Gearing and Liquidity gate: Difference between pages

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'''1.''' <br />
''Money market funds.''
<i>Financial gearing</i> measures the relative amount of debt in a firm's capital structure.<br />
Gearing is sometimes also known as <i>leverage</i>.


A closed period which can be imposed by the board of a money market fund under times of market stress, in order to reduce the risk of a run on the fund.


Gearing and leverage ratios can be calculated in several different ways, so consistency of approach is important.
No redemptions would be allowed during the period of the liquidity gate.




Two essential bases to define are:
Also known as a ''redemption gate.''


i. The use of book or market values.<br />
ii. The use of Debt divided by Equity (D/E) or of Debt divided by Debt plus Equity = D / (D+E).


== See also ==
* [[Liquidity ]]
* [[Liquidity buffer]]
* [[Liquidity fee]]
* [[Money market fund]]
* [[Redemption]]
* [[Run]]
* [[Stress]]
* [[Variable net asset value]]


<span style="color:#4B0082">'''Example 1: Calculation of gearing'''</span>
[[Category:The_business_context]]
 
[[Category:Investment]]
<i>Gearing</i><br />
[[Category:Identify_and_assess_risks]]
Assume the values of debt and equity are equal, say USD 1m each.<br />
[[Category:Manage_risks]]
D/E = 1/1 = 100%.<br />
[[Category:Cash_management]]
This is usually known as 'gearing'.
[[Category:Financial_products_and_markets]]
 
[[Category:Liquidity_management]]
 
<span style="color:#4B0082">'''Example 2: Calculation of leverage'''</span>
 
<i>Leverage</i><br />
Using the other calculation with the same inputs (D = 1 and E = 1):<br />
D / (D+E) = 1/2 = 50%.<br />
This is usually known as 'leverage'.
 
 
<b>Adjustments to D and E figures</b><br />
With respect to the Debt figure, practice varies in including or excluding certain items such as cash, short term borrowings, leases, pensions and other provisions.<br />
Practitioners may also adjust the Equity figure, for example to exclude intangible assets.
 
 
<b>Bank supervision</b><br />
In the banking context, the calculation of the regulatory [[Leverage Ratio]] is strictly specified, following [[Basel III]].
 
 
'''2.''' <br />
<i>Operational gearing</i> relates to the operating costs of a business, and measures the relative proportions of fixed and variable operating costs.
 
 
'''3.''' <br />
'Gearing up' refers to increasing the levels of financial or operation gearing - or both - within an organisation.<br />
The intention of gearing up is to improve expected net results.  <br />
A consequence of gearing up is normally to increase risk.
 
 
Many financial disasters have been a consequence of gearing up (or leveraging) excessively in this way in earlier periods.
 
 
==See also==
* [[Balance sheet ratio]]
* [[Basel III]]
* [[Debt equity ratio]]
* [[Debt to equity ratio]]
* [[Geared beta]]
* [[Intangible assets]]
* [[Leverage]]
* [[Leverage Ratio]]
* [[Leveraged]]
* [[Leveraged takeover]]
* [[Levered]]
* [[MCT]]
* [[Off balance sheet finance]]
* [[Tax shield]]
* [[Ungeared]]
* [[Ungeared cash flow]]
 
 
===Other links===
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]
 
[[Category:Corporate_finance]]

Latest revision as of 22:13, 13 August 2022

Money market funds.

A closed period which can be imposed by the board of a money market fund under times of market stress, in order to reduce the risk of a run on the fund.

No redemptions would be allowed during the period of the liquidity gate.


Also known as a redemption gate.


See also