150 George Soros and its economic theory of modern financial markets.

George Soros is a Hungarian-born American business magnate, investor, and philanthropist. He is the chairman of Soros Fund Management. He is known as "The Man Who Broke the Bank of England" because of his short sale of US$10 billion worth of pounds, giving him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis.

Soros' writings focus heavily on the concept of reflexivity, where the biases of individuals enter into market transactions, potentially changing the fundamentals of the economy. Soros argues that different principles apply in markets depending on whether they are in a "near to equilibrium" or a "far from equilibrium" state. He argues that, when markets are rising or falling rapidly, they are typically marked by disequilibrium rather than equilibrium, and that the conventional economic theory of the market (the 'efficient market hypothesis') does not apply in these situations. Soros has popularized the concepts of dynamic disequilibrium, static disequilibrium, and near-equilibrium conditions. He has stated that his own financial success has been attributable to the edge accorded by his understanding of the action of the reflexive effect. Reflexivity is based on three main ideas:

1. Reflexivity is best observed under special conditions where investor bias grows and spreads throughout the investment arena. Examples of factors that may give rise to this bias include (a) equity leveraging or (b) the trend-following habits of speculators.

2. Reflexivity appears intermittently since it is most likely to be revealed under certain conditions; i.e., the character of the equilibrium process is best considered in terms of probabilities.

3. Investors' observation of and participation in the capital markets may at times influence valuations and fundamental conditions or outcomes.

The concept of reflexivity attempts to explain why markets moving from one equilibrium state to another tend to overshoot or undershoot. Soros’ theories were originally dismissed by economists, but have received more attention after the 2008 crash including becoming the focus of an issue of the Journal of Economic Methodology.

151. What do you know about vendor finance?

Vendor financing- is a form of lending in which a company lends money to be used by the borrower to buy the vendor's products or property. Vendor finance is usually in the form of deferred loans from, or shares subscribed by, the vendor. The lending of money by a company to one of its customers so that the customer can buy products from it. (arranged schedule of payments) Trade credit is a main form of vendor financing that delays the payment of delivered goods.

Advantages

Vendor Finance agreements suit some vendors because they

 allow vendors to find a purchaser who might otherwise not be able to borrow the money from the bank.

 This increases the market available and the prospects of sale.

 Sometimes the purchaser pays a slightly higher price because of the delayed payment.

 Some vendors are attracted to a return on their investment at rates much higher than if their money was invested with a Bank. If it’s a real estate financing Bricks and mortar secure an investment safely and if the vendor already owns the security establishment expenses of the investment are lower.

 Vendor Finance agreements sometimes postpone payment of the major purchase tax and may lower the purchaser’s financing costs.

 Vendor Finance agreements may allow purchasers who otherwise might not be able to borrow from the bank, to begin the process of securing their financial future through assets ownership.

 Vendor Finance increases in popularity at those time of the economic cycle when bank lending becoming more restrictive and the banks less inclined to take risk.

1.Is it Risky?

The parties need to assess their individual risks under the particular arrangement. Often there are good reasons why the bank will not take the risk of lending.

What are the risks for the vendor?

Will the purchaser:

• make the payments as agreed?

• look after the property?

• be able to pay the money as agreed?

• Will there be a capital gain on the sale, if so will the tax be payable on signing the contract and will the vendor then have the means to pay the tax on the capital gain even though funds are still outstanding on the contract?

What are the risks for the purchaser?

Like a bank loan:

• A purchaser who takes on more than he can manage could lose out badly.

• The property could be resold if the purchaser defaults.

• The purchaser could lose their investment.

• The purchaser need to be sure the funds will be available particularly if there are instalments for a period followed by a payout of the balance in expectation of a bank loan at that stage.

• The purchaser could lose more than their investment.

• If the purchaser breaks the deal and the vendor calls off the contract, usually the vendor can resell the property and claim any loss on resale from the purchaser.

• That loss may be greater than the deposit paid. The purchaser could lose more than the deposit that is paid or should have been paid.

The purchaser needs to check what happens to the deposit if there is default.

• Is it a windfall profit for the vendor?

• It is fair that the vendor is covered for his loss, but should some of the deposit be refunded to the purchaser?

Usually the deposit in a Vendor Finance contract is paid to the vendor rather than held by an independent stakeholder.

The purchaser needs to make sure the title will be transferred when the final

payment is made or the deposit will be refunded as agreed if the sale falls through.

If the vendor owes more than the value of the property to the bank the vendor may not be able to answer his obligation to the purchaser.

A carefully negotiated and recorded agreement and a written document can manage the relationship to reduce the risk. Both parties need to be aware that their rights under the contract may need to be enforced.

What should be agreed?

the purchase price,

how the purchase price is to be paid,

what will be the deposit paid on signing,

will the entire purchase price be paid by installments,

will there be balloon payment to complete the transaction,

what household goods are to be included,

the amount of the installment payments,

the frequency of the installment payments,

the makeup of the installment payments,

what part of the deposit is refundable to the purchaser if the transaction fails,

when is any real estate commission is paid,

who pay rates and land tax pending final payment,

what happens to any commission paid to the agent if the contract does not proceed,

the tax implications of the payments,

What security does the vendor have for outstanding payments

How secure are the payments by the purchaser if title is yet to pass.

Typical types of vendor finance:

Terms Finance: Where the whole of the price is paid by instalments.

The Vendor funds the price by allowing it to be paid by instalments. • The Purchaser takes possession once the Contract is entered into. • Title (ie ownership) remains with the Vendor until the final instalment is paid (or the loan is refinanced). Mortgage Back Finance: The Vendor lends back part of the price under mortgage back finance, transferring the property and taking a mortgage back by return.

Lease Option Finance The property is leased to a purchaser whilst payments are made under an option towards the deposit on the purchase of the property. Vendor finance has the potential to improve margins, increase the size of your sales and speed up the closing, but it’s a new type of financing, which also filled up with different kinds of risks.