

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Digitisation of financial transactions

Digital transactions are defined as transactions in which the customer authorizes the transfer of money through electronic means, and the funds flow directly from one account to another. These accounts could be held in banks, or with entities/ providers.

As the needs of investors and financial service users become more complex, there is a demand for effective tools to simplify the processes and transactions carried out by end-users. It is inevitable that financial institutions would have to increase the number of digitized services and offerings, given a rise in the use of automated services.

Implementing technology in the financial industry is a necessity for the survival of businesses as customers seek lower-cost alternatives to traditional financial services. Fintech companies have led the revolution in transforming the financial sector by digitalizing the end-client’s transactional eco-system.

 

How digital transactions work

A digital transaction converts a traditional cash-operational society to a cashless one. It can be anything from paying for goods at a brick-and-mortar store to transferring money online to making investment trades.

Here’s an example of an everyday transaction that looks quite simple but is actually embedded with digital intricacies every step of the way:

 

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Crowd funding Notes

Crowd funding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowd funding makes use of the easy accessibility of vast networks of people through social media and crowd funding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists.

In most jurisdictions, restrictions apply to who can fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge fund investing, these regulations are supposed to protect unsophisticated or non-wealthy investors from putting too much of their savings at risk. Because so many new businesses fail, their investors face a high risk of losing their principal.

Crowd funding has created the opportunity for entrepreneurs to raise hundreds of thousands or millions of dollars from anyone with money to invest. Crowd funding provides a forum to anyone with an idea to pitch it in front of waiting investors.

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Cryptocurrency Notes PDF

A cryptocurrency can be easily defined as a digital currency. However, the concept behind the value and security of cryptocurrency is quite abstract and esoteric. Some people are confused about what makes cryptocurrency valuable and what makes it efficient as a means of storing and transferring value. Cryptocurrencies are also sometimes known as “altcoins” – short for alternative coins.

The most famous of all cryptocurrencies is Bitcoin, although there are many new contenders to the market, known as altcoins.

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Derivative markets Notes PDF

A derivative is a financial contract whose value is derived/reliant on the value of an underlying asset, hence why it is called a “derivative” contract. The underlying asset may be a commodity, bond, equity, interest rate, market index, currency or real estate. There are five main types of financial derivatives, which are structured as contracts between parties:

  1. Forward Contract:This is a financial contract that can be customized to a specific commodity, a specific quantity of the commodity and agreed-upon delivery date at a future point in time. As such, this is where the buyer can purchase an asset, and the seller can sell the asset, at a set price at a future point in time. These contracts are private agreements between two parties and thus they do not trade on an exchange.
  2. Options Contract:This type of derivative gives the holder of the option contract the right but not the obligation to buy/sell the underlying asset at a specified price (strike price), at a set time in the future. Options that give the right to buy the underlying assets are known as call options, while those that give the right but not the obligation to sell the underlying asset are known as put options.
  • Futures Contract:This is a financial contract between two parties where both parties agree to buy/sell a particular asset at a predetermined price at a specific date. These contracts can be traded on a centralized exchange or an Over-the-Counter (OTC) market as standardized contracts. Futures contracts have a single clearinghouse (an intermediary between a buyer and a seller), and require a margin to be posted at the beginning of the contract, and will be settled for the duration of the contract. The difference between futures and a forward contract is that futures contracts tend to be standardized, meaning the contract values are in defined units, and hence why they commonly trade in an exchange. On the other hand, forward contracts tend to be privately negotiated between two parties and are usually not standardized, and hence commonly exchanged in the OTC market.
  1. Swaps Contract: This is a financial contract where two parties agree to exchange the cash flows from two different financial instruments. For instance, two parties may agree to exchange cash flows where one party makes payment in one currency while the other makes a payment in another currency. Such an arrangement is a currency swap. The main forms of swap contracts are currency swaps and interest rate swaps, where under interest rate swaps, parties exchange cash flows based on a benchmark rate such as the London Interbank Offered Rate (LIBOR).
  2. Warrants: These securities entitle the holder the right to purchase a company’s stock at a specific price at a specific date. These financial derivatives are issued directly by the company that is involved in the contract and not another investor. These are used as a form of capital raising for a company.
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Globalisation and growth of derivative markets and securitisation

Global markets are markets in which the law of one price applies, in the sense that it would be possible to buy or sell products for the same price irrespective of geographical location and local circumstances. When products are purchased and sold outside national boundaries, price differentials may remain as long as there are costs specifically associated with cross-border exchange as opposed to exchange within national boundaries. Hence, the process of internationalisation of financial markets is only a step towards global financial markets. This distinction between globalisation and internationalisation seems to apply to financial markets as well as to markets for goods and non- financial services. Over recent decades, financial markets have gained a clear cross-border orientation but, overall, it can be argued that they are still not truly global.

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Financial Alterations – Retirements; Estate and Tax planning and family budgeting

Retirement planning is the process of determining retirement income goals, and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk. Future cash flows are estimated to gauge whether the retirement income goal will be achieved. Some retirement plans change depending on whether you’re in, say, the United States, or Canada, which has its own system of workplace-sponsored plans.

Retirement planning is ideally a lifelong process. You can start at any time, but it works best if you factor it into your financial planning from the beginning. That’s the best way to ensure a safe, secure and fun retirement. The fun part is why it makes sense to pay attention to the serious and perhaps boring part: planning how you’ll get there.

Understanding Retirement Planning

In the simplest sense, retirement planning is the planning that one does to be prepared for life after paid work ends, not just financially but in all aspects of life. The nonfinancial aspects include lifestyle choices such as how to spend time in retirement, where to live, when to completely quit working, etc. A holistic approach to retirement planning considers all these areas.

 

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Cost of credit pdf

Commercial banks in Kenya have adopted the Total Cost of Credit (TCC) pricing mechanism, which enables consumers to compare different bank loan costs based on standardized parameters and a common computation model.

This site provides you with information on the TCC and features a simple Cost of Credit calculator, which loan applicants can use to estimate the total cost of a bank loan. Banks are required by the Central Bank of Kenya to provide you with a Total Cost of Credit breakdown as well as a loan repayment schedule

There are various costs associated with a loan. These costs are in addition to the interest rate component, and range from bank fees and charges to third party costs, such as legal fees, insurance and government levies.

Because loan applicants will tend to focus only on the interest rate when making a loan decision, banks have proactively adopted the Annual Percentage Rate or APR model which converts all direct costs associated with the loan (also known as the Total Cost of Credit) into one number.

 

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