The article presents information about capital and revenue profits and losses. A profit is an increase in value. It may result through the sale of an asset, in which case the asset is replaced by cash, or an obligation to pay cash, of a greater value. A profit may also arise through an increase in the value of an asset itself, when viewed from a certain standpoint. The asset is not sold, but is simply regarded as being more valuable. In this case it is an unrealized profit, not being represented by cash in any way. There is one asset which obviously must be excepted from this rule, and that is cash itself. If a concern has cash abroad, a change in a rate of exchange can make a very real and immediate profit or loss. Profits and Losses are divided into those of Revenue, and those of Capital. Revenue profits and losses arise out of regular operations of the concern, which will be buying, manufacturing, and selling its products, or simply buying and selling merchandise of some kind. Capital profits and losses arise out of a transaction in a capital asset or liability, and accordingly one outside of the regular operations of the company.

We provide a tractable model of counterparty risk in a risk transfer market, and analyze the consequences of this risk being private information. We show that unknown type information can be revealed in the presence of a large trader identification policy; however, the market allocation is shown to be constrained inefficient. The inefficiency is highlighted by considering the imposition of a transaction tax, which can improve welfare by encouraging more information revelation and increasing risk transfer. The results suggest that increased transparency and/or central counterparty arrangements in over-the-counter derivative markets may promote transparency of counterparty risk.

What market features of financial risk transfer exacerbate counterparty risk? To analyze this, we formulate a model which elucidates important differences between financial risk transfer and traditional insurance, using the example of Credit Default Swaps (CDS). We allow for (heterogeneous) insurer insolvency, which captures the possibility that relatively risky counterparties may exist in the market. Further, we find that stable insurers become less stable as the price of the contract decreases. The analysis includes insured parties that have heterogeneous motivations for purchasing CDS. For example, some may own the underlying asset and purchase CDS for risk management, while others buy these contracts purely for trading purposes. We show that traders will choose to contract with less stable insurers, resulting in higher counterparty risk in this market relative to that of traditional insurance; however, a regulatory policy that removes traders can, perversely, cause stable counterparties to become less stable. We conclude with two extensions of the model that consider a Central Counterparty (CCP) arrangement and the consequences of asymmetric information over insurer type.

TWO decades of refinement of macroeconomic and econometric analysis have contributed only modest sophistication to the role in which investment is cast.' The nexus of investment interactions with other national income aggregates has long been recognized as considerably more complex than can be faithfully expressed by casting them in a simple exogenous role as in the earliest Keynesian models. Accordingly, Samuelson's expression of the multiplier-accelerator interaction became a classic early step toward endowing investment with a less aloof character.2 But again, as many others have pointed out, Samuelson's simple, dichotomous separation of all investment into exogenous public investment and endogenous private investment added only a modest amount of realism to the role of investment. An analytical structure that ties private investment wholly to the accelerator certainly constitutes only a second approximation at best. The object of this study is not to attempt to rationalize the full role of investment, either theoretically or econometrically. Such a tour de force will have to come from more ambitious undertakings. Rather, in an effort to make some modest contribution toward the eventual resolution of the exogenous-endogenous investment problem, we present an empirical analysis confined to certain segments of construction activity. In the process of establishing some tentative statistical estimates of one facet of the construction-investment nexus, some reflected light of a more generalized nature may be shed on the causal role of investment in macro-economic change.

We examine empirical implications of models of differential information that formalize the following intuition: securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions. The implication that beta risk for low information firms should decline as information increases is confirmed with several data sets. We find such a decline over the first several periods subsequent to initial public offerings and initial listings. There is also an abrupt risk decline at the first annual earnings announcement.

Reviews the book "The New General Ledger," Oscar Mautner and Joseph A. Mauriello.

We analyze the effect of counterparty risk on financial insurance contracts, using the case of credit risk transfer in banking. This paper posits a new moral hazard problem on the insurer side of the market, which causes the insured party to be exposed to excessive counterparty risk. We find that this counterparty risk can create an incentive for the insured party to reveal superior information about the likelihood of a claim. In particular, a unique separating equilibrium may exist, even in the absence of any costly signaling device. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Why do firms pay their workers with variable pay? The standard explanation appeals to a problem that the worker faces, e.g., agency. We develop a model of variable pay endogenously driven by the capital structure problem of the firm, and not a worker related problem. If workers face a low probability of job termination, firms use more variable pay, and more leverage. This can have important implications for understanding compensation practices in organizations. We provide empirical evidence consistent with firms using variable pay to increase leverage.