Tag: financial markets

How does money disappear in a stock market crash

How does money disappear in a stock market crash

Financial Markets Explained
Where does money go when markets crash? "Brexit crash wiped out a record $3 trillion," the headlines screamed after the UK voted to leave the EU. It is not uncommon to read such headlines in the financial media which usually comes following a stock market crash. But what exactly does it mean? Where was the $3 trillion to begin with and how can money just disappear into thin air? In a stock market collapse do people really lose their pension and invested money? Who gets the lost money? Certainly the lost money can't just vaporize can it? A quick answer to the above question is "There was no $3 trillion to begin with." Read on below to get a more clear understanding of how money works in the stock market and more importantly how money is said to disappear during a stock market crash
How are stock Market Indices Valued

How are stock Market Indices Valued

Financial Markets Explained
Stock indices are financial markets made up of individual underlying stocks. While the stock indices are independent markets to themselves, the values are calculated based on the price of the individual stocks in the index. Examples of stock indices include, NASDAQ 100, S&P500, Nikkei, FTSE100, CAC40, IBEX and so on. Types of Stock Index Calculations Stock indices are usually calculated in two ways. Direct Index calculation and Indirect Index Calculation. A direct index calculation method, also known as a price-weighted index is based upon adding the individual stock prices. So if a stock index is made up of 5 individual stocks, then the direct index is made up by adding up the prices of the individual stocks. For example, DJIA. An indirect index calculation or market value wig...
Bank Stress Test Explained

Bank Stress Test Explained

Financial Markets Explained
Bank stress test is mainly used in order to ascertain the stability of the given institution, in this aspect, the bank. Bank stress test involves testing the entire banking system beyond its operational capacity to the extreme up to the breaking point in an effort to monitor the results and therefore the overall stability of the bank. Bank stress test is aimed to measure the robustness of the financial system in scenarious such as system crashes and so on. Bank stress test does not involve financial projections or a best case scenario but on the contrary, focuses on the worst case scenario. The ultimate goal is whether a bank has the required wealth and assets to overcome any adverse developments in the financial markets. Bank stress tests took prominence as the European and US banki...