Off-Balance-Sheet Financing

With off-balance sheet accounting, a company didn't have to include certain assets and liabilities in its balance sheet -- it was "off-sheet" and therefore not part of their financial statements. We'll talk more later about how the Sarbanes-Oxley Act changed this practice. While there are legitimate reasons for off-balance-sheet accounting, it is often used to make a company look like it has far less debt than it actually does. Some types of off-balance-sheet accounting move debt to a newly created company specifically for that purpose, which was the case with Enron. These are called special purpose entities (SPEs) and are also known as variable interest entities (VIEs).

An accounting technique in which a debt for which a company is obligated does not appear on the company's balance sheet as a liability. Keeping debt off the balance sheet allows a company to appear more creditworthy but misrepresents the firm's financial structure to creditors, shareholders, and the public. The sudden collapse of energy-trading giant Enron Corporation is attributed in large part to the firm's off-balance-sheet financing through multiple partnerships. A type of company financing that does not appear as a liability on the company's balance sheet. A company may engage in off-balance-sheet financing if it wishes to keep its debt-equity ratio low and thereby appear as if it is carrying little debt. This, in turn, makes the company look more creditworthy than it would otherwise. A common form of off-balance-sheet financing is an operating lease, in which a company rents, rather than buys, a capital asset. In an operating lease, the company must record only the rental payments, and not the whole cost of the asset. While off-balance-sheet financing is permissible, it can become unsustainable and can hide a company's true financial state. The term came into common parlance when Enron collapsed in the wake of excessive off-balance-sheet financing. See also: Enron scandal.

Value at Risk (VaR)

VaR is the maximum potential loss that a portfolio can suffer in the 1% worst cases in N-days. -> wrong! VaR is the minimum potential loss that a portfolio can suffer in the 1% worst cases in N-days. -> Embarassing! VaR is the maximum potential loss that a portfolio can suffer in the 99% best cases in N-days. -> compromise! VaR is defined for a given confidence level time horizon.Modeling VaR would involve estimating ‘extreme percentiles’ - statistical distributions characterizing ‘returns’. time aggregation - square-root-of-time rule.

What is Risk Management

Risk Management includes the following:Measurement – What do we measure?.Individual and portfolio.Monitor – How do we measure? Methods to estimate ‘risk’ of a security or portfolio.Control – How do we control?.Allocation and Supervision

Option

An option is a contract that gives its owner the right, but not the obligation to conduct a transaction involving an underlying asset at a predetermined future date and at a predetermined price (exercise or strike price).

ICQ ("I seek you"),

ICQ ("I seek you"), the software developed by an Israeli company called Mirabilis lets users know when their friends are logged on and initiate real-time chat sessions. If your friend doesn't have the program, you can click on a button and send him or her a link to download the software.Mirabilis was sold in June 1998 to America Online, with zero revenues, for $287 million in cash. Worldwide instant messaging users will reach 180 million by 2004, according to research by Gartner Group.Not only will almost 200 million people be using instant messaging in 2004, but Gartner also predicts that 60 percent of all real-time online communication -- either voice or text -- will be driven through instant messaging technology.The first version of the program was released in November 1996 and ICQ became the first Internet-wide instant messaging service, later patenting the technology.AOL acquired Mirabilis on June 8, 1998, for US$407 million. In 2001, ICQ had over 100 million accounts registered. In April 2010, AOL sold ICQ to Digital Sky Technologies for $187.5 million.

Viral Marketing

Any advertising that propagates itself the way viruses do. e.g. When Hotmail users send e-mails, they infect the recipients with the tagline at the bottom of their messages.Also called V-Marketing, organic marketing, word-of-mouth marketing or word-of-mouse marketing.It can be delivered by word of mouth or enhanced by the network effects of the Internet. Viral marketing may take the form of video clips, interactive Flash games, advergames, ebooks, brandable software, images, or text messages.

What Is Fraud?

Black’s Law DictionaryIntentional perversion of truth,False representation of a matter of fact,Whether by words or conduct False, misleading, concealment of that which should have been disclosed For the purpose of inducing another,In reliance upon perversion of truth ,To part with some valuable thing belonging to him or to surrender a legal right.Black’s Law Dictionary: “An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.” “Bad” Fraud---Acquirer Overpays,Earnings management,False revenue recognition schemes,Costs and expenses schemes Understatement of liabilities,Illegal conduct,Liability for past conduct,Impact upon future earnings Good” Fraud----Acquirer Underpays ,Misconduct that if discovered, reduces costs and increases earnings