Financial Theories

The credit spread puzzle has intrigued many financial professionals and scholars alike for years. It represents a phenomenon where credit spreads—essentially the difference in yields between corporate bonds and risk-free government bonds—behave in ways that seem to defy conventional financial theory. While these spreads can often be explained by factors like default risk, market liquidity, […]

In finance, credit risk plays a significant role in determining the profitability and sustainability of financial institutions, especially banks. Over the years, the way we understand and manage credit risk has evolved, especially with the development of advanced mathematical models and data analytics. I have been intrigued by the complexities of credit risk and have

Credit rating is one of the most important concepts in the world of finance. It plays a critical role in determining the risk associated with lending money or investing in bonds. As an investor or a lender, understanding credit ratings helps you assess the level of risk involved in a financial transaction. In this article,

In exploring the financial system, one of the most fundamental concepts I’ve encountered is the theory of credit creation. This theory serves as the backbone of modern banking and economic activity. At its core, credit creation refers to the process by which banks lend money and create new deposits in the economy. This process plays

In the world of corporate finance, the cost of capital is one of the most important concepts that businesses must understand. It is a fundamental metric used by companies to determine the cost of financing their operations through debt and equity. It helps businesses assess the minimum return they must earn to satisfy their investors,

Corporate Social Responsibility (CSR) is a concept that has evolved significantly in recent decades. It moves beyond the traditional notion of business operations aimed solely at generating profit. Instead, CSR embraces the idea that companies should contribute positively to society, balancing economic goals with social and environmental concerns. As I delve into this topic, I

In the world of corporate finance, managing risk is a critical part of sustaining and growing a business. One of the most effective ways companies attempt to mitigate financial risk is through hedging. However, while many businesses use hedging techniques, not everyone fully understands the theory behind it. In this article, I will dive deep

Corporate governance and capital structure theory are two interrelated concepts that play a pivotal role in the operation of firms. As businesses grow, managing their internal structures and the way they finance their operations becomes more complex. Both these aspects not only impact the overall performance and sustainability of a company but also contribute to