Cash & Loans Advice Blog

Loans can be used in a creative way

Trust is the key to your ability to move into the creative zone of true synergy. In the creative zone, people and organizations achieve their highest potential. The best partnerships move toward this outcome. If you can honestly say that you and your partner trust one another, then you only need to build on that trust. But suppose you want to develop a partnership with someone in whom you have little trust.

You can make it work by understanding how to build trust and then taking the risks necessary to do so. This of course involves discussing the matter with your partner. It takes a two-pronged approach to discuss trust with a partner. First, you need to make a realistic assessment of your own ability to trust. Then you can turn to the trust level of your partner. You can start by assessing yourself first with the Personal Trust Assessment.

Understanding ourselves enhances our insights into our relationships. If you scored less than fifteen points on the assessment, think about it and talk about it. If your lack of trust involves what your partner did, discuss your concerns with your partner. Return to statement 3 and be specific: In terms of trust, exactly how does your partner’s behavior make you feel? Stick to behavior itself rather than what you think motivated it. Above all, avoid making assumptions about honesty, integrity, or ethical judgment.

Make sure you use the proper credit strategy

Basis trades/Convertible bond hedging: As an example the basis for Fiat widened massively following issuance of a 2.2 billion convertible and deteriorating credit sentiment at the end of 2001. It is worth mentioning that the negative basis trade (long cash, long protection) is not entirely risk-free. If the bond is actually restructured at the time of default it is no longer deliverable. The risk-free positive basis trade cannot be set up till maturity because one is not able to lock in the repo rate of the bond (short cash, short protection).

Capital structure arbitrage: These might be strategies where investors take a position in a default swap versus an equity put option. If equity is undervalued, CDS levels are tight and debt is rich the following strategy appears to be appropriate. For example, selling out-of-the-money puts versus buying protection allows to position for a rally in the stock/declining equity volatility and to “hedge” this opinion against the risk of the widening of spreads on the company’s debt. The option premium earned is used to fund the CDS, with positive or negative carry. It is important to realize that this is not a pure arbitrage or risk-free trade.

If a credit event occurs…

Selling short-term and buying long-dated protection leaves a forward short position, which would benefit from a steepening in the credit curve and vice versa.

Senior versus subordinated CDS strategies: The senior-to-sub spread differential in CDS is driven fundamentally by expected recovery values. If senior spreads are half those of subordinated, then the expected senior loss following default is half that of sub. A 50 percent senior recovery (50 percent loss) would imply a 0 percent subordinated recovery (100 percent loss) A potential strategy is to sell subordinated protection and to buy senior protection (weighted). It offers the chance to unwind at a profit if the seniorto-sub ratio mean reverts to historical averages (positive carry trade). If a credit event occurs, the payoffs will reflect the actual relative recoveries in sub and senior debt.

Building credit loyalty online

The internet makes it easier to achieve three key elements of customer loyalty: making it easy for customers to do business with you, satisfying your customers and ensuring that they come back. Furthermore, this can be accomplished at a fraction of the normal cost and, by building greater customer loyalty, sales costs are often reduced. There are several factors in building customer loyalty online.

Customers will come back to a website if they feel comfortable and believe it is relevant to them, but more needs to be done to develop customer loyalty. Customers must feel that the website is simple, helpful and intuitive; in other words, it must be easy to use.

The website must be responsive, understanding what customers want without marching them along a predetermined course. (This can be bad enough when a sales person does it; when a computer steers you in an unwanted direction it is particularly annoying.)

The information should be accurate as well as immediate. Customers should be offered the chance to question or change choices before confirming details without worrying that the service will be incorrect.

The website should be valuable, offering an element of service that is unique and cannot be found elsewhere, with options that are likely to suit the target customer. If an organisation can include all this in its website, the likelihood is
that returned shipments, adjustments to orders and dissatisfied customers will decrease, combining cost reduction with an increase in customer loyalty.