The Fx options trading Questions

Category: glossary , Asked by: N. Poole from Dublin, Ireland

A: "equity premium puzzle " is An phenomenon that describes the anomalously higher historical real returns of stocks over government bonds. The equity premium, which is defined as equity returns less bond returns, has been about 6% on average for the past century. It is supposed to reflect the relative risk of stocks compared to "risk-free" government bonds, but the puzzle arises because this unexpectedly large percentage implies a suspiciously high level of risk aversion among investors. The equity premium puzzle is a mystery to financial academics. According to some academics, the difference is too large to reflect a "proper" level of compensation that would occur as a result of investor risk aversion; therefore, the premium should actually be much lower than the historic average of 6%. More recent extensions to the puzzle attempt to offer a different rationale for explaining the EPP, such as investor prospects and macroeconomic influences. No matter the explanation, the fact remains that investors are being rewarded very well for holding equity compared to government bonds.

Category: glossary , Asked by: E. Clayton from Linz, Austria

A: "selling short " is A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.

Category: glossary , Asked by: H. J. From France

A: The maximum interest rate that a financial institution can charge a borrower for an adjustable rate mortgage or loan according to the contractual terms of the mortgage or loan. This interest rate is expressed as an absolute percentage. For example, the terms of the loan might state that the interest rate can never exceed 19%. An interest rate ceiling is sometimes used interchangeably with the term "lifetime interest rate cap". However, an interest rate cap is usually expressed as a maximum change allowed in an initial interest rate. For example, a 5% interest rate cap would suggest that the interest rate on the borrower's loan can fluctuate within a 5% range during any specific rate adjustment period.