What Are Equalization Payments? An equalization payment is a transfer payment made to a state, province, or individual from the federal government for the purpose of offsetting monetary imbalances between different parts of the country or between individuals. Equalization payments represent wealth or income redistribution between regions, jurisdictions, or administrative districts. Equalization payments may help
What Is an Equalization Reserve? An equalization reserve is a long-term reserve that an insurance company keeps to prevent cash-flow depletion in case of significant unforeseen catastrophes. How Equalization Reserves Work A disastrous event—such as a flood, earthquake or fire—can result in the severe depletion of an insurance company’s equalization reserves. These reserves can be
What Is the Equation of Exchange? The equation of exchange is an economic identity that shows the relationship between money supply, the velocity of money, the price level, and an index of expenditures. English classical economist John Stuart Mill derived the equation of exchange, based on earlier ideas of David Hume. It says that the
What Is Equilibrium? Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand. The balancing effect of supply
What Is Equity? Equity, typically referred to as shareholders’ equity (or owners’ equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation. In the case of acquisition, it
What Is an Equity Derivative? An equity derivative is a financial instrument whose value is based on the equity movements of the underlying asset. For example, a stock option is an equity derivative, because its value is based on the price movements of the underlying stock. Investors can use equity derivatives to hedge the risk associated with taking long or
What Is Equity Accounting? Equity accounting is an accounting process for recording investments in associated companies or entities. Companies sometimes have ownership interests in other companies. Typically, equity accounting–also called the equity method–is applied when an investor or holding entity owns 20–50% of the voting stock of the associate company. The equity method of accounting
What Is an Equity Co-Investment? An equity co-investment is a minority investment in a company made by investors alongside a private equity fund manager or venture capital (VC) firm. Equity co-investment enables other investors to participate in potentially highly profitable investments without paying the usual high fees charged by a private equity fund. Equity co-investment opportunities are typically
What Is an Equity Commitment Note (ECN)? An equity commitment note is a type of mandatory convertible debt issued by a bank that can be exchanged for stock at maturity. The note is repayable from the sale of stock by its issuer. It is essentially a type of corporate debt that comes with restrictions on
What Is Equity Compensation? Equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company’s employees. Equity compensation allows the employees of the firm to share in the profits via appreciation and can
