Continuous linked settlement and Leverage: Difference between pages

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(CLS).  
1. <br />
 
Debt divided by Debt plus Equity = D / (D + E).<br />
A global real-time settlement system for foreign exchange transactions that eliminates foreign exchange settlement risk caused by delays arising from time-zone differences; the so-called Herstatt risk.
<br />
<b>Example</b><br />
If the amounts of debt and equity were equal then leverage under this definition would be calculated as:<br />
1 / (1 + 1) = 50%.<br />
<br />
2. <br />
The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.<br />
Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />
However, leverage and gearing are normally quantified by different calculations.<br />
<br />
3. <br />
To increase the level of gearing in an operational or financial structure.  The intention of leveraging is to improve expected net results.  <br />
A consequence of leveraging is normally to increase financial risk.<br />
Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.
<br />




== See also ==
== See also ==
* [[Settlement system]]
* [[Debt]]
* [[Herstatt risk]]
* [[Deleverage]]
* [[Intraday risk]]
* [[Gearing]]
* [[Payments and payment systems]]
* [[Leverage ratio]]
* [[Real-time gross settlement system]]  (RTGS)
* [[Settlement]]




==Other resource==
===Other links===
[http://www.treasurers.org/node/6124 The Great FX Fix, The Treasurer Cash Management Supplement 2009]
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]


[[Category:Cash_management]]
[[Category:Corporate_finance]]

Revision as of 12:12, 29 May 2015

1.
Debt divided by Debt plus Equity = D / (D + E).

Example
If the amounts of debt and equity were equal then leverage under this definition would be calculated as:
1 / (1 + 1) = 50%.

2.
The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.
Used in this broader sense, 'leverage' means very much the same as 'gearing'.
However, leverage and gearing are normally quantified by different calculations.

3.
To increase the level of gearing in an operational or financial structure. The intention of leveraging is to improve expected net results.
A consequence of leveraging is normally to increase financial risk.
Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.


See also


Other links

Masterclass: Measuring financial risk, The Treasurer, July 2012