By Victoria Hill
The modern financial realm has enabled more stakeholders to earn income from different revenue streams. The mortgage backed security (MBS) is a prime example where investors could invest in different revenue stream tranches that matched their risk tolerance.
This advanced financial complexity has required the top investors to trust in cutting-edge computer software technology to help them calculate the potential benefits of various options in real-time.Cloud technologycan be a central tool of the financial decision making process, by enabling 1. Faster number crunching, 2. More accurate event probability calculation and 3. More agile value assignment for different mezzanine ownership stakes.
Risk Assessment
Risk assessment has always been an essential element of banking. As financial instruments become more complex, more investors are being required todeterminethe feasibility, probability and potential for profits. This technology has already been used effectively in the car loan industry.
Some car dealers are promising thateveryone gets financing. From the perfect credit score down to the worst sub-prime or non-existent credit score: the automobile financier claims that he can create a profitable loan. How?
Interest Rates
In a market with pure competition, interest rates are the "price of money." Thus, the car dealers can charge a certain interest rate based on the credit score of the applicant. This risk management technology has helped more borrowers get cars and more banks increase the number of loans.
1) Faster Number Crunching
Likewise, mezzanine debt rates can be used to identify the value of different projects. Of course, high debt rates increase your chances of default and any investor should be properly compensated for such risk. Modern financial software can help you properly assesshow mezzanine debt rates should be valued.
Sovereign debt is one example of how an investment can be lucrative, as long as the debtor can still make payments. As indebtedness increases, the nation will be required to pay higher interest rates on its treasury notes due to the higher risk. High risks can deliver high rewards. The danger zone is when the debt become unsustainable.
Modern software programs can provide color-coded graphs, charts and analytics. You can overlay these templates to gain a better visual understanding. You can also configure the cloud-based software to identify when certain "dangerous" levels are reached; cloud technology can signal when you should exit an investment before the debtor defaults.
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2) Event Feasibility & Probability Statistics
Cloud-based computer programs can create a three-dimensional graphical display of potential statistical possibilities. For example, create three different sales possibilities for a new condominium development: best, average and worst case scenarios.
Why should you prepare ahead-of-time?
Theearly bird gets the worm. As circ*mstances change, those who have the foresight to create cutting-edge derivatives models will benefit. The wise investor can either sell his position before it implodes or buy new shares when they are low. The best software allows you to assess the best construction loan over time.
3) Calculate Ownership Stake
In the modern realm of real-time developments, your ownership stake value may be changing rapidly due to a number of factors. While you might not be able to make all the calculations in your head, your computer software can. Make the right investment decision in financial management armed with the most cogent data.
Create a number of different models or case scenarios, if you want. Modify the configuration to mirror different risk environments. No one can predict the future, but the wise have back-up plans for any contingency.
With foresight, you can raise capital in real-time. By the time the 2008 credit markets froze up, it was too late to respond. The best computer software technology can give you a "heads-up," so that when the "blood is running in the streets," you are safe-n-dry in your penthouse, having already made the necessary financial portfolio adjustments.
Problems With Technology
Computers must be programmed to perform their tasks. The computer programming industry has a saying: "Garbage in, Garbage out." Thus, the data is only as useful as the human operator who inputs, aggregates and analyzes said data.
Becoming too dependent on technology can leave yougrasping at straws. Technology is only a tool, just like a hammer. You need to carefully plan which data to accumulate, how to organize the data and what it means. One of the most important steps of the financial decision making process is interpretation of said data.
Technology cannot replace good leadership and decision-making skills, but it can complement these attributes. Technology makes the financial decision making process flow more smoothly. Let the computers crunch the numbers and display the charts. When you are ready to act, you will know you are right.
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