What is Creative Accounting? Creative accounting consists of accounting practices that follow required laws and regulations, but capitalize on loopholes in accounting standards to falsely portray a better financial image of a company. Creative accounting techniques vary and evolve as regulations change to close the loopholes that allow them. Key Takeaways Creative accounting capitalizes on loopholes in
What Is Creative Destruction? Creative destruction is the dismantling of long-standing practices in order to make way for innovation and is seen as a driving force of capitalism. Key Takeaways Creative destruction describes the deliberate dismantling of established processes in order to make way for improved methods of production.Creative destruction is most often used to
What Is Credit Life Insurance? Credit life insurance is a type of life insurance policy designed to pay off a borrower’s outstanding debts if the policyholder dies. It’s typically used to ensure you can paydown a large loan like a mortgage or car loan. The face value of a credit life insurance policy decreases proportionately with the outstanding loan amount
What Is a Covered Bear? A covered bear is a trading strategy in which a short sale is made against a long position, but without closing out the existing long position. This is sometimes known as “shorting against the box”. This results in a neutral position where all gains in a stock are equal to the losses
Covered Bond: An Overview A covered bond is a package of loans that were issued by banks and then sold to a financial institution for resale. The individual loans that make up the package remain on the books of the banks that issued them, serving as a collateral pool and conveying an additional layer of
What Is a Covered Call? The term covered call refers to a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. To execute this, an investor who holds a long position in an asset then writes (sells) call options on that same asset to generate an income
What Are Covered Earnings? Covered earnings refer to the total amount of an employee’s pay that counts toward the calculation of retirement benefits. Generally, the bulk of covered earnings comes from an employee’s base pay, though occasionally other types of compensation factor in as well. In the U.S., the Social Security Administration uses covered earnings to
What Is Covered Interest Arbitrage? Covered interest arbitrage is a strategy in which an investor uses a forward contract to hedge against exchange rate risk. Covered interest rate arbitrage is the practice of using favorable interest rate differentials to invest in a higher-yielding currency, and hedging the exchange risk through a forward currency contract. Covered
What Is Covered Interest Rate Parity? Covered interest rate parity refers to a theoretical condition in which the relationship between interest rates and the spot and forward currency values of two countries are in equilibrium. The covered interest rate parity situation means there is no opportunity for arbitrage using forward contracts, which often exists between countries with different
What Is a Covered Stock (Coverage)? A covered stock refers to a public company’s shares for which one or more sell-side equity analysts publish research reports and investment recommendations for their clients. Upon commencement of coverage, an analyst will publish an “initiating coverage” report on the stock and subsequently issue research updates, often after quarterly and annual
