Tag Archives | security

Marking to Market

See Also:
Dispersion
Financial Instruments
Basis Definition
Basis Points

Marking to Market (Financial Derivatives)

Marking to market refers to the daily settling of gains and losses due to changes in the market value of the security. For financial derivative instruments, such as futures contracts, use marking to market.

If the value of the security goes up on a given trading day, the trader who bought the security (the long position) collects money – equal to the security’s change in value – from the trader who sold the security (the short position). Conversely, if the value of the security goes down on a given trading day, the trader who sold the security collects money from the trader who bought the security. The money is equal to the security’s change in value.

The value of the security at maturity does not change as a result of these daily price fluctuations. However, the parties involved in the contract pay losses and collect gains at the end of each trading day.

Arrange futures contracts using borrowed money via a clearinghouse. At the end of each trading day, the clearinghouse settles the difference in the value of the contract. They do this by adjusting the margin posted by the trading counterparties. The margin is also the collateral.


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Marked to Market (Accounting Treatment)

In accounting, marked to market refers to recording the value of an asset on the balance sheet at its current market value instead of its historical cost.

According to GAAP, record certain assets, such as marketable securities, at market value on the balance sheet because this value is more relevant than historical cost for this type of asset. Gains and losses from marketable securities are reported differently depending on whether the asset is classified as available-for-sale or trading.

Label gains and losses from fluctuations in market value of securities as available-for-sale. Also report these in the other comprehensive income account in the equity section of the balance sheet. Any adjustments from fluctuations in market value of securities labeled trading are reported as unrealized gains or losses on the income statement. For both types of securities, dividends or gains and losses from sale are reported as other income on the income statement.

Unethical accountants might attempt to manipulate net income. They do this by labeling marketable securities as either available-for-sale or trading depending on whether they increased or decreased in value.

Mark to Market Examples

For a financial derivative example, consider two counterparties that enter into a futures contract. The contract includes 10 barrels of oil, at $100 per barrel, with a maturity of 6 months. And the value of the futures contract is $1,000. At the end of the next trading day, the price of oil is $105 per barrel. The trader in the long position collects $50 ($5 per barrel) from the trader in the short position.

For an accounting example, consider a company that has passive investments in two stocks, A and B. Stock A is classified as available-for-sale and is worth $10 per share. But Stock B is classified as trading and is worth $50 per share. At the end of the accounting period, A is worth $15 and B is worth $40.

A gain equal to $5 per share of stock A would be recorded in the other comprehensive income account in the equity section of the company’s balance sheet. The marketable securities account on the asset side of the balance sheet would also increase by that amount. An amount equal to $10 per share of stock B would be recorded as an unrealized loss on the company’s income statement. The marketable securities account would also decrease by that amount.

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Data Communication Redundancy

See Also:
Technology Assessment Criteria
How to Respond to an Imminent Disaster Threat
Technology Strategy for Small to Medium Sized Companies
How to Evaluate IT Systems
How do You Know When it is Time to Buy New Software

Data Communication Redundancy

Many businesses today have mission critical communication and data sharing needs. Whether these needs arise from customer or regulatory (e.g. SarbOx) requirements, truly redundant communications and data backup services are vital to the business’ operations and for disaster recovery scenarios. For many businesses, including even very large businesses, data communication redundancy is often the exception rather than the rule. Many attempt to accomplish this by having either alternate providers of in-ground hard-wired copper or fiber connections to their facilities or by having these connections at different entry points or tied to different communication centers.

The problem with this “solution” is that at some point all these underground cables come together in common conduits. Then, they are subject to being damage/cut by above ground activities. As such they are not truly redundant and create an unmitigated risk for those companies.

Disaster Recovery

In addition, from a disaster recovery perspective when communications are lost in this way, the recovery time to restore them can be anywhere from a few hours to many days. For some businesses, the loss of communications ability for even a few minutes can have severely negative economic and customer relations effects.

Achieve True Redundancy

So how does a business achieve true redundancy? There are some technologies that help. For example, microwave and satellite links are redundant to fiber/copper in the ground but they suffer from bandwidth constraints, are not secure or in the case of satellite are very expensive.

Point-to-point Wireless Light Communications (WLC) is the only truly redundant, very secure and cost effective solution for the redundancy, security and disaster recovery needs of businesses today. Furthermore, WLC uses above ground devices to move data at fiber optic speeds and bandwidths through the air.

Communications are critical in businesses. If you are experiencing data redundancy, then there may be other areas of weakness in your company. Click here to download our Internal Analysis whitepaper to create the roadmap for your company’s success!

Data communication redundancy
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Disaster Planning for IT

See Also:
Technology Assessment Criteria
How to Evaluate IT Systems
Technology Strategy for Small to Medium Sized Companies
How to Ensure Redundant Data Communications Links
How do You Know When it is Time to Buy New Software

Disaster Planning for IT

Recently an office building in Houston caught fire and much was destroyed. What if this had been your building? We don’t like to think about things like this, but in light of what just happened recently, it bears consideration. In terms of disaster preparedness, we usually think of hurricanes and flooding, but business interruption can come in many different ways including hardware/software failure, power outages, key personnel changes, fire, arson, sabotage, terrorism, computer viruses, or theft. Are you prepared in case of a disaster?

Here are some key points of a good disaster preparedness and business continuity plan for your business.

Solid Backup System

solid backup system for your data is a critical component of a solid disaster preparedness plan. The goal is to be able to restore your data and your infrastructure as quickly as possible if disaster strikes. Are you testing your backups regularly? Are they being taken offsite and archived? There are many different backup options available today including online backups, but it is imperative you implement, test and plan for a disaster. Would your backup recovery plan have potentially gone up in smoke had your building or office caught fire?

Accurate and Complete Documentation

Another key is to have accurate and complete documentation of your infrastructure so that your system can be easily recreated. You can purchase new equipment and software; but you need access to its previous design. Documentation saves time and eliminates confusion and heartache.

How Long can the Business Survive

You need to review all of your applications and determine how long your business can survive if an interruption were to occur. Email for example is as critical, and as important, if not more so, than your phone system. Third party services offer a way to collect, filter and access your company email if your mail server is disrupted for any reason. In addition, how long can your company survive without your customer list or your accounting system? What about other business critical systems? Do you have a plan in place and do you know how long would it take you to recover had this been your building?

Security

What about security? Is your data secure from malicious attacks? If your power is disrupted, do you have backup power supplies that will properly protect and shut down your equipment in case of a power outage or protect you from power surges?

Employees

And most importantly, are your employees OK? And is there a plan in place for everyone to communicate in case of a disaster?

Business Disaster Preparedness

In the event that a disaster may potentially create a threat to your business, we have prepared a short list of precautions for you to take. First and foremost, protect yourself, your families and pets. Secondarily, protect your data. Lives and data are irreplaceable; hardware, software and applications just take some time.

Take Precautions

In regards to your technology and data, we recommend taking the following precautions:

Make sure you have a good backup of your data and take it to a safe and secure place. This can be accomplished in one of several ways:

a. If you have a good tape backup solution, take ALL of your tapes off site to a secure, high and dry location.

b. If you do not have a tape backup or you are in a flood prone area, take your server with you.

c. Worst case, clearly mark the hard drives in your equipment, remove them and take them with you if rising or blowing water is a threat.

Equipment

If you do not need 24×7 access to your systems, power them down; do not leave equipment running.

a. Gather all critical equipment and move it away from windows and the threat of rising water.

b. Print off important lists such as employee and customer lists.

c. Print off emergency contact numbers for vendors.

Closing Your Office

If you are closing your offices, perform the following steps:

a. All employees should unplug the power cables to their computer and electronic devices from the wall outlets after they shut down their computers.

b. If there is a modem line attached to the computer, make sure to unplug the phone line from the modem.

c. If a server is being used as a fax server, Make sure that all phone lines are unplugged. (Unless the Surge protector is protecting the phone line)

d. All expensive fax machines should be turned off and phone lines should be unplugged.

e. All copiers should also be unplugged from the wall outlets.

Phones

a. If you were to lose access to your building, can you forward your phones to another number? Do you know how to do this?

b. Do your clients, friends, etc have your cellular number in case of an emergency?

c. Do your employees know where to contact each other?

Home Systems

For your home systems, please make sure you have a good backup or protection of the following:

a. Personal financial information.

b. Personal data.

c. Family pictures, etc.

This is by no means an exhaustive list, but some highlights that you should be aware of. Please be safe if a disaster does, in fact, occur.

The National Institute for Occupational Safety and Health has several links to documents for emergency preparedness for business at this link:

www.cdc.gov/niosh/topics/prepared

Personal Disaster Preparedness

Prepare a personal emergency kit – a small bag or case – that you can take with you if an evacuation is necessary. Your kit should include:

  • Medicines
  • Toiletries
  • Shoes
  • Clothes
  • A list of contact names
  • Phone Numbers
  • Important Paperwork (wills, insurance policies, home owner title and deed)
  • Important photographs and jewelry.
  • Cell phone and car and outlet chargers
  • Data backup on tape or CD’s
  • Pack enough for an overnight stay.

Designate a contact name and phone number outside the area where you reside. Choose a family member of friend in another state as a contact to relay information in case telephones are out of service.

Checklist

  • Know what zone you live in, and if you have to evacuate. Find your zone here: http://www.csc.noaa.gov/
  • Test flashlights, other emergency lights and battery operated radio.
  • Buy extra batteries for flash lights, radio and clocks.
  • Get cash.
  • Assemble important papers and secure them in water safe package. Have them where you can grab them and take them with you if you must evacuate.
  • Designate an emergency contact person outside your area.
  • Gather/print list of important phone numbers.
  • Fill your gas tank.
  • Fill your grill propane tank.
  • Assemble three day supply of non-perishable food and beverages.
  • Have a non-electric can opener on hand.
  • Ensure a two week supply or prescriptions and medicines, including for pets.
  • Address special dietary needs.
  • Gather/pack toiletries, glasses, hearing aids.
  • Gather/pack a change of clothes and shoes.
  • Gather rope, masking and duct tape, tarp, boards, nails, hammer.
  • Have on hand heavy duty garbage bags.
  • Gather matches/lighter.
  • Have a portable cooler on hand for freezer and refrigerator contents.
  • Have insect repellent on hand.
  • Prepare to have five gallons of water per person, two gallons per pet.
  • If possible, have a gasoline powered generator on hand.
  • Talk to your neighbors to find out who will be staying. Exchange phone numbers in the event that they work.

Disasters are expected to happen. So, start preparing today and download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

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Financial Assets

See Also:
Accounting Asset Definition
Asset Market Value vs Asset Book Value
Long Term Debt to Total Asset Ratio Analysis
Return on Asset Analysis

Financial Assets Definition

Financial assets definition is a contractual security that possesses a claim upon a company or person’s real assets. In comparison, a company invest the cash received from issuing financial assets and invest in real assets.

Financial Assets Examples

Some examples include the following:

Stock – This is an investors claim upon the ownership of a company.

Bonds – This is a claim upon interest payments and a principal payment in the future from a company. It is a liability to the company.

Loans – Treat this financial asset the same way as the bond above.

Insurance – This financial asset pays out if the terms of the contract are met. In other words if a person has car insurance. The money paid monthly goes toward a financial asset that will pay off if that person has a wreck or if the car breaks down.

Note: These are only a few examples of financial assets, and does not incorporate all of them.

Financial Assets Meaning

A financial asset has a claim upon the real assets or tangible money generating assets owned normally by a company. They are often traded and offered in a financial asset market like the S&P 500 or the Dow Jones. As a result, this means that the value of a financial asset can often change. The main contribution of financial assets is to fund companies or money generating entities. They are offered in the market so investors can put their savings to work, and companies can invest in a real asset like a manufacturing plant to make money.

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Credit Rating Agencies

See Also:
5 Cs of Credit
What are the 7 Cs of banking
Line of Credit
How Important is Personal Credit in Negotiating a Commercial Loan?
Improve Your Credit Score

Credit Rating Agencies

Credit rating agencies rate bonds based on the creditworthiness of the bond issuer. Agencies publish letter grades for bonds to indicate the quality of the security and the ability of the issuer to repay the debt. In other words, a credit rating agency determines the degree to which a bond issuer will be able to repay their debt. Well-known credit rating agencies include Fitch, Moody’s, and Standard and Poor’s.

Credit Ratings Definitions

Credit rating agencies rate bonds as investment grade corporate bond (high quality) or non-investment grade (low quality; junk bond) based on the creditworthiness of the issuer. A bond is given a grade, and the grades are typically ranked like this: AAA, AA, A, BBB, BB, B, CCC, CC, C, and at the bottom is D.

The highest quality corporate bonds will have a rating of AAA. (US government bonds are considered risk-free and are ranked above AAA.) The lowest quality corporate bonds are rated D, or already in default. Anything rated BBB or above is investment grade. Anything rated BB or below is non-investment grade corporate bond. Different bond rating firms may use different variations of the above rating system. For example, a rating agency may include plus (AA+) and minus (BBB-) signs to add levels to the bond rating system.

Lower quality bonds return higher yields than high-quality bonds. The higher yield compensates the investor for the greater risk of default associated with the lower quality investment.

Bond Rating Systems

Here are some examples of bond rating systems:

Fitch’s Rating System:

Investment grade corporate bond:

AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-

Noninvestment grade corporate bond:

BB+, BB, BB-, B+, B, B-, CCC+, CCC, CC-, CC, C, D, NR

Moody’s Rating System:

Investment grade corporate bond:

Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3

Noninvestment grade corporate bond:

Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C

For details regarding Standard and Poor’s credit rating system:

standardandpoors.com

credit rating agencies

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Cloud Computing: Advantages and Disadvantages

We currently run on a Windows NT server using Remote Terminal Services. It has worked like a charm and is instrumental in our daily operations. Unfortunately, it is coming to the end of it’s useful life. Our outsourced IT department has informed us that we should replace the system during the year. They are recommending that we go to their cloud computing system. We’re not sure.

Cloud Computing: Advantages and Disadvantages

Cloud computing seems all the rage right now. We have had our own local cloud computing system for the past six years. Now they are asking us to consider going to a “regional” cloud system. Google would like us to consider their “national” cloud system. I’m not sure I want our financial information floating around. Furthermore, what do we do if they go out of business or mess up our information. (Think ATT sidekick!).

The cloud computing advantages as I see them are: access from anywhere, secure backup, redundant systems in the event of national disasters, and limited upfront investment. The disadvantages of cloud computer are: control, security, and control. (Did I mention control?)

We have a client that is using a national cloud computing accounting system. The annual fee came up for renewal and the company demanded immediate payment. They would not finance the system like they had in the past. Our client was stuck. Also, the bill came due December 15. Not a good cutoff date.

As information has become more valuable and instrumental in our ability to service our clients I am not comfortable in outsourcing our servers. What are your thoughts? I would like to hear from anyone who has had any experience with cloud computing.

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