Boot Strap method is used to calculate the spot rate curve, when the prices of the bonds of different maturity and the coupon payment associated with the bond is available.
I have attached an excel sheet which describes the process of calculating 4 spot rates when prices of 4 bonds of different maturity are available.
Tags: Boot Strap Method, CFA, CFA 2010, cfa 2011, cfa exam, CFA training, FRM, FRM 2010, risk management positions.

The Key to Effective Project Risk Management
Effective project risk management is very significant for the success of a project. Project risks which remain unidentified or which are not controlled in any manner are bound to eventually to undermine all other areas of project management.
Specifically, projects risks that are not adequately managed impact the time, quality and financial constraints of a project or even the organisation as a whole.
How to define Project Risk Management?
Project Risk management is a proactive process for the identification, assessment and management of risks.
In the project management context, the fundamental idea remains the same. Project risk management is a process of looking forward, identifying potential risks, analysing and assessing them and then putting plans in place to measure or cater to them.

World financial sphere is concerned with the way China is using trade, currency Rules to boost its exports. Seeking to maintain its export dominance, China is engaged in a two-pronged effort:
(a) fighting protectionism among its trade partners and
(b) holding down the value of its currency.
This has already drawn world’s ire on China. Washington wants Beijing to abandon a currency peg against the dollar that U.S. lawmakers believe gives Chinese exports an unfair advantage in world trade and so steals American jobs.
But the Chinese are vigorously defending their economic policies. Premier Wen Jiabao criticized international pressure on China to let the currency appreciate, calling it “finger pointing.” He said that the renminbi, China’s currency, would be kept “basically stable”.
Additionally, China has already begun the process of diversifying its foreign exchange reserve assets, pushing settlement in yuan with its trading partners, and pressuring the US government to be responsible in its fiscal policy.

Chinese banking regulators received a top award from Global Association of Risk Professionals (GARP) at New York in February this year.
Both, the China Banking Regulatory Commission (CBRC) and its chairman Liu Mingkang were jointly bestowed the Risk Manager of the year 2009 by the Global Association of Risk Professionals (GARP) at the association’s 11th annual conference.
The award is presented in recognition of outstanding contributions to the financial risk management profession.
Richard Apostolik, the current president and CEO of GARP lauded the duo: “We are pleased to recognize CBRC and Mr. Liu Mingkang for their key role in orchestrating the recapitalization of China’s largest state-owned banks”.
He praised CBRC and Liu for their efforts to implement numerous disciplined risk management practices, regulatory oversight policies and corporate governance initiatives, and for their strong commitment to the importance of prudential banking regulation.
He added that this award, “takes on special meaning at a time when the recent financial crisis left many of the world’s largest banks on the brink of failure”.

What is Financial Modelling?
Financial modeling is the task of building an abstract representation of a financial decision making situation. This is a mathematical model, such as a computer simulation, designed to represent the performance of a financial asset or a portfolio, of a business, a project, or any other form of financial investment.
Theoretically speaking, a financial model is a set of assumptions about future business conditions that drive projections of a company’s revenue, earnings, cash flows and balance sheet accounts.
However, financial modeling is a general term that means different things to different users. In the US and particularly in business schools it means the development of a mathematical model, often using complex algorithms, and the associated computer implementation to simulate scenarios of financial events, such as asset prices, market movements, portfolio returns and the like. Or it might mean the development of optimization models for managing and controlling the risk of a financial investment. In Europe and in the accounting profession financial modelling is defined as cash flow forecasting, involving the preparation of large, detailed spreadsheets for management decision making purposes.

There has been much furore in financial sphere over the recent revelation of misleading accounting techniques used by Lehman Bros.
An accounting trick, known as the Repo 105 aided financial relief to Lehman Brothers just before its supernova collapse. It now seems that the shenanigans spells used by them may cast a legal jeopardy for executives of Lehman and its auditors Ernst & Young.
The implosion of Lehman Brothers Holdings Inc. into the biggest bankruptcy in U.S. history in September 2008 led the financial meltdown that plunged the economy into the most severe recession since the 1930s, which now thankfully shows some signs of recovery.

What Does Black Swan Mean?
A Black Swan is an event or occurrence that varies from what is generally expected of a situation and which is be extremely difficult to predict.
Black Swan Events were described by Nassim Nicholas Taleb in his 2007 book, The Black Swan. He is a finance professor and former Wall Street trader.
He used “The Black Swan Theory” to explain the existence and occurrence of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations.
Characteristics of a Black Swan Event
1. The event is a surprise (to the observer).
2. The event has a major impact.
3. After the fact, the event is rationalized by hindsight, as if it had been expected.

By now, you must have heard about the much-discussed swaps that Greece used in order to conceal it’s debt load. To cut a long story short, the key problem here is “credibility”. Greece now has lost it and this explains why its bond yields have soared astonishingly high.
The European Union is now investigating Goldman Sachs Group’s hand in using legal loopholes that helped Greece use swaps to postpone the day of economic reckoning past its inclusion to euro membership.
Goldman says, though, that there was “nothing inappropriate” in the transactions it facilitated.
At the same time, a new dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit.
Federal Reserve Chairman Ben Bernanke believes the use of credit default swaps to destabilize a country is “counterproductive”. “We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Bernanke said Thursday in testimony before the Senate Banking Committee in Washington.

What is Margin?
Margin is essentially the difference between a product’s selling price and the cost of production.
A margin is a collateral that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty (most often his broker). This risk can arise if the holder has done any of the following:
* borrowed cash from the counterparty to buy securities or options,
* sold securities or options short, or
* entered into a futures contract.

A Balance Sheet or Statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.
A balance sheet is often described as a “snapshot of a company’s financial condition“.
There are four types of basic financial statements:
1. Balance sheet: also referred to as statement of financial position or condition, reports on a company’s assets, liabilities, and Ownership equity at a given point in time.
2.Income statement: also referred to as Profit and Loss statement, reports on a company’s income, expenses, and profits over a period of time.Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.
3. Statement of retained earnings: explains the changes in a company’s retained earnings over the reporting period.
4. Statement of cash flows: reports on a company’s cash flow activities, particularly its operating, investing and financing activities.
Out of the above, balance sheet is the only statement which applies to a single point in time.